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Policy digest February-March 2013
Vietnam’s foreign investment authorities have recently realized the necessity to tighten monitoring of foreign-invested projects in the country, alongside with pre-licensing evaluation, in order to identify difficulties facing foreign investors and give them the right support and know exactly whether these projects deserve incentives or not.

* Post-licensing monitoring of foreign-invested projects draws more attention: Vietnam’s foreign investment authorities have recently realized the necessity to tighten monitoring of foreign-invested projects in the country, alongside with pre-licensing evaluation, in order to identify difficulties facing foreign investors and give them the right support and know exactly whether these projects deserve incentives or not.

According to Phan Huu Thang, former director of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, post-licensing monitoring and close watch of the development of foreign-invested projects would benefit not only the government but also foreign investors, for the above reason.

Poor post-licensing monitoring somehow created a loophole for many foreign investors to breach their commitments regarding operation plans, construction progress and environmental protection.

Adequate monitoring of foreign companies after they obtain investment certificates would help prevent environmental pollution and transfer pricing practices like in cases of Vedan, Tung Kwang, Coca-Cola and PepsiCo.

The Vietnamese Government realized the importance of post-licensing monitoring in 2010 when the Prime Minister issued Decision No. 77 obligating foreign-invested enterprises to report gross revenue, production, legal capital, sources of disbursed capital, employees, manufacturing technology and taxes every month to local statistics offices. However, this regulation has not been implemented seriously so far because there had been no really severe sanction against those failing to comply with it.

The FIA suggests that there should be a specialized agency in charge of post-licensing monitoring activities and a mechanism for promptly sanctioning foreign investors who breach their commitments.

* Natural disaster preparations, insurance for businesses urged: Participants in the workshop entitled Enterprises and Disaster Risk Management held on March 8 in Hanoi proposed the Government and relevant ministries to adopt policies and finalize a national program to help enterprises nationwide confront natural disasters.

Enterprises themselves should be aware of the necessity to have effective plans and set aside adequate funds and human resources to prevent and mitigate impacts of natural disasters.

Nguyen Thanh Phuong from the Disaster Management Center under the Ministry of Agriculture and Rural Development said that under the draft law on disaster prevention and control for enterprises, which will be submitted to the National Assembly this May, enterprises will be obliged, instead of being merely encouraged, to work out and implement specific disaster prevention and control plans in building and protecting their facilities. They will have to take part in information communication, training and maneuvers as planned by relevant ministries and local administrations.

The State should consider providing disaster risk insurance or loans to enterprises strictly complying with such law for surmounting disaster aftermath and building shields for their workshops and warehouses, and step up formulation of a general action program to cope with natural disasters for enterprises to integrate it into their business plans.

* National bourses merger by 2015: The State Securities Commission (SSC) will soon submit to the Government a restructuring plan to merge the country’s two stock exchanges by 2015. The move comes a year later than forecast due to the plan’s complexity and prolonged market slump.

According to SSC Chairman Vu Bang, the biggest challenge is how to organize the internal structure of the combined exchange while maintaining stability and avoiding disruption to the market.

After the merger, both exchanges will use the same technology but standardization of stocks, bonds and derivatives will be needed to facilitate investments and access of businesses and enhance the competitiveness of the Vietnamese stock market.

A single market will help increase trading liquidity and reduce personnel and operating and maintenance costs.

State enterprise operations and listings will be centralized, contributing to accelerating the equitization of large-sized state companies and raising the quality of commodities on the market, Bang said.

* Anti-smoking strategy likely to raise taxes on tobacco: As part of a national long-term strategy to combat tobacco damage recently approved by the Prime Minister, the country is set to impose higher taxes, along with stricter measures, on cigarette production and trading to limit consumption.

The strategy, to be implemented through 2020, seeks to inhibit smoking by fixing a higher floor price of and increasing taxes on tobacco products, including imported ones.

Total taxes imposed on cigarettes in the country would also be raised from current around 45 per cent of the retail sale price to be between 60 and 80 per cent as recommended by the World Health Organization.

The strategy also urges a ban on sale of cigarettes to people aged under 18 and on the employment of people of this age to sell tobacco products.

There will also be a circular to require tobacco producers to print on cigarette packets tobacco impact warnings in impressive colorful images.

* Different credit limits for local banks to be set soon: The State Bank of Vietnam is likely to continue assigning different credit growth limits to local credit institutions this year, according to a report in Thoi Bao Ngan Hang (The Banking Times).

It would classify local credit institutions in more groups than last year (four groups subject to maximum credit growth from zero to 15 per cent) in order to help control over both lending expansion and credit in the banking system. Some (weak) banks will be banned from lending this year.

Credit growth limits will be granted partly based on banks’ lending to prioritized areas, including agriculture and rural development, exports, supporting industries, small- and medium-sized businesses and hi-tech establishments.

Banks will continue limiting loan grants for companies in the real estate and securities sectors this year.

Foreign credit institutions will be categorized into two groups for lending management according to their equity capital.

* Bank guarantees to be tightened: The State Bank of Vietnam has announced that it would implement a series of measures to ensure strict compliance with Circular No. 28 dated October 3, 2012, on bank guarantees.

Accordingly, from April 1, 2013, it will inspect and handle credit institutions and foreign bank branches that fail to submit their documents on internal regulations on guarantees.

It also plans to conduct in the second quarter a survey at a number of banks and foreign bank branches in Ho Chi Minh City on performance of bank guaranteeing activities and inspect in the third quarter the implementation of Circular No. 28 and handle credit institutions and foreign bank branches allowing their directors to sign, in their personal capacity, blank guarantee deeds to provide “virtual” (invalid) guarantees or providing guarantees for ineligible parties involved in unlawful transactions, especially foreign exchange ones.

Banking experts suggested issuance of stricter internal bank governance requirements and a more transparent process of guarantee grants.

* Businesses may set aside more incomes for technological development: Science and Technology Deputy Minister Nghiem Vu Khai announced at the recent National Conference for Implementation of the 2011-20 Scientific and Technological Development Strategy that the Science and Technology Law, the State Budget Law, tax laws and laws relevant to scientific and technological activities would be revised toward allowing businesses to earmark more than 10 per cent of their annual taxable incomes for investment in scientific and technological research and application.

The to-be-revised Science and Technology Law is expected to ensure allocation of 2 per cent or more of total state budget expenditures for science and technology, allow state budget-funded procurement of scientific and technological research outcomes and application of special investment mechanisms for implementation of certain science and technology projects.

As directed by Deputy Prime Minister Nguyen Thien Nhan, all revised laws and legal documents concerning scientific and technological development should be finalized by the year-end and passed and implemented in 2014. From the second quarter of the year, local administrations should approve their localities’ national scientific and technological products.-

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