Vietnam Ready for Third Wave of Japanese Investment

Japan is a strategic partner of Vietnam in many aspects, a top ODA donor, accounting for 30 percent of all ODA that Vietnam received, and one of five largest foreign investors, accounting for 11 percent of Vietnam’s total registered FDI value. Thus, impacts of earthquakes and tsunamis in early March have raised a lot of concern in Vietnam: How will this disaster affect Vietnam in the coming time, how will capital flows from Japan move, and what will Vietnam do to adjust its investment attraction policy? Vietnam Business Forum excerpted ideas by top-notch experts on these issues.

 

As of July 2011, Japan had 1,560 valid invested projects with a total registered investment capital of US$21.6 billion in Vietnam, ranking fourth out of 92 countries and territories investing in the Southeast country. Japan is always an economy with the largest value of disbursement in the world. Particularly, in July 2011, Japanese companies invested US$253 million in five projects in Vietnam.

 

This is Vietnam’s fourth largest export market, just after the United States, the European Union (EU) and ASEAN. According to the General Department of Customs, Vietnam’s export turnover to Japan topped US$4.4 billion in the first six months this year, accounting for 10.3 percent of the country’s total exports.

 

In June, the Government of Japan signed the exchange of notes on preferential credit worth of 58.18 billion yen for Vietnam in the first funding in Japan’s fiscal year 2011. Japan is the largest official development assistant (ODA) provider for Vietnam, accounting for 30 percent of the total.

 

The recent catastrophic earthquake coupled with tsunamis in early March cost Japan more than US$250 billion. However, Japanese recovery is very strong. Its economy gradually restored in June, with production, export and consumption equalling 95 percent, 94 percent and 98 percent of that in February 2011, respectively. From now till 2015, Japan will spend US$240 billion (19,000 billion yen) on reconstruction. Its difficulties in the process of rebuilding are its aging population, strong yen which dents revenues of exporters, and power shortage which is destabilising factory operations.

 

According to a survey conducted by Nikkei Business Online, Vietnam is the third most attractive consumer market and the most attractive manufacturing base; thus, it will be an important destination for Japanese businesses. Some 97 Japanese manufacturing companies shift parts import from Asian countries after the disaster.

 

There will be a flow of foreign investment of Japanese companies after the tsunami calamity because they want a safer, more stable investment destination in Asia, including Vietnam. Currently, Japanese businesses are reorganising global production networks after the dual earthquake - tsunami disaster.

 

The result of surveys by Nikkei Business Publication in 133 large enterprises shows that 40 percent of respondents are looking to expand investment to other countries. Their favourite destinations are mainly in Asia, and Vietnam is catching more interest than before.

 

Japanese companies are very carefully considering how to have best foreign investment; hence, to create competitiveness in attracting Japanese investors with regional competitors, this is the time for Vietnam to show the clear attractiveness of its investment environment in the eyes of Japanese investors.

 

According to a survey by the Japan Bank for International Cooperation (JBIC) in fiscal year 2010, Vietnam ranked third among countries with promising foreign trade prospects in the medium term, and fourth in the long term. Vietnam is the third largest importer of Japanese chemicals and electronic appliances and the sixth largest importer of cars. According to a survey into 165 Japanese companies, low labour cost, rapid growth of the domestic market, skilled workforce and diversified investment options to reduce risks are Vietnam’s main attractions to foreign businesses.

 

However, Vietnam still has some problems like difficult personnel recruitment; complex governance system; rising labour costs; growing competition; and undeveloped infrastructure.

 

Vietnam is an element in the value chain and production network of Japanese companies in Asia, an important and effective supplier of products for Japan, a place where Japan is actively supporting infrastructure development and high-tech supporting industry development. Vietnam wants to become a supplier of foods and fresh vegetables for radioactive-affected areas, and an address for medical tourism for Japan and the world as a whole.

 

With its economic situation and location, Vietnam is considered by Japan as a bridge to promote Japan’s role in the face of regional politics and economic order.

 

Vietnam must have appropriate policies to grasp huge investment opportunities from Japan. It must aggressively and consistently carry out three stages of breakthrough that the socioeconomic development strategy for 2011 - 2020 has defined to thoroughly liberate a productive force and create conditions for rapid and sustained national development.

 

Besides, Vietnam should effectively deploy the Vietnam - Japan Joint Initiatives to improve the investment environment, promote and support large Japanese projects in the process of negotiation and formation. Vietnam should help solve problems that Japanese businesses operating in Vietnam face to build up the confidence of potential investors (particularly solving problems concerning power outage, illegal strikes and road infrastructure).

 

Effective forms of attracting investment in Japan are to promote public private partnership (PPP) in infrastructure development, selectively introduce important projects to Japanese investors, establish downstream manufacturing industrial zones, and organise business delegations to explore investment opportunities in each country.

 

The Vietnamese Government should create preferential policies and mechanisms to attract investment from Japan.