Breakthrough solutions needed to attract foreign investment
The Vietnamese Government Portal hosted a discussion on September 4 on breakthrough actions and solutions to attract foreign investment.
A report from the Ministry of Planning and Investment shows that as of August 20, the total flow of foreign direct investment (FDI) into Vietnam stood at 19.54 billion USD, equal to 86.3 percent of the figure in the same period last year. Of particular note, after difficulties at the beginning of the year, foreign investment has surged in recent months.
Economists said that this is evidence of new flows coming into Vietnam, which is viewed as an exceedingly attractive destination with competitive advantages, participation in new-generation trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), and effective COVID-19 prevention measures.
Nguyen Van Toan, Vice Chairman of the Vietnam Association of Foreign-Invested Enterprises, advised businesses to take advantage of integration opportunities and intensify connectivity, as attracting high-quality FDI will bring about more opportunities for domestic companies.
To attract more high-quality FDI, Nguyen Dinh Cung, former Director of the Central Institute for Economic Management (CIEM), said that unofficial costs are barriers and bottlenecks hampering investment not only by foreign-invested enterprises but also by private domestic companies.
It is therefore essential to cut costs and quickly bring into full play all opportunities to welcome more foreign investors, he said.
Each investor needs a different policy, Cung said, so it is necessary to design policies in accordance with different investors.
Analysts also suggested Vietnam continue to reform its institutions to improve its investment environment and be proactive and consistent in its investment attraction policies./.
Over 7,200 certificates of origin issued for exports to EU under EVFTA
More than 7,200 EUR.1 certificates of origin (C/O) have been issued for exports worth 227 million USD to 28 members of the EU since the EU-Vietnam Free Trade Agreement (EVFTA) took effect last month, according to the Ministry of Industry and Trade (MoIT).
The certified goods were mostly footwear, seafood, plastics, coffee, garments, handbags, suitcases, vegetables, and rattan products.
Major importers are Belgium, Germany, the Netherlands, France, and the UK, who have seaports and serve as logistics hubs in the EU.
Experts said the trade pact, which came into force on August 1, will help Vietnam diversify its export markets as well as export products. A wide range of Vietnamese goods have benefited from tariff reductions, such as farm produce, seafood, footwear, and electronic products.
The MoIT will continue to support local companies in the time to come, ensuring exporters know how to take full advantage of the EVFTA and have a thorough understanding of C/O. It will also work closely with EU partners to address difficulties while implementing the trade pact in a timely manner.
Businesses requiring C/O guidelines can contact the ministry’s Foreign Trade Agency via email at firstname.lastname@example.org or email@example.com.
Real estate investors advised to focus on new urban areas in Hanoi
Analysts from real estate consultants Savills Vietnam have advised investors to focus more on new urban areas in Hanoi, especially those with convenient infrastructure networks.
The city’s planned eight metro lines connecting the downtown area with outlying districts make the latter well worth considering, they told an online conference on September 3 updating businesses on market developments and opportunities for investment in major projects in Hanoi.
The housing market has suffered a short-term fall in demand due to COVID-19, but with the completion of infrastructure projects and the promise of profit, new housing projects boasting large numbers of apartments have been introduced.
According to Nguyen Duc Thiem, Savills’ sales manager in Hanoi, in the first half of this year some 29,400 apartments entered the market, of which more than 5,400 were sold, or about 19 percent.
Supply primarily came from seven projects, with prices rising slightly to 1,460 USD per square metre, he said.
Meanwhile, the housing market in Vietnam as a whole still boasts potential due to high demand, as the country’s population is predicted to reach 120 million by 2050 with an urbanisation rate of 57 percent.
Over the remaining two quarters of the year, Savills Vietnam predicts that about 24,200 apartments from four existing and 18 planned projects in Hanoi will be introduced to the market. Of these, 68 percent are under construction.
North Tu Liem, South Tu Liem, Gia Lam, and Hoang Mai districts are home to most of these projects.
Savills also noted that with Vietnam’s experience in controlling COVID-19, the country’s real estate sector will not be seriously affected.
Vietnam’s production decreases in August
The Vietnam Manufacturing Purchasing Managers' Index (PMI) fell to 45.7 in August from 47.6 in July as the effects of COVID-19 led to a deterioration of business conditions in the country’s manufacturing sector, the latest survey by IHS Markit released this week showed.
This represented a second successive deterioration in the health of the manufacturing sector after a return to growth had been signalled in June. Although marked, the latest decline in business conditions was much less severe than that seen during the worst of the COVID-19 related downturn in April.
According to the survey, respondents indicated that the effects of the COVID-19 pandemic led to declines in both output and new orders. New business decreased at a solid pace amid reports of weak customer demand. Data also pointed to a sharp reduction in new export orders, and one that was faster than that seen for total new business.
