US’ FDI in Vietnam

May 30, 2016 | 20:24
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Vietnam has massive opportunities for attracting foreign direct investment, in particular, investment from the US, which is predicted by some to become the country’s top foreign investor in the years ahead. Nguyen Duc reports.

At a conference on the Vietnam-US relations in April 2016, US Ambassador to Vietnam Ted Osius highlighted the great potential for Vietnam and the US to cement their bilateral relations, especially in climate change, education, trade and investment. Currently, more and more US investors are coming to Vietnam to do business.

As of April 20, 2016, Vietnam had 806 US valid investment projects, registered at over $11.7 billion, and ranking eighth out of all nations and territories investing in Vietnam.

A host of US companies including Intel, General Electric, Microsoft, AIG and Coca-Cola are already operating major projects here. In addition, many other well-known firms such as Citigroup, American Group, Ford, Starbucks, UPS, Starwood Hotel, Dickerson Knight Group, PepsiCo, KFC, and Coffee Bean also have a presence here.

“With a rising number of large US investors, the US is gradually moving closer to becoming the top foreign investor in Vietnam,” said Professor Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises.

In the past, before US President Bill Clinton lifted the embargo against Vietnam on February 3, 1994, several US businesses had invested in Vietnam via the third country. However, in 1995, a wave of American investment hit Vietnam, and surged in 2001 when the two countries’ Bilateral Trade Agreement (BTA) took effect. Since then, US investments here have continued to grow, both in terms of registered and disbursed capital.

US disbursed investment rose from an average of $248 million per year in the pre-BTA period of 1996-2001 to an average annual $479 million in the post-BTA period of 2002-2006.

Sesto Vecchi, managing partner of US’ law firm Russin & Vecchi, said that US investment not only contributed to Vietnam’s socio-economic development, it also – more importantly – created a breakthrough for Vietnam.

He said that in 2010, Intel Group invested $1 billion to build a chip assembly and test facility in Ho Chi Minh City. This sent a clear message to multinational groups that hi-tech firms were greatly interested in Vietnam and they actually invested in the country.

This event and Vietnam’s accession to the World Trade Organization in January 2007 marked two crucial milestones for Vietnam in terms of foreign direct investment (FDI), Vecchi said.

Following Intel’s investment, Vietnam welcomed many other global hi-tech giants such as Samsung, LG, and Microsoft, gradually turning the country into their global hi-tech manufacturing hub.

As of April 20, 2016, Vietnam had secured 20,905 FDI projects, with a total registered capital of $288.5 billion.

Experts are of the opinion that thanks partly to US investment, Vietnam has succeeded in attracting FDI from many other nations. This, then, was the great contribution of US investors – not merely their contributions in terms of employment generation, investment capital, and contributions to the state coffers.

However, Do Nhat Hoang, head of the Ministry of Planning and Investment’s Foreign Investment Agency (FIA), said that US investment into Vietnam remained humble, and far below the co-operation potential of the two countries.

Never been the “number-one” investor

“The number-one investor” and “strategic investor” were common sound bites used by the media in reference to US investment expectations after the BTA was signed in 2001. However, even though the US is one of the top ten foreign investors in Vietnam in terms of capital volume, its registered investment total of $11.7 billion remains relatively small when compared to upper potential estimates. Clearly Vietnam has yet to become a strategic investment location for the US.

In 2014, registered US investment amounted to $2.58 billion in Indonesia, $1.97 billion in Thailand, $1.72 billion in Malaysia, and $1 billion in the Philippines. Meanwhile, the figure for Vietnam was less than $300 million.

In the first four months of this year, US investment into Vietnam reached $30.5 million, placing the US at 17th in the rankings of Vietnam’s FDI partners.

However, it is very important to note that the $11.7 billion received does not fully reflect US investment in Vietnam. This because some firms such as Intel, Coca-Cola, Procter & Gamble, and ConocoPhillips have invested into Vietnam through subsidiaries and branches based in other markets such as the British Virgin Islands, Singapore, and Hong Kong.

Even so, when compared with other investors in Vietnam, US investment seems quite modest. For example, South Korea has invested more than $48 billion in Vietnam; Japan, over $39 billion; Singapore, over $36 billion; and Taiwan, over $31.5 billion.

These figures have demonstrated the fact that US investment in Vietnam has not yet matched the declaration by US leaders and firms that the US would become the No.1 investor in Vietnam. For many, this is something of a surprise considering how many large US firms are operating here, as well as the many others that are seeking investment and business opportunities here.

So why has US investment not yet reached its potential?

Many experts have tried to pinpoint the causes of this discrepancy. Professor Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, has stressed that there are a series of obstacles hindering progress in Vietnam’s investment and business climate. Chiefly, these are low-quality human resources and a lack of transparency in the legal and regulatory systems.

