1. RESEARCH BACKGROUND - AN OVERVIEW OF FDI ENVIRONMENT
1.1. General investment environment of Vietnam
1.1.2. Geographic and Infrastructure environment
Vietnam has a favorable geographical location for economic and social development in general, for attracting foreign investment in particular. Vietnam is a country located on the Indochina Peninsula, Pacific coast. Land area is 331 690 km2, land borders is 4550 km long, adjacent to China in the north, with Laos and Cambodia in the west, the east is adjacent to the East Sea. Vietnam locates in the central location of Southeast Asia, the region's dynamic economic world, may become the maritime communication hub, very convenient for transportation by sea to other continents.
Geographical location is an advantage of Vietnam compared to other countries in the region in attracting FDI.
Vietnam has abundant natural resources, such as tin, zinc, silver, gold, angtimoan, precious stones, coal.... The continental shelf of Vietnam has many oil and gas. These are favorable conditions to attract investment in the development of mining industry, oil and gas projects and oil refinery. Land in Vietnam is very diverse, with high fertility, favorable development condition for agriculture and forestry.
According to the survey results, the natural conditions of Vietnam are almost not or very little interfered with foreign investment activity. It is very clear that the natural conditions affect more or less to every project, but this is the element investors themselves accepted for their decision to invest in Vietnam.
Infrastucture
In the past decade, total infrastructure investment in Vietnam has accounted for an average of more than 10% of GDP, ahead of most East Asian economies which are renowned as high infrastructure investment countries. High rate of investment in Vietnam resulted in rapidly expanding volume of infrastructure and improving access and contributed to the successful growth and development of the country. Despite these achievements, obstacles of infrastructure in Vietnam have not been effectively resolved. In fact, instead of complex and unpredictable policies of the Sstate, the main bottlenecks in infrastructure are now regarded as the biggest problems that hamper the business environment of Vietnam.
Road system: The road system can not meet transportation needs, and is inadequate compared to growth demand and economic development. The road system has revealed limitations for many years. First, the quality of roads is generally poor.
Most of roads are narrow, only about 570 km of national highways with four or more lanes, the width of road with two or more lanes comprise only about 62%, mostly one-lane road with the road surface varying from 3-3.5 m. Second, the rate of highway is too low compared to other countries in the region: te the percentage of highways in the region is quite high: 4.44% Singapore, South Korea 2.45%, Thailand 0.18% ... Therefore, the road systems need investing in building more to meet growing transportation needs of Vietnam.
Port system: port plays an important role in the economic development of a region and a national economy. Recognizing the importance of the port system, the port system was interested in investing, and more and more growing. However, Vietnam's seaport system still has some shortcomings. Vietnam port structure is irrational. The number of synthetic specialized ports and harbors are major while there is very little container terminals, despite trends in container shipping cargo and container port demand is highly rising.
Thus, Vietnam's seaport system can not meet transportation needs. Moreover, the cost of sea transport in Vietnam is still higher than other countries in the region, affecting the investment cost.
Table 3. Comparation of transportation cost
Cities Hanoi Bangkok Manila Jakarta
Kuala Lumpur Transportantion cost
(USD/container 40ft to Yokohama, Japan)
1.300 1.200 850 990 575
Source: JETRO (2005)
The cost of shipping a 40 foot container from Hanoi to Yokohama, Japan rose from $ 1,100 in 2003 to $ 1,300 in 2005, while that from the other major cities of Asia is $1200 from Bangkok, $850 from Manila, 990 from Jakarta, and only 575 from Kuala Lumpur, is less than half of the cost from Hanoi. Shipping from China to Japan in 2005 was only $ 630 USD cost, this price was reduced by one third compared to the more than 900 USD in 2003.
Electrical system: the average electricity price in Vietnam is increasing, but is still lower than the regional average, only higher than Thailand, Indonesia, Malaysia.
According to JETRO survey, electricity prices in Vietnam are factors to help companies reduce investment cost. Electricity prices are highly competitive, but investors also expressed concerns about the low stability and risk of power shortages in Vietnam. If this fact is not improved, the cost advantage is not considered.
Although the electricity sector is also trying to increase capacity by building more power plants, but the capacity of electricity supply is lower than demand, the unstable supply may damage the production and business of enterprises.