BUSINESS IN BRIEF 15/4
Phu Yen boosts cooperation in hi-tech agriculture
The management board of the Phu Yen hi-tech agriculture park signed a number of cooperation agreements with domestic and foreign partners at a conference in the central province of Phu Yen on April 13.
Its partners were the Institute of Agricultural Science for Southern Vietnam , the Institute for hi-tech agriculture application and research under Da Lat University and Raycean INC Japan.
The province- based Dac Loc seafood enterprise also signed Memoranda of Understanding on collaboration with Fuji Consulting Japan Co, Ltd, Mimosa Technology Co., and the Integrated Circuit Design Research & Education Centre.
At the conference, participants agreed to entrust Ho Chi Minh City ’s Hi-tech Agriculture Park to connect the activities of hi-tech agriculture zones and groups with domestic and foreign organisations, as well as investors and businesses interested in this field.
The city’s park will also chair the building of a research and production supply chain to sell hi-tech farm produce.
The panels were introduced to the potential, advantages and investment opportunities in Phu Yen province and its hi-tech agriculture park.
They also heard about the operation and development orientations of the park, as well as some operational models using high technology such as growing mushrooms and breeding shrimp.
Farm product exports to the U.S. down
While Vietnam’s exports to the U.S. have kept increasing over the years, shipments of farm produce and foodstuffs to this huge market have been on the wane.
Do Kim Lang, deputy head of the Vietnam Trade Promotion Agency under the Ministry of Industry and Trade, said at a recent conference in Hanoi that since the bilateral trade agreement between the U.S. and Vietnam took effect in late 2001, their two-way trade expanded from US$1.51 billion in that year to nearly US$38 billion in 2015, up 24.2% over 2014 and 25 times higher than that in 2001.
Vietnam became the 19th biggest trade partner of the U.S. in 2015, up from 27th in 2014. Last year marked the first time Vietnam was among the top 20 trade partners of the U.S., Lang told the conference on opportunities and requirements for food and beverage products shipped to the U.S. market.
Vietnam was the 13th largest exporter to the U.S. last year and its major export earners included apparel, machinery, electronic stuff and components, footwear, and furniture.
However, Lang said farm and foodstuff exports to the U.S. went down in 2015 due to many trade barriers going up and the fact that Vietnamese exporters have not been fully aware of the food safety regulations of the U.S. on imports.
Dinh Quyet Tam, chairman of the Vietnam Beekeepers Association, said Vietnam has sold honey to the U.S. since 1992 with export revenue and volume topping US$132 million and 47,000 tons in 2014 respectively.
However, American firms cut honey imports from Vietnam in 2015 as data of the association showed that shipments to the U.S. reached only 37,000 tons worth about US$93 million last year. The volume is forecast to decline further this year, making life tough for many local beekeeping firms.
Tam said honey exporters are facing many problems in America, including those relating to honey color and residue of Carbendazim fungicide. Besides, Vietnamese exporters are struggling with mounting competition from rivals in Argentina, Brazil, India and Thailand.
The cost of laboratory tests for honey has gone up. Tam estimated it costs businesses VND1.5 million (US$672.6) for four to five tests for a ton of honey exported to the U.S., and the number of tests has increased to 25.
David Lennarz, vice chairman of Registrar Corp., said the U.S. Food and Drug Administration (FDA) has adopted more stringent regulations on protection of consumer health.
Post-harvest paddy losses remain huge in Mekong Delta
The Mekong Delta is still struggling with hefty paddy losses during and after harvest, which are estimated at nearly 50% of total revenue from formal rice exports last year, heard a conference in Can Tho City last week.
Statistics released at the conference on post-harvest technology showed that losses accounted for 13.7% of 24.4 million tons of paddy in the country’s key rice producing region a decade ago, equivalent to over US$781 million.
Pham Van Tan, deputy director of the Southern Institute for Agricultural Engineering and Post-harvest Technology, said there have been no official data about the current loss ratio. He predicted it has gone down to around 10% of total paddy output in the region.
The loss ratio of paddy in the harvest process has dipped to 1-1.5% from 3% in 2006 thanks to the use of combine harvesters, Tan told the Daily on the sidelines of the conference. As for the drying process, the percentage has slid to 1-1.5% from 4.2% ten years ago.
Tan put the annual paddy volume lost during and after harvests at US$650 million in the region.
Vietjet offers 50,000 discounted tickets
Vietjet is offering 50,000 promotional tickets from just zero dollars to celebrate the new international routes from HCM City to Kuala Lumpur, and Tainan City.
The promotion, which runs from now to April 18, is available between noon and 2pm. It applies for all tickets on routes connecting HCM City with Kuala Lumpur, Tainan and Taipei. The travel period for HCM City–Kuala Lumpur route is from June 1 to October 30, while for HCM–Tainan/Taipei route is from June 22 to October 30 (excluding public holidays).
The HCM City–Tainan City route will be operated every Monday, Wednesday, Thursday and Saturday from June 22 and takes about three hours and 15 minutes per leg.
Meanwhile, daily flights will be available on the HCM City–Kuala Lumpur route from June. Flying time is about one hour and 55 minutes.