The latest reduction in manufacturing output was the eighth in the past nine months, and faster than that seen in July. All three broad sectors posted drops, with the rate of contraction sharpest among intermediate goods producers.
“Declining new orders led to further reductions in both backlogs of work and employment amid a lack of pressure on operating capacity. The rate of depletion in outstanding business was sharp, while firms scaled back their staffing levels to an extent only exceeded during the worst of the recent downturn in April,” the survey stated.
A faster reduction in purchasing activity was also recorded amid lower new orders and production requirements. That said, the fall in input buying was still much weaker than April's record. The scaling back of inventories also continued, with stocks of both purchases and finished goods decreasing in August. Some respondents indicated that finished products had been dispatched to customers as soon as they were ready to avoid a build-up of inventories.
Input prices increased for the third month running in August, albeit at only a slight pace that was slower than the series average. A scarcity of materials due to the COVID-19 pandemic was the principal cause of the rise in input costs, according to respondents. Similarly, the impact of the pandemic was central to another lengthening of suppliers' delivery times.
Manufacturers responded to weak demand conditions by lowering their output prices again midway through the third quarter of the year. Selling prices have now decreased in each of the past seven months, with the latest fall the fastest since May.
Concerns around the ongoing effects of COVID-19 on demand led to a drop in confidence among manufacturers regarding the 12-month outlook for production. Firms still predicted, on balance, that output will rise over the coming year, linked to hopes that the pandemic will be brought under control. That said, optimism was among the weakest since the series began in April 2012.
“With the data moving in the wrong direction at present, the latest PMI data for Vietnam highlight the ongoing effects of COVID-19 on the manufacturing sector and the challenges faced in trying to overcome them. Customer demand remained weak, with firms scaling back production accordingly. The picture around employment was particularly worrying, with jobs lost at the second-fastest pace in nine-and-a-half years of data collection,” Andrew Harker, Economics Director at IHS Markit, said.
However, he noted: "Firms will be hoping that the virus can be brought back under control so that the recovery that got underway in June can get back on track."
Minimum PPP capitalisation rules up for debate
Amid concerns over minimum investment capital requirements among domestic and international investors, to-be-issued guiding decrees will affect the subdivision of investment fields to increase the bankability of public-private partnership projects from early next year.
Various ministries and cities last week joined discussions with the Ministry of Planning and Investment (MPI) about possible contents of the draft decrees guiding the implementation of the Law on Public-Private Partnership Investment, expected to come out on January 1, 2021, with the minimum investment capital requirement being one of the top concerns.
Under the law, five sectors are subject to PPP development, including transport; energy; social infrastructure; clean water supply, waste and wastewater treatment; and IT.
The minimum investment capital requirement is marked at VND100 billion ($4.34 million) or VND200 billion ($8.68 million), depending on the sector. The latter is applied to projects in sectors like transport, power (except for hydroelectric power plants), water and wastewater, IT, and infrastructure.
Meanwhile, the VND100 billion level is applied to projects in healthcare and education and training. However, these requirements are not applied to operation and management arrangement ventures.
The draft decrees are planned to target some specific sectors, mainly in the transport and water/wastewater treatment areas, towards requiring higher total minimum investment capital and applying for projects of at least Group B under the Law on Public Investment. Meanwhile, other sectors have a total minimum capital of VND200 billion as stated in the Law on Public-Private Partnership Investment.
According to the Ministry of Transport (MoT), which has a number of projects to be carried out under the public-private partnership (PPP) format, the five main subsectors of road, rail, inland waterway, maritime, and aviation feature investment capital wildly different from one another. “Road projects require big investment, while the threshold in inland waterway and maritime is smaller. We propose keeping the rate of VND200 billion as stated in the law,” said an MoT representative. “We also agree with the subdivision of transport segments.”
The Ministry of Construction, the Ministry of Information and Communications, and the Ministry of Industry and Trade (MoIT) also agreed that it is necessary to subdivide sectors into smaller segments and that there should not be a fixed rate for all as it would not be bankable.
“The minimum investment capital requirement of VND2.3 trillion ($100 million), equal to Group A projects, is feasible for power and thermo-power plants, and those with huge total investment capital,” a representative of the MoIT clarified. “For power grids, this capital requirement is higher because the majority has the investment of VND1 trillion ($43.4 million). Only long power grids have the investment capital equal to that of projects in Group A, but the number is few,” she added.
Localities also commented on the issue. Specifically, a representative of the Haiphong municipal Department of Planning and Investment said that the proposed minimum investment capital requirements in the to-be-built draft decree are too high, making it hard to attract investors. She proposed keeping the minimum investment capital requirement at VND200 billion as stated in the law.
“Solar power projects are often valued at about VND600-800 billion ($26-34.8 million), while those in education and healthcare usually sit at around VND100 billion.”
