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Currently, the Government of Vietnam is hurriedly carrying out measures to draw investment capital sources from Japan in the most efficient manner. Specifically, the Vietnamese Prime Minister Nguyen Tan Dung issued Decision 1043/QD-TTg dated July 1, 2013 approving the Vietnam industrialisation strategy in the framework of the Vietnam – Japan cooperation in the period to 2020, with a vision in 2030. Accordingly, six industries to be prioritised for development are electronics, agricultural – fisheries processing, agricultural machinery, environment and energy conservation, automotive and parts, and shipbuilding.
Opportunities to draw Japanese capital
According to the Foreign Investment Agency (FIA) under the Vietnamese Ministry of Planning and Investment (MPI), as of the end of October 2013, Japan had 2,072 valid investment projects in Vietnam with a combined registered capital of US$33.665 billion, accounting for 13.4 percent of total foreign-invested projects and 14.8 percent of foreign-invested capital in Vietnam. Japan topped the list of 100 countries and territories that have invested in Vietnam. In the first 10 months of 2013 alone, despite the tough economic situation, Japanese companies still invested US$4.842 billion in Vietnam, accounting for 25.2 percent of total foreign investment in Vietnam, ranking first amongst 52 countries and territories investing in the Southeast Asian nation. Notably, Japanese investment projects usually have a large investment capital, mainly focusing on processing, manufacturing and high-tech industries, and have broad ripple effects, like projects invested by Honda, Toyota and Canon.
Recently, at a meeting with Mr Kohei Wantanabe, Chairman of the Japan – Mekong Economic Cooperation Committee, Vietnamese Minister of Planning and Investment Bui Quang Vinh said Vietnam and Japan have great opportunities for future investment and trade relations. He explained that the two countries have had close cooperation in many areas and Japan has actively supported Vietnam to build industrial development strategies. This is an opportunity for Japanese companies to continue their investment expansion in Vietnam.
According to the Vietnamese Ministry of Planning and Investment, as a majority of Japanese investment projects in Vietnam engaged in manufacturing industry (accounting for 83.7 percent of Japan’s total investment capital and 24 percent of total foreign investment in industrial processing and manufacturing industries), they have helped Vietnam to develop industrial sectors and achieve its industrialisation and modernisation objectives.
In addition, Japan’s investment in Vietnam tends to increase markedly in recent times. Specifically, Japan only had 144 new projects valued at US$2.37 billion in Vietnam in 2010, rising to 227 projects capitalised at US$2.6 billion in 2011, an increase of 9.7 percent over 2010, and to 317 projects worth US$5.6 billion in 2012, more than doubling that in 2011. In the first nine months of 2013, Japanese investors continued to lead foreign investors in Vietnam with 210 projects and US$4.7 billion in registered capital.
Focus on prioritised industries
According to experts, most Japanese-invested large-scale projects focus on supporting industries. Therefore, if Vietnam wants to exert a pull on Japan’s investment capital, it must concentrate on the development of these industries.
Specifically, in this regard, in a recent meeting with a business delegation led by the Japan Chamber of Commerce and Industry (JCCI), Ms Nguyen Thi Xuan Thuy, Director of Integration Strategy and Policy Department under Industry Policy and Strategy Institute (IPSI), affiliated to the Vietnamese Ministry of Industry and Trade, delivered a presentation on “Cooperation for accelerated development of supporting industries, especially automobile and parts industry.” She said Vietnam now has more than 300 automotive companies. Before 2007, auto sales were quite stable. In the 2007 – 2009 period, the fast growth of the Vietnamese automobile industry gradually slowed down on the impacts of economic downturn. But, in the first 10 months of 2013, automobile production output and sales began to show signs of positive recovery. Trucks and sedans of less than five seats topped all vehicle sales segments. Toyota and Truong Hai Auto had the biggest market shares in Vietnam. She also noted the advantages and challenges that automotive companies in Vietnam are facing. The Ministry of Industry and Trade is reviewing excise tax, or special consumption tax, on domestically produced automobiles, import tariffs, regulations on domestic localisation ratio and human resource development, amongst other contents, to carry out Vietnam’s industrialisation strategy in the framework of the Vietnam – Japan cooperation in the period to 2020, with a vision to 2030.