The airline will also increase flight frequency between HCM City and Taipei from one daily round trip to two round trips from June 18 with a flight time of three hours 25 minutes.
Majority of firms lack awareness of business development services
Usage of business development services (BDS) is low among entrepreneurs in Vietnam as about 60-80 percent of firms lack awareness of BDS or are aware but do not use the services.
Pham Thi Thu Hang, General Secretary of the Vietnam Chamber of Commerce and Industry (VCCI) made the statement at the forum on BDS in Hanoi on April 13, upon the release of the 2015 VCCI Enterprise Annual Report.
According to the VCCI, despite being a relatively new business concept in Vietnam, BDS has been one of the country’s fastest growing sectors with 300,000 service providers in 2015, tripling that of 2007 and accounting for over 68 percent of operational businesses.
Business development services are defined as those non-financial services and products offered to entrepreneurs at various stages of their business needs. Such support services can be training, advisory services, marketing facilitation and market research.
The services are regarded as effective tools for enterprises, especially those of small and medium size (SMEs), which enables them to reduce costs, increase competitiveness and boost innovation.
However, lack of knowledge about the benefits of BDS has remained the biggest challenge that prevents these companies from approaching BDS providers.
SMEs are most in need of business development services due to their limited resources and human capacity, Hang stressed, noting that without such external support, enterprises could suffer from a lack of vital business skills and knowledge, leading to ineffective performance.
Financial issues and poor-quality services are also major obstacles, added Ho Sy Hung, head of the Enterprise Development Agency at the Ministry of Planning and Investment.
Hung believed that BDS should be customised to be more affordable and meet the specific needs of each firm, while Hang urged the providers to enhance their service quality and ramp up promotional activities for more potential clients to learn about their services.-
Cotecons targets $1b in 2017 earnings
Construction firm Cotecons JSC plans to earn US$1 billion next year, Chairman and CEO of the firm Nguyễn Bá Dương said at the annual shareholders meeting on Tuesday.
Based in HCM City, Cotecons is one of the leading constructors and designers of infrastructure and real estate projects in the country, with charter capital of VNĐ800 billion ($35.5 million).
In 2015, Cotecons achieved consolidated sales of VNĐ13.6 trillion and profit after tax of VNĐ666 billion, an increase of 79 per cent and 103 per cent over 2014, respectively. In the first quarter of 2016, the company achieved revenue growth of 97 per cent over the same period last year.
This year, it plans to earn revenue of VNĐ16.5 trillion and profit after tax of VNĐ800 billion.
Chairman Dương said the construction business was still at great risk due to volatilities in the real estate market. To ensure sustainable development in the future, the company must diversify into other sectors, he said.
The chairman set a target of getting 50 per cent of its business from the construction segment, with the remaining 50 per cent coming from other businesses. In 2017, Cotecons targets earning $1 billion in revenue through the expansion of the business via mergers and acquisitions and by building new subsidiaries.
To meet the target, Dương said, Cotecons would raise between VNĐ1.5 trillion and VNĐ1.8 trillion to expand production.
Under the plan, the company is expected to issue 16.4 million additional shares to existing shareholders, at a ratio of 3:1.
The firm plans to offer 14.43 million shares to its strategic partners at a price of at least as much as 80 per cent of the average reference price on the local market up to 20 days from the release of the offer.
The chairman also said the company would issue 2.4 million employee stock ownership plan (ESOP) shares, or 5 per cent of the stake, to the employees in the 2014 and 2015 period at VNĐ42,000 and VNĐ70,000 per share respectively.
This year, Cotecons will also pay a cash dividend rate of 55 per cent on par value, equivalent to VNĐ5,500 per share.
Currently, the company is working with major real estate developers, including Vingroup, TNT and Dai Quang Minh, which have handled projects worth trillions of dong, such as Masteri Thao Dien, Gold View, Goldmark City, Central Park and Vinhomes Times City Park Hill.
On Tuesday, Cotecons shares ended at VNĐ182,000 each on the HCM Stock Exchange.
Việt Nam and UK to boost trade, investment
Authorities in HCM City said they hope UK enterprises would further investment in local projects, and affirmed that the city would create opportunities and conditions for them to develop business.
Speaking at the meeting with UK Foreign Secretary Philip Hammond and his entourage in HCM City yesterday, Chairman of the HCM City People’s Committee Nguyễn Thành Phong said the UK ranked 8th in investment out of the 74 countries and territories investing in the city. Among them include many large-scale projects.
He mentioned the 86-storey, $1.2 billion observation tower complex project in the Thủ Thiêm New Urban Area in HCM City as an example of co-operation between businesses on the two sides.
In 2015, two-way bilateral trade between HCM City and the UK reached US$875 million, a 20 per cent increase compared with 2014.
The British Business Group in HCM City had 450 members. This was a dynamic group, and their investment results and trade co-operation made important contributions to the city’s development, Phong said.
Phong also informed the UK diplomat about the city’s development vision to become a big training centre for economics and trade, science and technology, and education in the ASEAN region.
Phong expressed hopes that the UK, which has strengths in education, would help the city train high-quality human resources through co-operation between universities on both sides.