Similarly, a representative of Quang Ninh provincial Department of Planning and Investment, where a number of clean water supply and waste treatment projects developed under the PPP format are located, said the VND1.5 trillion ($66 million) mark is too high. “If applied, there will be no projects in this field that can be developed in the province, and the same will go for other provinces,” the representative said.
The minimum investment capital requirement for PPP projects has been a concern among investors. Jeffrey Wandly, vice president of the Singapore Business Association Vietnam, said that it is very high and only very large-scale foreign-invested enterprises can participate. “The PPP law currently provides that the minimum investment capital of a PPP project is VND200 billion. The inclusion of the minimum capital sum would be in line with ensuring that larger PPP projects are prioritised. However, it also means that investors with limited capacity may be excluded from participating,” Wandly told VIR.
According to the MPI, the subdivision of the sectors and the minimum investment capital for each field will be considered in the drafting of the decrees to ensure bankability of future PPP projects. They will be then announced for public comment before issuance.
Dong Nai eyes more IPs
The southern province of Dong Nai wants the Government to approve three new industrial parks in this year’s national development plan to attract investments post-COVID-19.
To be located in Long Duc, Cam My and Long Thanh districts, they will have a combined area of over 6,800ha.
The Cam My zone will be the largest at nearly 3,600ha while the Long Thanh zone will be more than 2,600ha.
Cao Tien Sy, head of the Dong Nai Industrial Zones Authority, said 40 new FDI projects with a total investment of 168 million USD had been licensed in the first half while 53 existing ones would add 479 million USD.
The 647 million USD attracted so far is 60 percent of the full-year target, he said.
More foreign and domestic businesses in the province's industrial parks have been increasing their investments and expanding, he said, adding that many of the former are focusing on Việt Nam because of its membership of many free trade agreements.
The province has 32 industrial zones covering over 10,240ha, one of which has not begun operations yet.
It also plans to expand three existing industrial parks because they are nearly full, Dau Giay by 75ha, Long Khanh by 500ha and Tan Phu by 170ha.
Chaiman of the Dong Nai People’s Committee Cao Tien Dung said rapid construction and expansion of industrial zones would help the province attract investment once the pandemic is controlled and allot lands to key sectors like supporting and processing industries to enable the country to get deeper into global supply chains.
Numerous ongoing national infrastructure projects such as Long Thanh International Airport and Vung Tau - Bien Hoa railway and expressway are enhancing Dong Nai's attractiveness as an investment destination.
Logistics deal catches attention of competition agency
The logistics businesses involved in a proposed merger could face financial penalties if it turns out sufficient notification that was not offered prior to completion of the deal.
On August 18, the Vietnam Competition and Consumer Protection Authority (VCCA) requested that Indo Trans Logistics Corporation (ITL) and Southern Logistics JSC (STG) provide information concerning their acquisition deal. On the same day, ITL confirmed the successful completion of its acquisition of STG in a 97-per-cent takeover, officially merging the two businesses into one.
The company stated on its website that the merger will be “the perfect move to make a complete logistics ecosystem for ITL and an important milestone on our journey to conquer the region and continue to provide our customers and partners with integrated, diversified, and cost-optimised logistics solutions, contributing to bringing more value to Vietnam’s logistics industry.”
ITL will purchase 57.199 million shares of STG around 53.8 million shares, equivalent to nearly 55 per cent, were owned by ITL subsidiary Gelex Logistics Co., Ltd. Despite not having directly bought STG shares, ITL has engaged in a contract with Gelex Logistics to purchase 100 per cent shares of the latter. It is said that the VCCA also sent other relevant authorities to uncover whether the deal has been completed or not.
ITL, which has been provided with a financing package of $70 million by the International Finance Corporation, a member of the World Bank Group, said, “ITL is currently carry out diligence documents requested by the VCCA and will announce it later.” It added, “ITL understands the provisions of the laws and always complies with these regulations,” and refused to give further details on its strategy after the deal at the moment when it was touched by VIR’s question.
Reporting to the Business Registration Management Agency under the Ministry of Planning and Investment, Gelex Logistics said that its owner and legal representative had changed to Dang Doan Kien, vice president in charge of ITL’s Investment Division, from June 25.
Currently, STG is listed on the Ho Chi Minh City Stock Exchange with market capitalisation of VND1.803 trillion ($78.4 million). According to the stock price estimated at the end of August 17 session at VND18,350 (80 US cents), the transaction is expected to be worth more than VND1.78 trillion ($77.4 million).
In the information request letter, the VCCA also recommends related parties to comply with the provisions of articles 33 and 34 of the Law on Competition if the merger filing thresholds are met.
Merger filing is mandatory for a proposed merger with total assets in the Vietnamese market of the enterprise or group of affiliated enterprises was VND3 trillion ($130.43 million) or more in the financial year immediately preceding the year of the proposed implementation of economic concentration. The threshold is also triggered if total sales turnover or input purchase turnover in the Vietnamese market of the enterprise or group of affiliated enterprises is the same amount in the same situation. Besides that, mergers are also required to be filed if its value is VND1 trillion ($43.47 million) or more.
