A $4.2-billion smart city in Hanoi’s Dong Anh district, Southeast Asia’s largest at 272 ha, was licensed by local authorities in mid-June. 

The first phase, which covers 73 ha and has investment of around $1 billion, will be invested by a joint venture between Japan’s Sumitomo Corporation Asia & Oceania and Vietnamese real estate developer the BRG Group, and will kick off in October. Full completion is expected by 2028.

The mega smart city is the largest Japanese FDI project in Vietnam to date, according to the Foreign Investment Agency (FIA). Japanese investors have deepened their foothold in the country, continually having among the highest total over the last five years. Japan led this year at the end of the second quarter, with $6.47 billion, in which real estate and infrastructure have seen a significant wave of investment from Japanese companies in recent years.

Success stories

Japanese real estate investors are moving towards an increasing presence in a range of large-scale projects in Vietnam. Figures from the FIA show that FDI in the property sector reached $5.54 billion in the first half of this year, accounting for 27.3 per cent of the total and second overall, behind manufacturing and processing. 

According to real estate consultants JLL Vietnam, the local property sector began really attracting foreign interest a few years ago, mostly from Japan, South Korea and Singapore. Japanese investors have worked together with local real estate moguls since 2014 in many residential projects in Ho Chi Minh City and hospitality projects in Da Nang and Phu Quoc Island. Japanese firms have also been involved in real estate via transferring land evaluation techniques and boosting the financial sector, while also committing to bringing advanced technologies to develop urban infrastructure in Ho Chi Minh City.

Apart from the smart city project, the Sumitomo Corporation is also engaged in other business fields in Vietnam, such as industrial parks, including Thang Long Industrial Park, Thang Long Industrial Park II, and Thang Long Industrial Park III in the northern cities and provinces of Hanoi, Vinh Phuc, and Hung Yen; the manufacture and sale of metal goods and automobiles; mass rapid transit projects in Ho Chi Minh City; power plants; agricultural chemical sales; and real estate. Another prominent project is the Van Phong 1 BOT power project in south-central Khanh Hoa province. “Through these projects, we aim to further contribute to Vietnam’s economy, inviting foreign investors and high-tech enterprises to the country,” Mr. Hidemasa Kozawa, Chairman and General Director of Sumitomo Vietnam, told VET.

Another huge Japanese investor, general trading company Mitsui & Co., has also seen significant achievements in a host of industries in Vietnam over recent years. “In energy, we reached an important agreement with PetroVietnam in its Block B gas project this year, affirming that these play an important part in ensuring national energy security,” said General Director Mr. Masahiro Moriyasu. “This project is of great importance not only for PetroVietnam and Mitsui but also for Vietnam. We also signed an MoU with PetroVietnam relating to the gas value chain.”

Mr. Moriyasu also revealed that the company’s overall results in fiscal year ending March increased around 6 per cent, mostly due to the food and chemical sectors. The Block B gas project, however, accounts for the largest proportion of the company’s investment portfolio given its large scale. “In addition to this, we also have successful investments in the seafood business, such as Minh Phu, and steel production with Vinakyoei Steel,” he added.

Vietnam’s manufacturing and processing industry has so far been the most attractive sector for foreign investors, including those from Japan. As a major Japanese investor, Mitsubishi Heavy Industries (MHI) has long considered Vietnam among its most important markets, especially since it is part of the Asia-Pacific region - its second-largest market outside of Japan. “Vietnam currently accounts for around 5 per cent of our total sales in the Asia-Pacific region,” Mr. Jun Shirota, General Manager of Mitsubishi Heavy Industries Vietnam, told VET.

In the field of power generation, MHI has supplied equipment that has contributed a total of more than 1,800 MW to date. Responding to robust demand, Mitsubishi Hitachi Power Systems (MHPS) recently received an order for two sets of steam turbine power generation systems for the Nghi Son 2 thermal power project in north-central Thanh Hoa province. “Our key investments in Vietnam have mostly been centered on the manufacturing sector,” Mr. Shirota said.

MHI has two manufacturing facilities in the country. The MHI Engine System Vietnam (MHIESV) factory, located in southern Binh Duong province, assembles diesel generators and fabricates diesel generator parts, while the MHI Aerospace Vietnam (MHIAV) factory, located at the Thang Long Industrial Park in Hanoi, produces aircraft components. “One of our most prominent investment achievements has been the rise of our MHIVA factory as a strategic regional manufacturing facility,” he explained. “It has helped MHI achieve a more efficient supply chain in the region and enhanced our competitive advantage in the aviation industry.” 

