US firms upbeat over Vietnam prospects

Under AmCham Singapore’s ASEAN Business Outlook Survey, 97 per cent expect a profit increase in 2017, Photo: Le Toan

Damian Kassabgi, director of Public Policy for the Asia-Pacific region for the US-based giant Uber Technologies, came to Vietnam on May 19 with plans to expand the firm’s operations here.

Uber is a smartphone application that connects drivers with people who need rides.

“Uber has been operating in Vietnam for only three years, but its revenue growth has hit double digits, and we are expecting a growth rate of triple digits in the very near future,” Kassabgi told VIR.

Recently, the Ministry of Transport has approved Uber Vietnam’s pilot project, which applies technology to connect and manage contracted passenger transportation.

“We are seeing fast growth in Vietnam, where there is a huge demand for our services. We currently have two offices in Hanoi and Ho Chi Minh City, but will soon expand operations to many other localities,” Kassabgi said.

Uber is one among many US firms wishing to expand their business within Vietnam.

“Vietnam is becoming an attractive investment destination for US firms and investors like Uber, ExxonMobil, and Cargill. We expect the US will soon become one of Vietnam’s top foreign investors,” State President Tran Dai Quang said at the May 19 conference on the future of bilateral economic relations between Vietnam and the US in Hanoi.

Lucrative investment locale

Quang said that thanks to the good relations between the two countries – and Vietnam’s improved investment and business climate – many US firms have signed large co-operative deals with Vietnamese institutions, focusing on many sectors such as oil and gas, IT, and electronics.

“For example in January 2017, state energy group PetroVietnam inked a $10 billion deal with ExxonMobil to develop Blue Whale deep-water gas reserve for power generation,” Quang told the conference, attended by representatives of many big US firms wishing to expand business in Vietnam.

The Blue Whale project, which is Vietnam’s biggest gas project with an estimated 150 billion cubic metres of natural gas reserves, aims to produce the first gas for power plants by 2023. This project is expected to contribute nearly $20 billion to the state coffers.

Under the agreement, ExxonMobil is to build several works to exploit gas, and an 88 kilometre pipeline to connect the gas field to shore, while PetroVietnam will build a gas treatment plant and a power plant.

The firms at the conference included Mastercard, Visa, Uber, Microsoft, Gap, Cargill, Google, Coca-Cola, General Electric, Johnson & Johnson, Pfizer, and PhRMA.

Many of these firms are working with Vietnam’s state agencies to expand their operations in Vietnam.

For example, an undisclosed firm from the US wants to invest in the electronics industry in Vietnam from a third nation. This project may have investment capital in the billions of US dollars and a production scale on par with that of Intel.

This firm is currently working with a US investment consulting firm based in Hanoi to review and revise their plans before they officially begin working with the Vietnamese government.

Vietnam offers special incentives to high-tech projects, especially in terms of taxation. High-tech projects are eligible to receive a 10 per cent corporate income tax (CIT) for the first 30 years of operation, during which there will be a CIT exemption for the first four years and a 50 per cent CIT reduction for the next nine years thereafter. The country’s normal CIT rate is 20 per cent.

Another firm that is considering a Vietnamese expansion is Cargill Vietnam. In December 2017, Cargill will put into operation a $10 million warehousing facility in Phu My port in the southern province of Ba Ria-Vung Tau. The firm is also interested in the development of a northern port – because of expansions and increased capacity in the country’s northern region – and is eager to discuss this possibility with the Ministry of Transport.

“Vietnam is a critical aquaculture market for Cargill. Cargill will continue to be an active investor in Vietnam by further expanding its workforce, manufacturing capabilities, distribution network, and product line diversity,” Jorge Becerra, managing director of Cargill Feed and Nutrition Vietnam, told VIR.

Cargill is currently constructing a $30 million feed mill in the southern province of Binh Duong, and is also planning to build another in the northern Bac Ninh province. Last year, the group began operating its 11th feed mill in the central province of Nghe An, with an annual capacity of 60,000 tonnes.

