Monday, June 4, 2012

Vietnam has not lost its FDI lustre | Look At Vietnam

Vietnam has not lost its FDI lustre

June 3, 2012
While pledged foreign direct investment (FDI) in Vietnam has
declined over the past three years, disbursed FDI has levelled off at
around $11 billion a year.






Key fundamentals like cheap labour, a favourable geographical position
and political stability still make Vietnam a promising manufacturing
base. Ninh Kieu reports.




Wintek Corporation, a Taiwanese maker of touch screens for Apple iPads
and iPhones, is one of many international corporate heavyweights who
still recognise Vietnam’s investment pulling power. As the demand for
smartphones and tablets grows globally, Wintek decided to expand its
production capacity to meet growing orders from clients.




Though having five manufacturing factories in Taiwan, mainland China
and India, the company picked Vietnam to expand its production. Last
month, Wintek received an investment certificate from Bac Giang People’s
Committee to increase its Vietnam factory’s investment capital from
$250 million to a giant $1.12 billion.

Wintek’s move came just a week after Nokia kicked-off development of
its manufacturing facility in Vietnam. Nokia will invest $302 million to
build a mobile phone factory in northern Bac Ninh province, part of the
firm’s plan to expand business in Asia.

“Nokia is committed to extending our positive reputation as an employer
and as a corporate citizen. We expect to attract competent and
energetic employees from the local skilled labour force,” Nokia’s
executive vice president of mobile phones Mary McDowell said at the
factory’s launching ceremony late last month.

Nokia and Wintek’s investments, in the context that Vietnam’s foreign
direct investment (FDI) commitments are declining, is a welcome bright
spot amid the gloom.

From 1987, when the country started moving from a planned to a market
economy and opening the door for foreign investors, Vietnam licensed
7,758 manufacturing sector projects with total committed capital of
$96.5 billion. Many well-known multinational companies made Vietnam
their manufacturing base, including Panasonic, Foxconn, Intel and
Samsung. Early this year, the world’s largest rubber and tire
manufacturer Bridgestone announced a plan to build a $575 million
passenger car tire manufacturing in Haiphong.

FDI commitments and wilting confidence

Foreign Investment Agency data showed that FDI commitments to Vietnam
reached $5.32 billion in 2012’s first five months, a 31.8 per cent fall
year-on-year. During the period, foreign investors committed to invest
in 283 new manufacturing projects and expand capital in 82 existing
projects.

The Ministry of Planning and Investment (MPI) said FDI inflows were
badly affected by the global economic recession. However, foreign
investors pointed the finger at Vietnam’s economic turmoil.




Last year, inflation climbed to 18.13 per cent and the government
tightened monetary and fiscal policies causing a slide in domestic
consumption and investments. In 2011, the Vietnam dong devalued by 10
per cent, raising concerns for foreign manufacturers who had to import
materials and components at higher costs.

Due to the economic turmoil, foreign investors’ confidence plummeted.
Ken Atkinson, managing partner at auditing and business consultancy firm
Grant Thornton Vietnam, said the confidence was at the lowest level he
had seen during the past 20 years in this country. EuroCham two weeks
ago released the EuroCham Business Climate Index which showed that
business confidence among European businesses in Vietnam remained at the
“neutral” index midpoint of 50.

“European businesses that participated in the survey continued to be
cautious about their business outlook and in assessing their current
situation as well as the overall economic outlook in Vietnam,” EuroCham
stated.

Promising FDI manufacturing fundamentals unchanged

Despite the economic chaos, Vietnam’s gross domestic product (GDP)
continues to grow at a healthy rate. Vietnam’s government is trying to
keep economic growth at 6 per cent this year and even though many
international institutions forecasted a 5.2-5.7 per cent growth rate,
many foreign investors still consider it a good result.

Susumu Yazaki, manager of Bridgestone’s Vietnam project, said
Vietnam’s healthy economic growth was an important factor in his company
deciding to drop anchor in the country. Yazaki said Bridgestone
believed the current economic challenges in Vietnam would be addressed
in the long term.

“Our decision to choose Vietnam to expand production was a result of
comparing the investment climate between Vietnam and other Asian
countries,” he said.

A recent ASEAN Business Council survey ranked Vietnam as the second
most attractive investment destination behind Indonesia and ahead of
Singapore, Thailand, and Malaysia.




Indeed, in comparison with the neighbouring countries, Vietnam still
has advantages of cheap-labour costs, political stability and good
geographical positioning. This year, Vietnam raised monthly minimum wage
to VND2 million, or $96 at the current exchange rate, still much
cheaper than Malaysia’s $297 minimum wage set in March.

The Philippines’ National Wages and Productivity Commission early this
year released a report showing that Vietnam’s minimum wage rate ranged
from $2.21 to $3.16 a day, the second lowest rate in South East Asia.
Meanwhile, the rate in Indonesia is $2.68-$4.94 and Thailand
$5.03-$7.00. In China, the rate ranges from $3.72-$6.91. Wintek, Nokia
and Samsung are not the only big foreign players recognising Vietnam’s
continued potential.

Italian motorbike-maker Piaggio last month opened a new engine
manufacturing in Vietnam to serve Asia and General Electrics in March
decided to increase investment capital to expand production of its wind
turbine factory in Haiphong.

“We are doing well and are going to continue to grow our numbers in the
production of wind turbine generators, as well as looking at additional
products to build in the plant,” said Nguyen My Lan, chief executive
officer of GE Vietnam.

The MPI reported foreign manufacturers’ export turnover (excluding
crude oil) from January to April rose 43.7 per cent year-on-year, while
the turnover of domestic companies rose 8.42 per cent.




This figure shows that many foreign manufacturers are still doing well
in Vietnam. To resolve the current economic challenges, Vietnam’s
government is preparing a comprehensive restructuring plan for the
economy, to promote the role of private investment and FDI, while
reducing state investment in the economy.

Atkinson of Grant Thornton said the government had moved quickly to
address many fundamental issues causing macroeconomic problems. “For the
more seasoned campaigners who have been through many crises in Vietnam
going back to 1990 when the Soviet Union withdrew its financial support,
the one thing we have learnt is, Vietnam does have the capacity to
address and resolve economic problems even though it may be slow to
react,” he said.

“So why are we all so negative? My glass is certainly half full not
half empty and we must remember the fundamentals which attracted us all
in the first place are still there, although our game plans may need to
be modified,” Atkinson added.
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