Hammond said he appreciated the development of Việt Nam in general and HCM City in particular, as well as the strategic partnership between the two counties.
He said he had met representatives of UK companies working in HCM City before the meeting. They reported to him that they were optimistic about the future development of Việt Nam, especially HCM City.
In their bilateral relationship, relations in trade and investment are the most important fields right now, said the diplomat.
He said the UK expected to learn more about the city’s development focuses in the future, at which time the two sides could take concrete action.
He said UK businesses would invest more in the future – not only through individual projects, but also through the city’s socioeconomic development plans.
Enterprises ignore BDS advice
Up to 60 per cent of more than 500,000 enterprises in Việt Nam do not use business development services, said Phạm Thị Thu Hằng, general secretary of the Việt Nam Chamber of Commerce and Industry (VCCI).
Hằng told a business forum in Hà Nội yesterday, that this occurred despite a rapidly growing number of business development service (BDS) providers in Việt Nam.
A VCCI report said the number of companies dealing in services increased from roughly 94,000 to more than 300,000 during 2007-15 period, now accounting for nearly 70 per cent of all firms operating in the country.
Companies in the service sector employ about 17.1 million workers, or 32 per cent of the total workers in the country.
BDS are widely known as non-financial services that help businesses enhance operational efficiency, expand markets and improve competitiveness.
For example, an “enterprise nursery garden” in the southern Sóc Trăng Province provides consulting services related to corporate management, accounting, competitor definition and supplier networking.
The “garden” says on its website, vuonuomdoanhnghiep.soctrangsme.vn, that BDS is particularly important for small- and medium-sized enterprises (SMEs). Such firms may use the BDS to save their resources for production and business activities, as competition is getting stiffer in the face of deepening global economic integration.
Lương Minh Huân from the Institute for Enterprise Research and Development told enternews.vn that BDS is now as important as services such as finance, insurance, telecommunications, transportation and logistics.
He said that imports and exports are likely to see increasing technical barriers as tariffs decline following Việt Nam’s entrance into a variety of free trade agreements. Without the proper services, it will be hard for local enterprises to pass foreign barriers.
Yet limited awareness among domestic companies about such important services is a challenge for the development of BDS, heard yesterday’s meeting.
Hằng said a lot of firms do not know about the services, while many others know, but do not use them. She attributed the lack of interest to the poor quality of these services.
Hồ Sỹ Hùng, director of the Ministry of Planning and Investment’s Enterprise Development Department, cited a recent survey of 156 technology management service providers, showing that 57 per cent of them are State-run companies with inflexible and unattractive services.
Most local businesses are SMEs and may not be able to afford the services, he said.
Hằng and Hùng agreed that BDS providers must improve the quality of their services to attract more customers. “The Government should be a ‘catalyst’ for the market to operate, instead of directly providing the services,” said Hùng.
Yesterday, the VCCI also launched the Việt Nam Annual Business Report 2015, the 10th publication in this series. The report said that the domestic business environment, though significantly improved, required more appropriate measures to support business development.
“Inherent problems of enterprises are yet to be solved,” VCCI Chairman, Vũ Tiến Lộc said, pointing out issues such as low labour productivity, inefficient capital use, outdated technology and the shortage of companies large enough for integration.
Improving tax system, management: a must for VN
Experts at a conference held by ActionAid Việt Nam said the country needed to improve its tax legal system and management, to prevent tax evasion and avoidance.
Ensuring the collection of taxes was critical for the Government to improve public services, while tax cuts and tariff liberations following free trade agreements were anticipated to cause a drop in the national coffers, according to ActionAid, which initiated the tax justice campaign in July 2013.
A report by ActionAid Việt Nam and the Việt Nam Tax Consultants Association said that generous tax incentives for foreign direct investment (FDI) companies, including tax exemptions and reductions, as well as rampant avoidance of taxes, has caused losses of millions of dollars to the State budget, which could better be spent on public services, social security and fairness.
The report cited statistics from the General Department of Taxation that the loss to the State budget caused by FDI firms’ avoidance of paying taxes – mostly through transfer pricing – amounted to US$20 million in 2012, the most recent year the figure was available. The sum was five times higher than the budget for education and three times higher than the budget for healthcare services in the same year.
Further, it was stated that tax incentives could not create competitiveness for the national economy. Instead the report, urged the Government to focus on improving the investment environment through building the legal framework, developing infrastructure, investing in quality human resources and the industry for parts suppliers, rather than continuing tax incentive policies for FDI.
Nguyễn Văn Phụng, Director of the Large Taxpayers Office, did not offer comments about the figures in ActionAid’s report, except to say that this could be an opportunity lost.
There was no discrimination in policy incentives between domestic and FDI firms, Phụng stressed.
It is now time Việt Nam became more selective in attracting FDI, Phụng said, adding that incentives should be given to investments in industries and sectors where the country aimed to promote development.
He added that it was critical to improve the legal tax framework, enhance the management capacity of tax authorities, strengthen enforcement, including inspections against transfer pricing, and apply advance pricing agreement (APA) mechanisms to prevent tax evasion and avoidance.
