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Business

FDI essential to trade

Released at: 07:27, 28/04/2018

FDI essential to trade

Photo: Viet Tuan

The FDI sector continues to contribute substantially to Vietnam's trade performance as the country strives to improve its business and investment environment.

by Nghi Do

2017 was yet another successful year for Toyota Motor Vietnam (TMV), as it recorded its highest sales volume ever. It was also once again ranked No. 1 in the J.D. Power 2017 Vietnam Sales Satisfaction Index (SSI). During its 22 years, it has witnessed Vietnam being paid greater attention by foreign investors thanks to an improved business environment.

TMV’s export turnover in 2017 reached nearly $64 million, contributing to the country’s total trade turnover of some $425.8 billion. Vietnam set new records for total export turnover and trade surplus in 2017, with exports passing the $400 billion threshold and with a trade surplus exceeding $3 billion. Much of this comes from the efforts and activities of foreign-invested enterprises (FIEs), including TMV, with the foreign direct investment (FDI) sector recording a total of $145 billion in export revenue, up 21.1 per cent against 2016. “The contribution by the FDI sector can’t be denied,” Dr. Nguyen Dinh Cung, Director of the Central Institute for Economic Management (CIEM), told at a recent integration forum. “And much more is expected from the sector.”

To meet expectations, Vietnam is continuing to improve and upgrade the quality of its business and investment environment, according to Minister of Planning and Investment Nguyen Chi Dung, to create advantages for all enterprises, especially FIEs. Indeed, the FDI sector has contributed up to 70 per cent of total export turnover and created 2 million jobs to date. Processing and manufacturing have seen the highest growth in export revenue. 

Better environment

TMV is among the leading automobile enterprises in the FDI sector. With a production volume of 41,424 units in 2017, its total accumulated production volume has now reached 428,073 units. It invested nearly $15 million last year, bringing its total investment to approximately $195 million. Its parts and component supplier network now totals 33 companies, of which five are Vietnamese, and it expanded its localization rate last year for certain parts and components, including roof moldings, fuel hoses, and plug holes. It now uses 300 types of locally-produced products. Total employees stood at 1,800 last year and more than 28,000 at its agents, dealerships, and suppliers. 

South Korea’s CJ Group, meanwhile, selected Vietnam as a strategic destination for its expansion plans. The South Korean conglomerate plans to open CJ Vina Agri’s sixth animal feed factory in south-central Binh Dinh province in the third quarter of this year and also announced the opening of the new CJ Vina Agri Feed Production Plant in northern Ha Nam province, in January. “The CJ Group is committed to maximizing its investment to achieve 2020 targets within its medium and long-term plans, with revenue reaching $100 billion globally,” said Mr. Chang Bok Sang, Chairman of the CJ Group in Vietnam. “And Vietnam is a bright spot in achieving that goal.”

Vietnam has adopted a range of measures to catch the eye of foreign investors. Six major growth drivers will enhance opportunities in the country, according to the Doing Business in Vietnam 2017 report from PwC Vietnam. These include a rapidly-growing economy, a stable government committed to growth, infrastructure development, a young digitally-savvy and growing workforce, cost competitive production bases, and new free trade agreements. “Vietnam therefore remains one of the most attractive destinations for foreign investors in Southeast Asia,” the report stated. 

After more than 16 years in operation, Canon Vietnam recognizes the government’s efforts to improve the business and investment environment. Infrastructure has been improved, electricity supply is increasingly stable, airports and seaports have been built, upgraded or expanded, and more and more highways have been built. The government has also abolished or cut administrative procedures in regard to taxes, customs, and social insurance, which “helps save time and money,” Mr. Keisuke Taniguchi, Deputy Senior General Manager of the Administration Center at Canon Vietnam, told VET

As such, Canon Vietnam has consistently grown over the years and received high praise from the Canon Group. Export revenue in 2017 increased some 12 per cent compared to 2016. “This is a remarkable figure and expresses Canon’s efforts in Vietnam and the enthusiastic support from the government,” Mr. Taniguchi said. 

Total export value, FIEs vs. domestic enterprises, 2006-2016

Source: General Department of Vietnam Customs

Matters to address

Vietnam’s business and investment environment strongly encourages foreign investors, offering a host of preferential policies. There remain, however, shortcomings in these policies and administrative procedures that create difficulties and increase costs for enterprises, Mr. Taniguchi said. In particular, there are too many reports to be submitted to different management agencies, with a great deal of overlapping content. Costs relating to business operations are actually increasing, not decreasing. 

Canon Vietnam and other businesses are currently required to pay an additional 10 per cent of the total cost for each 40-foot container when using public services and infrastructure facilities at border gates and ports in northern Hai Phong city. “This greatly diminishes the competitiveness of enterprises and affects the ranking of Vietnam’s business environment,” according to Mr. Taniguchi. “Enterprises have contributed many ideas on amending related laws but the problems surrounding many regulations remain unsolved. Some regulations simply can’t be implemented, such as the strict regulations on occupational safety and health (OSH) training and chemical safety.”

2018 is forecasted to be a challenging year, with changes in the country’s business environment. TMV has halted the import of completely-knocked down (CKD) motor vehicles and is unlikely to meet the diverse needs of its customers. The Vietnam Automobile Manufacturers’ Association (VAMA) and TMV have consistently supported the government’s regulations on supporting the development of Vietnam’s automobile industry and the protection of customer rights. 

For instance, regarding Decree No. 116 promulgated by the government and effective from the beginning of this year, TMV views certain conditions as being unreasonable. The Decree requires an automobile importer provide quality certificates issued by competent foreign agencies. With regard to Decree No. 125 on the reduction of import duties on auto parts subject to annual production conditions, VAMA has proposed the government apply it on all automobile manufacturers in order to help maintain domestic production, in the context of fierce competition from imported cars subject to zero tariffs from this year.

Recommendations

Vietnam’s business environment rose 14 levels in 2017; the highest level in ten years, according to Ms. Nguyen Minh Thao, Head of the Business Environment and Competitiveness Department at CIEM. For two consecutive years, it rose 23 levels and in eight indicators regarding the business environment. Competitiveness also improved in terms of scores and rankings. 

Vietnam was ranked 55th out of 137 economies, up five places compared to 2016 and 20 levels higher than five years ago, according to her research. The country’s innovation index was at its highest ever, at 47 out of 127 countries. “This indicator has improved because Vietnam has updated information and data from the World Intellectual Property Organization (WIPO),” Ms. Thao said. However, in order to maintain its position in the global business environment, Vietnam faces many challenges in the context of limited technological innovation.

The country’s business environment will continue to face many challenges this year, as will enterprises. CIEM has suggested ministries, sectors and localities be more active in improving the business environment. Reviews need to continue and one-third to a half of business conditions should be removed by the third quarter, and the number of items subject to inspections in each sector need to be cut by at least 50 per cent. 

Canon Vietnam recommends the government simplify administrative procedures and reporting processes to create better conditions for enterprises. There also needs to be a reduction in costs relating to corporate operations, tolls, and port fees, and amendments made to the Labor Code.

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