Though the Law on Competition does not prescribe what stage in the timetable the parties shall formally notify the transaction, a proposed merger must be notified before its completion. A fine of up to 5 per cent of each violator’s total turnover earned from the relevant market in the financial year preceding the incident may be imposed for the breach of filing responsibility.
However, the National Competition Commission – the legitimate institution with jurisdiction over merger control but has not yet been established – would need to launch an investigation into possible merger control infringement within three years of the date the alleged violation is committed. Therefore, it is more pressing than ever that the commission becomes operational and the new Vietnamese merger control regime gets off to a good start.
ITL is a premier regional solutions provider for integrated logistics, aviation services, warehousing, freight management, and distribution. In particular, ITL has been leading aviation services in the Indochina region, representing more than 22 airlines such as Thai Airways, Qatar Airways, Jetstar, AirFrance, Delta, and Vietnam Airlines and, pre-pandemic, was transporting goods on more than 300 flights every week with capacity of more than 150,000 tonnes of cargo per year.
The company also supports local companies to develop their business to international markets with integrated logistics services, including air, sea, rail, ground, multimodal transportation, and customs clearance.
Meanwhile, STG is a Vietnamese-based company engaged in the transportation industry with a warehouse system of more than 230,000 square metres located in the centre of Ho Chi Minh City and neighbouring areas and industrial zones bordering the Saigon River. This facilitates both road and water freight transportation, as STG provides freight forwarding services, as well as air, rail, water, road, and multimodal freight transportation services.
Bac Ninh attracts 119 FDI projects in January-August
The northern province of Bac Ninh licensed 119 new foreign direct investment (FDI) projects worth 334.8 million USD in the first eight months of 2020, according to the provincial Statistics Office.
To be attractive to both foreign and domestic investors, Bac Ninh focused on improving business climate with giving priority to projects which use less land, less labour; have high investment rate, much budget collection and high technology, the Vietnam Government Portal (VGP) reported.
The province also allowed 1,602 existing FDI projects to increase their capital by 19.64 billion USD.
Of these, 1,331 projects are in manufacturing and processing industry, making up 83 percent; including 1,205 projects from the Republic of Korea, 112 projects from China and 86 projects from Japan.
Together with general preferential mechanisms and policies of the State, the province also proposed some initiatives to encourage investment in industrial zones and boost on-the-spot investment promotion through creating images from big FDI businesses, such as: Samsung, Canon and Foxcon.
In the last 20 years, Bac Ninh province in the Northern Key Economic zone has grown from an agricultural community to a major industrial center with the second-highest per capita income and one of the highest economic growth rates in the country.
Surrounded by major economic centres such as Hanoi and Hai Phong, it has managed to establish itself as one of the major FDI destinations.
Japanese press on with expansions
The efforts of Japanese investors to expand overseas business and diversify supply chains in the era of COVID-19 will be a boon to Vietnam.
Japanese drugmaker ASKA Pharmaceutical has announced an agreement to acquire 24.9 per cent equity in Vietnamese counterpart Ha Tay Pharmaceutical JSC (Hataphar), making it the first overseas sales base for the Japanese company. ASKA plans to buy over 6.575 million shares at Hataphar. The transaction is expected to be completed in the next few months.
In 2019, Hataphar generated VND2.04 trillion ($87.45 million) in net sales and VND90 billion ($3.86 million) in net income, ranking as the second-biggest pharmaceutical producer in sales in Vietnam.
ASKA, established 100 years ago, is a speciality pharmaceutical company in the fields of internal medicine, obstetrics, gynaecology, and urology. The company set up its international business division in April with the aim to provide sustainable growth and development through overseas business.
ASKA believes that the collaboration through the transaction will “create synergies between Hataphar’s commercial structure and its own pharmaceutical development and manufacturing technology capabilities”.
According to a VIR source, other Japanese IT companies are looking for opportunities to snap up Vietnamese counterparts with a view to ramping up presence in the country. Among them, a Japanese firm, which already has a subsidiary in Thailand, is seeking a merger with Vietnamese partners in software outsourcing, digital transformation, project management software, human resources, and big data.
Meanwhile, another Japanese company providing call centre services in Vietnam is also looking for a potential IT firm with an expected value below $10 million.
Vietnam has become a darling for Japanese investors in ASEAN. A survey conducted by the Japan External Trade Organization late last year pointed out the reasons for the attractiveness of the Vietnamese market. Specifically, the proportion of Japanese companies that selected “market size/growth potential” as an attraction or advantage of doing business in Vietnam has continued to increase. In the last financial year it increased by 11.1 percentage points to 86.1 per cent compared to 2013. Other attractions and advantages that have increased include clustering of customer partners, political and social stability, availability of low-cost land and offices, and ease of local procurement.
