Clear laws, procedures will convince US firms to make long term investments: Freshfields lawyer

An open and predictable investment environment will convince U.S. companies to make long term investments in Vietnam, as opposed to other emerging markets in the Indo-Pacific or even closer to home, said Eric Johnson, a counsel at law firm Freshfields Bruckhaus Deringer in a talk with The Investor on the occasion of President Joe Biden's state visit to Vietnam from September 10-11.

Prime Minister Pham Minh Chinh in his meeting in July with Treasury Secretary Janet Yellen underlined areas that Vietnam and the U.S can boost ties in like green growth, innovation, high technology and supply chains. Minister of Planning and Investment Nguyen Chi Dung once said he wished to see U.S. “eagles” investing more in areas like green energy, digital economy, medical care, and chip production. Are U.S investors interested in these fields in Vietnam?

In my experience, both U.S. companies and U.S. financial investors continue to have a strong interest in many sectors of the Vietnamese economy. As we have seen in recent years, several large U.S. multinationals and their suppliers have moved parts of their supply chain from China to Vietnam. This is a significant move for these companies, so the more the government can do to foster a sense of predictability and efficiency, including, for example, by developing energy and other key infrastructure and streamlining procedures around things like taxation and customs, the more comfortable U.S. companies will be in incorporating Vietnam into their supply chains.

It is also important to note that the U.S. government has little to no ability to directly influence the investment decisions of U.S. companies and U.S. investors in terms of investing in a particular country, other than by legally restricting investment into that country, which is not the case here. This means that the ball is really in Vietnam’s court to continue to develop the type of open and predictable investment environment, including clear laws and legal procedures, that will convince U.S. companies and U.S. investors to make long term investments here, as opposed to in other emerging markets in the Indo-Pacific or even closer to home.

In the green energy sector, investors want to see the government approve a plan to pilot direct power purchase agreements. Are DPPAs critical to the attraction of U.S. investment? Are there any other obstacles in this area?

Unfortunately, there are many other obstacles. The issuance of the Power Development Plan 8 (PDP8) has certainly sparked renewed interest from U.S. and other foreign investors who are very keen to participate in the green transition in Vietnam, but there is still much work to be done on implementing it, such as changing several laws to implement the contents of PDP8.

Also, the lack of a bankable power purchase agreement (PPA) has been, and if it isn’t changed, will continue to be a huge obstacle for U.S. and many other foreign investors in this sector. I would really like to see the government move quickly and seize the opportunity here – there is a huge opportunity for Vietnam that it is there for the taking.

Expanding supply chains, including chips, is a priority in Vietnam's development strategy. Diversifying global supply chains is also part of the Biden administration’s efforts. How do you analyze opportunities for U.S investors in this field in Vietnam?

As I mentioned earlier, I think lots of U.S. companies see major opportunities in Vietnam around supply chains, including for high value-add manufacturing like chips, etc. that the Vietnamese government is supporting. And while the Biden administration has taken certain actions that may discourage U.S. investment into sensitive areas in China, such as chips and quantum computing, U.S. investors will only diversify into a particular country if they feel comfortable with the investment and legal environment of that country, especially when compared to the other available options.

Ted Osius, former U.S. ambassador to Vietnam and now president and CEO of the US-ASEAN Business Council, said they have never been more busy, seeing a huge demand from U.S investors seeking opportunities in Vietnam. As a lawyer and an investment consultant, do you see the interest is rising to that level?

I have been working in Vietnam for about seven years now and I would say that we are fairly busy with new investment projects after a relatively quiet start to 2023, but we have been busier in the past. It should be noted though that our clients typically engage us later in their investment processes, so perhaps the interest at the US-ASEAN Business Council should be read as a leading indicator.

The key point here is that there is a huge opportunity for Vietnam to take advantage of investor interest in the country. But it is crucial to create a predictable investment environment that inspires confidence instead of reinforcing a perception of risk. I am also very glad to hear that Ambassador Osius is staying busy!

What factors are helping Vietnam attract U.S investors and what irks them most about doing business in the country?

Vietnam has great fundamentals – a young and digitally savvy population, a growing middle class, an educated, hard-working labour force, consistent pro-foreign investment government policy, and many others. Vietnam is also in a good position to seize opportunities related to recent shifts in geopolitics. Also, most businesspeople from the U.S., myself included, are consistently impressed by the high entrepreneurial energy that exists in Vietnam.

In terms of what irks investors, I’d say unpredictable bureaucratic procedures and red tape. Most investors understand that sensitive sectors such as banking, energy, etc. are going to be subject to strict regulatory oversight – this is true for all countries. However, it is often unclear how to resolve the complexity of certain procedures and this creates uncertainty and delays. In my experience, most investors are perfectly willing to go through the steps required to obtain regulatory approvals, even if it will be difficult, as long as there is a clear path on how to do that in practice.

At the more routine level, it is not uncommon for basic administrative procedures, which should really be quick and easy, turning into multi-week or multi-month ordeals due to surprise requests from the authorities or other issues that arise in an unpredictable manner. These can usually be worked through, but they unnecessarily take up valuable time and resources, and they contribute to a perception of unpredictability that can turn certain investors off the market.

Do you have any advice for foreign investors and U.S. investors on how to make their businesses a success in Vietnam?

Investing in Vietnam can be hard work, but I think that if you approach an investment in a thoughtful and holistic way that takes into account the peculiarities of the market, that the hard work is usually rewarded.

What do you expect from President Biden’s visit to Vietnam from September 10-11 in terms of trade and investment?

I think such high-level engagement between Vietnam and the U.S. can only be a positive for both countries in terms of trade and investment. I am eager to see what the concrete results of the meeting are, and hope that practical and decisive steps can be taken thereafter to increase the attractiveness of Vietnam for U.S. investors and deepen economic ties between both countries.