Additionally, Vũ Đình Anh, economic expert from the Academy of Finance, said at the conference that electronic tax management should be promoted to enhance efficiency.
Vinatex inaugurates Northern Corporation
The Viet Nam Textile and Garment Group (Vinatex) launched its Northern Corporation (VNC Corp) on April 12.
The new company has charter capital of VND500 billion (US$22.4 million) and was formed following a merger of four subsidiaries of Vinatex: Dong Xuan Knitting Sole Member Limited Liability Company, Vinatex Hong Linh JSC, Ha Noi Textile and Garment Joint Stock Corporation and 8-3 Textile Limited Company.
Speaking at the inauguration ceremony, the general director of Vinatex, Dang Vu Hung, said the company’s strategy was to focus on knitted and woven products in the Ha Noi and Hung Yen markets.
Vinatex’s chairman of the management board, Tran Quang Nghi, said the new company aimed to achieve an annual growth of 15 to 20 per cent in revenue and 20 to 30 per cent in export turnover.
By 2020, VNC Corp. plans to become a core unit of Vinatex and rank among the top three companies of the group in terms of both scale and profitability.
MoT to divest $282 million in Q2
The Ministry of Transport (MoT) will divest more than VND6.3 trillion (US$282 million) from 59 non-core enterprises in the second quarter of 2016, said deputy minister Nguyen Ngoc Dong on April 12.
Dong said in the first quarter, the MoT divested from nine non-core businesses, earning more than VNĐ2 trillion.
Also in Q1, the ministry held the first shareholders general meetings for the 25 joint stock companies which were converted from State-owned firms under its management.
After selling about 78 million shares of the Airports Corporation of Vietnam (ACV) in its initial public offering last December, the MoT approved a list of strategic investors, share prices, and the first general shareholders meeting of the ACV.
The ministry was also completing documents for the Vietnam Expressway Corporation (VEC) plan to raise its charter capital from VNĐ1 trillion to VNĐ72.6 trillion by 2019 and implementing the equitisation of the firm.
Since December 2004, VEC has developed the biggest highway projects in Việt Nam including Cau Gie – Ninh Binh, Noi Bai – Lao Cai and HCM City – Long Thanh – Dau Giay, the Da Nang – Quang Ngai highway and the Ben Luc – Long Thanh highway. It is also preparing for the construction of the Ha Noi – Lang Son highway.
Dong said the MoT asked the Prime Minister to approve the equitisation plan of Nam Thăng Long Hospital in Hà Nội.
The MoT was the most active ministry in carrying out the equitisation of state-owned firms. By the end of 2015, MoT had exceeded its equitisation targets by successfully equitising 137 state-owned including 16 large-scale corporations.
Startups get a helping hand
About ten men wearing the same t-shirt uniforms gathered around a teapot in a country-side setting, sharing their ideas about startups until midnight when a middle-aged women came to encourage them to go to bed because the following day was to be a long day of work and training.
Most people would think the men were on a school trip and the woman was their teacher.
In fact, this was an external activity of Vietnam Silicon Valley (VSV) called VSV Camp, which was organized in the mountains of Ba Vi, just 70 km from Hanoi. The ten men were founders and investors of startups and the woman was the CEO and founder of VSV, Thach Le Anh, who is known for her devotion to the development of Vietnam’s startup community.
The camp had some 70 participants, including startup founders, investors, and policy makers and was organized for the first time on April 8-10. There will be many more such camps, according to Ms. Anh.
Some of the ten startup founders and investors quit their job at “the best place to work in Vietnam” to establish their own startups, not because of dissatisfaction with the company but because they wanted to manage their own startups.
“I wanted to quit the mainstream workplace,” Mr. Hoang Le An, founder of TechBridge, an app created to serve businesspeople, told VET. He came up with the idea of establishing a startup when working for Intel Vietnam. “Intel Vietnam is great to work for, I just had to focus on my work while the company provided great opportunities for my life and my education.”
“My decision to quit Intel Vietnam made my mother cry and many others called me crazy. However, I thought that if I didn’t make the move at this time, when I was still young and single, I would never do it,” Mr. An said. He added that, after leaving the company, he had a difficult life, renting a room in Ho Chi Minh City and surviving in very simple living conditions.
Five years after quitting Intel and beginning the startup, Mr. An is still developing products that are not yet commercialized.
Another startup founder, who preferred to remain anonymous, told VET: “My early career in startups was full of ups and downs but I still rejected job opportunities from FPT.”
The question is why the two men knocked back big opportunities to work for companies known as the best workplaces in Vietnam and instead chose the rocky road of developing startups. The answer is the fascination of attracting hundreds of millions of users and million-dollar investments and company valuations.
“From 90 to 95 per cent of startups in Vietnam fail,” said Mr. Dinh Viet Hung, founder of JoomlArt.
“They never talk about their failures,” said Ms. Do Tu Anh, General Secretary of the Hanoi Young Entrepreneurs Association (HNBA) in talking about successful startups.
Such comments show just how hard it is for startups in Vietnam to become successful.
Money matters, of course, but the passion of startup founders seems to overcome financial difficulties.