Most recently, the Japanese government is paying about ¥12 billion ($114 million) to 30 companies to increase production in Southeast Asia, in the first round of a multi-billion dollar fund to diversify supply chains after COVID-19 and worsening relations between the United States and China. Half of them will be using that money in Vietnam, as reported by Bloomberg.
Fujikin Inc. makes parts used in semiconductor manufacturing and is the one benefiting from the incentives. The Osaka-based manufacturer will receive subsidies worth two-thirds of its costs to shift production out of China and into Vietnam. “We’d been thinking about increasing our capacity in Vietnam before the subsidy was announced, and it fit right in,” said company president Shinya Nojima.
Another Japanese investor, Showa International Co., is a Tokyo-based clothes-maker with 25 years of experience in Vietnam. The pandemic has seen it ramp up production of medical gowns and masks, with Kazuo Nishizawa, leader of the company, projecting it should be able to produce up to 150,000 gowns a month. “There’s still a large shortage of gowns and masks,” he said. “With the demand surging across the world, we have a mission to first be able to provide stable supplies to Japan.”
Similarly, Japanese retailer Muji has recently launched a pop-up store in Ho Chi Minh City. Muji already manufactures a large number of products in Vietnam. With this advantage, the company can reduce transportation costs and provide its products at a more reasonable price.
“Together with the growth of the economy in recent years, is the rise of a new group of Vietnamese consumers who yearn for quality products that are safe for the environment,” said Nagaiwa Tetsuya, general director of Muji Retail Vietnam. “Even though there are a lot of alternative options at cheaper prices, we believe that our products can deliver the quality Vietnamese consumers are looking for.”
Concentrated farming areas bring higher incomes to Tien Giang
The Cửu Long (Mekong) Delta province of Tiền Giang’s concentrated farming areas for key agricultural products have improved farmers' incomes and have helped the province adapt to climate change.
The province, which is the country’s largest fruit producer, has fertile soil and abundant water sources for agricultural production since it is located along the Tiền River, a tributary of the Mekong River.
Nguyễn Văn Mẫn, director of the province’s Department of Agriculture and Rural Development, said the province had implemented effective agricultural restructuring.
The province has developed concentrated farming areas for 32,000ha of high quality rice area in the west; 13,500ha of durian in Cai Lậy, Cái Bè and Tân Phước districts; 14,000ha of pineapple in Tân Phước District; and 9,140ha of dragon fruit in Chợ Gạo, Tân Phước, Gò Công Đông and Gò Công Tây districts.
Last year, dragon fruit farmers earned a profit of VNĐ400 – 600 million (US$17,230 – 25,900) per hectare, while farmers who grew off-season dragon fruit earned 1.7 times more than the main season dragon fruit, according to the department.
To adapt to climate change, the province has switched to cultivating dragon fruit in rice growing areas in Đồng Tháp Mười (Plain of Reeds) region’s alum-affected areas, the Gò Công coast, and in saltwater-intrusion areas in the Vàm Cỏ River since the fruit grows well and has high yield and value there.
Võ Thị Kim Phượng, deputy head of the province’s Plant Protection and Cultivation Sub-department, said that farmers had received instruction on how to grow high-quality varieties like pink flesh and pink-violet flesh dragon fruit.
The province had also provided advanced techniques to grow dragon fruit under an intensive farming model, she said.
The average yield of the concentrated dragon fruit farming areas had risen to 31.3 tonnes from 27 tonnes per hectare a year before.
The province also strengthened linkages among co-operatives and companies. Twenty-three companies, co-operatives and sale agents have farm contracts with farmers to produce and consume rice.
It also has 74 companies, co-operatives and establishments that buy dragon fruit, mostly for export.
Ngô Hữu Thệ, secretary of the Chợ Gạo District Party Committee, said the district’s 18 communes had developed linkages among farmers and companies to produce and buy agricultural produce, mostly dragon fruit.
Chợ Gạo had established concentrated farming areas for its key products such as dragon fruit, coconuts and vegetables.
The Thiên Phúc Co-operative in Chợ Gạo’s Bình Thạnh Commune had about 150ha of dragon fruit planted to Vietnamese good agricultural practices (VietGAP) standards.
Nguyễn Mạnh Tường, director of Thiên Phúc, said the co-operative planted dragon fruit under a value chain by supplying seedlings, input materials and farming techniques at a price 7 – 15 per cent lower than the market price.
The co-operative guarantees stable prices, ensuring that farmers make a profit, according to the director.
The co-operative also buys dragon fruit to make fruit powder, syrup and jam, and sells fresh fruit to export processors.
Most export products are unprocessed. To develop sustainable concentrated farming areas, the province has increasingly called for investment in the manufacture of refined agricultural products.
