Vietnam has attracted large amounts of foreign direct investment (FDI) from Asia, totaling $35.88 billion in 2017, an increase of 44 per cent year-on-year and a record for the last ten years. Last year established Vietnam as a main manufacturing hub, with the majority of FDI flowing into the manufacturing and processing sector, representing 44.2 per cent of all FDI, or $15.87 billion.

Japan and South Korea have led in FDI into Vietnam over recent years and the CJ Group has been among the leading investors, with aggressive business expansion activities around the country recently, especially in agriculture and manufacturing and processing.

Food giant CJ CheilJedang, a subsidiary of the CJ Group, last year announced it would invest nearly $63 million in an integrated production base applying advanced technology at Ho Chi Minh City’s Hiep Phuoc Industrial Park. Once completed in July, the complex will include a processing facility, a research and development (R&D) center, and a food safety control system. It will cover a total area of 66,000 sq m and produce 70,000 tons of food per year. The opening of CJ’s two new animal feed plants also expresses its ambition in the competitive industry in Vietnam.

Its expansion in Vietnam is expected to push the South Korean group’s food business revenue to $700 million by 2020. “We see Vietnam as a strategic market in Southeast Asia,” CEO of CJ CheilJedang Mr. Kim Chul Ha said in a statement. “Last year and this year, CJ has focused on investing and expanding in the food business through many M&As in the field of frozen food and seafood processing.”

Thailand ranked second after Singapore among ASEAN investors in Vietnam last year, with 47 newly-registered projects and total registered capital of $713 million. C.P. Vietnam has been one of the largest long-term Thai investors in Vietnam since it arrived in the country 20 years ago. As one of the leading producers of animal feed, breeding animals, livestock farming, and food processing, the company now has eight production plants around the country: four livestock feed plants, three fish feed plants, and one corn drying plant.

The company faced challenges in 2017, however, with product prices falling below production costs throughout the year, especially in pork production, which accounts for a significant proportion of its business structure. Meanwhile, its aquaculture production achieved better results than in previous years, as it did better in disease control. Moreover, “we developed successful models of aquaculture production, which were transferred to farmers,” Mr. Montri Suwanposri, President of C.P. Vietnam, told VET. 

Fortunately, its model was accepted and adopted widely by farmers, and “we clarified our position as a partner of farmers who will help and support them for sustained growth,” he added. Over the last few years, Vietnam’s livestock sector has been transforming from small-scale animal husbandry to industrial farming, in which C.P. Vietnam has played a key role by providing breeding animals, feed, technology, and production models.

According to Mr. Nguyen Xuan Duong, Deputy Director of the Department of Livestock Production at the Ministry of Agriculture and Rural Development, the animal feed industry has maintained double-digit growth over the last two decades, with output jumping from 400,000 tons in 1993 to more than 23 million tons in 2016. Vietnam is today the leading country in ASEAN and the tenth in the world in animal feed production.

Food and beverage production, meanwhile, has ample space for development in Vietnam, holding particular potential for foreign investors. Milk, beverages, confectionery, and cooking oil are seen as the most lucrative market segments. According to data from the Ministry of Industry and Trade, fresh milk consumption is forecast to reach 27-28 liters per person per year by 2020 and beverage consumption will hit 6.8 billion liters in 2020 and 9.1 billion liters by 2025.

Recognizing the potential, Suntory Pepsico Vietnam Beverage (SPVB), one of the world’s leading soft drink producers, set foot in Vietnam in 2012. Its market share has grown year after year, rising 7.5 per cent in the years since the company was established. SPVB now has 13 soft drink brands that are widely popular in the domestic market. 

The company last year opened its fifth plant, in central Quang Nam province, as part of its commitment to sustainable development in the country. “In the past ten years, SPVB has invested more than $500 million and will pursue plans to enrich our product portfolio and further expand our business in Vietnam,” said Mr. Uday Shankar Sinha, CEO of Suntory Pepsico Vietnam.

Supportive policies

The Vietnamese Government is pushing to improve the country’s investment environment, building a creative government, listening to enterprises, and expressing a willingness to remove barriers and encourage the development of production and business, according to Mr. Suwanposri. “We are delighted with the fantastic results and believe that this process will continue to have positive effects on Vietnam economic development,” he said.

Regarding the livestock production sector, the Law on Livestock Production is being reviewed and critical changes are expected, promoting the development of industrial production, environmental protection, and disease control. “We firmly believe that the government is working hard to ensure the investment environment is smooth,” Mr. Suwanposri said.

He added that whenever a government focuses on the lives of its people as a measure of State management, that government will undoubtedly succeed. The ranking of Vietnam’s business environment improved from 82th to 68th in the World Bank’s Doing Business report in 2018 as the country perfected its policies for economic development and living standards. “Reviewing the legal system and identifying barriers to development to be removed or changed were the most crucial issues for the government over the last year,” he said, “Investment in Vietnam is now much easier and we see that foreign investors keep coming to the country because of the great work the government has done.” 

In terms of administrative procedures, the time needed for issuing many business licenses has been cut significantly. In order for this positive change to happen, close collaboration between different ministries and government bodies was established and is functioning smoothly, according to Mr. Sinha from SPVB. Trade has also been made easier, with automated cargo clearance systems and the extension of the Customs Department’s operating hours. “These are good first steps in making Vietnam more competitive in the Asia-Pacific region,” he said.

Nikkei Vietnam manufacturing pmi

Hurdles to overcome

Mr. Suwanposri said the most significant challenges in livestock development in Vietnam are controlling disease outbreaks, the limited land area for animal husbandry, and accessing raw materials for animal feed production, which are still being imported to a large extent. 

Although the Vietnamese Government has adopted policies to encourage investment in the development of pig slaughtering and processing for many years, results have fallen short of expectations. “I think the government should review and re-evaluate these to create stronger policies to more quickly develop the pork industry for domestic supply and export,” he went on. 

Apart from land use policies, there are two other matters of concern for meat processing plants. First, the government should ensure that manufacturing standards are met, especially in cleanness and safety. Second, such standards must play an important role in exports and maintaining Vietnam’s reputation. The government should ensure that all export products come from certified facilities, which will help to promote food safety, cleanliness, and traceability, Mr. Suwanposri believes.

Foreign investors would appreciate the government further improving the business environment and developing a transparent and consistent tax incentive policy, according to Mr. Sinha. Tax policies should be stable, predictable and consistent, as it is an important element for foreign investors when considering to invest or expand their business in Vietnam.

 Early last year, Prime Minister Nguyen Xuan Phuc told the Conference on Reviewing the Operations of Finance and State Budget that financial policies, especially those relating to tax, have changed very quickly and had a negative effect on all concerned. Tax investigations, meanwhile, found a number of companies to be guilty of wrongdoings. Some, though, felt the conclusions were unjust given the rapid policy adjustments. Prime Minister Phuc also emphasized the importance of having tax policies that protect the rights of taxpayers.

 He also mentioned that the ongoing tax regulation review is in line with the standards of the Organization for Economic Cooperation and Development (OECD) and the United Nations. There are many shortcomings in public asset management, in tax losses, beneficiaries, weak management of added-value, electronic invoices, and non-cash payments. “I think the crucial points identified by the Prime Minister mean that Vietnam can do better in appealing for more FDI into the country’s processing and manufacturing sector in the years ahead,” Mr. Sinha said.

VN Economic Times