FDI drives Vietnam onto the global business stage

Vietnam is increasingly seen as a regional high-tech manufacturing hub thanks to global giants such as Intel making the nation home

In 1988, Hong Kong’s Hochimex Limited cooperated with a Vietnamese partner to establish a joint venture named Vicarrent which provided tourism taxi services in southern Ba Ria-Vung Tau province’s Vung Tau city. This was just a small company with the registered capital of VND2.7 billion, or $130,000 at current exchange rate.

While there may not appear to be anything significant about this,  Vicarrent was a very important milestone for Vietnam as it was the first foreign direct investment (FDI) project in the country.

Since Hochimex Limited received the investment licence to do business in Vietnam, more than 14,716 FDI projects were licenced in the country with the total registered investment capital of $214.4 billion by March 20, 2013.

 Nguyen Mai, former vice chairman of State Committee for Cooperation and Investment, now known as the Ministry of Planning and Investment (MPI), said the first FDI projects in Vietnam left a tiny footprint on the country’s economy and this became bigger and bigger year-by-year.

MPI statistics showed that the FDI sector in 1992 contributed just 2 per cent to Vietnam’s gross domestic product, but this proportion rose to 18.97 per cent in 2011. Last year, FDI accounted for 25 per cent of the nation’s total investment capital. Meanwhile, foreign invested enterprises contributed 64 per cent of the country’s export turnover and created more than two million jobs.

“Not only contributing to the national economic growth, creating jobs, bringing new technologies and management skills, strong FDI inflows have helped improve Vietnam’s position in the global economy,” Mai said.

Before Vietnam opened its economy in 1986, it followed a centrally-planned economy, in which everything was manufactured under fixed plans, goods were distributed by the state and private business was outlawed. Because of this closed economy, Vietnam had a few global business partners. But things have changed dramatically.

In January, just 20 days after Japanese Prime Minister Shinzo Abe, for the second time, took this position, he paid a four-day official visit to Vietnam to strengthen bilateral strategic cooperation between the two countries. It was his first diplomatic visit since he returned as Japanese prime minister.

“I believe this is the proof that Japan stands firm seeing Vietnam as a very important strategic partner,” Shimon Tokuyama, Mitsubishi Corporation’s senior vice president and general manager for Vietnam, told VIR.

“Japan and Vietnam have been cultivating good relations for decades and I believe this historical visit opens a new era for two countries,” he added.

Vietnam is now one of the most important investment destinations for Japanese companies. More than 1,800 Japanese companies have been doing business in Vietnam and this number will continue increasing in the future as more than two-thirds of the surveyed Japanese firms said they had planned to expand investments in Vietnam in the next two years, according to a Japan External Trade Organisation survey.

Not only Japan, the United States is trying to enhance economic relationship with Vietnam as more US’ companies plan to expand their footholds in this Asian developing economy.

US’ Under Secretary of Commerce for International Trade at the Department of Commerce Francisco J. Sánchez in October 2012 led a group of American companies to Vietnam to seek investment opportunities. Those companies include Black and Veatch, Honeywell, Shaw Group Inc, Westinghouse, Worley Parsons, Oshkosh, General Electrics and Overseas Private Investment Corporation.

Sánchez said the relationship between Vietnam and the US had turned over a new page, especially in terms of economic cooperation. “The companies with me in Vietnam underline this important cooperation,” he said.

Leaders from other developed countries such as Germany, Denmark and Spain accompanied by hundreds of businesses also visited Vietnam last year.

“It’s easy to see that there have been more visits of leaders of many countries to Vietnam in the recent years, that was rarely seen before 1986. We are playing a greater role in the global economy. The more FDI inflows increase in Vietnam, the more important we become in the global economy,” said Mai. In his view, this is the biggest benefit FDI brings to Vietnam.

China remains the largest recipient of FDI in the world, but for many investors Vietnam is important too. Many of them are implementing “China plus one” policy through increasing investments in Vietnam.

In the past, Vietnam mostly received FDI into light and labour-intensive industries using low technology, such as garment and textile and footwear and property. But now the country starts receiving a new wave of hi-tech manufacturing investments.

South Korea’s Samsung, for example, late last year obtained an investment certificate for increasing the firm’s total registered investment capital in Vietnam from $670 million to $1.5 billion in its manufacturing complex in northern Bac Ninh province.

Shim Won Hwan, general director of Samsung Electronics Vietnam, said Samsung’s markets in Asia and European were covered by its factory here. Besides Samsung, Nokia, Intel, LG, HP, Nidec, Panasonic, GE, Mitsubishi and Rolls-Royce have been invested in Vietnam.

According to the Global Manufacturing Competitiveness Index released by Deloitte Touche Tohmatsu Limited and the US Council on Competitiveness, Vietnam will jump from its current 18th to 10th place, moving to the top 10 of the most competitive nation for global manufacturing in next five years.

The report is based on the responses of more than 550 senior manufacturing executives to a wide-ranging survey discussing the current business environment and global competitiveness in the manufacturing sector. This is the second time the index has been released and the first time Vietnam has been ranked as one of the most competitive nations for manufacturing.

Edlyn Khoo, centre director, Ho Chi Minh City, International Enterprise (IE) Singapore Vietnam has experienced several challenges in recent years, notably a slower annual GDP growth, a rise in non-performing loans and the need to stabilise its macroeconomy. Despite these challenges, there is strong investment potential in Vietnam in its urban solutions, infrastructure, tourism, hospitality, consumerism and food sectors. The potential for cooperation for urban solutions and infrastructure is huge – the urban population in Vietnam’s three largest cities of Hanoi, Ho Chi Minh City and Haiphong are expected to triple by 2020, driving demand for urban solutions such as water and wastewater management. Singaporean companies like Sembcorp and Ascendas have established a track record in industrial parks in Vietnam and have collaborated with Vietnamese companies to share their expertise in areas such as developing industrial parks, quality housing, integrated township and waste management solutions. Tourism and hospitality continue to play a key role in Vietnam’s economy. In 2012, Vietnam welcomed 6.8 million international and 32.5 million domestic tourists with a total revenue of VND160,000 billion, an increase of 13.9 per cent year-on-year. With their expertise in master planning, hospitality management and training, Singaporean companies could add value and bring connections to potential partners in Vietnam. Rising disposable incomes and growing consumer brand awareness offer promising prospects for Vietnam’s consumer sector. There are potential synergies to be unlocked through collaborations with Singapore companies experienced in international trade, branding and selling to overseas markets. Last but not least, the food sector is promising – given Vietnam’s strength in agriculture and fisheries and the government’s commitment to developing this sector – with investment opportunities for Singaporean companies in food sourcing, food manufacturing and food distribution. We note that Vietnam’s strong fundamentals – such as a young demographic base, high literacy rates, a growing middle class and rich endowment of agro-forestry and seafood resources – coupled with the government’s commitment to manage these challenges will enable the country to embark on its road to recovery. The government is cognizant of the challenging environment and has undertaken efforts to address investors’ concerns such as enacting legislation to make the environment more conductive for investing. The State Bank of Vietnam (SBV) also closely monitors inflation closely. In addition, the SBV is drafting plans to establish a debt trading company to recapitalise failing banks and relax the maximum foreign ownership ratio, currently at 20 per cent of local banks. We acknowledge the government’s strong commitment and welcome its efforts to address the above challenges to improve the investment climate. We also note the strong bilateral relations between Singapore and Vietnam, which help in the identification of business opportunities and forging of partnership between the two countries.