According to the FIA, other obstructions include corruption and the disconnection in co-operation between the government and enterprises in economic reform, as well as limitations in infrastructure, labour costs, and land leasing.

Sherry Boger, former chairwoman of AmCham in Vietnam, lamented that in Vietnam, cumbersome administrative procedures and uncertainty in the implementation of laws and regulations are impeding foreign investors, including those from the US.

For example, she said that Vietnam’s automobile industry was suffering because it had no detailed roadmap to implement the national master plan on developing the industry until 2020, with a vision to 2030. This had reduced investors’ confidence and brought about risks for Vietnam as manufacturers were considering alternative markets within ASEAN.

Meanwhile, the MPI ascribes humble US investment to the fact that the US has yet to recognise Vietnam as having a full market-based economy. This has thrown up obstacles in terms of the two countries’ business and investment co-operation, and as such, many US investors are reluctant to invest in Vietnam.

Expecting a brighter future

However, at present, Vietnam and the US expect to raise US investment into Vietnam. Last year, when Vietnam and the US were celebrating their 20th anniversary of diplomatic relations, US Ambassador to Vietnam Ted Osius told VIR: “It is my sincere hope that the United States will become the number-one investor in Vietnam in the near future”.

Osius’ “sincere hope” has been echoed by many US officials. But is this a realistic hope, or is the chance of the US becoming Vietnam’s top foreign investor just pie in the sky?

When we examine the FDI statistics in Vietnam, we can see that US investment is far behind other nations, such as South Korea, Japan, and Singapore. However, it is expected that US investment in Vietnam will significantly increase in the time to come.

For example, at a recent meeting with Ho Chi Minh City’s Party Secretary Dinh La Thang, three US investors Steelman Partners, Cantor Fitzgerald, and Weidner Resorts proposed a $4 billion property project in the city’s Thu Thiem New Urban Area.

Also, Apple is rumoured to be planning a $1-billion investment in Vietnam. If this plan comes to fruition, Vietnam will become more broadly known throughout the global community as an investment destination, thus drawing greater attention from more US investors as well as those from other nations.

In addition, many US firms are also planning to shift their investment into Vietnam in a bid to make the country their manufacturing base. These firms include such well-known companies as Microsoft, Intel, Nike, Adidas, Mast Industries, and P&G.

The American Chamber of Commerce in Singapore and the US Chamber of Commerce have released the ASEAN Business Outlook Survey incorporating the responses of nearly 500 senior business executives representing US companies in all ten ASEAN markets.

According to the survey, 84 per cent of respondents expect their profits will increase this year in Vietnam. In addition, 80 per cent are planning to expand their business and production processes here.

Ambassador Osius also stressed that the Trans-Pacific Partnership (TPP) was the best tool for our countries to further economic and strategic ties. “The TPP has the power to attract significant new US investment to Vietnam. We have seen steadily increasing interest in Vietnam from potential US investors across a variety of sectors. Many of our companies were already looking to invest in the Southeast Asian region, but have been pulled to Vietnam in part by the promise of the strong and stable investment climate that the TPP will bring.”

In fact, while the TPP was being negotiated, many US investors came to Vietnam, such as Exxon Mobil, Chevron, Boeing, ADC - HAS Airport, Microsoft, Intel, Apple, HP, General Electric, General Atlantis, and AES. Notably, after the historic visit to the US by Party General Secretary Nguyen Phu Trong in July 2015, business agreements were signed between Viejet Air and Boeing, PVN and Murphy, and between EVN and General Electric. All promise to usher in greater opportunities for increased investment from the US into Vietnam.

According to the FIA, Vietnam’s participation in the TPP has made it more attractive to US investors by differentiating it from non-TPP markets within ASEAN. As such, Vietnam may become a priority for Hong Kong-based US firms who want to shift production away from China.

More optimistically, Professor Nguyen Mai believed that the US would likely become Vietnam’s top foreign investor.

“Given the fact that Intel and Micsosoft are shifting their factories to Vietnam, and that Harvard and Fulbright are building universities in Vietnam, and that the country’s leaders are promoting Vietnam’s investment and business climate overseas, I am hopeful that the US can become Vietnam’s number-one foreign investor,” Mai said.

In addition, Vietnam recently decided to raise the visa validity for Americans from the existing single-entry three-month visa to a multiple-entry one-year version. This will help the country attract more investment and tourists from the US, while improving its trading relationship.

However, experts also noted that despite opportunities for Vietnam to lure more US investments, the country would need to do many things, such as boost its economic reform, and remove impediments in order to create a more business-friendly climate.

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