-
 While
the Enterprise Law 2005 adopts the principles of an ex post
system and aims to minimize licensing requirements, strengthen
the post-registration monitoring system and enforce business
reporting, the new Investment Law, through its more specific,
recently-issued implementing decrees, tries to maintain the
traditional ex-ante approach to control business entry by
imposing an additional investment registration procedure (for
foreign investment projects below 300 billion VND) and requiring
that projects over VND 300 billion undergo an investment
appraisal and obtain an investment license.
Even though this is an improvement over the old regulatory
framework for investment, the government should have asked the
question as to what purposes these additional procedures serve
and whether these controls actually help monitor investor
compliance with investment license commitments throughout the
duration of projects. The recent case of the SITC English
training center, which has been in the papers the past few
months, clearly demonstrated the flaws of the traditional ex
ante approach: after issuing licenses, the state could not
prevent SITC from setting up several branches across the
country, could not monitor SITC's failure to comply with
financial reporting requirements, did not know that SITC had not
paid its teaching staff and had misappropriated the tuition fees
of over 30,000 students in 21 provinces! Other recent,
well-known examples of this ineffective ex ante approach include
the cases of the Hanoi International School and Asia University.
It would be great if additional investment registration
requirements helped safeguard creditors' interests (and those of
other parties, such as employees and students), protected our
natural environment and encouraged technology upgrades. The
state has had enough time to assess the effectiveness and
efficiency of its ex ante control mechanism, as it has been in
effect for the last 20 years. Isn't it high time for the state
to consider better alternatives for managing and encouraging
investment? It is worth it for everyone to reflect a while
before deciding whether or not to maintain this ex ante
mechanism. They should consider that increasing ex ante control
causes businesses, investors, and the government itself to incur
additional costs. Cumbersome, ineffective and inefficient
procedures increase management costs and undermine investor
interests. Also, ineffective ex post monitoring tools leave room
for moral hazard behavior, which can have a negative impact on
the overall economy.
In my opinion, it is necessary to strengthen the ex post
monitoring system and impose strong punishments, such as
criminal fines, on any business that does not comply with its
financial reporting obligations. In the United Kingdom, for
example, official measures such as those requiring periodical
audits by independent auditors, financial guarantees before
project deployment, and insurance policies for projects with a
potential environmental impact are more effective than
appraisals or assessments. The ultimate objective of reforming
the legal framework for investment should have been to
strengthen the monitoring mechanism to encourage higher quality
investment projects that contribute to economic growth as well
as preserve Vietnam's limited natural resources.
Mr. Pham Duy Nghia, Head of Business Law Division
Law Faculty, Vietnam National University
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Government agencies currently tend to tighten their control over
business entries. They design administrative procedures to
involve more intensive “pre-checking” (i.e., scrutiny over a
business even before it starts operations). The logic of
administrative authorities seems to be based on strengthening
government agencies' power rather than protecting and
facilitating the legitimate rights and needs of businesses and
the public. Nothing could be more wrong a truly
business-friendly government should act differently. Consider
the Investment Law's new implementing decree, for example. Its
investment registration procedure is extremely ineffective. In
reality, an investment certificate does not mean much by itself.
The government can use information from such investment licenses
for administrative statistics and reporting, but not for policy
analysis or the decision-making process. Moreover, it
practically neglects the ex post monitoring mechanism, which is
more important than pre-checking. Presently only about 25% of
operating businesses periodically provide reports, and there is
no enforcement mechanism to handle those that do not comply with
reporting requirements. In addition, the reporting system for
listed companies, which is compulsory, is not being implemented
strictly. The quality of reports produced for shareholders and
government agencies is still quite poor.
Mr. Vu Thanh Tu Anh, Research Director
Fulbright Economic Teaching Program
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I think the investment registration certificate should be
eliminated as it makes no sense. Although it grants the investor
exclusive rights to a project, there is no guarantee that the
investor has the capacity or even the intention to complete the
proposed project. As a result, the current mechanism enables
some investors to exploit investment licenses for profit. Anyone
can dream up a so-called “investment project” to obtaining
financing, get the land-use rights, and then sell them for a
profit.
Governments in other countries monitor foreign investment in the
same way that they oversee domestic businesses. Foreign
investors only need to register their businesses, not each
project. They can get land use rights either by negotiating
directly with landowners or through a bidding process. Only
investors with strong financial capacity can win such bids and
implement projects.
Mr. Le Net, Partner
LCT Lawyers
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There is still no effective monitoring system in Vietnam;
instead, the government focuses on controlling business entry.
Unfortunately, foreign investment licensing procedures remain
cumbersome; they should be simplified in order attract more
foreign investors.
Mr. Oliver Massmann, Partner
International Lawyer, Baker & McKenzie, Hanoi
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