US Businesses Intend to Move to Vietnam

  Is Vietnam ready for relocation investment?

Answering this question, the flow of foreign investment, particularly the United States to Vietnam will have great changes.

Is Vietnam ready?

This question is again raised, this time from Mrs Marie Diron, Managing Director of the National Credit Risk Group for Asia and the Pacific (Moody's).

Mrs Marie Diron posed this issue at the Seminar on The Indian Ocean - Pacific Strategy and its Economic Impact on Vietnam, seeking solutions to promote sustainable development in Vietnam and other countries in the area (in the framework of the Asian Economic Forum held by the Vietnam Chamber of Commerce and Industry (VCCI) and the American Chamber of Commerce in Vietnam (Amcham) last week in Ho Chi Minh City).

The relationship between the US and China remains complicated, yet it cannot be correctly identified. Foreign manufacturers in China tend to move their investments to Vietnam, but the institutions, human resources, infrastructure, or hardware and software of Vietnam are generally ready to welcome this shift?

Just a few days ago, at the Vietnam Business Forum (VBF) 2018, Mr Michael Kelly, Chairman of the American Chamber of Commerce in Vietnam (AmCham) has mentioned the results of AmCham's recent survey to the US businesses in China, whereby one-third have relocated or are considering relocating some of their manufacturing facilities to overseas. A separate survey of foreign companies from other countries shows that half are considering relocation and Southeast Asia is their top choice.

China will remain an important member of the global supply chain. But with the shift in investment, Vietnam is gaining benefits. The question is how can Vietnam take full advantage of this opportunity to keep up the pace of rapid economic growth?

On the US investors side, according to Chairman of AmCham, they know what they need. Vietnamese businesses and foreign invested enterprises need an equal and supportive environment for development. That means the relationship between investors and the administration needs to be mutual and transparent.

In particular, Chairman of AmCham said that there should be improvements in important areas that have great significance to Vietnam's competitiveness, they are energy (to strengthen Vietnam's future); facilitate trade and flow of goods; creating a more attractive, transparent and stable business environment; fully exploiting the potential of the digital economy in Vietnam; and modernize education, ensuring reasonable labor costs.

AmCham believes that the business environment can be improved by increasing productivity and reducing costs as well as business risks in Vietnam. More importantly, reducing costs and business risks will benefit Vietnamese businesses - many of which are small and medium enterprises - and will also promote entrepreneurship and start-up spirit, ensuring competitiveness and growth in the future of Vietnam.

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Banking Sector in Vietnam

  1. Overview

Vietnam’s banking sector has shown significant improvement which results from stable inflation and interested rate, favorable environment for foreign direct investment and a shift from deficit to surplus of the country’s current account. This sector plays a crucial role in Vietnam’s economic development in recent years.

2.Banking system

There are two tiers in banking sector in Vietnam. The first one is State Bank of Vietnam (SBV) which is responsible for monetary policy and supervision/regulation of the banking system in Vietnam. The second one consists of commercial banks, financial companies, credit co-operatives, people's credit funds, and insurance companies. The main activity driving banking system is commercial bank which includes 5 state-owned commercial banks, 33 joint stock commercial banks, 5 joint venture commercial banks and 5 wholly-owned foreign owned bank.

State owned commercial banks (SOCB) account for more than 40% of market share. The largest bank in terms of total assets, network and still 100% state owned share is Agribank. And four other SOCB areVietcom bank, Viettin Bank, BIDV and MHB.

Joint stock commercial banks (JSCB) have small capital/deposit base and more diversified shareholding structured compared to state owned commercial banks. There are currently 33 JSCB, which the leading ones are SaiGon Joint Stock Commercial Bank (SCB), Military Joint Stock Commercial Bank (MBB), Vietnam Export Import Commercial Joint Stock Bank (EIB), Asia Commercial Bank (ACB) and SaiGonThuong Tin Commercial Joint Stock Bank (STB)

Also SBV had granted 5 licences to permit HSBC, Standard Charter Bank, ANZ Bank, Shinhan Bank and Hong Leong Bank to establish as wholly-owned foreign banks