“It took us a very long time to find work that we can say is for our life,” Mr. Nguyen Quoc Khanh, a member of Tech Elite, one of the most famous startups in Vietnam, told VET. “You can see the startup culture and I am proud of what I am doing – it is our lifestyle.”
At the VSV camp a number of other men had chosen a risky path to run startups, such as Mr. Hung from JoomlArt, who quit work at an oil company with a monthly salary in the thousands of dollars, or Mr. Pham Kim Hung, founder of TechElite and winner of many international mathematics medals and a full scholarship to Stanford University, who rejected work in the real Silicon Valley to run his own startup in Vietnam.
According to Ms. Anh, the difference between VSV and other countries’ startup communities is the involvement of the government.
The government and the Ministry of Science and Technology focused on boosting the growth of technology startups in Vietnam in a project to create an ecosystem of innovation and technological commercialization in the country.
The project marks the beginning of a dynamic and exciting ecosystem for technology entrepreneurship and startups in Vietnam with the application of Silicon Valley-tested training and development programs and networks of mentors.
“VSV matches perfectly to what Vietnam’s startups need, with official support from the government,” said Mr. Khanh. “Vietnam’s startups need a platform to send the community in the right direction. Thanks to VSV, TechElite found its vision to develop.”
With over 30 mentors experienced in startups, VSV will provide the utmost support for Vietnam’s startup community in all aspects, Ms. Anh confirmed.
Mr. An told VET that with experience, training, and lot of activities, including creativity improvement games and demo pitching, VSV has provided great opportunities for his startup and he expressed a hope for more support from the program.
“I am happy with what I have gained through the camps, especially the demo pitching,” he said. “My startup has struggled with licensing and I hope VSV can help me to handle this and other matters.”
Local banks face liquidity trap as offshore deposits mount
By the end of 2015, the amount of deposited money by Vietnamese nationals in foreign banks reached USD7.3bn, according to the report by the Vietnam Institute for Economic and Policy Research (VEPR).
Nguyen Duc Thanh, director of VEPR, said after China made moves to weaken the yuan since last August, Vietnam suffered a trade deficit of USD6.6bn in the third quarter. In addition, deposits in foreign banks increased up to USD7.3bn. During this time, the foreign exchange activities at local banks, foreign direct and indirect investment operations were normal.
“This is like a liquidity trap. Both local deposit and lending rates were low, meanwhile, people were expecting that the exchange rate between Vietnamese dong and US dollar would increase after China weakened the yuan,” Thanh said.
Local commercial banks failed to boost foreign currency loans and making indefinite deposit accounts at foreign banks became more profitable.
Recently, in an effort to minimise the dollarisation of the economy, the State Bank of Vietnam lowered the deposit interest rate for USD to zero. The newly-issued Circular 24 by the SBV also asked banks to stop providing loans to companies that do not make offshore payments. This will likely driven the amount of offshore deposited money up.
Thanh said the policy to minimise the dollarisation was not wrong but while doing so, the government should carry out plans to raise public’s trust in the Vietnamese dong simultaneously. While people are flocking to deposit money overseas, local banks are providing foreign currencies loans from overseas to meet domestic demand because the US dollar still plays an important role in the country’s export sector.
“The state bank must have measures to prevent a disturbance by establishing a market where people can trade US dollar easily,” Thanh said.
Moreover, inflation will be a huge challenge to face in near future. The credit growth target of 16 to 18 percent will likely increase inflation rate and if inflation rate goes up, people will quickly lose their trust in Vietnamese dong.
Removing bottlenecks to garment industry
The garment sector is one of Vietnam’s best performers in terms of export value, with revenues in 2015 estimated at US$27.5 billion, contributing to more than 10% of total industrial output.
The sector employs over 2.5 million workers, of which more than half are working at garment factories run by around 5,000 enterprises throughout the country, making a significant contribution to transitioning the economic structure from agriculture to industry.
However, the garment sector’s growth mainly relies on the manufacturing of end products while other stages of the value chain are controlled by overseas and foreign-invested companies.
Although the export value has seen a continuous rise in recent years, especially as Vietnamese garments are shipped to the US, the position of Vietnam’s garment industry in the global value chain remains stagnant. Vietnam and other developing countries only focus on doing contract work to manufacture clothes, shoes, bags and so on for foreign brands, so the real value the sector brings home is very low.
Despite impressive export growth figures, Vietnam’s garment sector is facing a great challenge with up to 80-85% of raw materials including fibres, leather, premium sewing threads, buttons, metal zips, among others needing to be imported. Garment exports earned US$27.5 billion last year but the sector had to spend more than half that amount to import materials for manufacturing at home. As a result, the real earnings were much smaller than the total export value.
According to the Vietnam Textile and Apparel Association, as of 2014, Vietnam had 5,028 enterprises operating in the garment industry, of which 4,424 manufacture clothes; 497 textiles; 5 filaments; 96 staple fibres; 2 synthetic fibres; and 4 cotton.
While the demand for cotton is around 900,000 tonnes a year, the production capacity is just 5,000 tonnes. The sector also needs 6.8 billion square metres of textiles, but domestic companies can only provide 800 million and the remaining 6 billion has to be imported. These problems have restricted the sector’s manufacturing capacity.
