CUTS Centre for Competition, Investment &
Economic Regulation (C-CIER)

Advocacy and Capacity Building on Competition Policy and Law in Asia

 

CUTS Centre for Competition, Investment & Economic Regulation (C-CIER) is implementing a two-year project entitled ‘Advocacy and Capacity Building on Competition Policy and Law in Asia’ (7Up2), supported by the State Secretariat for Economic Affairs, Switzerland (SECO), the Swiss Competition Commission (COMCO) and the Department for International Development (DFID), UK. The project endeavours to accelerate the process towards a functional competition policy and law for selected countries (Cambodia, Lao PDR, and Vietnam in Southeast Asia, and Bangladesh, Nepal and India in South Asia), and advance an enabling environment for the law and policy to be better enforced.
The project is undertaken in partnership with renowned institutions in each of the project countries. Details of the project are available at http://www.cuts-international.org/7up2.htm

Project News

 

Second Round of National Consultation in Bangladesh

The project country partner in Bangladesh – Bangladesh Enterprise Institute (BEI) – organised the second round of national stakeholders’ dialogue on September 27, 2005, to discuss the findings of the research undertaken on the prevailing competition regime in the country, and to chalk out the future plan of actions with regards specific advocacy activities and training requirements in the 2nd phase of the project in Bangladesh. The meeting was attended by around 35 participants.

Recommendations were put forth for the formation of a ‘National Civil Society Task Force’, which would take charge of lobbying the government of Bangladesh to evolve a functional competition regime for the country. This ‘task force’, coordinated by BEI and CAB (Consumers’ Association of Bangladesh), should also draft a Competition Law for Bangladesh, with support from the government, and put it out in the public domain for extensive discussions before adoption.

A World Bank-led multi-donor supported initiative, Private Sector Development Support Project (PSDSP), which has competition law and policy as one of its focus areas, was mentioned in the meeting as a possible linkage in Bangladesh for the project in the future. Members of a World Bank Mission (comprising of representatives from the World Bank, Washington DC & DFDI, UK), who were present during the meeting, appeared positive about the possibility for cooperation.

 

MAKING MARKETS WORK BETTER FOR THE POOR: DOES COMPETITION POLICY AND LAW HAVE A ROLE?
Learnings from the 7Up2 Project Presented at the ‘Markets4Poor’ Week in Hanoi

‘Making Markets Work Better for the Poor’ (MMWBO) is a three-year regional technical assistance project covering Vietnam, Laos and Cambodia supported by the Asian Development Bank (ADB), and the Department for International Department (DFID), UK. It is aimed at deepening the understanding of the links between growth, poverty reduction and the functioning of markets. The project has been implemented in Vietnam since August 2003 by the Vietnam country offices of ADB and DFID, while parallel activities are supported in Laos and Cambodia by the Tokyo-based ADB Institute.

The purpose of the MMWBO project is to (a) conduct analytical work on the functioning of markets, and the extent to which the poor are able to benefit from them, and (b) to build capacity to support pro-poor market development through research activities, networking and the promotion of policy dialogue in the three project countries.

Over 250 participants with a broad range of representation from the Government, donors, researchers, NGOs, entrepreneurs and the media, attended a weeklong programme of this project organised at Hanoi, Vietnam from October 31 to November 4, 2005. Considering the high level of synergy, which can be achieved if the MMWBO and the 7Up2 projects are brought together, the learnings from the latter were presented on the Policy Day of the event, i.e. November 3, 2005. The aim was to raise general awareness in Vietnam as to how competition policy and law can help in promoting growth and reducing poverty by ensuring the effective functions of the markets, with a view to exploring some new windows for the future of the two projects together.

More information about the M4P week and the presentation can be seen at

 

COMPETITION SCENARIO IN THE 7UP2 PROJECT COUNTRIES
Contributions to CUTS Almanac of Competition Regimes in the World

An almanac titled ‘Competition Regimes in the World: A Civil Society Report’ was released by CUTS-CCIER, at the UN’s Fifth Review Conference on Competition, at Anatolia, Turkey, on November 16, 2005. The book is a compilation of brief essays from across the world on the competition regimes of countries, produced under the framework of the International Network of Civil Society Organisations on Competition (INCSOC).