3.Potential opportunities for foreign investment

There are solid evidences to prove that Vietnam’s banking sector has such a huge potential for foreign investment

• Government effort of reforming banking system

SBV suggested that merge and acquisition of loss making and incompetent bank would be necessary to improve efficiency within the industry. For example, in 2015, SBV forced merge of loss making Vietnam Construction Bank to Vietcom bank with purchasing share price for 0 VND. By forcing merge and acquisition of incompetent banks, SBV has increased exploitation of economies of scale and the reduced burden on regulators

• Trade agreements facilitate foreign ownership and investment

Have taken part in variety of trade agreement such as Trans Pacific Strategic Economic Partnership (TTP),  Association of Southeast Asian Nations (ASEAN) and Free Trade Agreement with different countries, Vietnam has made restructuring move to standardize banking system which will be compatible and accessible to other countries. Vietnam is required to have bilateral arrangement which eliminate the challenges of foreign establishment of banking services.

The government also encourages foreign investors to hold shares for five year period and partnering with the local bank to enhance management, capacity or new development. With the 30% limit of oversea ownership to domestic banks, the strategic foreign investors are allowed to acquire up to 15% of share in a bank, and up to 20% with Prime Ministerial approval. HSBC has also invested in a leading local bank, possessing a 20% stake in the Vietnam Technological and Commercial Joint Stock Bank—Techcombank. It is also the sole foreign strategic partner of the BaoViet Finance-Insurance Group, Vietnam’s largest insurance company. In a vote of confidence in the insurer, HSBC increased its stake to 18% in October 2009.

• Vietnam- a destination of foreign investment in South East Asian market

There is a huge untapped market in Vietnam. According to SBV, only 20% of more than 90 million citizens in Vietnam hold bank accounts and 3% of the population have credit cards. With 87% of the population under the age of 54, there is a great opportunity for retail banking activity development in Vietnam.

Also it is agreed that SME and rural areas have had challenges to access bank investment and loan. The data of Asian Development Bank shows that “lack the capacity to assess the risk of investment into SMEs and find bankable projects” and lack of knowledge about loan and lending systems for rural citizens are the main reasons leading to currentunder-banked circumstances.

The stable economic with GDP growth of around 6% to 7%; low wage costs; a large population with a high savings rate and lack of innovative approach to the market are advantages for foreign investors to accelerate financial and industrial development in Vietnam market.

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US and North Korea Leaders Will Meet in Hanoi, Vietnam

  President Donald Trump announced that Hanoi, Vietnam will be chosen as the place to hold the second US-North Korea summit on February 27 and 28, 2019.  There are signs of intention of both parties to transform the relationship and create a solid foundation for the de-nuclearization of North Korea and end the Korean War. This is the opportunities for Vietnam to promote the country as a place for foreign investors to trust and invest through setting up factory and companies, and further grow the country through foreign direct investment.

Vietnam has been selected as the place for this important international political event due to a number of reasons, including good relations with the US, South Korea and North Korea, closer to North Korea in distance, and that Vietnam is a country with experience in organizing in high security event i.e. APEC 2017 with leaders from US, Russia, China, Japan, Korea.   Further, the administration of President Trump thinks that Vietnam is a political and economic model that North Korea should pursue in terms of opening the country and attracting foreign investment, allowing foreigners to set up factory, companies in various areas.  From difficult relationship with embargo, the US and Vietnam has now become partners with two-way trade which turnover increased from 451 million USD in 1995 to 52 billion USD in 2016, and that Vietnam has become one of the rising export markets of US.   From North Korea’s perspective, Kim Jong-un will be interested in witnessing the story of Vietnam, which can be an inspiration and a model for the road ahead for North Korea to follow.

This event will be an opportunity for Vietnam to promote the country of peace, opportunity, prosperity and land of foreign investment, growing its role in the international markets in both business and politics, which further attract foreign direct investment, the driver for growth of the country over the decades.

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Sustainable development in Vietnam

  Achievement of sustainable development in Vietnam

The sustainable development objectives including economic, social development and environment protection have been integrated into national priority development together with economic growth objective.