Mẫn, director of the province’s Department of Agriculture and Rural Development, said that trade promotion activities had helped expand domestic and foreign markets for its agricultural products.
The province has signed deals to supply agricultural products to wholesale markets in HCM City, Đà Nẵng and Hà Nội. It also exports milk apple, dragon fruit, durian, and green skin and pink flesh grapefruit to many markets. Lò Rèn Vĩnh Kim milk apples are exported to the US.
Hotels, restaurants reopen in Danang as social distancing eases
Hotels and restaurants in the central city of Danang will resume operation as the city has loosened social distancing regulations starting from September 5.
However, restaurants are only allowed to receive orders online, sell and deliver food to clients and not serve on the spot.
Hotels are only allowed to resume room service while other services like spa, dining and bars are still banned.
Events with more than 20 people in public places, and non-essential services continue to be suspended.
Public transport vehicles will only carry no more than half of the number of passengers as well as follow pandemic prevention and control measures.
The city authorities called on residents to avoid going out if unnecessary, wear masks in public places or on public transport vehicles, regularly wash hands and maintain a safe distance with others.
Hanoi luxury hotels reports record-low occupancy rate
Three to five-star hotels in Hanoi are facing difficulties due to lack of international tourists amid Covid-19 pandemic.
According to Hanoi Department of Tourism, on National Day employees had only one day off so Hanoi didn't have many tourists. Most of the accommodation facilities had to reduce prices by 40-60% because of the lack of customers.
The accommodation prices at Pan Pacific dropped by 40% to VND1.9m (USD82) a night for a deluxe room. Intercontinental Hanoi Landmark 72 reduced prices to VND4m a night and Metropole also reduced prices to VND1.16m a night. However, the occupation rate at one to five-star hotels was only 10.6%, a decrease of 53.4% compared to the same period last year.
Reports from the district and communal people's committees also show that as of August 31, 950 facilities in Hanoi had to suspend operation and 16,000 people were unemployed. Three to five-star hotels fell into a crisis since the majority of their customers are foreign tourists.
Statistics from the General Statistics Office of Vietnam show that Vietnam received 16,300 international visitors in August. Most of them are experts from China and South Korea working on various projects in Vietnam and students from Laos and Cambodia. The total number of tourists dropped by 98.9% compared to the same period last year as Vietnam hasn't been reopened for tourism.
Vietnam received a total of 3.8 million international visitors in the first eight months of 2020, a decrease of 66.6% on last year. Power consumption rate in shopping malls also dropped sharply.
The revenues in the tourism sector in the first eight months are estimated at VND13.1trn (USD563m), a decrease of 54.4% on last year. Stimulus programmes to boost tourism had little effect compared to the impact of Covid-19 as large numbers of tours and cultural events were cancelled.
Khanh Hoa Province saw the largest drop in tourism revenues with a 76.6% drop, HCM City is in the second place with a 72% drop. Ba Ria-Vung Tau and Quang Nam provinces follow with 67.2% and 66.5% respectively.
Grab and Gojek come closer to merger deal
The merger between the two tech unicorns Grab and Gojek may be concluded soon as the investors of both parties are urging to complete the deal.
According to newswire DealStreetAsia, at the beginning, the deal faced numerous barriers, including the Law on Competition and opposition from authorities.
In the past months, leaders of Grab and Gojek have been working with each other to negotiate the deal, showing their determination.
DealStreetAsia’s source shared that SoftBank and other financial investors are looking for solutions to accelerate the deal’s completion.
At present, there is no information about the ownership rates of the two parties in the joint venture. Gojek proposed a 50:50 ratio, while Grab wants to hold a controlling ratio.
These two tech unicorns are backed by giants like SoftBank, Microsoft, Toyota, Honda for Grab, and Google, Temasek, Mitsubishi, and Samsung for Gojek. In addition, Visa poured money in both companies. At present, the two companies are valued at over $10 billion each.
Gojek is a tech startup established in 2010 which mobilised $3 billion after 12 rounds of investment call. It is negotiating its Series F funding round with the expectation of mobilising $2.5 billion.
Meanwhile, Grab acquired $9 billion from 29 rounds of investment. In 2018, it purchased Uber’s operations across Southeast Asia, including Vietnam. The merger with Gojek raised concerns about a potential illegal economic concentration. Previously, the merger was earlier judged as anti-competitive by the Competition and Consumer Commission of Singapore, which fined the parties to a combined S$13 million ($9.5 million).
Meanwhile, the Philippine Competition Commission has approved the merger in August 2018, with conditions related to pricing and service quality. Two months later, the watchdog imposed a penalty of nearly $300,000 on Grab and Uber for violating the conditions.
However, in Vietnam, the Vietnam Competition Authority concluded that the acquisition was not an illegal economic concentration under Article 17 of the Law on Competition.