As such, Vietnam’s primary goal in the coming years is to develop cotton growing areas to satisfy part of the demand, gradually increase the proportion of materials in the pricing structure, enhance the added value of domestically made fibres, textiles and clothes, reduce imports and facilitate the sector to become more proactive in securing materials.
In addition, Vietnam needs to promote value chain-based linkages, develop industrial clusters to manufacture materials, and address bottlenecks in treating wastewater from the dyeing process and other pollutants. At the same time, incentive measures are needed to encourage investment in materials production such as lowering land, VAT and corporate income tax.
The government should also establish support funds to provide cheap credit to manufacturers that use more than 50% domestically produced materials, among other measures, to make the garment industry more competitive in the future.
Property boom to run uninterrupted
Despite the impact credit tightening from the government, the real estate market is expected to continue its marked upswing for 2016.
According to Stephen Wyatt, general director of JLL Vietnam, the property market will continue its strong development trajectory.
“It will remain a year of promising prospects despite global challenges and credit tightening”, Wyatt said, adding that Vietnam’s property market had seen 25 years of development with various ups and downs. At present, the market was developing and maturing at a faster rate than previously seen.
“Developers, investors, banks, and government authorities are more alert to market dynamics and are prudent in their actions and roles”, he said.
Wyatt’s comments offer some reassurance to those concerned that the property market’s growth would grind to a halt following the State Bank of Vietnam’s announcement that the VND30 trillion (US$1.34 billion) housing credit support package would come to an end. This package, according to experts, made an impact on social and affordable housing only, but had a limited effect on commercial products.
Domestic developer NovaLand seem insulated from the effects of the housing credit package coming to an end, as it is increasing its portfolio by collecting projects through mergers and acquisitions (M&As).
NovaLand chief executive officer Phan Thanh Huy said that his company’s projects had been backed by the firm’s financial sources rather than by soft loans from the government.
“I envisage that improving the infrastructure system will drive the real estate market to a higher position for the rest of the year”, Huy said.
He added that many foreigners were eyeing the market’s M&A options, which would provide a strong flow of capital to projects.
Meanwhile, from the buyer’s point of view, foreigners and overseas Vietnamese have started taking an interest in buying Vietnamese properties following last year’s approval of an open policy.
According to Huy, since the day of its establishment, his firm has pursued a clear strategy of focusing on the medium and luxury segments. This strategy has been developed over many years.
This year the firm will continue to offer customers products at good prices in this segment. “In addition, we will keep improving management and after-sales services at our projects. This is our responsibility, and it will strengthen our reputation in the market”, Huy said.
Mauro Gasparotti, executive director at Alternaty, said that Vietnam was offering the most exciting opportunities in the region, while elsewhere in the region real estate markets were suffering.
According to him, Singapore is feeling the effects of heavy-handed cooling measures, while Indonesia and Malaysia have seen rapid currency depreciation. Thailand continues to grapple with internal issues, and Myanmar is seeing significant supply coming into the market, putting downward pressure on rentals and pricing.
“We believe there are a lot of advantages for Vietnam’s property market in an emerging country. One of the main ones is the overall better state of the economy compared to previous years, leading to stronger confidence in real state growth”, Gasparotti said.
The residential markets in both Hanoi and Ho Chi Minh City in the first quarter of this year continued to post positive results.
1,000 workers electronics company strike in Haiphong
On April 11, approximately 1,000 workers of Korean electronics company Bluecom Vina Company Limited (Bluecom Vina) started a strike when their Korean directors ignored their requests for cutting working hours and increasing wages, according to newswire Laodong.com.
According to the workers, the company’s management board broke a promise to establish a union to protect employees’ rights.
Besides, workers do not have official working hours. They have to start working at 8 AM until the managers allow them to leave, which is usually at 9 or 10 PM, even on Saturdays. However, the workers are only paid a basic wage of VND3.74 million ($165) a month, with a compensation of VND100,000 ($4.5) for extra hours accumulated during the month.
On the same day, chairwoman of the Haiphong Economic Zone Trade Union Pham Thi Hang attended a working session with the company’s representatives to protect their rights.
Accordingly, after the working session, the company promised to establish the union on April 15 and adjust the working hours to suit Vietnamese labour regulations. Furthermore, the company will retain/keep the compensation of VND100,000 ($4.50) for all the extra hours accumulated throughout the month, but agreed to increase the monthly allowance to VND450,000 ($20.2) per person.
However, Bluecom Vina refused to its workers to have two Saturdays off each month, leaving them dissatisfied, which prompted workers not to restart working.
Starting operation in 2015, wholly Korean-owned Bluecome Vina, specialises in manufacturing TV speakers and earphones with a total workerforce of 1,400.
High rents curb investor enthusiasm in Hanoi’s IPs
Industrial parks and export processing zones in Vietnam’s capital city have proved less attractive to big foreign investors due to expensive land rental rates.
