Policy improvements to become rising star

As a promising land for foreign direct investment, Vietnam could grow into the most advanced country in the region – as long as more flexible mechanisms in granting special incentives to large-scale projects are realised.

Illustrative image. – File photo

This was expressed by various experts and leaders of numerous investors from Asia, Europe, and the United States at an online forum last week themed “The rising star: capitalising on investment opportunities in Vietnam after COVID-19”, organised by the Ministry of Planning and Investment (MPI) in collaboration with Standard Chartered and the State Bank of Vietnam.

As the global economy is grappling with the coronavirus, Vietnam is still maintaining socioeconomic growth with an expected growth rate of about 2 per cent this year, leading to the use of the “rising star” tag. This works in tandem with the oft-repeated advantages Vietnam boasts for overseas investors with the size of its population, network of free trade agreements, young labour force, and competitive production costs.

Developers believe there is more potential, especially in the south of the country. However, this potential can only be reached if industrial clusters and provinces can be connected in a stronger fashion in order to quicken the pace of economic development. That in turn would speed up development of the likes of Binh Duong, Dong Nai, Long An, and even Ho Chi Minh City.

Leading industrial developers have also noted that while Vietnam has utilised its resources well thus far, large-scale development of infrastructure that will entice vast amounts of foreign direct investment (FDI) as seen in other countries is not yet within reach. If and when this happens, Vietnam could become one of the most advanced ASEAN economies.

Do Nhat Hoang, director of the MPI’s Foreign Investment Agency (FIA), revealed that a number of global tech giants are exploring investment opportunities in Vietnam for their billion-dollar projects.

“The government’s taskforce in charge of attracting high-quality foreign investment has been working with these giants, and results are proving positive,” Hoang said. The names of these groups cannot yet be disclosed as the sides are still exploring options. According to a report on the current situation of industrial production compiled by the Ministry of Industry and Trade, several popular brands such as LG, Panasonic, and Foxconn, one of the key suppliers of components for Apple, have initiated plans to shift their production chains to the country.

Apple, for instance, recruited personnel in both Hanoi and Ho Chi Minh City earlier this year, signifying that the corporation has serious designs in Vietnam.

However, experts noted that for Vietnam to lure in high-quality investment from global giants, it would need “flexible mechanisms” which will more effectively facilitate investment.

According to MPI Minister Nguyen Chi Dung, concerted action from all ministries and agencies is more important than ever to attract such investments.

Speaking at a seminar on attracting FDI and the breakthrough actions and solutions required, organised by the Government Portal over a week ago, Hoang of the FIA said that the MPI has cooperated with ministries and relevant agencies to study priority policies offered by Thailand, Indonesia, and India to lure high-profile investors, simultaneously designing particular incentive packages for each project.

“The MPI is collecting opinions from ministries for the special incentive package draft before submitting to the prime minister for approval,” Hoang said. “These priority policies will be offered for large-scale projects that apply high-quality technology, have high added value, offer a high localisation ratio, and create opportunities for local vendors to join regional and global value chains.”

“Amid harsh competition among countries in wooing foreign investment, especially the wave of capital shifts, it is necessary for Vietnam to offer “trump cards” that are more special and differ from existing regulations, in negotiating with groups,” Hoang noted.

Responding to how special these options could be, Nguyen Van Toan, vice chairman of the Vietnam Association of Foreign-Invested Enterprises (VAFIE), told VIR that Vietnam should allow targeted investors to shorten the time needed for investment and construction licensing, handling land, and approving the environmental impact assessment report.

He added that for European investors, transparency and speed in administrative procedures as well as offering available space for project implementation are sometimes more appreciated than tax incentives and other supporting policies.

Nearly two years ago, consultancy group IPA Vietnam supported a group of German small- and medium-sized enterprises (SMEs) to survey and find a land fund of 70-100 hectares to build a production area for German enterprises. However, provinces said that it would take up to two years to arrange such a fund. The news discouraged the investors and they have not returned to Vietnam since.

“Although it is just one example of rejection, it shows the importance of commitments to hand over clean land to investors in a short time,” said Nguyen Dinh Nam, CEO and founder of IPA Vietnam. “These SMEs couldn’t wait two years to have ground developed for their projects, so it is understandable if eagles cross out Vietnam from their destination lists and if the country fails to meet requirements.”