The publication, opens with an introductory chapter on the historical evolution of global competition regimes, focuses on specific competition policy and law case examples from 117 countries from all continents, and concludes by offering recommendations based on the data collected, to promote a more healthy competitive culture. Essays on the competition regimes of all the 7Up2 project countries (Bangladesh, Cambodia, India, Lao PDR, Nepal, and Vietnam) can be found in the book – contributed by project partners, based on the findings under the project.

News Briefs from Project Countries

 

Bangladesh

Bangladesh to have 100 million Mobile Users by 2015

Following a tremendous growth in the country’s mobile phone industry over the last few years, Bangladesh, despite being a developing country, is not far away from reaching the mark of 100 million mobile phone users by the end of the year 2015, said a top official of Nokia, the world’s No. 1 mobile phone manufacturer.

Explaining the reasons behind such optimism, he quoted the presence of some impressive mobile operators; and the pool of brilliant software developers in Bangladesh, apart from the country’s positive rate of economic growth, and its progressive government.

“Bangladesh’s vision should be to reach one hundred million mobile ‘phone users by 2015, as it will enhance productivity of the nation. Quality of life will also be better”, he said, adding that an increase in mobile phone users will also increase people’s access to information.

Referring to a recent international survey, the top boss of Nokia’s new growth market said, “In a typical developing country, an increase of 10 mobile phones per 100 people boosts GDP growth by 0.6 percentage point”.

Citing the latest growth rate of the global mobile phone industry, he said there is almost a millionth new user everyday, with eleven new users every second.

Terming Bangladesh as ‘one of the key markets’, Director (Strategy and Business Development) of Nokia’s New Growth Markets and Networks, Petteri Terho, said that the local market is undoubtedly growing high, and is headed towards the right direction. But, he stressed the need for expanding the latest mobile phone facilities to the rural people, not limiting the hi-tech advantages to urbanites.

The Government can support growth, by building a legislative framework, developing infrastructure and preparing tax-free mechanism.

(The Independent, 25.10.05)

Rising Exports in Bangladesh

Exports grew by US$58mn, in the first two months of the current financial year in Bangladesh. During the July-August period of the 2005/06 fiscal year, exports fetched US$1753mn, while US$1695mn was recorded during the same period in the last financial year, according to the Bangladesh Export Promotion Bureau (EPB) statistics. Exports fetched a record US$905mn in July, and the earning was US$848mn in August 2005.

Woven products have continued to show a negative trend during the July-August period of the current fiscal year, earning only US$701mn, down from US$772mn of the same period in the last fiscal year. However, knitwear products were able to maintain a strong growth during the July-August period of FY06, fetching US$663mn, up by 19.57 percent in the same period of the last fiscal year.

Elsewhere, export earnings from raw jute, jute products, leather, chemical products, ceramic tableware, agricultural products, petroleum by-products, computer services, textile fabrics, and handicrafts also recorded positive growth in the July-August period.

On the other hand, earnings in some major sectors including frozen food, electronics, footwear, engineering products, tea, home textile and bicycle recorded negative growth in the same period of the current fiscal year.

“Bangladeshi products are facing fierce competition in the global market. Exporters are being forced to export more products for earning the same amount, as prices in the international market are showing a downward trend”, said an EPB official.

(The Daily Star, 29.10.05)

Agri-Growth Needed Annually to Reduce Poverty

The World Bank, in a recent report, stated that Bangladesh would need at least five percent agricultural growth annually to stimulate the vibrant rural economy for an effective reduction of poverty.

It also stated, in the National Poverty Reduction Strategy (NPRS), that Bangladesh needs to achieve a seven percent overall annual economic growth in order to achieve the Millennium Development Goals (MDGs) of poverty reduction, and this would not be possible, unless, the agriculture sector achieves at least a five percent growth rate annually.

