Vietnam, RI competing to attract foreign investment

Lilian Budianto, The Jakarta Post, Jakarta | Fri, 02/12/2010 10:40 AM

Political stability and cheap labor have contributed to a healthy economy in Vietnam, rivaling Indonesia’s economic growth within the Southeast Asian region, says a senior Indonesian diplomat.

Indonesian Ambassador to Vietnam Pitono Purnomo said Hanoi grew by more than 6 percent last year, surpassing Indonesia, the largest economy in Southeast Asia, because the one-party state provided better security and offered cheaper labor.

Indonesia’s economic growth stood at 4.5 percent in 2009.

“Demonstrations are rare in Vietnam as the government imposes strict security rules. From an economic perspective, this is an advantage when it comes to attracting foreign investment,” he said.

The ambassador said Indonesia had better wage standards and working conditions compared to Vietnam, but this had also discouraged foreign investment.

“Living standards are lower in Vietnam and that’s why they can suppress wages,” he said.

Indonesia’s foreign investment stood at US$10.82 billion in 2009 with Singapore as the biggest investor, followed by the Netherlands and Japan.

Vietnam’s foreign investment reached $9.8 billion in 2009. The United States made up the bulk of the investment, followed by the Cayman Islands.

Indonesia, with its fledgling democracy, has seen many street protests, including labor strikes, that observers say often interrupt productivity. Businesspeople have also recently protested over the ASEAN-China Free Trade Agreement, saying that flows of Chinese products will harm local businesses.

Pitono said that he had not heard of similar concerns in Vietnam.

“They have not complained because they have long established trade relations. China is Vietnam’s main trading partner and China has invested a lot in Vietnam,” he said.

“Chinese products have long existed in Vietnam and vice versa. Vietnamese products, especially in agriculture and mining, also dominate China as both are close neighbors. Vietnam has seen China’s large population of 1.3 billion as an opportunity, not a threat.”

Pitono, however, said that Indonesia could compete as Indonesia had better skilled workers than Vietnam.

“We are also looking into the possibility of a working agreement because we produce similar products.

We can complement each other, for example, if Vietnam imports some materials from Indonesia to be made in Vietnam,” he said.

Pitono said bilateral relations between Indonesia and Vietnam were “healthy and robust”, with two-way trade totaling $2.1 billion in 2009 in favor of Indonesia.

Indonesia exports chemical products, spare parts and steel to Vietnam, while Indonesia imports rubber and agricultural products from Vietnam.