Biwase to put 37.5 million shares on auction
Foreign investors are offered 37.5 million shares at Binh Duong Water - Environment JSC (Biwase) with the initial unit price of VND25,500 ($1.11).
The Board of Directors of Biwase has approved the initial price of VND25,500 ($1.11) apiece for the auction of 37.5 million shares. This offered price is calculated based on the recent transaction sessions between July 21 and August 31.
Biwase expects to acquire at least VND956.3 billion ($41.6 million) from the sale and increase its charter capital from VND1.5 trillion ($65.2 million) to VND1.87 trillion ($81.3 million).
At present, the foreign ownership ratio stands at 10 per cent and is offered to increase to 49 per cent.
Becamex IDC currently owns a 25 per cent stake at Biwase, while Thu Dau Mot Water JSC owns 38.5 per cent.
Right after Biwase issued the notification, Thu Dau Mot announced that it will buy additional shares of Biwase to maintain its 38.5 per cent ownership. With 150 million shares listed, Thu Dau Mot will have to buy an additonal 14.4 million shares.
Formosa Ha Tinh reports $1 billion in accumulated losses
Several years after its environmental troubles and the second blast furnace going into operation, the accumulated losses of Formosa Ha Tinh have risen to $1.1 billion.
The revenue of Formosa Ha Tinh Steel Corporation (FHS) in 2019 was reported to be VND71.66 trillion ($3.115 billion), increasing 11.66 per cent on-year (VND64.175 trillion [$2.8 billion]). However, the pre-tax profit of the corporation dropped VND11.54 trillion ($501.74 million) in 2019 and VND2.73 trillion ($118.7 million) in 2018. Thus, the accumulated losses of Formosa Ha Tinh have hit VND25.4 trillion ($1.1 billion), according to cafef.vn, equivalent to 20 per cent of its charter capital.
Meanwhile, another steel manufacturer Hoa Phat Group generates more than VND9 trillion ($391.3 million) in profit every year, although its charter capital is VND33.13 trillion ($1.44 billion) only, equaling one-third of Formosa.
The reason of Formosa Ha Tinh's huge losses in 2019 is the sharp increase in costs, which reduced the accumulated profit to VND800 billion ($34.8 million), and its margin was 1.1 per cent only.
In the first months of the year, the manufacturing and sales volume of Formosa Ha Tinh reduced significantly due to the decreasing price of finished steel and the rising price of materials. Besides, the pandemic and the need for maintenance caused the factory to shut down for a month between January and February.
According to the Vietnam Steel Association, Formosa Ha Tinh produced 369,650 tonnes of construction steel, down 5.12 per cent on-year, making up 6.5 per cent of the total market.
Formosa Ha Tinh received its investment certificate in 2008 as one of the biggest froreign-invested enterprises in Ha Tinh province, with major shareholders comprising Taiwan's Formosa Plastic holding 70 per cent, and Taiwan Steel 20 per cent, along with a Japanese steel company holding 4 per cent.
Formosa Ha Tinh currently runs two blast furnaces at the annual capacity of 7.1 million tonnes of crude steel. Its output reached almost 5.1 million tonnes (up 29.6 per cent on-year) in 2019 and is expected to be 22.5 million after the third blast furnace is built.
Billion-dollar tech giants eyeing up Vietnam
There is ample interest in Vietnam among foreign investors despite global setbacks from the pandemic, but there are still areas to improve to attract foreign direct investment (FDI).
Do Nhat Hoang, director general of the Ministry of Planning and Investment's (MPI) Foreign Investment Agency (FIA) shared at the talk show on foreign direct investment (FDI) mobilisation yesterday (September 4) that the FDI task force has been working with numerous giants eyeing Vietnam as a destination, but could not reveal further information just yet.
He also cited data showing that Vietnam is still a favoured destination for foreign investors. According to him, in 2020, total global investment is projected to decrease by 40 per cent. However, in Vietnam, total FDI in the first eight months reduced by only 13 per cent on-year while FDI disbursement dropped 5 per cent. At the same time, the number of newly-registered projects rose 6.6 per cent and capital expansion projects by 22 per cent.
"Through discussions on various channels, we know that the number of investors exploring Vietnam is increasing," said Hoang. The FDI taskforce headed by MPI leaders has worked in person and online with numerous tech giants over the world to discuss billion-dollar investment projects. "We cannot provide details just yet due to confidentiality," he added.
The Ministry of Industry and Trade's report on industrial production conducted in the first half said that LG, Panasonic, and Foxconn (producing accessories and components for Apple) were planning to relocate factories to Vietnam. During the first half, Apple announced recruitment in Hanoi and Ho Chi Minh City, which is assumed to launch a factory in Vietnam.
Nguyen Van Toan, vice chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE) said that countries are competing strictly for FDI flows.