Based on the household income and expenditure survey of the Bangladesh Bureau of Statistics of the World Bank, it has been found that the poverty level stood at 58.8 percent in 1991-1992, and has now come down to 49.8 percent in 2000.

According to agriculture accounts, about 33 percent of Bangladesh’s Gross Domestic Product (GDP) are contributed by the rural non-farm economy. As a result, links to agriculture and rural non-farm economy is the main source of livelihood for the rural people.

One of the most important ways to address these constraints is to generate and promote the best uses of appropriate agriculture technology which is suitable for the agro-climate condition in Bangladesh.

One major constraint to higher agriculture productivity is the low level of government expenditure in agriculture research. At present, the expenditure is only 0.2 percent of the agriculture GDP, compared to 0.6 for the other developing countries.

The World Bank would assist the government in the strengthening of the agricultural sector, by promoting the optimum use of agricultural technologies that would help create a suitable agro-climate in Bangladesh.

(The Independent, 28.09.05)

Cambodia

Cambodia Targets Organic Farming Market

Cambodia has one of the least diversified economies in the world. Garment production brings in 80 percent of its foreign exchange earnings, and most of the rest comes from tourism. With the future of the garment sector uncertain, Cambodia is looking for other sources of income – and one of the areas under consideration is organic farming.

The Government has hopes that the country could become the ‘green farm of Asia’, and export its produce to Europe and the US. The biggest and longest-established organic project is in Kompong Thom, along the road from Phnom Penh to Cambodia’s tourist centre, Siem Reap. These are the paddies that have produced Cambodia’s first crop of certified organic produce.

Both the advisers and the certification are provided by the German Government’s aid agency GTZ. Under the auspices of GTZ, the Cambodian farmers have formed an organic farming association. Now, they tend the rice together, wading into the murky water of the flooded paddies and transplanting, to enable the crop to complete the second stage of its growth.

There are three main points, all extremely appealing those living in Cambodia’s impoverished rural provinces, like: (i) lower expenditure on fertilisers, (ii) an increased selling price for the rice, and (iii) improved health through reduced exposure to chemicals.

The Government believes organic Cambodian produce will find a market too. The ensuing poverty and failure to adopt modern agricultural methods could actually give the country an edge, as it gears up for an organic future with the other South-East Asian countries.

(BBC News, 17.10.05)

New Specialised Bank Opens in Cambodia

Cambodia’s small and medium enterprises will have a new specialised bank for loans. The bank will help develop and strengthen their businesses in the agriculture, industry and services sectors.

The new First Investment Specialised Bank, opened recently, and will offer numerous finance-related credits and loan served to small and medium enterprises.

“There are a lot of SMEs and they need a lot of finance”, bank owner, Chairman Huot Vanthan said, and added that his bank is the fourth ‘specialised’ one in the country.

“I strongly believe that the bank will be a good development partner to all small and medium enterprises, as well as to the Royal Government of Cambodia, in an effort to reduce poverty”, he added.

The Specialised Bank’s lending will cover 15 areas, including food processing, investment, infrastructure and personal consumer.

Mr. Vanthan has invested US$3.8mn of his own in the bank. According to the Banking Law, specialised banks need at least US$2.5mn in capital. They are allowed to offer loans, accept deposits or provide payment services, but not to engage in more than one of these activities.

(Dev-Asia.Net, 28.10.05)

India

Booming India to have Global Impact: IMF

According to the International Monetary Fund (IMF), India’s booming, but relatively closed economy could have a profound impact on the world economy at large. Revising India’s 2005 growth forecast by half a percentage point to 7.1 percent, the IMF said an opening Indian economy with a young population and rapid growth rates could become a key engine of world growth over the next decade.

