The appeal and challenges of the Vietnam market

May 26, 2006

Vo Hong Phuc
Minister of Planning and Investment, Socialist Republic of Vietnam

First of all, I would like to express my gratitude to the Nihon Keizai Shimbun for giving me the opportunity to participate in a high level economic conference. This conference provides us with a forum to promote dialogue, and enhance mutual understanding about the development perspectives of Asia and Vietnam.

In Vietnam, with a reform process that started since 1986, especially during the last 15 years, our economy has achieved strong progress in all areas with active participation of both public and private sectors, domestic and foreign firms. Vietnam has recorded a relatively high economic growth with the annual average growth rate exceeding 7 percent over the period of 1990 - 2005. At the same time the ratio of poor households has been reduced from 58 percent in 1993 to 22 percent in 2005. In general, Vietnam has successfully achieved the Millennium Development Goals of poverty reduction. Those achievements have been widely recognised by the Vietnamese people and the international community.

The achievement of those successes have been attributed to, besides the efforts of the Vietnamese people, the support of the international community and the relationship between Vietnam and the international community. That relationship has become increasingly effective. On this occasion, I would like to express my sincere thanks for the great and valuable support extended to Vietnam by the government, business community and especially the people of Japan.

Despite considerable achievements, Vietnam still faces several difficulties and challenges. Firstly, though the economy has recorded high growth compared with other countries in the region, it is still below its development potential.

Secondly, the quality of development is still low: the competitiveness of the economy is weak; the macroeconomic balance of the economy appears unstable and the effectiveness of resource utilisation for development is not high. In addition, the legal framework for the economy is being strengthened to be consistent with international good practice. The establishment of market mechanisms is at the early stages of development. Those are major challenges for Vietnam during its integration into the world economy and entering to the WTO in the near future.

Ladies and Gentlemen,
Realising great opportunities, large difficulties and challenges as well as the requirement to comply with commitments during the international integration process and given the fact that Vietnam is still a developing country with low income and weak competitiveness; the Government of Vietnam has formulated its socio-economic development plan for the period 2006 - 2010 with the vision to the year 2020. The plan has been formulated based on a new approach with the participation of citizens, society, domestic and international business communities as well as the international donor community.

The 10th Vietnam Communist Party Congress recently held in Hanoi approved the strategy for socio-economic development and promoting industrialization and modernization. Among the overall targets of the 5 year plan 2006 - 2010, Vietnam focuses on boosting economic growth to the level of between 7.5% - 8% per annum in order to achieve per capita income of over USD 1,000 by the year 2010; to achieve significant improvement in terms of economic effectiveness and sustainability of development; and quickly bring Vietnam out of its state of low level of development. These are important preconditions to substantially improve people's material, cultural and spiritual lives; to promote industrialisation and modernisation and to gradually develop a knowledge - based economy. Those are our ultimate goals that require Vietnam to seize new opportunities and overcome many challenges under circumstances of deep integration and fierce competition.

In order to achieve the above objectives and ensure annual economic growth rate of 7.5 - 8%, the total national capital investment in the five-year plan of 2006 - 2010 is planned to reach USD 140 billion, of which investment from foreign sources accounts for 40%. Besides attempts to mobilize investment sources, the Government of Vietnam has paid much attention to improve the investment effectiveness, avoid investment waste and corruption. This requires the improvement of the management of the government agencies, the participation of business community and the close cooperation of donors and international organizations.

As Vietnam is actively integrating into the World economy, the development of Vietnam closely links to the development of the region. Over the past years, the rapid and sustainable development of Vietnam has contributed significantly to turn ASEAN and East Asia into a dynamic region with hight economic growth. We strongly believe that the successful implementation of the coming 5-year socio-economic development plan will contribute to development and prosperity of Vietnam and the region.

Ladies and Gentlemen,
Japan plays an important role in building an Asian economic community. Vietnam and Japan are close and strategic partners in the East Asian region. Vietnam has considered Japan as a very important partner in many areas of cooperation such as trade, foreign investment and development cooperation. At present, Japan is our biggest trade partner with bilateral trade volume of USD 7 billion. Japan is also our largest donor with ODA, commitment to Vietnam in 2005 reaching 109 billion Yen.

In terms of foreign direct investment, Japan ranked No. 3 in Vietnam but No. 1 in terms of implemented capital. In 2005, total direct investment from Japan to Vietnam reached USD 913 million with 107 new projects and 106 projects registered for additional investment capital.

Vietnam with the advantages of abundant labor, political stability and a large domestic market of over 80 million people, is an attractive investment destination for foreign direct investors, especially Japanese investors. As a member of the ASEAN Free Trade area, output produced by foreign investors in Vietnam can easily enter the ASEAN market of 500 million people. Moreover, those products will be able to enter large markets in the region once the negations on free trade areas between ASEAN and China, India and South Korea are complete.

At present, the Government of Vietnam is trying to improve the legal environment for attracting foreign direct investment, especially from Japan. Last year, the National Assembly of Vietnam issued 3 new laws: namely unified investment law, enterprises law and procurement law, in order to create an equal playing field for both domestic and foreign investors. In association with agreement on investment protection and promotion between Vietnam and Japan, the Government of Vietnam and the Government of Japan are now implementing the "Vietnam - Japan Joint Initiative". This aims to improve the investment environment, increase the Vietnam's competitiveness by reviewing and improving the rules and regulations regarding foreign investment and by upgrading country's infrastructure system. "Vietnam - Japan Joint Initiative" and its implementation plan include 44 specific commitments by the two governments to improve the investment environment in Vietnam.

Up until now, both sides have highly appreciated the implementation of the commitment by the Government of Vietnam in which 85% of the issues raised by the Initiative have been completed. Among 125 sub-issues and 44 major issues, 105 sub-issues have been completed as scheduled while 4 major issues are implemented as planned. The Government of Vietnam and the Government of Japan committed to implement th 2nd phase of the "Vietnam - Japan Joint Initiative" based on a similar structure to the 1st phase, with constructive cooperation from both sides Vietnam and Japan.

Ladies and Gentlemen,

Thank you for your attention and I would like to wish the Chairman and the participants of the conference good health. I wish the conference great success.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.