RANKED 10th on the list of countries investing in Vietnam, Thailand is being wooed to cash in on the large population base and future growth underpinned by the Asean Economic Community (AEC) and trade pacts.
More than 16 countries had poured more than US$242 billion (Bt8 trillion) into Vietnam as of last September, according to the consultancy KPMG. Despite its proximity to the country, Thailand is in 10th place, with investment of $6.6 billion. This is in stark contrast to the $31 billion from Singapore and $10.7 billion from Malaysia, the other two Asean members on the top-10 investor list.
Vietnam is expected to witness a spike in foreign direct investment (FDI) after its full compliance with the AEC. This will remove virtually all tariffs on goods traded between Vietnam and the other Asean nations, as well as various quantitative restrictions and non-tariff barriers. To date, 72 per cent of registered capital from FDI into Vietnam has come from manufacturing and processing.
Major foreign investors on the list are from Asia, led by Japan, South Korea and Singapore.
Warrick Cleine, chairman and chief executive of KPMG in Vietnam and Cambodia, said at a recent briefing in Bangkok that Vietnam could be a destination for investment in several areas including food, retail, high-value consumer goods, and condominium development.
He noted that Vietnam’s young population was ready to spend. Young Vietnamese make frequent visits to supermarkets and demand good-quality TV sets, air-conditioners and motorcycles. Condominiums are also in high demand in Hanoi, Ho Chi Minh City and Danang. “Vietnamese consumers show great excitement for foreign brands. Asian tastes are more suitable for them. It’s happening right now. There is a very big opportunity to come,” Cleine said.
Among Thai investment projects in the country are Robinson Department Store’s outlet, an industrial estate established by Amata Corp, and a petrochemical complex set up by Siam Cement Group. In December, PTT also received the final approval to go ahead with its plan to build a 20 million tonnes per year refinery and petrochemical project.
Cleine said opportunities awaited small and medium-sized enterprises in areas currently dominated by Taiwanese companies. Everyone should explore the market now, to study the culture and consumer behaviour. Enterprises should not wait until the AEC starts, as that will not guarantee an overnight change in the country, where the process of policy-making is slow. But as the integration draws near, Vietnamese businesses have been more open to foreign participation.
“Vietnam just changed the regulations [to] make it easier for foreign acquisitions,” he added.
According to KPMG, foreign businesses could win tax waivers for four to nine years. Though land ownership is prohibited, the lease period is as long as 50 years. Foreign businesses will also benefit from a large pool of skilled labour, while the minimum wage remains relatively low, though it will soon be adjusted to $147 per month.
Trade pacts and the government’s commitment to reforms are brightening the economic prospects of the country.
Vietnam is among four Asean members, along with Brunei, Malaysia and Singapore, included in negotiations for the Trans-Pacific Partnership. It also stands to benefit from the Regional Comprehensive Economic Partnership, which will create a free-trade network between Asean and Australia, China, India, Japan, South Korea and New Zealand.
“With the TPP and the AEC both to be finalised this year, and maybe [a free-trade agreement with the European Union], prospects are bright for continued improvement in Vietnam’s business environment, additional FDI and growth in Vietnam’s international trade,” Herb Cochran, executive director of the American Chamber of Commerce in Vietnam, said at a meeting with Ho Chi Minh City People’s Committee this month. According to Viet Nam News, Ho Chi Minh City has benefited the most from foreign investment. Le Thanh Hai, secretary of the city’s Party Committee, said HCM City had more than 5,300 FDI projects worth more than $36 billion that employ 22 per cent of the city’s workforce.
Investment is also spreading to other cities. As of January, the southern province of Ba Ria-Vung Tau had 303 foreign-invested businesses with total capital of $27 billion.