Some 75-110mn people will enter India’s labour force over the next decade, the Fund has stated in its twice-yearly World Economic Outlook. And government efforts to boost international trade links will bear fruit, it added. India’s exports, although coming from a relatively low level, were forecast to more than double by 2010, while imports will nearly triple. The IMF said imports were growing at about 33 percent in 2003/04, four times faster than the 1990/02 period.

(India Chronicle, Issue 005, October 05)

Whither Regulatory Autonomy?

Those who complain about the lack of uniformity in the approaches of the various regulatory bodies, no longer need to do so. For, in recent weeks, it has been realised that regulatory agencies in India have one thing in common — all of them are equally vulnerable to their relevant ministries.

No matter how strong (or weak) a regulatory legislation is, when it comes to the regulator exercising its legitimate mandate independent of the ministry concerned, the provisions made in the law have proved to be of little significance.

The Electricity Regulatory Commissions (ERC) of India have been considered fairly autonomous and empowered bodies, thanks to the provisions made in the Electricity Act, 2003. But, the Ministry of Power appears to have been ensuring that the ERCs ‘act in conformity with’ the tariff policy and the electricity policy to be prescribed by the Ministry, instead of just being ‘guided’, as the Act provides.

This is not an isolated incident. On several occasions in the brief history of independent regulation in India, the ministries concerned have tried to ‘clip the wings’ of that little-known and least-understood creature — that of the ‘independent regulator’.

In 2000, the Government repealed the Telephone Regulatory Authority of India (TRAI) Act. This Act was against the spirit of the recommendations that the Parliamentary Standing Committee on Telecom had made to confer independent status to the TRAI, through statutory provisions.

Subsequently, the TRAI (Amended) Act was introduced to convert the regulatory body to an advisory panel to the Department of Telecommunications. Yet, tariff determination has been one the few functions to remain with TRAI and the recent controversy stems from announcements made by the Minister on issues that fall in TRAI’s domain — the ‘one-India’ call rate and the Access Deficit Charge (ADC) payments to Bharat Sanchar Nigam Limited (BSNL).

On the ADC — a major bone of contention since it was introduced — the Minister has gone on record assuring Rs 5,000 crore to the state-owned operator. On the other hand, TRAI has been contemplating reducing the ADC payouts to BSNL and adopting a revenue-share arrangement, so that it can ultimately be merged with the USO Fund. However, this is not acceptable to the DoT, which is considering issuing a policy directive to TRAI under Clause 25 of the TRAI Act that the government is supposed to exercise in exceptional situations, such as to protect the sovereignty of the state and/or in the larger interest of the people.

At the conceptual level, the regulatory agencies were created to achieve certain policy objectives consistent with those of the government, be it to attract private investment, enhance consumer protection or to ensure an orderly growth of the sector.

Once the policy framework and the objectives have been determined, a regulator should be allowed to take charge without interference either from the government or other stakeholders. Further, regulators need to be empowered to become financially self-sufficient and appoint staff with appropriate skills. These agencies should be provided with powers commensurate with their mandate and the objectives with which they are set. Autonomy goes hand-in-hand with accountability and the current provision of submitting an annual report to the legislature is not sufficient to hold regulatory agencies accountable. Notably, several of the regulatory bodies have been failing in this aspect.

The issue can be addressed effectively by employing multiple approaches to ensure regulatory accountability on a continued basis. This can include empowering civil society organisations to work with the regulators or constituting a Committee of Eminent Persons to select regulators and to consult them on various issues.

Meanwhile, till the time the Planning Commission comes out with the much-talked-about regulatory framework for infrastructure sectors, the Government needs to take two steps immediately.

First, order the Ministries concerned not to tinker with the existing regulatory structures until a consensus is achieved. Second, and more important, start a process to educate bureaucrats and judges about the concept, purpose, and the philosophy of independent regulation so that better working relations can be achieved between regulatory agencies and the ministries concerned, in years to come.

(Pradeep S. Mehta & Vinayak R. Pandey, The Hindu Business Line, 11.11.05)

Lao PDR

Govt to Foster Business Equality

Lao National Assembly members are debating a new enterprise law aimed to provide equal opportunities for people to operate their own business.

