Enhancing FDI from Australia to take full advantage of next-generation FTAs

Today (December 22) in Hanoi, the Vietnam Chamber of Commerce and Industry (VCCI) with the support of the Aus4Skills Program, the Australian Embassy in Vietnam organised an online conference on improving foreign direct investment (FDI) from Australia in the context of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP).

The seminar has provided information on the state of Australian FDI in Vietnam and the effective connection between Australian enterprises and domestic partners, and shared the assessment of Australian investors on Vietnam's business and investment environment and policy recommendations to enhance Australian investment in Vietnam in the coming time.

Currently, Vietnam is among the 20 largest investment destinations in the world, while Australia is the 15th largest investor in the world. However, Australian direct investment capital in Vietnam remains modest and linkages between Australian and Vietnamese partners are limited. According to the Foreign Investment Agency, as of November, there were 545 valid FDI projects by Australian investors in Vietnam with a total investment value of $1.94 billion, making up 0.5 per cent of the total value of FDI in Vietnam and ranking 19th among the leading investors in Vietnam.

Meanwhile, the prospects of investment cooperation between Australia and Vietnam are great, especially as the two countries are implementing mutual free trade agreements (FTAs) such as the CPTPP and RCEP. Nguyen Thi Thu Trang, head of the VCCI's Center for WTO and International Trade, said that the synergistic impact of FTAs will open up significant opportunities to attract Australian enterprises to Vietnam.

Charles Thursby-Pelham, First Secretary of the Australian Embassy in Vietnam said that the two countries have just announced the Australia-Vietnam Enhanced Economic Engagement Strategy with the target of becoming leading investors for each other and doubling bilateral investment.

However, to realise these opportunities, Vietnam should understand and resolve the problems preventing Australian businesses from investing in Vietnam. According to the Research Report “Australia’s Foreign Direct Investment in Vietnam - Actual Efficiency Assessment and Policy Solutions” by the Australian Alumni Research Group with the support of the Australian Alumni Fund under the Aus4Skills programme, problems in the Vietnamese investment environment are hindering business activities of Australian enterprises in Vietnam. These include troublesome administrative procedures, taxes, poor law enforcement and many under-the-table costs, along with limitations in infrastructure and high-quality labour.

In the opinion of Uwe Kaufmann, senior lecturer of the Australian Institute of Business, to overcome these issues, Vietnam should conduct comprehensive reforms in the public sector, regularly review domestic laws and regulations, fully implement international commitments on investment, and create a fair and transparent business environment for foreign investors.

Nguyen Anh Duong, head of the Central Institute for Economic Management's (CIEM) Department for General Economic Issues, Vietnam should learn from international experiences to build policies to attract and promote foreign investment. For example, in the context of the global pandemic, Vietnam should strengthen investment in the fields of health and digital technology, as well as promote digital transformation in investment promotion, and study an open approach suitable for foreign investors.

In addition to solutions to further attract Australian investment in Vietnam, Phung Thi Lan Phuong, a researcher from the VCCI's Center for WTO and International Trade suggested strengthening connections and cooperation between Australian enterprises and local partners in Vietnam. Australian investment projects in Vietnam have made positive spillover to local partners. Especially in agriculture, many production models of Australian enterprises have become models for domestic enterprises to improve the agricultural production of local people and farmers. Therefore, the Vietnamese government and localities should strengthen support activities to promote and improve the effectiveness of these connections.

At the conference, they discussed the woes and challenges that Australian businesses are facing during the health crisis, the impacts of trade tensions, and the opportunities for Vietnam to seize investment leaving China and other countries. The recommendations at the conference and the research report are expected to be useful for policy-makers and businesses, who are looking for solutions to increase FDI from Australia and improving linkages with local businesses in the time to come.