“Land leasing fees in Hanoi’s industrial parks (IPs) and export processing zones (EPZs) are 3-15 times higher than that of neighbouring provinces. On average, each square metre is charged at VND15,000 ($0.68) a year, compared to VND5,000 ($0.22) in Tu Son town, and even VND1,000 ($0.04) in other provinces,” Nguyen Van Ngan, an expert on the Hanoi Industrial and Export Processing Zones Management Authority, told VIR.
“Although we have asked the People’s Committee many times to reduce land rentals for enterprises to increase attractiveness for local IPs, the situation remains unchanged,” he added.
With such a high land leasing fee, the authority has so far attracted only a few new foreign investors leasing land for their projects in Hanoi’s IPs. The majority have been small foreign firms leasing workshops at low prices for their projects, Ngan explained.
Pham Khac Tuan, head of the authority, admitted that the situation led to poor results of attracting foreign direct investment (FDI) capital in 2015. The previously set target of attracting $200 million in investment in Hanoi’s IPs and EPZs was trimmed to just $120 million after it was revealed that by the end of the third quarter last year only 30 per cent of the original target had been met.
The authority has set a target of attracting $150 million in FDI this year.
Over the years, Hanoi’s IPs have attracted some large FDI projects including Meiko Vietnam (with the total investment capital of $350 million), Panasonic ($397 million), Canon ($306 million), and Hoya Glass Disk ($230 million). However, over the past two years, there has been a dearth of significant FDI projects.
“The average investment capital of FDI projects licensed over recent years in Hanoi’s IPs and EPZs was around $15 million. This value is far lower than the potential,” Ngan said.
Indeed, together with the increasing labour cost in the capital, the high rental rate has prompted powerful international groups like LG and Posco to pass over Hanoi in lieu of Bac Ninh, Thai Nguyen, and Haiphong for their billion-dollar projects.
Currently, Hanoi has nine IPs covering an area of 1,300 hectares. Six of these have an occupancy rate of over 90 per cent; one 72ha IP is still completing its infrastructure framework, and three others are preparing to be developed with the total area of 703ha.
As of the end of March, the IPs attracted 612 projects, including 320 FDI projects with the total registered investment capital of $5 billion. Among the foreign investors, Japan ranks first with 152 projects and the total registered investment capital of $2.9 billion. The runners-up are China with $570 million, South Korea ($380 million), and Singapore ($291 million). The majority of the projects focus on electronics (36 per cent of total), mechanics (21 per cent), electricity (16 per cent), construction materials (2.88 per cent), and textiles and garments (2.23 per cent).
Axed tariffs spurs wood sector
Foreign investors are showing a growing interest in furniture and wood processing projects in Vietnam thanks to the country’s free trade agreements, low labour costs, and a rise in global demand for wood products.
Nguyen Ton Quyen, chairman of the Timber and Forest Product Association of Vietnam (Vifores), told VIR that since late last year, hundreds of wood product investors from over 30 nations in the world came to Vietnam to do business, with several dozen projects starting implementation. All major global wood firms were already present in Vietnam.
“This time last year, the number of these investors and projects entering Vietnam was small,” Quyen said.
Sweden’s IKEA, the world’s largest home furnishing retailer, is spending hundreds of millions of dollars per year purchasing wood products from Vietnam. IKEA has financed many local partners to buy timber materials and then purchase the finished products for export. Notably, IKEA is working with Vietnamese authorities for a plan to open its billion-dollar retail chain and commercial network in Vietnam.
“The commercial presence will help IKEA boost its furniture business with Vietnam,” Quyen said. “Other firms including Cosco, Carrefour, Big C, and Metro are also planning to invest in furniture projects in co-operation with Vietnamese partners.”
According to the Binh Duong Department of Planning and Investment, the southern province, which is one of Vietnam’s wood processing hubs, is being eyed by big foreign investors. Recently, Samoa’s Wood Best Holding Limited was licensed for a $50-million project to make wooden products. The project is expected to come on line later this year, with products exported worldwide.
Huynh Van Hanh, vice chairman of the Ho Chi Minh City Handicraft and Wood Industry Association (HAWA), said that many of HAWA’s member companies, mostly from Japan, China, Taiwan, Singapore, and the EU, were planning to expand production in Vietnam.
One of the reasons behind the surge in foreign furniture and wood processing projects in Vietnam is that foreign firms are gradually shifting their orders and production from China to Vietnam, where labour costs are cheaper. Compounding this shift is the anti-dumping tax being imposed on many of China’s wooden products. Notably, according to Quyen, under Vietnam’s already-signed free trade agreements (FTAs), the local wood industry is benefiting significantly from tariff slashes on wood products under the FTAs. Currently, almost all tariffs on materials for wood products imported into Vietnam are at 0 per cent.
Chinese and South Korean exporters currently face an average import tariff rate of 15 per cent when exporting their wood products to external markets. However, the same rate for Vietnam is 0 per cent.
Vietnam earned $6.9 billion from wood product exports last year, of which 40 per cent came from foreign firms. It is expected that the turnover will be $7.6 billion this year, of which 50 per cent will be held by foreign firms.
“The competition is becoming hotter and hotter. I think the rate of foreign market share will reach 60-70 per cent over the next few years,” Quyen said.