The draft law, which will play an important role in the transformation of subsistence production processes into production for commercial purposes, is expected to be adopted at the end of the session. The law will also help to create a better investment climate, more jobs, higher income, increase the confidence of both domestic and foreign investors and create more opportunities for Lao’s ethnic people to operate businesses. It also aims to help reduce poverty among people.

The law would help companies to access sources of funding more easily – particularly stock markets – in order to strengthen capacity building of enterprises through a modern management system.

Lao Minister of Commerce, Soulivong Daravong, said that the law’s main purpose was to focus on reforming the processes to issue permission for enterprises’ operation.

He further added, “The draft law was developed to bring Laos to the same standard as neighbouring countries – in particular China and Vietnam”.

The law, if adopted, will replace the existing law introduced in 1994. The 1994 Enterprise Law provides only for the establishment of models of enterprises in Laos. It constitutes only seven of 97 Articles in the new law.

(Vientiane Times, 28.10.05)

Top Foreign Investors in Lao PDR

Thailand has been the largest-scale foreign investor in Lao PDR for the first nine months of 2005. Chalermpon Pongchabubnapa, Thai’s Commercial Counsellor in Vientiane said that his country has been the top foreign investor in Lao, in the period from January to September this year, with its approved investment in 25 of the country’s major projects amounting to US$450mn, or 36 percent of the total investment.

Ranked after Thailand are France, Vietnam, Australia and South Korea.

Promotions for foreign investment have mostly been made in electricity generation, which accounts for 85 percent of the total investment. The balance of investments has gone into mining, agriculture, handicraft, hotels, restaurants, wood industry, construction, and textiles.

This year’s total foreign investment in Lao PDR has increased to 133 percent as compared to last year’s total foreign investment of US$533mn.

(China Mail, Vol. IV No. 43, 22.10.05)

Nepal

Utilities Mess

Urban life in Nepal is getting messier by the day, with the increasing number of potholes on the road, piped drinking water getting more polluted and scarce, electricity becoming even more expensive due to pilferage, and the drainage system unbearably defunct. The solutions being tried to mitigate these problems are getting even messier.

In the case of a few public utilities like drinking water, the government authorities seem to be guided by an extreme free-market fundamentalism and are preparing to hand them over to the private sector. In other cases, like the drainage system, the municipal authority is making use of user groups. In yet another case – e.g. electricity distribution – the solution being tried is wholesaling it to different types of agencies, ranging from the municipality authority to user’s groups and even cooperatives. In the case of roads, some stretches are considered the responsibility of the municipal authority, while the others are considered the responsibility of the Department of Roads of the Central Government.

One can easily see that all these piecemeal approaches are not going to address the problems in an effective way. These solutions have no built-in mechanism to ensure co-ordination among the different suppliers of these utilities. There is no guarantee that the suppliers of drinking water, telephone or electricity would not start digging the road the very next day of it being blacktopped by the road department. Almost every year, the authorities hold meetings and take decisions to co-ordinate better among themselves, in order to minimise such problems. But these decisions are never implemented.

Looking at practices prevailing elsewhere in the world, the best available solution would be to bundle all these utilities into a single agency, granting it complete authority over such matters. The agency, most suitable, would be the municipal authority in the urban areas and the Village Development Committee (VDC) in rural areas. As these agencies are governed by the people’s representatives elected through a legally specified process, they will be in a much better position to manage the supply of these utilities and in restraining the cracks they manifest . As a wholesaler of these utilities, they can negotiate better prices from those who generate and supply the same.

Though there is a terrible lack of competent human resource in these local authorities to manage such utilities, this cannot be accepted as reason enough to deny them the job that is verily their responsibility. In fact, lack of resource (human as well as material), is also a problem with the central government agencies. Despite the above, these agencies are being entrusted with all the jobs, while their concerned resources, both human and material, are being gradually bettered. Similar capability enhancement efforts can also be made in the case of local agencies.