China has just issued a new Law on Investment to increase openness, transparency, and predictability. India and Indonesia are also applying some new measures to attract capital, while Japan and US are calling on their businesses to leave China and return to their home countries.
Nguyen Dinh Cung, a member of the Prime Minister's Economic Advisory Group, highlighted that Vietnam should also identify its goals to attract investors and foreign-invested projects. Most FDI inflows in Vietnam comes from Asia, while high-quality FDI from Europe and the US is much less. This is not a very new issue, but no moves have been made to address it.
"High-quality investors usually need policies that are stable, detailed, predictable, and arrangements not incurring non-official fees and costs," said Cung, highlighting the need to continuously improve the investment and business climate.
Hoang from FIA said that Vietnam is doing its utmost to improve its legal and institutional framework, simplify administrative procedures, and facilitate investors. Vietnam has also come out with some outstanding incentives, although the existing ones were already better than those of other countries. "These outstanding incentives are built particularly for high-tech, modern projects with more participation of Vietnamese businesses in global value chains," Hoang emphasised.
Additionally, in order to benefit from foreign-invested projects, experts said that local businesses should improve themselves to match the requirements of global value chains, either by M&A activities or support policies from the government.
Getting a lift from tech investment
The increase of global tech titans landing in Vietnam is hoped to facilitate local suppliers.
Apple has been researching the feasibility of expanding iPhone assembly in Vietnam
Since its first investment in Ho Chi Minh City, Intel Products Vietnam Co., Ltd.’s operations have grown into a major driver of the corporation’s global growth.
“At first, the location Intel Products selected to develop the assembly facility was empty, but now it homes a hi-tech park that can meet almost all of the needs in service demand for overseas investors,” Kim Huat Ooi, vice chairman cum general director of Intel Products Vietnam said. “With this growth basis, the group has built an assembly facility and one of the largest testing centres in Ho Chi Minh City.”
Apart from generating employment and tremendous revenues for both the corporation and Vietnam, Intel’s activities have also opened doors for large-scale tech groups to invest in Ho Chi Minh City, such as Samsung.
After 12 years in Vietnam, Samsung Vietnam now makes up a sizeable chunk of the country’s export turnover. To date, the South Korean-backed company is home to 130,000 workers with six factories and one research and development centre across the country. Thanks to its localisation policy, it has cooperated with over 50 local first-tier vendors and hundreds of second-tier vendors.
Elsewhere, multinational group Techtronic Industries (TTI), which is developing a $650 million plant complex in Saigon Hi-Tech Park (SHTP), recently met with more than 100 domestic suppliers to find vendors for its project manufacturing hand-held cordless power tools and outdoor power equipment.
Nate Easter, executive vice president of Global Sourcing and Outdoor Products Operation of TTI, said that the company will provide details of a domestic supplier development plan for the SHTP and a Center of Supporting Industries Development that will help establish Vietnamese supplier links with TTI. “The company will support domestic vendors to receive tech from TTI or its partners when they are selected to join our supply chains,” Easter said.
Meanwhile, the local market took notice of Apple’s plans to shift iPhone production lines to Vietnam as COVID-19 remains serious and US-China tensions continue to boil over. However, not all tech giants will be able to improve Vietnam’s supply chains, especially groups heading to the country to seek assembly partners.
Representatives of Apple visited Luxshare ICT in the northern province of Bac Giang last month to investigate the feasibility of expanding iPhone assembly work there. However, the company has not yet met Apple’s requirements.
According to Nguyen Quyen, director at CEL Consulting Vietnam, Luxshare ICT’s missed opportunity to become an iPhone assembler is not too regrettable because it would not have opened opportunities for Vietnamese suppliers to set foot in Apple’s supply chain.
Luxshare, which has already had a deal to manufacture AirPods, is also targeting assembling but the agreement with Apple would not allow it to select new partners in Vietnam. Apple is also unwilling to change its existing suppliers.
“Vietnamese suppliers could only join in the packaging segment, which brings little added value. It would be similar to Microsoft’s Nokia assembly plant in the northern province of Bac Ninh which also did not improve Vietnam’s capacity in the mobile phone sector,” Quyen said.
Adding to Apple and Microsoft, in 2015, South Korean-based LG selected 4P Co., Ltd. as its local partner to supplement chips and assemble LG items. South Korea’s fourth-largest tech group also plans to relocate some manufacturing lines, mainly assembling, to Vietnam, according to the Ministry of Industry and Trade. Pointedly, the authority of the northern city of Haiphong is proposing to add 687 hectares to Dinh Vu-Cat Hai Economic Zone, aiming to facilitate LG’s expansion.
“If Vietnam manages to lure in large-scale mobile phone assembly projects, foreign suppliers will also come,” Quyen said. “For example, LG Display is currently a second supplier for organic LED screens for iPhones. Once Apple selects Vietnam to assemble iPhones, LG Display could consider developing a screen manufacturing plant here too.”