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.

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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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KMH Group – Korea Proposed to Invest in Developing High-Tech Industrial Cluster in Thua Thien Hue

Chairman of Thua Thien Hue Provincial People’s Committee has just had a meeting with Chairman of the Board of Directors of KMH Group – Korea, seeking opportunities to invest in Vietnam and exchanging information to expand investment projects in tourism, relaxation and high-tech industry in Thua Thien Hue.

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At the meeting, according to Chairman of the Board of Directors of KMH, the implementation of investment projects of resorts and golf courses associated with entertainment services in Chan May – Lang Co Economic Zone with the total investment capital of 100 million USD of the Group is on schedule. KMH Group is looking forward to expanding investment cooperation in this area in some coastal areas of the province, at the same time linking with major Korean corporations to invest in developing high-tech industrial clusters in Thua Thien Hue province.

Also at the meeting, representative of KMH proposed: “The KMH wants the provincial leaders to pay attention and create conditions for the Group to study and implement some investment projects in the province in the shortest time”.

In response to the investor’s proposal, Chairman of the Provincial People’s Committee welcomed KMH Group to invest in Thua Thien Hue, especially in the potential areas of the provinces with policies to attract investment such as tourism, trade, high-tech industry.

Chairman of the Provincial People’s Committee also affirmed: “Thua Thien Hue province is ready to support KMH Group to research and expand investment, especially to create conditions for KMH Group to cooperate with its partners in establishing Korean high technology parks in Hue”.

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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.

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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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Danang city Builds the Business Relationship with Tochigi Province of Japan

On December 19th, 2019, the representative of Danang city met the president of Tochigi province, lead by Mr. Fukuda Tomikazu paying a working visit in Danang. At the moment, Japan is the top of country which invest in Danang.

Danang is receiving more than 130 investment projects and the total of investment capital is 800 million USD from Japan. The Japanese investors set up company, obtained investment registration certificate the area such as: hi-tech, supporting services, education, medical. Besides, Danang signed the official memorandum of understanding on business cooperation with some cities of Japan such as: Kawasaki, Kansai, Yokohama, Kirsarazu,… Danang show wishes to cooperate with Japan in many fields such as: economy, cultural, education,..

At the meeting, the representative of Danang city introduced the economy-social of the city and in the recent years, the cooperation relationship of Danang and Japan has been developing in many fields.

Besides, the representative of ANT Lawyers met the representative lawyers from Utsunomiya law firm of Tochigi province at ANT Lawyers Danang office. At the meeting, the parties discussed about the cooperation of helping Japanese investors to enter Vietnam market with legal services. ANT Lawyers is the law firm in Vietnam, which has the offices in Hanoi, Danang and Ho Chi Minh City.

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Pharmacy and Healthcare in Vietnam

1.Overview

There has been an optimistic trend in pharmacy and healthcare industry in Vietnam. This industry is irreplaceable as the education level and life expectancy of Vietnamese have been significantly improved. However, due to some challenges, pharmacy and health care industry desires for a change in legal framework, thus creating favourable conditions for development in the futures.

2.Vietnam – next growing pharmacy and healthcare market

-Overview of market potential

With the population of around 94 million, 44% monthly increasing income, 30% urbanisation rate with 3.4% growth rate per year, 6% GDP growth per year, the demand for better development of pharmacy and healthcare industry has been significantly increased.

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Business Monitor International (BMI) in their report “Vietnam Pharmaceutical and Healthcare” revealed that annual total value of pharmacy market $3 billion with annual growth of 15.5% period 2014-2018. The same report also showed that the total healthcare spending reaches $13 billion in 2015 which account for 5.8% GDP- highest in ASEAN, is expected to grow to $24 billion in 2020s.

-Trade agreement influence Vietnam’s market

Vietnam has recently taken part in several trade agreement which allow foreign companies to easily enter Vietnam. Firstly, Vietnam has cut tariff on 47 tariff lines of pharmaceuticals. Also by encouraging foreign investment to enter Vietnam in various forms, among 171 pharmaceutical companies operating in Vietnam, 9% are foreign invested enterprise, 4% are joint ventures.