(New Business Age, September 2005)

CIAA Locks Pharmacy

The Commission for Investigation of the Abuse of Authority (CIAA) of Nepal locked a pharmacy at Martyr Sukralal Tropical Communicable disease Hospital citing irregularities in awarding rents of shutters.

The CIAA is investigating into alleged irregularities committed by the public hospital authorities, while awarding rents of stalls and shutters to private pharmacies built within hospital premises. The CIAA undertook such a move, as the concerned pharmacy did not pay rent to the hospital, according to reports.

The CIAA also asked the hospital administration to recover rent and close the shop after interrogating the Director of the Hospital Kokila Shrestha.

According to CIAA sources, the hospital is yet to recover over 1.3mn Nepalese rupees from Dil Kumar Bisural, who has been operating the pharmacy at two shutters of hospital.

The CIAA also said, that hospital administration gave shutters on rent at low prices and made a contract for five years, against the bid notice of two years.

The CIAA also suspended ten illegally recruited non-Nepalese doctors employed at Bheri Zonal Hospital, Nepalgunj.

According to CIAA sources, it has formed different investigation teams, following the filed complaints at the Commission, to monitor and prepare field reports, after inspections on the alleged misuses. The teams have been looking minutely on the irregularities both inside and outside the valley, reports said.

As per reports, the CIAA is undertaking field investigation into alleged irregularities in the government hospitals of Janakpur, Biratnagar, Rajbiraj, Birjung and Nepalgunj.

(www.nepalnews.com, November 16, 2005)

Vietnam

‘Family’ Companies, a ‘Virus’

Vietnam’s experts have warned that the unofficial network of ‘family’ companies is like a ‘virus’, one that could shatter the country’s market economy.

This ‘virus’ is not only capable of making honest companies withdraw from the market, but can also hinder the development of legitimate firms, letting in only ‘mistletoe’ companies. These clandestine partnerships earn profits from family relations in State-run companies and are considered a sophisticated type of corruption.

 

SOE Managers Establish ‘Family’

A director of a legitimate company in Ho Chi Minh City says, that his firm has once again failed in a bid because his firm didn’t ‘cooperate’ with the investor – a State-Owned Enterprise (SOE). But, the truth lies elsewhere and he knows it.

When submitting the bidding documents, the investor told this director that to win , his firm had to buy materials from a defined Company X (not the real name), but the director refused, because quality materials were available from another Company A, at a lower price.

According to this director, officials of that SOE established Company X. “Our company participated in many tenders opened by this company, but we have never won any bid because we didn’t accept their requirements. No outside company can win a bid, if they don’t latently shake hands in this way. As a result, the playground is open in theory, but the door is always closed”, he lamented.

According to lawyer Truong Trong Nghia, the biggest loss that such a ‘family’ company system incurs upon the economy is that, it makes impossible, real business competition and forces good companies to withdraw from the market. More dangerously for the economy, transactions based on these tangled relations discourage new investors.

One entrepreneur in electronic engineering said that he and his partners wanted to establish the first electronic meter manufacturer in Vietnam, but “after revolving many times, we had to refuse that idea because we knew that the only buyers are State-owned power companies”.

According to Nghia, the economy becomes distorted when ‘family’ businesses undermine the legitimate ones and none are surprised when people related to officials own the companies winning bids from the HCMC power companies

 

‘Family’ Companies are Easy to Detect

According to some analysts, the Government doesn’t need to prevent the establishment of ‘family’ companies, but can use the law to prevent their collusion and the heavy losses it inflicts upon the state budget – but only if, state officials scrutinise every company very closely.

‘Family’ companies have one common characteristic: they are established to make a deal with the ‘parent company’ only. Their bidding documents always note experience learnt on projects for the ‘same mother company’, essentially the ringleaders.

