The construction of the Nguyen Van Cu Bridge in Ho Chi Minh City was originally planned to finish in early 2007, but just 40-70 percent of the work packages have been completed so far.

Foreign and domestic businesses called on the government to boost exports, improve infrastructure and cut red tape.

The government must push ahead with reforms or risk dropping further behind its Asian competitors amid the global economic turmoil, foreign chambers of commerce warned at the Vietnam Business Forum (VBF) conference.

Infrastructure remained the biggest bottleneck for business growth in 2008, according to a report on a business sentiment survey released at the conference.

Insufficient and erratic power supply, congestion at ports and poor roads badly impede business operations, the report said.

“The under-development of infrastructure, especially roads, ports and electricity, is still a serious issue for Japanese manufacturing companies,” Matsuda Noriyasu, chief representative of the Japan Bank for International Cooperation, said.

The rise in labor costs is becoming a new concern for Japanese investors, he told the government officials, diplomats and executives who gathered at the conference, which took place ahead of government meetings with the World Bank, the International Monetary Fund, and other international donor organizations on December 4.

“In the past, the labor environment in Vietnam was a positive factor encouraging foreign direct investment,” Michael J. Pease, chairman of the American Chamber of Commerce, said. “Recently, however, it has become a negative factor, especially when considering investment in the next five years.”

Labor costs in key export industries will increase by 20 percent to 30 percent from January when planned increases in wages and social insurance kick in.

Other recent actions that have hurt Vietnam’s attractiveness include the imposition of onerous documentation and notification requirements for obtaining work permits, and changes in the personal income tax law that make several previously non-taxable benefits taxable, Pease said.

He listed housing, education, transportation and home leave.

Besides, one of the impediments to Vietnamese corporations accessing the international capital markets is the imposition of “withholding tax” on interest payments to offshore lenders, Ashok Sud, chief executive of Standard Chartered for Vietnam, Laos and Cambodia, and head of the bank working group of the Vietnam Business Forum, said.

“Perfect storm”

Lawyer Fred Burke, delivering a VBF report, warned that Vietnam-based manufacturers are just beginning to feel the effects of the global crisis.

“Based on an export-led growth model, our manufacturers and other exporters are confronting a ‘perfect storm’ of external challenges,” he told the meeting.

Key threats, he said, include falling demand in export markets and plummeting world prices of commodities and crude oil, which Vietnam exports.

Burke, of law firm Baker and McKenzie, also warned of the risk of “serious foreign exchange shortages” in the coming months as foreign investment projects are delayed or cancelled, tourism drops off and overseas Vietnamese workers send home less money.

Pease said exports, which are estimated to be more than half of the country’s gross domestic product this year, would slow in 2009 due to lower consumer spending in the US, the European Union and Japan, which together account for 61 percent of export revenues.

“But by increasing productivity and reducing the cost of doing business, Vietnam can maintain and improve export growth.”

On the other hand, the expected drop in exports may offer Vietnam an opportunity to catch up on infrastructure development, he said.

Often corruption delayed infrastructure, he added.

Tax cut pondered

The government could slash corporate income tax and interest rates on consumer loans to help companies weather the global financial crisis, officials said at the meeting.

Minister of Finance Vu Van Ninh said his ministry would consider a proposal by the business community to waive the 10 percent withholding tax on offshore interest payments.

Waiving the tax would help borrowers reduce investment costs and make their projects more attractive to lenders, Sud said.

Meanwhile, the State Bank of Vietnam (SBV) would adjust the interest rate ceilings on consumer lending, now capped at 150 percent of its base rate to make the loans attractive, deputy governor of the central bank, Nguyen Van Binh, said.

Deputy finance minister Tran Xuan Ha said his ministry has sought cabinet approval to expand foreign ownership in unlisted companies to 49 percent, or on a par with those listed on the main exchange. He gave no timeframe for the approval.

Replying to a request from stock investors to delay imposition of the capital gains tax on securities proposed in the new year, Ha said it needs parliament approval.

Source: Thanh Nien, Agencies