At a recent meeting with Minister of Planning and Investment Nguyen Chi Dung, Tomoyuki Sasama, country director of Dow Chemical in Vietnam, said that the firm obtained a business licence in Ho Chi Minh City last year, and will continue expanding its operations this year.

Dow Chemical is now co-operating with many businesses in Vietnam in the sectors of agriculture, biology, and services. Sasama said Dow Chemical stands ready to support Vietnam to compile a national list of chemicals to be used for research and development purposes.

Arn Vogels, country manager and chief representative for Indochina at Mastercard, and Sean Preston, country manager of Visa in Vietnam-Cambodia and Laos, both said that their firms will work with Vietnam’s government to develop a non-cash payment system in the country.

In another instance, Sanket Ray, CEO of Coca-Cola Beverages Vietnam Ltd., said that Coca-Cola is committed to continuing its investment in Vietnam. Recently, it added $285 million, raising its total investment in Vietnam to $1 billion.

The investment will be used to expand Coca-Cola’s production facilities in Hanoi and Ho Chi Minh City.

According to the recently released AmCham Singapore’s ASEAN Business Outlook Survey 2017, out of 100 American firms in Vietnam that responded, 72 per cent said Vietnam’s investment environment is improving, higher than in Myanmar (70 per cent), Malaysia (23 per cent), Thailand (22 per cent), and Brunei (16 per cent).

Eighty per cent of respondents reported that they will expand their business in Vietnam, and 97 per cent expect a profit increase in 2017. Sixty per cent said they will increase their workforce in Vietnam.

Forty per cent of respondents across the region reported that Vietnam continues to be their top-priority market for future business expansion, up from last year’s 31 per cent. In 2016, Vietnam was the top destination for US companies planning to expand in ASEAN.

Currently, all key sectors in Vietnam are home to big US investors, such as oil and gas (ExxonMobil), aviation (Boeing and ADC-HAS Airport), IT (Microsoft, Intel, and HP), and electricity and electrical equipment (General Electric, General Atlantis, and AES).

“It is important to understand that US tax laws and business considerations related to the relatively small size of the Vietnamese domestic market encourage many US companies to invest in Vietnam from regional headquarters, most commonly Singapore and Hong Kong, as well as to some degree from other countries with more favourable tax reporting requirements,” Adam Sitkoff, executive director of the American Chamber of Commerce (AmCham) in Hanoi, told VIR.

According to the Ministry of Planning and Investment, by late March 2017, the US was Vietnam’s ninth largest foreign investor, with 834 valid investment projects registered at $10.2 billion.

Long-term commitment

A co-operation deal between the Vietnam Chamber of Commerce and Industry and AmCham was signed last week, with the two sides committing to boost American investment in Vietnam.

Since early this year, the US-ASEAN Business Council (USABC) has worked with the government three times, affirming that US firms attach great importance to this market.

During a recent meeting between Minister of Planning and Investment Nguyen Chi Dung and USABC, Dung expressed his concerns over the prospects of US investments leaving Vietnam following the US’ withdrawal from the Trans-Pacific Partnership. In response, Michael Michalak, senior vice president and regional managing director of USABC, said that although Trump does not want US firms to invest overseas, the firms USABC represents – in general – still want to invest outside of the US.

“They will continue making investment-related decisions not based on any single order, but based on the attractiveness of the foreign markets, including Vietnam,” Michalak said. “We hope Vietnam will continue being an attractive investment destination for US investors.”

Agreeing with this view, Kassabgi of Uber, a member of USABC, said Uber wants to do long-term business in Vietnam, where it sees strong development in digital technology and vehicles that fit its business model. “Vietnam’s internet is very good. And there are many drivers willing to share their cars and motorbikes. One of the special things about Vietnam is Uber motor, which we cannot see in Western nations. We have adapted our products to motorbikes in Vietnam,” Kassabgi said.

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