With a stable GDP and economic growth, improvement of education, Vietnamese citizens have gained more knowledge about gender quality, environmental and other social issues, thus, creating campaigns to support collective action. For example, the campaign collecting garbage along beaches in Vietnam attracted more than 1000 students to participate in which indicated collective action to mitigate effect of disaster and climate change.

Vietnamese government has significantly improved the rate of hunger eradication, poverty reduction, population, job creation, education and healthcare. Particularly, in 2014, total state budget for hunger eradication and poverty reduction were more than 34 billion VND. Thus, the poverty rate took a nosedive from 14.2% in 2010 to 1.8-2% in 2014, proving average reduction of 2% per year national wide.

The state fund for environmental protection has been increased, thus the policies for environmental protection has put into regular operation. By executing tax exemption for environmental friendly enterprises, businesses in Vietnam have been more aware of coordinating environmental protection policies into long term vision and mission.

Vietnam takes part in international agreement to show commitment to sustainable development such as: WTO, United Nation Framework Convention on Climate Change, United Nation Convention to combat desertification, the convention on International Trade in Endangered Species of Wild Fauna and Flora…

Challenges of sustainable development in Vietnam

There have been some challenges in Vietnam when implementing sustainable development policies. An increase in natural disaster, degenerated natural resource (water and biodiversity resources), wasteful and ineffective production and consumption are causing huge destruction to various local communities.

Even though there have been some supporting policies for enterprises in Vietnam to implement sustainable development policies, they have not obtained full awareness of the link between good environmental, social, and governance performance and the ability of companies to be profitable and survive in turbulent times. Therefore, most of the firms succeeded in promoting sustainable development practices are international businesses.

Sustainable development in business

Since Vietnam takes part in international trade agreements, there will be more international and institutional investors need the information of material environmental, social and governance information about company performance to decide whether to make investment decision.

Sustainable development of the business should be proven by social factors (employee compensation, benefits, staff turnover, safety practices, diversity and local community) and environmental factors (energy efficiency, GHS emissions, biodiversity conservation, water usage, natural resource use, waste to energy and recycling practices). These factors are crucial for investors as they indicates how the company takes into account risks, opportunities, management approach, stakeholder value and long term development.

Sustainability report has been strongly recommended by Vietnamese government. Vietnam Brewery Ltd is one of a few leading companies taking this report seriously. Their report in 2014 stated that the company switched from diesel to biomass as boiler fuel, reducing direct CO₂ emissions as a result. In addition to reducing our carbon footprint and mitigating the effects of global warming, the local community has also benefited from the programme with an additional income from the sale of rice husks. The company also highlighted the code of conduct which allowed the employees to voice their opinions. There have been also other big cooperation taking part in the trend for example Bao Viet Corporation, Vinamilk, Hau Giang Pharmacy…

In conclusion, in order for enterprises in Vietnam to actively engage in sustainable development and voluntarily adopt sustainability as common practice, Vietnamese government should take more urgent actions.

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Vietnam exempts visas for citizens of 13 countries

  In order to encourage international tourists to return Vietnam after a long pause due to the pandemic and quickly adapt to the new situation of recovering the tourism industry, gradually bringing the tourism industry back to life, Vietnam Government has issued Resolution No. 32/NQ-CP visa exemption for citizens of 13 countries. This policy is an appropriate solution to bring international tourists to travel to Vietnam and also an opportunity for Vietnam's tourism to recover.

Subjects exempt from visas are citizens of the following countries: Germany, France, Italy, Spain, UK, Northern Ireland, Russian Federation, Japan, South Korea, Denmark, Sweden, Norway, Finland and Belarus. Accordingly, citizens of these countries will be exempted from visas for 15 days from the date of entry, regardless of passport type, entry purpose, on the basis of meeting all conditions as prescribed by Vietnam immigration law.

 Regarding the application period of the visa exemption policy, the visa exemption on entry to Vietnam for citizens of the above countries will be implemented for a period of 3 years, from March 15th, 2022 to the end of March 14th, 2025. Besides, this policy may be considered for extension in accordance with Vietnamese law.

