Continuous allure of South Korean funds

South Korea has so far been the second-largest foreign investor in Vietnam in 2020

South Korean investors are currently aiming to increase their presence in other regions of Vietnam than those previously favoured. According to Kim Kyung Hwan, general director of Hyosung Quang Nam Co., Ltd., there are many advantages in the central province of Quang Nam as local authorities operate effectively and the local infrastructure with National Highway 1A and the coastal roads and highways has contributed to reducing transportation costs and improving the competitiveness of businesses.

In the first 11 months of 2020, 109 countries and territories were investing in Vietnam, with South Korea ranking second with the registered sum of $3.7 billion, accounting for 14 per cent of the country’s total foreign direct investment (FDI). With the 573 new projects, South Korea ranked first, according to the latest report of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.

Geographically, South Korean investment is most concentrated in the northern province of Bac Ninh with $10.12 billion, accounting for 16.2 per cent of this partner’s total registered amount, followed by Thai Nguyen with $7.28 billion (11.6 per cent), and Haiphong with $6.82 billion (10.9 per cent).

The Central Highlands are becoming a reliable and safe investment destination for South Korean investors as the region has been the leading partner in the first nine months of the year in terms of total capital with over $79 million in 23 newly-registered projects in various fields, such as processing, manufacturing, and services.

Lee Sung Nyung, director of the Korea Trade-Investment Promotion Agency in Danang, commented that land prices in the Central Highlands are one of the most enticing factors as they are much lower than elsewhere in the country.

Enticing close partners

With its agility, Vinh Phuc has made many other provinces of Vietnam lag when it comes to attracting high-quality FDI. This is not surprising given that the local government has used its advanced infrastructure, consolidated air transport, and intercity connectivity to attract new capital from South Korea. Vinh Phuc also wants to focus on high-tech projects, like the Vinh Phuc ICD Logistics Centre in Binh Xuyen with an investment amount of $167 million.

Pham Quang Thang, deputy director of Vinh Phuc Department of Planning and Investment, emphasised that the factors ensuring the province’s competitiveness in attracting capital to the northern province lie in supporting businesses by reducing trade costs, increasing stability, and contributing to the local economic growth.

While directly meeting with 25 South Korean investors and representatives of 13 industrial zones in Vietnam last week, Hoang Minh Chien, deputy director of the Department of Trade Promotion (Vietrade) under the Ministry of Industry and Trade, said such meetings are an “invaluable opportunity for South Korean businesspeople to choose suitable investment locations,” which Vietrade tries to carry out regularly despite the interference of the pandemic.

Chien also emphasised the need to connect and attract investment from South Korea to enhance the competitiveness of domestic goods and businesses. Currently, there are about 8,900 businesses from this market active in Vietnam, representing an important component of the Vietnamese economy by employing over one million people and contributing about 25 per cent to the country’s total export value.

“The South Korean government is determined to prioritise Vietnam as a vital partner in its New Southern Policy,” Chien pointed out, adding that this is one of the reasons that not only large corporations are gradually building strategic supply chains in Vietnam, but now also small- and medium-sized ones.

Laying the foundation

Hong Sun, vice chairman of the Korea Chamber of Business in Vietnam commented that the new capital inflow of South Korean investors is showing companionship for long-term development. However, should Vietnam try to reduce incentives for FDI, such as by imposing an additional tax, foreign investors’ interest could be dampened.

“Vietnam needs to come up with new policies,” Sun said in the context that the country is competing with other regional nations. “In addition to tax incentives, Vietnam needs special mechanisms for large investors in new areas that may be needed for the economy in the future.”

At the 18th Vietnam-Korea Intergovernmental Panel on Economic and Scientific Cooperation, the Vietnamese Ministry of Planning and Investment and the South Korean Ministry of Foreign Affairs agreed that, along with recovering from the damage the pandemic has been causing, there is a need for supportive policies and solutions to facilitate business and investments from both countries.

Accordingly, the Vietnamese side pledged to support and create preferential conditions for its partner’s companies to invest in new and expanded production and business activities. Meanwhile, its counterpart has proposed to encourage large corporations to invest in Vietnam, should the Vietnamese authorities continue to solve difficulties and problems faced by them.

South Korea intends to move its funds away from other countries and make use of it in research activities in Vietnam, especially in electronics, high technology, renewable energy, and industrial infrastructure.

At the panel, the two sides also agreed to continue facilitating the entry for South Korean experts to ensure restoring production and business activities and pandemic prevention.

However, South Korean investment in Vietnam still depends heavily on the anti-pandemic work of its government. Should Vietnam continue to reform its business environment and the pandemic become finally under control, it is only a matter of time before Vietnam can welcome new cash injections from its partner.

In order not to miss such opportunity and create the most favourable conditions for investors, Vu Van Chung, FIA deputy director general, said that localities should continue to strongly reform their business environment and proactively remove difficulties for foreign businesses.

Chung also recommended localities to build criteria for investment projects following Resolution No.50-NQ/TW, and improve the quality of investment promotion in an active and focused direction, giving priority to attracting those projects ensure regional connectivity and make the best out of each locality.