(Photo: Viet Tuan)
Foreign investment continues to rise in Vietnam’s manufacturing and processing sector and has been the highest in any sector over the last few years. Strong economic growth in 2018 was driven by strong FDI-supported electronics manufacturing and rising consumption, while production and agriculture will remain the primary growth drivers, according to the Standard Chartered Bank’s Global Research report released last October.
Successful 2018
As it was for many others, 2018 was a prosperous year for South Korea’s Doosan Heavy Industries Vietnam (Doosan Vina), with its greatest achievement being its high-tech products entering the strict Japanese market. “Made in Vietnam by Doosan Vina” products are now hard at work in 33 countries and territories worldwide.
“We have signed 39 contracts in the past year, in which boiler projects accounted for 15 per cent and steel structures 49 per cent, while the remainder were desalination plants and design projects,” said Mr. Kim Jihuyn, Director of the Strategic Division at Doosan Vina. “We also completed 20 projects, including boilers at power plants, cranes, logistics equipment, desalination plants, and design.”
It has also been expanding its business to structural steel and modularization for worldwide industrial projects, power plants, and refineries. “We are now manufacturing over 6,500 tons of modules for the Abu Dhabi Refinery in the UAE, for our long-term customer Samsung Engineering,” he added. “The project is in the preparatory stage and production will begin in April. Domestically, the Nghi Son II Power Plant is Doosan Vina’s major project at its Boiler Shop. It has also completed work for the Mong Duong 2, Vinh Tan 4, Vinh Tan 4 Extension, and Song Hau 1 power plants.”
Japanese instant noodle maker Acecook Vietnam, meanwhile, also posted handsome business results in 2018, surpassing the annual plan in increasing some 10 per cent and earning revenue of about $430 million. “With over 25 years of experience in Vietnam and the more than 60 years of experience and know-how on instant noodle manufacturing and processing our parent company possesses, we have become a leading company in Vietnam, with eleven plants nationwide and nearly 6,000 skilled workers and employees, and these are the basis for Acecook to expand globally,” said Ms. Tran Thi My Van, Chief of Staff at Acecook Vietnam’s General Director Department. “We are currently exporting to 40 countries and territories around the world and plan to increase the proportion of exports from 10 per cent to 20 per cent.”
FDI leading the way
FDI in the manufacturing and processing sector was a clear highlight of Vietnam’s economy in 2018, continuing to attract substantial attention with investment of $16.58 billion and accounting for 46.7 per cent of total capital approvals. The sector posted growth of 12.98 per cent; much higher than between 2012 and 2016. With more than 50 per cent of newly-registered FDI going to the manufacturing and processing sector, overseas capital inflows have fueled one of the world’s fastest-growing economies, with GDP growth of 7.08 per cent in 2018.
This is a handy rate but will be even higher in the coming years, according to Mr. Kim. “When a foreign-invested enterprise (FIE) searches for opportunities, they will first look into the business and investment environment,” he said. “These include several factors such as preferential policies, abundant labor resources, a stable political situation, security, techniques and technology, and transportation networks. IT has also been rapidly flowing into Vietnam and the manufacturing industry. We believe that traditional manufacturing will be more competitive when combined with IT.”
The government has made ongoing efforts in recent years to improve the business environment and enhance the competitiveness of Vietnamese enterprises. Significant improvements have been seen in the business environment, as recognized by the international donor community. In 2018, Vietnam attracted investment of $35.46 billion from 112 countries and territories. “This all shows that the business and investment environment in Vietnam has improved and is becoming more and more favorable,” Mr. Kim added. “Vietnam has become one of the fastest-growing countries in the world as a result.”
Similarly, C.P. Vietnam recognizes that the government is pushing to improve the investment environment, building a creative government, listening to enterprises, and being willing to remove barriers to encourage the development of production and business. “We are delighted with the fantastic results and believe that this process will continue to have positive effects on Vietnam’s economic development,” said Mr. Montri Suwanposri, President of C.P. Vietnam. “In the livestock production sector, the Law on Livestock Production was reviewed and approved, containing critical changes to promote the development of industrial production, environmental protection, and disease control. We firmly believe that the government is working hard to ensure the investment environment is smooth.”
In that context, existing foreign manufacturers are showing increasing interest and aim to expand production in Vietnam. C.P. Vietnam is currently investing in a closed process exporting processed chicken, from feed and farm to factory. The factory can process up to 1 million chickens a week, and the project cost around $200 million. The company is also developing a swine slaughterhouse in Hanoi, costing $15 million. While C.P. is also developing several projects in aquaculture and agriculture, most of its investment is going towards its chicken and swine businesses. Mr. Suwanposri said the challenge for C.P. is the chicken exporting project, which will be the first time Vietnam has exported chicken to the world.
Acecook Vietnam, meanwhile, has installed noodle production lines in its northern factories and a modern plastic glass production equipment line in Ho Chi Minh City, which supplies the plastic cups for its instant noodles. Total investment was more than $20 million.
Government policies needed
Vietnam has already piqued the interest of foreign investors, but the government needs to adopt a stronger policy to develop industries in both domestic consumption and export, Mr. Suwanposri said. There are two related points in the agriculture processing industry.
First, the government should ensure that manufacturers meet production standards, especially regarding cleanness and safety. Secondly, such standards play an important role in exporting overseas and enhancing the country’s reputation. The government should ensure that all exported products come from qualified sources, which would help promote food safety, cleanliness, and traceability. It should also review certain import taxes on materials that need to be used by the agriculture sector in its exporting efforts. The heart of the problem is the export price at the end of processing, which must be able to compete with other countries. Quality and competitive cost would take Vietnam to the top in exporting quality products.
“In my opinion, Vietnam should improve the legal framework relating to investment, including implementing priority foreign investment cooperation policies, completing preferential policies, encouraging investment by specific industries, and creating more favorable conditions for investors,” Mr. Kim told VET.
And when these types of investment incentives are granted on the investment certificate, they must be kept for the duration of the investment. If the incentives disappear due to policy changes, it is difficult to sustain business in Vietnam. At the same time, the government should also pay more attention to improving workers’ ability and developing support industries. “We therefore need to continue to develop industries such as iron, castings, metal, and machining, which are the roots of manufacturing,” Mr. Kim said. “That will eventually contribute to the development of Vietnam’s mechanical industry and would be a foundation for economic growth.”