 In addition, to enter Vietnam, visitors need to comply with the requirements on epidemic prevention and control for people on entry. Specifically, visitors must have a negative test result for SARS-CoV-2, must make a medical declaration before entry and monitor their health and apply Covid-19 prevention measures.

 Therefore, it can be seen that Vietnam has created favorable conditions for tourism to gradually approach international tourists in an effective and safe manner. These would gradually improve the economic environment, and bring more potential investors to Vietnam to set up company and make investment.

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Hanoi Leads the Whole Country in Attracting FDI in the First 2 Months

  According to the Foreign Investment Agency (Ministry of Planning and Investment), in the first 2 months of 2019, many foreign investors have set up business in Hanoi. In fact, Hanoi is the locality that attracts the most FDI in 44 provinces with 4 billion USD, accounting for 47.3%, followed by Ho Chi Minh City with 1 billion USD, accounting for 12%, the third is Bac Ninh with 54 million USD, accounting for 6.3%.

Specifically, among the investment projects in Hanoi in the first 2 months of the year, the largest project is the Indochina Energy Development Project of Thai investors with a total registered capital of 10 million USD.

This is a project operating in the fields of expertise, science and technology, using 100% foreign investment with the aim of providing management consultancy activities (except business tax); Investment consultancy (except financial, legal, tax, securities, insurance consultancy); Construction and installation of electrical systems; Technical consultancy activities.

The second largest registered investment project is the project of Super Gold Moon Co., Ltd. (Korea) on accommodation and catering services with a total registered capital of 3.448 million USD, of which contributed capital is 0.86 million USD, loan is 2.586 million USD. The project uses 100% foreign investment.

The third is EB Nguyen Xien Supermarket Project of Big C Thang Long International Trade and Service Co., Ltd (Thailand) with a total registered investment capital of 2.5 million USD in the form of joint venture.

Also according to the Foreign Investment Agency, as of February 20th 2019, the total newly registered capital, increased and contributed capital to buy shares of foreign investors reached 8.47 billion USD, increase by 2.5 times compared to the same period in 2018.

There are 66 countries and territories with investment projects in Vietnam, led by Hong Kong with a total investment of 4.3 billion USD, accounting for 51% of total investment. Right after that at the 2nd and 3rd positions are Singapore and Korea respectively.

In addition, there are a number of large projects in the first 2 months of 2019 such as: Capital contribution, share purchase of Beerco Limited (Hong Kong) into Vietnam Beverage Company Limited, the value of contributed capital is 3.85 billion USD with the main goal of brewing beer and malt brewing beer in Hanoi; Project of factory manufacturing electronic equipment, network equipment and multimedia products, total registered investment capital of 260 million USD invested by Goertek (Hongkong) Co., Ltd in Bac Ninh...

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Establishing Distribution Company In Danang

  Da Nang is a city in the Central of Vietnam, with the advantage of being a trading place of many countries in the world. Danang has a large seaport in the top 10 large seaports of Vietnam, facilitating trading activities with many countries around the world.

At the present, Da Nang is promoting foreign investment into Da Nang, and many investors have chosen Da Nang to do business in the distribution business line. For this business line, Vietnam has committed to open up to attract 100% foreign investment. As committed, foreign-invested companies in the distribution sector will be allowed to provide commission agents, wholesalers and retailers of all products manufactured in Vietnam and legally imported products into Vietnam. Therefore, the investors can import or produce goods, then they distribute the goods in accordance with regulations.

In addition, with the increasing in the number of tourists coming to Da Nang in recent years, the demand for consumer products, fashion and other items for tourists has increased. This triggers demand that many companies to provide essential goods for tourists, and this is a great investment opportunity for investors both domestically and abroad. The investors could explore this opportunity to set up company in Da Nang and fill the market’s demand.

In addition, with many policies to support enterprises in administrative procedures, as well as management, investors can easily carry out procedures as well as manage and control their business better. Enterprises investing in Da Nang are now very satisfied with the way public services are handled in the city's administrative procedures, therefore more and more investors are choosing Da Nang as a destination for investment when targeting in Vietnam.

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