Khang Thong Group brings world of rallies and speed to Vietnam
The first rally circuit of Vietnam Happlyland, invested by renowned Vietnamese multi-industry company Khang Thong Group, will open on April 30.
At a press conference carried out by the Vietnam National Administration of Tourism on April 12, Khang Thong’s assistant to chairman Nguyen Huu Viet announced the opening of its first Vietnamese rally circuit later this month.
This 131-square metre complex includes a 1.4-kilometre asphalt road for motorcycles, a 1.1-kilometre off-road track for bicycles and ATVs, a 400-metre road for drag racing, a 7.7-kilometre road for rally racing, a 18,000-square metre yard for practicing riding Gymkhana, and a 5,000-square metre yard for young racers of five and above.
“Rally racing came to Vietnam a long time ago but there has not been a professional playground for them to live with their passion. They normally carry out cross-country rides, which are sometimes very dangerous,” Viet said. “Happyland is not only a rally circuit but also a training centre, where racers are trained by Malaysian experts to ride a rally car safely.”
Along with the opening of the circuit, which can house a 25,000-strong audience, Happyland will organise an open rally racing championship welcoming all racers in Vietnam.
“After this championship, our schedule for the circuit has been fully booked till the end of 2016. We will try to organise other racing completions where racers from Malaysia and other countries can join,” shared the chairman’s assistant.
Happyland rally circuit is only a section of Khang Thong Group’s 1,200-hectare project in Long An province. According to Viet, two other projects are awaiting completion this year, a Vietnamese culture area and a camping site. In 2017, a water park, mini world, resorts, wine castle, and the 24-hour city of light will be finished.
Director of Singapore-based Santa Fei Investment PTE Ltd., one of Happyland project’s joint investors, Michael Chan shared with VIR that Vietnam is an attractive destination for investment because of its over 90 million population. “Compared to Singapore’s five million people, Vietnam has a much bigger potential in tourism,” Michael said.
“Moreover, given the hospitality of Vietnamese people, I am confident that our project here will boost up the number of international tourists to Vietnam.”
Red tape keeps firms tied to FOL
Local listed firms with retail arms remain hesitant to ease their foreign ownership limit due to the Economic Needs Test imposed on overseas retailers.
Raising their foreign ownership cap will expose local firms to the Economic Needs Test
The annual general meeting season of 2016 has drawn the attention of a large number of overseas investors, many of whom have been anticipating a rise in local listed firms’ foreign ownership limits (FOL). However, much to the chagrin of foreign firms, some domestic companies have rejected this plan or put it on the long finger during recent meetings. This is especially true for listed firms operating in the retail industry such as Phu Nhuan Jewellery (PNJ), FPT Corporation, and Mobile World.
According to Cao Thi Ngoc Dung, chairwoman and general director of PNJ, easing the foreign cap will create obstacles for the jewellery firm’s expansion of its retail network. Dung elaborated that if PNJ becomes a foreign-owned company, there will be greater restrictions on opening new stores due to the Economic Needs Test (ENT), thus hampering the firm’s growth.
The ENT, as part of Vietnam’s commitments in the World Trade Organization, states that foreign retail firms are freely allowed to establish a first outlet in Vietnam. All additional stores, however, are subject to the ENT, in which relevant Vietnamese authorities examine factors such as population density, area size and number of existing stores.
“A lot of overseas investors have indeed offered to buy dominant stakes in PNJ. In fact, our foreign ownership limit, which currently stands at 49 per cent, has already been filled up thanks to foreigners’ confidence in our business. Unfortunately, despite their keen interest, we can’t lift our cap yet as this will hinder the growth of our retail network,” Dung told shareholders at the firm’s annual meeting.
Likewise, chairman of Mobile World (MWG) Nguyen Duc Tai noted that becoming a foreign-owned retailer will limit MWG’s ability to open new stores. Compared to their domestic counterparts, foreign retailers often face the ENT, which means more paperwork, longer waiting periods, and other hassles when launching a store. As a result, Tai informed shareholders that until MWG develops a proper risk management plan, easing foreign limits will remain out of the question.
“When opening any new store, foreign-owned retailers must submit the ENT proposals to local authorities and wait for their assessment on whether the area needs another retail outlet, while domestic retailers don’t have to. Thus, unless MWG is treated as a domestic retailer after easing our foreign limit, we will keep our current cap,” said Tai. Similar to PNJ, MWG has already reached its 49-per cent foreign ownership limit, which reflects the electronics retailers’ appeal to overseas investors. In 2016, the firm aims to reach a 40 per cent market share in mobile phone sales, and then venture into the food and beverage sector.
MWG’s main competitor, FPT Corporation, has also delayed its plan to ease the foreign cap. Leaders of the corporation expressed a similar concern – that as a foreign retailer, opening new stores would subject it to more bureaucracy. However, FPT Corporation has recently decided to divest from FPT Trading and FPT Shop, its lucrative retail and distribution subsidiaries. This prompted speculations that FPT is seeking a merger and acquisition deal with foreign buyers for its retail business, rather than lifting the foreign limit of the entire corporation.