Speaking of prioritised industries development issues, Ms Nguyen Thi Tue Anh, Deputy Director of the Central Institute for Economic Management (CIEM) under the Vietnamese Ministry of Planning and Investment, added that, according to statistics, in 2012, the industry contributed 34.6 percent to the country’s GDP, of which the processing sector industry contributed 18.55 percent. Exports played an important role in economic growth, but overseas shipments were mainly unprocessed or preliminary processed products, while manufactured goods were mostly assembled with low added value. Vietnam will fully implement the ASEAN Free Trade Agreement (AFTA) and the ASEAN-China Free Trade Area (ACFTA) in 2018 and its supply chains are expanding into the ASEAN region and China. If Vietnam continues to rely on labour-intensive sectors for economic development, when labour costs in Vietnam increase, investors will direct their investment projects to other nations with lower labour costs. Then, the country’s industrial development will stagnate. Therefore, the purpose of the industrialisation strategy approved by the Prime Minister on July 1, 2013 on the development of six prioritised industries is to promote technological innovation, raise labour productivity and build up international competitiveness. Particularly, the country must develop products with high added value, widespread ripple effects on technology, and international standards. On the basis of this legal framework, Vietnam and Japan will implement specific approaches. Particularly, the two countries will work together to build and carry out specific and feasible strategies and action plans for the development of six priority sectors. Both will cooperate in drawing Japan’s high-quality investment projects for prioritised industries and related sectors; mobilising the maximum participation of governments, enterprises and scientists of the two countries in the process of carrying out and assessing the development effectiveness of six strategic industries.
Tue Anh added that the development of the electronics industry will create quantity impacts and connectivity effects, as Vietnam has drawn a lot of downstream assembly (assembling finished products). In 2011 alone, the mobile phone industry ranked third in exports. The processing of agricultural and aquatic products will have huge impacts on the quantity as the domestic and foreign demand for processed foodstuffs is on the rise. Then, Vietnam can raise labour productivity in manufacturing sectors. In addition, Vietnam is rich in seafood resources and more and more companies are engaged in producing, selling and exporting processed foods. The environment and energy efficiency sector has also drawn major concerns from both Vietnamese and Japanese governments. Vietnam pays attention to employing environmental pollution processing technologies and energy saving devices. Japan is very interested in water treatment technologies. Besides, shipbuilding industry development is an advantage of Vietnam as it has a long coastline and an important maritime trade position. Vietnam ranked fifth in the world in shipbuilding. If Vietnam effectively develops this industry, it will be a key stepping stone for the development of the steel industry (upstream).
However, according to experts, seeking out the best industrial development method is a long road requiring systematic plans. Firstly, Vietnam and Japan need to focus on immediate solutions like improving legal framework and development encouragement policies for selected industries, stepping up administrative procedure reform, developing some driving locations of industrialisation strategy to develop selected sectors, prioritise infrastructure development and human resource development in such locations.
Mr Kohei Wantanabe, Chairman of the Japan – Mekong Economic Cooperation Committee affiliated with the Japan Chamber of Commerce and Industry (JCCI)
Japan and Vietnam have a comprehensive relationship in many aspects, particularly the relatively effective cooperation in Vietnam – Japan Joint Initiative Programme. Hence, Japanese companies are giving more attention to investment to Vietnam. Japanese companies have recently appreciated Vietnam’s efforts for investment environment improvement. With these efforts, Vietnam will successfully achieve its industrialisation goal set for 2020 of becoming an industrialised country. This is a great opportunity for Japanese investors to expand investment in Vietnam.
Mr Kenichiro Nishikawa, General Director of Toyota Tsusho Vietnam Co., Ltd
When considering investment in Vietnam, Japanese automobile investors pay attention to such issues as flexible application of priority policies for investment expansion and reinvestment, and policies on export processing companies which sell their products in the domestic market in order to raise localisation ration of automobile parts.