Ongoing appeal

Vietnam remains an attractive destination for foreign investment and Mr. Shirota feels positive. “We expect Vietnam’s economy to continue to soar due to several factors, including current economic reforms, the rising affluence of its citizens, and the presence of a young and capable workforce,” he noted. “We plan to focus on providing solutions to three sectors that we see as playing key roles in solidifying Vietnam’s continued progress: industrial parks, airports, and urban development.”

The number of industrial parks is expected to grow further as the country strengthens its position as a lower-cost global manufacturing hub, Mr. Shirota explained. Indeed, in terms of manufacturing competitiveness, it is projected that Vietnam will climb into the Top 15 global rankings by 2020, according to the Global Competitiveness Report by the World Economic Forum. The company sees a strong opportunity in helping local industrial parks become smarter and more energy-efficient, cost-efficient, and environmentally-friendly. 

Regarding airports, he said that Asia is expected to account for more than half of new airline passengers over the next 20 years, with Vietnam being among the world’s fastest-growing markets. Lastly, as Vietnam along with the rest of the Asia-Pacific region continues to urbanize at an unprecedented rate, it is important to ensure that this is done in such a way that its cities remain livable. In urban development, MHI therefore wants to introduce solutions that can help answer challenges in traffic and waste management.

Mr. Kozawa from Sumitomo, meanwhile, said that Vietnam is expected to not only be a growing production base but also a growing consumer market, given its large population and high GDP. Japanese brands are popular and trusted in the country, and many Japanese companies are trying to develop in the service and retail field. “We continue to explore business opportunities in all sectors and to contribute to the development of Vietnam’s economy,” he said.

Political and economic relations between Vietnam and Japan have never been better, according to Mr. Moriyasu from Mitsui & Co. Vietnam has an excellent business and investment environment with many factors that should encourage Japanese investors. Consumer-centric businesses, support industries, and infrastructure count among the sectors with the most potential for Japanese investors, he believes.

According to a survey released by the Japan External Trade Organization (JETRO) in February, nearly 70 per cent of Japanese businesses operating in Vietnam last year considered expanding operations; more than in regional countries such as the Philippines, Indonesia, and China and indicating that the country remains an attractive destination for Japanese investors.

Obstacles to address

Rising revenue and significant potential are cited as the two major reasons Japanese enterprises want to expand operations in Vietnam, according to the JETRO survey. They also greatly appreciate the country’s stable social and political status, good living environment, and cheap labor costs. Some of these advantages, however, are unlikely to remain in the future, and a number of enterprises are already grappling with higher labor costs. Other negatives include an unclear legal framework and vague implementation, incomplete infrastructure, and tax complications. Its fledgling support industry still has Japanese enterprises concerned, as Vietnam ranked fourth in having an undeveloped support industry among 15 countries, unchanged from the previous year.

The survey found that Japanese enterprises want to produce high value-added products as a solution to rising labor costs but face difficulties in securing raw materials in Vietnam and managing their quality. Local suppliers were only capable of meeting 34.2 per cent of Japanese manufacturers’ needs in 2016 and 33.2 per cent in 2017.

Vietnam is one of a few countries in the region vying to be a lower-cost manufacturing hub, according to Mr. Shirota. With the advent of Industry 4.0, however, it has to be ready to take advantage of the changes that advanced technology is bringing and will continue to bring. Lower-cost manufacturing hubs during the Industry 4.0 era will not simply require a high number of blue-collar workers, but rather a workforce able to manage industrial technology. “We call such a workforce ‘new collar workers’,” he said. “It will be important for both policy-makers and the industry to provide opportunities for the current workforce to upskill and ensure that the future workforce have the right ‘new collar’ skills.” 

Investing and operating in Vietnam for many years, Sumitomo understands that the government is trying to improve the business and investment environment and has indeed sought the opinions of Japanese companies. “There is no easy way to attract overseas investors that can contribute to the country’s economy,” Mr. Kozawa said. “Securing transparency, speeding up public administrative procedures, and completing the legal framework is needed.”

In the opinion of Mr. Moriyasu, to draw more Japanese FDI into Vietnam the government must tackle a number of issues. These include adjusting the current public debt ceiling of 65 per cent in order to attract more ODA funds for further socioeconomic development; further improving transport infrastructure to enhance economic competitiveness; and optimizing the implementation of administrative procedures, laws and policies.

VN Economic Times