Last updated: Monday, April 24, 2017
Vietnam Government Needs Stronger Support for Local ManufacturersPosted: Monday, April 03, 2017
Vietnam has become an attractive destination for Japanese investors in recent years, with hundreds of trade promotions held every year between the two countries. More Japanese companies are doing business in Vietnam.
The Japan Business Association in Vietnam (JBAV) said it has over 1,600 member companies, ranked third among countries with investment in Vietnam. Particularly, mechanical engineering and high technology account for the biggest share and keeps growing up. Although the Government and other authorities have made great efforts to improve the investment environment in order to attract more foreign investors in recent years, they still however face difficulty in setting foot in this market.
According to JBAV, not only new companies which are seeking investment in the Vietnamese market but those with long presences and important positions in Vietnam’s economy such as automobile manufacturers are facing numerous difficulties and obstacles.
JBAV said although the automobile industry in Vietnam has improved in recent years, it remains too small in relation to other countries in the region such as Thailand and Indonesia. Therefore, when Vietnam’s automakers increase localisation ratio in their products, costs gallop on small sector production output. This is the reason why many automobile manufacturers in Vietnam still have to import most completely knocked down (CKD) components (100 per cent imported for domestic assembly).
CKD component imports caused automakers in Vietnam to incur more costs such as packaging and transportation in addition to import duties. This results in Vietnam’s much higher costs of automobile production than those in Thailand and Indonesia.
JBAV said that the domestic automobile industry is being protected by import taxes and excise taxes but when import tariffs on products from ASEAN will be brought to zero from the beginning of 2018, domestic manufacturers will face very fierce competition from Thailand and Indonesia.
Furthermore, labour quality and costs also need to be taken into account. Ever since, Vietnam has always been proud of its young and cheap labour force. But, according to JBAV researches, Vietnam's regionalised base salary almost caught up with that in other countries in the region in 2016, such as Malaysia (US$209) and Thailand (US$183) and equalled that in the Philippines (US$157).
Before these difficulties, JBAV sent two proposals on domestic automaker supports to the Ministry of Finance and the Ministry of Industry and Trade of Vietnam in a bid to help them reduce costs and maintain production in the country.
First of all, JBAV recommended scrapping import duties on CKD components under the Vietnam - Japan Strategic Partnership Agreement from 2018. The Government of Vietnam needs to clarify contents and requirements of domestic production support policies (specified in Article 5-1, Prime Minister’s Decision 229/QD-TTg dated February 4, 2016).
JBAV added that these requirements are very important and vital to domestic manufacturers. Current policies are not clear enough for local manufacturers to work out proposals on production support to submit to the Government.
JBAV also asked the Ministry of Industry and Trade to set up an interagency working group, constituted by members from the Ministry of Industry and Trade, the Ministry of Finance, the Ministry of Planning and Investment, and the Office of Government, to map out action plans. JBAV also suggested the Ministry of Industry and Trade consult with automobile manufacturers on this issue.