Secondly, in terms of healthcare sector, the data of Ministry of Health stated that there are 137 operational private hospitals, including six foreign invested hospitals, and about 30,000 consulting rooms. These six foreign invested hospitals have the initial investment capital of 94 million dollars. Vietnamese government had licensed to a lot of foreign invested projects in the healthcare sector which included a total investment capital of 1.16 billion dollars. In addition, the government has allowed the investors in healthcare sector to enjoy 10% corporate income tax for the whole life of the project, tax exemption for 4 years and lower land leasing fee for years.

-Pharmaceutical products heavily rely on import

Local pharmaceutical production was valued at nearly US$920 million which satisfy 48 % of the needs in Vietnam. Imported drugs account for the remaining 52 %. Vietnam imports pharmaceuticals mainly from France, India and Korea. The medicine lines from this countries is stable and price competitive. In terms of domestic companies, the three largest public pharmaceutical companies are DHG Pharmaceuticals JSC (DHG), Traphaco JSC (TRA) and Domesco Medical Import-Export JSC (DMC).

Around 90 of raw material input are imported from foreign countries, in which 57% are from China, 18% from India and other countries such as Austria, Spain, Germany, France, Italy, and Sweden …

-Vietnam’s consumer behaviour

Vietnamese consumer has a strong preference of foreign medicines. The statistics have revealed that in the doctor prescription, 18 -20% domestic medicines are used for the patients even though the imported medicines are more expensive than domestic ones. Vietnamese consumer has more confident in terms of quality of foreign products.

Only 20%-30% of Vietnamese consumers buy medicines with prescription. However, BMI expected that the usage percentage of medicine through prescription will increase to 74.6% in the next 5 years.

3.Challenges

-Poor regulation standards

Price management and intellectual property protection of the government have not been managed closely. Therefore, the price of products still increases every year and the counterfeit medicines is still floating in the market, around 0.1% in 2012 (Drug Administration of Vietnam)

Around 28% of pharmaceutical companies have the Global Manufacturing Practice (GMP) certification, which states the minimum requirements that a pharmaceutical manufacturer must meet in order to prove that their products are of high quality and do not pose any risk to consumers. Particularly, in 2013, there are 79 out of 105 foreign medicine manufacturing enterprises and 5 of 80 domestic manufacturing enterprises that qualify GMP due to the fact that most of the enterprise are small in terms of sizes and capital investment. This indicates that Ministry of Health needs to take more aggressive actions to encourage the companies to meet the standards.

-Specific patented medicines is weak

Even though there are plenty of investment projects in pharmaceutical and healthcare industry with support from government, producing patented medicines are still too expensive in terms of time and manpower. In fact, lack of medical qualification, infrastructure development and material sources are factors leading to underdeveloped circumstance in this sector.

-Lack of accessibility in healthcare industry

There has been 1090 public hospital and 175 private hospitals in Vietnam in 2014, is expected to increase to 1204 and 200 respectively. However, there are 25.1 hospital beds per 10,000 inhabitants and 7.9 doctors per 10,000 inhabitants, which are still a question mark that has not been handled.

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Investment in Wind Power Project in Vietnam

Wind power is one of priority sectors to develop in Vietnam. Vietnam Government has been given a lot of incentives as well as support for wind power development projects.

Wind power investment procedure in Vietnam

Step 1: Project location

Investment in wind power projects must be suitable with the development plans of wind power and electricity, which are approved by the competent authorities.

Investors are licensed the wind power investment and development permit for wind power projects that are on the list of approved national wind power and electricity development plans. Moreover, in terms of the projects which are not in the approved list, the investors are responsible to create its dossiers which will be added to the development plan and examined by Ministry of Industry and Trade and then by Prime Minister.

Step 2: Evaluate wind potential at selected location

It is necessary to install wind measurement masts (if they are not available on the project location) and implement the wind measurement at least one year.

Step 3: Pre-feasibility research and require adding the project to power development plan

If the project location has potential wind condition, the investors will make a report and submit to Ministry of Industry and Trade to add this project to the list of power development plan. The Ministry is responsible to consider the application and asks for Prime Minister’s approval (wind power is a new sector in Vietnam, so the procedure has not been issued yet. All wind power projects with large scale as more than 50 MW have to be approved by the Prime Minister). After the project has been approved, the application is submitted to Department of Planning and Investment where the project is located

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Step 4: Make investment report (feasibility study)

After being approved, the investment report will be submitted to Ministry of Industry and Trade to evaluate and approve

Step 5: Signing power purchase agreement with EVN

Under the provisions of Decision No. 37/2011/QD-TTg, EVN is obliged to buy the entire power output of the wind power project. Agreement and finalize the signing of the power purchase contracts, connection, design metering systems. Currently, the standard power purchase agreement is still in the process of waiting for approval from the Government.

