## 2 -6-3 Introduction of Foreign Direct Investment

The Law on Foreign Investment in Vietnam, which was proclaimed in 1988 and amended in 1990 and 1992, offers advantageous conditions to foreign enterprises in comparison with the corresponding laws in other countries. It allows enterprises with 100 percent foreign-invested capital, $ ^{17} $ gives guarantees to invested capital and allows remittance of profit. Foreign-affiliated companies are given preferential tax treatment according to the degree of priority of their projects, as seen in Table 2-V-9. Minimum wage is set at 35 dollars per month for Hanoi and Ho Chi Minh and 30 dollars for other areas.

Poor infrastructure is one of the factors which is arresting the development of FDI in Vietnam. To encourage FDI in such a situation it is effective to establish industrial complexes or export processing zones (EPZs) and improve the infrastructure in those areas selectively. In Vietnam, several industrial complexes and export processing zones are under construction, beginning with the Saigon Export Processing Zone (SEPZONE) and Tan Thuan Export Processing Zone. To facilitate export-oriented FDI, the government is giving several types of preferential treatment to the export-oriented enterprises located in EPZs. Some examples are exemption of import tax for the import of facilities or raw materials, and a reduction in corporate tax.

Tables 2-V-10, 11, and 12 show the number and value of the FDI approved in Vietnam. Taiwan is the largest investor followed by Hong Kong, the former USSR and Japan. As for the sectoral share, manufacturing is the largest with 30.9 percent, followed by oil and natural gas with 24.3 percent and hotel and tourism with 19.6 percent.

By November 1993, 114 projects out of 793 were officially canceled. $ ^{[18]} $ It is considered that of all the approved projects, only one third are in actual operation. This low implementation rate may be attributed to poor preparation by both investors and recipients, uncertainty in actual administration and vague plans.

The resumption of ODA and the lift of the United State embargo largely contributed to remove uncertainty in investing in Vietnam. The rise in wage levels in the ASEAN countries is causing changes in the flow of FDI in Asia. In such a situation, Vietnam, which is located in a rapidly growing area and has abundant natural resources and a large domestic market, is now attracting a great deal of attention from investors as a new investment opportunity. If Vietnam succeeds in making good use of this opportunity, it will bring great benefit to the Vietnamese economy; not only direct but also indirect benefits such as technology transfer and spillover on domestic subcontractors.

## 2 -6-4 Foreign Aid

The meeting of the assisting members held in Paris in 1993 decided to provide official assistance amounting to a total of 1.86 billion dollars to Vietnam within a year. The resumption of official assistance will also facilitate the inflow of private capital, since it will bring about the improvement of the poor infrastructure, which had been an obstruction to investment in Vietnam.

It is expected that official assistance of about two billion dollars per year -- one billion by international organizations like the IMF, World Bank and ADB, and another billion by bilateral assistance -- will be provided to Vietnam in the future. This figure is more than the