The headquarters are often, the house of that person who signs up as legal representative of the company, or, they are apartments located far from the city’s hub. In some cases, several companies are based in the same house. They often register to do business in various fields, but the actual business that they report to government officials is always related to the field listed on the documents of the parent company.

Family companies also tend to have very little capital compared to the value of contracts that they win through bids. A member often contributes capital to two or three companies because those companies have the same interests.

“Recognising abnormal transactions of monopoly state-owned companies is not difficult. Management bodies only need to check monthly transaction documents to see how family companies work”, one analyst said.

Economic expert Tran To Tu has stated that the current laws still have regulations banning SOEs’ managers using their positions for personal gains, and there are laws on the books stating that contracts must go through officially sanctioned channels, if partner companies have relations with the SOE’s management board or directorate. “However, these regulations are only applied on joint stock companies”, said Tu.

The most urgent need, according to Nghia, is to abolish monopolies in fields where the State doesn’t need to be involved. “Maintenance of monopoly is only meaningful when it benefits the society, otherwise, let the private sector control it”, is Nghia’s statement.

(VietnamNet, 07.11.05)

Vietnam’s Goods are Improving in Quality

The essential economic sectors, including engineering, metallurgy, transport and communications, electricity, electronics, farm produce, and fisheries, have made great progress in improving the quality of their products over the recent past, said Ngo Quy Viet, General Director of the General Administration of Standards and Measurement.

In the first ever review of domestic product quality for the 1996-2005 period, the official said the supply of goods has increased greatly, meeting the demands of customers of different social sectors. With improved quality, many products have gained a firm foothold in the domestic market, and have contributed markedly to the country’s increasing export value.

Vietnam’s products have been exported to more than 150 countries and territories, and can compete with similar goods in international markets. Viet has said that, the quality control sector has made a considerable contribution to these achievements through its efforts to apply international standards and quality control measures.

An increasing number of Vietnamese businesses have also put to application advanced quality management systems such as HACCP and GMP. To date, 2,800 establishments and businesses have received ISO 9001-2000 certificates.

More than 400 businesses have been granted certificates, recognizing their international standard of quality for 90 kinds of goods. More than 700 businesses have been awarded the Vietnam Quality Prize by the Ministry of Science and Industry. Since 2000, 13 Vietnamese businesses have won the Asian-Pacific Quality Prize.

(Investment & Trade Promotion Centre, 28.10.05)

Vietnam Needs to Exploit FDI to Spur Economy

Although foreign investment capital is expected to hit a record US$5bn this year, Vietnam needs to fully exploit the FDI flow, if it is to spur up economic growth.

Head of the Management Science Division of the Central Economic Management Research Institute, Vu Xuan Nguyet Hong said that, FDI capital, which has reached $49 bn since the Foreign Investment Law was introduced in 1987, had had a positive impact on the country’s economic growth.

The greatest impacts of FDI has been the increase in the recruitment of skilled labourers and the transmission of the latest technology from FDI enterprises to domestic businesses.

However, only 4.6 percent of domestic enterprises, engaged in food processing, have been able to hire skilled labourers away from FDI enterprises.

The reason, Hong said, had mostly to do with the much lower salaries offered by domestic companies, compared with the FDI businesses.

The technological transfer from FDI enterprises to domestic ones had also failed to occur on the scale the institute had hoped, due to the limited financial capacity of small and medium-sized domestic businesses.

Hong also said that the influx of FDI capital had created a more competitive environment among domestic businesses, forcing them to constantly improve products in order to keep their share of the market. However, she suggested, fledgling domestic enterprises were no match for their foreign rivals, endowed with big capital and marketing expertise.

To take advantage of the country’s increasing FDI capital, Hong has proposed that, the Government issue policies to develop the labour, technology and real estate sectors, speed up the restructuring of the SOEs and the country’s integration with the global economic community.

Such policies, she said, should also facilitate partnerships between domestic and FDI enterprises that result in the creation of products worthy to compete with, in the international marketplace.

(Investment & Trade Promotion Centre, 27.10.05)