Step 6: Implementation of the project

When the technical design is completed and the investment report is approved by the competent authorities such as Department of Industry and Trade, Department of Construction, Department of Natural Resource and Environment and other relating departments.

Step 7: Construction

According to Decision 37/2011/QD-TTg, the investors are allowed to start the construction only when its investment certificate is granted, have the signed power purchase agreement with the power buyer, have connecting agreement with the power distributor; wind condition report is continuously recorded in 12 months.

Policy framework relating to wind power supporting in Vietnam

Policies and incentive mechanisms of the Vietnamese Government for wind power sector are expressed through clearer legal policies clearer in recent times. Prime Minister issued Decision No. 1208/QD-TTg of July 21, 2011, approving the national plan for power development in the period 2011 – 2020 with consideration to 2030. In which expresses the goal of the Vietnam Government is to prioritize developing renewable sources for electricity production, increasing the proportion of electricity produced from 3.5% in 2010 to 4.5% of total power manufactured in 2020 and 6% in 2030.

The government’s commitment to renewable power sector in general and wind power sector in particular is clearly indicated after Decision No. 37/2011/QD-TTg was issued on 29 June 2011 (taken into effect on 20th August, 2011) stipulating the mechanism to support the development of wind projects in Vietnam. Accordingly, the wind power projects enjoy preferential of capital, tax and fee.

– Mobilizing investment capital: Investors are allowed to mobilize capital in the form of permission from the organizations and individuals at home and abroad, has preferential investment credit under the existing legal provisions on investment credit and export gorvernment’s.

– Preferential of tax:

+ Import tax: The project to develop and use of renewable energy sources are exempt from import duty for goods imported to form fixed assets for the project; imported goods are raw materials, supplies and semi-finished products cannot be produced domestically and imported for production of projects as stipulated by the current legislation on export tax and import tax.

+ Enterprise income tax: The exemption and reduction of enterprise income tax for projects to develop and use of renewable energy sources is made as to projects in the field of investment incentives as stipulated by the current legislation on taxes.

– Incentives on land: The project to develop and use of renewable energy sources be exempted or reduced of land use fees and land rent as stipulated by the current legislation applicable to projects in the field of incentives invest.

– Priority is given to research related to the development and use of renewable energy resources in the field of scientific development and technology and development of high-tech industry; allocate funds from the fund to support scientific studies and technology in the pilot project, the project of industrialization for development and use of renewable energy, promote technological improvements relating to the development and use of renewable energy, reduce production costs of renewable energy products and improve product quality.

According to Decision No. 37/2011 / QD-TTg on the mechanisms to support wind power. In which, the buyer (EVN) is responsible for purchasing all electricity output from wind power project at the price of 1,614 VND / kWh (excluding VAT value added taxequivalent to 7.8 US cents / kWh) at the point of delivery of electricity. Electricity purchase prices are adjusted according to fluctuations in the exchange rate between VND and USD. In particular, the State shall support for the buyer the price of electricity at the price of 207 VND / kWh (equivalent to 1.0 US cents / kWh) for the entire output of electricity purchased from wind power plants through Protection Fund Vietnam environment. This means, the buyer or EVN only pay 6.8 US cents / kWh.

According to Decision No. 37/2011/QD-TTg on the mechanisms to support wind power. In which, the buyer (EVN) is responsible for purchasing all electricity output from wind power project at the price of 1,614 VND / kWh (excluding VAT, equivalent to 7.8 US cents / kWh) at the point of electricity delivery. Electricity purchase price will be adjusted according to the fluctuations in the exchange rate between VND and USD. In particular, the State shall support for the buyer at the price of 207 VND / kWh (equivalent to 1.0 US cents / kWh) for the entire output of electricity purchased from wind power plants through Vietnam Environment Protection Fund. This means, the buyer or EVN has to pay only 6.8 US cents / kWh

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