Toan of VAFIE said that it is necessary to flexibly apply Circular No.23/2015/TT-BKHCN from 2015 on the import of used machinery, equipment, and technological lines so that investors can reduce expenditures for investing in manufacturing lines, and save time to resume operations in new locations.

In the 30-year journey of luring in more FDI, Vietnam has applied various special policies in order to do so. The government providing good financial assistance to Intel was one notable example. As a result, 14 years ago, Intel decided to invest in Vietnam thanks in part from this support, instead of India. After Intel’s investment, a wave of large foreign tech corporations including Samsung, LG, Kyocera, Microsoft, and Bosch followed.

“Taking specific incentive packages became a default regulation in policy to lure eagles in a way that the taskforce and MPI have been doing. It will contribute to shortening time to negotiate with large-scale groups and helping investors feel secure thanks to stability in policies,” Toan said.

MPI Minister Dung added that Vietnam will “continue to be proactive in connecting and negotiating with large-scale groups that own modern technology as well as the leaders and operators of supply and distribution chains to implement investment promotion programmes.”

Do Nhat Hoang - Director Foreign Investment Agency

Foreign-invested enterprises play a key role in the strategy to mobilise and evolve economic sectors in Vietnam, and foreign direct investment contributes to sustainable socioeconomic development.

Vietnam will positively select foreign-invested projects that can match criteria on quality, performance, tech, and environmental protection. Projects applying new and clean technologies, modern governance, high added value, links with supply chains, and human resources will be highly appreciated.

Additionally, mergers and acquisitions (M&A) are increasing. Despite the pandemic, there are about 5,000 such deals with total investment at $5 billion planned or in the making. Thus, Vietnam could be an attractive destination thanks to transparent and clear M&A regulations and policies.

Foreign investors need not obtain M&A approval before acquiring shares in the target company if the increase of ownership does not exceed 50 per cent of chartered capital. Thus, investors will have easy access to these agreements.

In order to welcome high-quality foreign-invested projects and leading corporations from around the world, Vietnam has been preparing clean land, factories, and other necessary infrastructure. The country is also accelerating training of human resources and welcoming experts, as well as strengthening development of supporting industries. The MPI is building some special incentives for large-scale and high-quality projects, while constantly improving the investment and business climate along with national competitiveness.

Soren Bech - General manager RB Health Vietnam

In order to enhance the effectiveness of FDI attraction and enable technology transfers, education is the key of success, so training human resources to develop a large team of highly-skilled workers is important. In this, Vietnam is similar to Malaysia a few decades ago.

In order to evolve the manufacturing industry, human resources is the most important factor, so we should pay attention to developing training facilities, such as universities, academies, and institutes.

Thus, improving quality of education and training in the country, as well as accelerating globalisation in this sector, can connect Vietnam to more developed economies like the United States and Europe.

Dang Trong Duc - Director KTG Industrial Development JSC

China+1 strategies, which have increased even before the COVID-19 outbreak, could be part of the strategy of corporates for a long time, which is a normal and natural development in the process of industrialisation and modernisation. Currently, numerous investors in China are looking for new chances, locations, or new markets outside, because manufacturing costs in the country are constantly increasing.

Thus, even without the pandemic, Vietnam has a lot of favourable conditions to enjoy these investors’ attention. Vietnam’s proximity to China offers access to most of the necessary materials for manufacturers to use. Moreover, the cultural similarities between both countries offer those who plan to shift their production towards Vietnam an easier start for their business.

Additionally, Vietnam is a shining example when it comes to socioeconomic development and the preparation for FDI mobilisation. Over past years, roads and highways in the country have evolved well, connecting all airports, seaports, and promising localities.

We also see room for improvement, particular in the south, where industrial clusters should be further connected to accelerate economic development and utilise resources more effectively, like in Ho Chi Minh City, Binh Duong, Dong Nai, and Long An.

Vietnam has done well for its resources, but a full-scale development of its infrastructure still needs more time. However, this will open the doors to much more FDI capital in the years to come.

To me, it is inevitable that Vietnam will be one of the most advanced economies in ASEAN, even surpassing Thailand, the Philippines, and Indonesia. VIR

Kim Oanh