The growth of foreign investment projects
International investors established more than $14 billion in projects from January to July 2022, around 91% compared to last year. Industries like manufacturing and processing, tech, and retail saw significant attention. Singapore leads the list of Vietnam’s top investment partners, accounting for more than a quarter of total investment capital, followed by South Korea, Denmark, China, and Japan.
Vietnam is no stranger to foreign investors. Multiple factors—like a sizeable and young labor force, proximity to major economies South Korea, Japan, and China, and a stable socio-political landscape—make the country a top attractor for foreign-led projects.
The need to conduct periodic or ad hoc inspections
However, the rise of investor activity can also be argued to cause a growth of market violation cases. There are numerous cases in which firms are adopting business practices in bad faith with their clients, employees, and consumers, as well as with the Vietnamese government.
These include:
- A South Korean garments manufacturerwas accused of poor working conditions by its employees, which has led to a strike.
- A garments factory with ties to a Hong Kong businesswas seen to discharge untreated wastewater into the nearby environment despite previous fines for the same issue.
- A manufacturer of flavoring products and fish sauce from South Koreawas fined more than 500 million VND for polluting the drainage system with its wastewater.
- A Taiwanese companythat produces textiles was inspected and found to operate fabric dyeing machines without a license.
- A sugar company owned by an India-based firm—a subsidiary of an organization located in Singapore—was the receiving end of a temporary shutdown order for environmental violations.
- A Germany-based corporationwas fined over 100 million VND for violating Vietnam’s information disclosure obligations.
How Circular No. 02/2022/TT-BKHDT states the government’s role in investment management
The Ministry of Planning and Investment has the authority to inspect, supervise, and assess projects managed by foreign investors in the country. The scope of the agency’s authority includes initiatives assigned by the Prime Minister and projects with immense potential to contribute to Vietnam’s socio-economic development.
The circular additionally states the role of Provincial People’s Committees in the inspection, supervision, and assessment of investment activities. It also mentions that foreign investors shall assess projects independently, in line with Articles 70, 74, and 96 of Decree No. 29/2021/ND-CP.
There are multiple areas that authorities will inspect. These include:
- How the registered investment capital is being disbursed
- Progress of the investment project: how the initiative is being implemented and the methods used to transfer technology
- The company’s compliance record with fire safety, construction, environmental, and labor regulations
- The firm’s financial position, which is seen through data like the value of equipment and machinery as well as the value of its shares
Authorities will conduct periodic inspections. They will also perform specialized inspections upon request of certain management authorities.
There are different ways in which authorities can assess foreign investment activity. These comprise:
- Checking the national system of investment information to verify the company’s certificate of investment registration
- Receiving and reviewing reports made by enterprises
- Forming an inspection team to conduct an ad hoc assessment
Why is this important?
In a survey conducted by organizations like the Vietnam Association of Financial Executives and Vietstock in 2022, around 52% of firms listed in the Ho Chi Minh and Hanoi stock exchanges have met the country’s information disclosure standards.
Governments worldwide design financial disclosure systems with a range of objectives in mind, from anti-corruption to improved reputation among its citizens.
Vietnam is no different. Increased transparency of an investor’s operations improves how the government delivers its services to support a company’s goals. It also helps fellow investors make informed decisions and decreases the risk of fraud.
