Local innovations attract global FDI

Localities in Vietnam are promoting procedural streamlining and anti-corruption stances in search for FDI Photo: Le Toan

In late November 2016, the northern province of Hung Yen, over 30 kilometres southeast of central Hanoi, witnessed a special event.

Japan’s Sumitomo Corporation and Thang Long Industrial Park II, of which Sumitomo holds a 92 per cent stake, established the “Hung Yen Province Japan Desk”.

The desk serves as a liaison point for Japanese companies who are considering expanding into the province. It works with relevant state agencies to help fast-track investment applications, establish companies, and certify supporting industries.

Specifically, it is aimed to reduce the time needed to grant an investment certificate to Japanese investors in Hung Yen by at least 80 per cent.

Japan currently makes up over 70 per cent of the province’s total foreign direct investment (FDI).

At the Thang Long Industrial Park II, about half of the tenant companies are small- and medium-sized Japanese firms, and many represent their companies’ first ventures overseas.

To assist in the expansion of these firms, the park has concluded agreements with the Japanese local governments of Kanagawa and Hyogo prefectures and Hamamatsu city on providing exemptions from management fees for the first year and other support.

Since its establishment inside the park, the desk has helped some Japanese firms obtain their investment certificates within two days, instead of the 18 days it might have taken previous.

“Many Japanese firms are interested in developing supporting-industry projects in Vietnam, where the supporting industry remains weak,” said the desk’s member Goki Nobute. “What we do at the desk is examine investors’ investment dossiers, provide them with consultancy, and then complete procedures to grant them an investment certificate within the shortest time.”

Japan Desk is seen as a big breakthrough in Hung Yen’s attempt to attract more foreign investment, said Nguyen Van Phong, Chairman of Hung Yen People’s Committee.

Before, if Japanese investors wanted to seek information and obtain investment or business registration certificates, they often had to go to the local departments of Planning and Investment, and Natural Resources and Environment, or to the provincial Industrial Park Management Board, to get the necessary paperwork.

“But now, they go to only one place which can fully satisfy their needs,” Phong said. “And clients don’t have to pay for any of the services.”

In fact, the model of the Japan Desk has also been effectively implemented in other localities, such as Quang Ninh, Hanoi, Bac Giang, and Ba Ria-Vung Tau. As of December 20 last year, Japan was Vietnam’s second biggest foreign investor in terms of registered capital, with 3,282 valid investment projects worth over $42.1 billion.

Quang Ninh is also the lone region in Vietnam that has a co-operation programme with the Japan External Trade Organization, which provides consultancy for the province to attract more Japanese investments. Currently, the province has seven Japanese valid investment projects registered at $430 million.

Innovation allures FDI

Innovations in FDI attraction by provincial governments have helped transform the country’s FDI landscape over the past few years.

In 2015, Danang launched a campaign via a video clip named “Let’s smile”, which demonstrates the city’s business-friendly climate. The video shows Danang’s administrative staff presenting clients with smiles when they help them process administrative procedures.

In addition, the city has allowed businesses to register their establishment online, which enables investors to obtain business certificates within one to two days, two days less than before. The online registration system has also truncated nearly 50 per cent of investment-related procedures.

The “Let’s smile” campaign, the online registration system, and the city’s one-stop shop for dealing with investor issues all contributed to Danang’s first ranking in the Vietnam Chamber of Commerce and Industry’s Provincial Competitiveness Index (PCI) for 2015. Danang has placed first in PCI for three consecutive years, and six times total since the index was launched in 2005.

For richer regions like Ho Chi Minh City, the local government has its own initiative. Since late October 2016, the municipal Department of Planning and Investment began online services for foreign investors, including investment registration, capital contribution, and stake purchasing.

In February 2016, the department also launched an at-home business registration service for foreign investors.

Notably, last year, the city earmarked a financial package of VND1 trillion ($45.45 million) for supporting startup activities, and another package worth VND2 trillion ($90.9 million) to prop up city-based enterprises to modernise technology.

As a result, the city saw 36,000 newly-established enterprises in 2016, up 12.7 per cent year-on-year. In addition, there was a 35.8 per cent rise in expanded capital of operational enterprises.

Another typical case is the northern province of Bac Ninh which is home to South Korean-backed Samsung’s electronics investment projects, worth $6.5 billion in all.

Last month, leaders of South Korea’s Hanwha Techwin Company, a specialist in making security equipment, went to Bac Ninh to discuss the company’s $50 million project. The firm is expected to begin construction within 2017’s first quarter.

Hanwha Techwins’ CEO Yang Jin Seol said in addition to the one-stop shop in dealing with bureaucracy that Bac Ninh has offered, he liked seeing the provincial leaders directly deal with investors’ difficulties. This includes punishing all staff involved in corruption or bribery.

Currently, Bac Ninh has 920 valid foreign-invested projects, registered at over $21.25 billion. This includes last year’s figures of over 150 projects worth $454 million.

Hanoi has also been known as a good destination for enterprise establishment. In October 2016, Swiss State Secretary Marie-Gabrielle Ineichen-Fleisch and a delegation of Swiss enterprises visited the Hanoi Business Registration Office. Ineichen-Fleisch said that she was “very impressed by the achievements and efficiency of the business registration reform programme in Vietnam over the past years”.

The time needed for establishing an enterprise at the office was reduced from 15 days in 2010 to about two days now.

The business registration reform programme in Vietnam started in 2008 with support of international organisations such as the Swiss Cooperation Office for Vietnam (SECO). From 2010 through 2018, SECO will have provided financial support of over $12.3 million for two projects: “Technical assistance to business registration reform in Vietnam” and “Expansion of the national business registration system to new business entities”.

“We expect that in 2017, 100 per cent of business registration dossiers will be conducted online [compared to 70 per cent in 2016],” said Nguyen Duc Chung, Chairman of the Hanoi People’s Committee.

“If you had been here about five years ago, you would have seen how significant this change was. Enterprises no longer have to stand in a long queue to submit dossiers or to receive guidance,” he added.

In search of bigger fruit

Vietnam went up nine places in the World Bank Doing Business 2016 report, which ranks economies worldwide by measuring their business environment. The country jumped to 82nd place out of 190 economies. Vietnam posted improvements in such indicators as access to electricity (+5 places); protecting minority investors (+31); paying taxes (+11); trading across borders (+15); and resolving insolvency (+1).

It is clear that apart from the central government’s efforts to construct a more enabling and responsive government in favour of enterprises, innovations made by local governments in FDI attraction have leveraged Vietnam’s position on global investors’ radar screen.

For Japan’s Sumitomo Corporation, thanks to the Japan Desk model, this firm has been more successful in alluring tenants to the Thang Long Industrial Park II. Sumitomo is planning to increase the park’s rental land from the current 30,000 square metres to 60,000 square metres within the next few years to meet growing demand.

Optimistic about the province’s outlook to attract more Japanese investors, Chairman Phong of Hung Yen provincial said that in the time to come, the time needed for establishing an enterprise in the province will have to be reduced to only one day and the time needed to process other administrative procedures to be cut by 60 per cent.

Meanwhile, Ho Chi Minh City’s Department of Planning and Investment reported that in 2017, the city will further improve its business climate so that this year will see 50,000 newly-established enterprises, and the figure is expected to rise to 500,000 by 2020.