WTO spurs greater foreign investment

A remarkable wave of foreign investment in Viet Nam after it acquired membership in the World Trade Organisation six months ago has created a challenge for enterprises and the economy, according to local economists.

The big question is how the country efficiency uses the surge in capital to create real growth, they said.

There has been a wave of direct and indirect foreign investment in Viet Nam. For the first seven months of this year, foreign investors have registered total capital of 7.5 billion USD, an increase of nearly 50 percent in comparison with 2006.

That figure will rise if administrative procedures are reformed, according to some experts.

In addition, all export commodities have risen around 28.6 percent and officials expect the export market to increase by 20 percent for the whole year.

Implementation of WTO’s commitments has opened up new opportunities for the economy by eliminating some barriers on quotas and export prices, according to government reports.

Furthermore, foreign capital and development have encouraged mobilisation of local investment with private savings and capital from local enterprises.

Since the start of this year, 8 trillion VND (500 million USD) has been mobilised via issuing corporate bonds according to the Finance Ministry. It is expected that this figure will double during the second half of this year and surpass last year’s figure of 15 trillion VND.

However, the sharp increase in inflation can be detrimental for economic growth.

“Many people thought that when we joined the WTO, prices would be reduced. But facts show that the prices of many commodities in Viet Nam are now approaching international prices, and are increasing,” said Nguyen Tien Thoa, head of the Finance Ministry’s Price Management Bureau.

With an open market and lower taxes, foreign goods will flood into the local market and create a wave of lower prices. However, as Viet Nam strengthens exports for certain key agricultural products, prices for such goods will increase, said Thoa.

“In the future, taxes will be cut, more industries and services will be opened to foreign enterprises. Therefore, prices and the quality of products will improve,” he added.

Viet Nam must greatly increase its per capita savings ratio and efficiently mobilise capital sources to secure real long-term economic development.

At present, Viet Nam converts local savings into investment at a rate of 17-20 percent of GDP, half the number in China.

Increases in foreign direct investment and higher efficiency in FDI usage will decide Viet Nam’s competitive edge in the near future.

Viet Nam should improve the quality of its human resources, reform its management systems and increase the proportion of savings, said Resident Representative of the International Monetary Fund, Il Houng Lee.

“Threat to development will be greater if the government only focuses on economic growth but forgets these three factors.” Lee said.

Pham Chi Lan, a senior economist, warned that enterprises should familiarise themselves with WTO regulations.

“Understanding these regulations will help enterprises survive and win in a fierce competitive international market,” she said.

Source: VNA