Attracting Japanese Investors: Investment Environment Improvement in Focus

According to the latest figures from the Foreign Investment Agency, Ministry of Planning and Investment, Japan is the 3^rd largest trade partner of Vietnam just behind China and the United States. By taking the advantage of trade policy of the two countries, the fundamental incentives of the Vietnam-Japan Economic Partnership Agreement have contributed to improving the bilateral trade agreement as soon as the agreement comes into effect with an average increase of approximately 20 percent in trade volume, and it is expected to continue to achieve high growth rates in the future. In 2012, Vietnam - Japan bilateral trade turnover reached US$25 billion; in the first 8 months of 2013 it reached US$16.3 billion, and in 2013 it is expected to reach the US$29 billion. In addition to the traditional export commodities which have gained certain market share, now many new products of Vietnam have successfully penetrated the Japanese market including furniture and handicrafts, foodstuffs, agricultural products, vegetables and fruits.

Particularly in the field of investment, in the past 5 years, Japan has always been a leading country among those investing in Vietnam (accounting for 15 percent of total FDI into Vietnam). The majority of Japanese investment in Vietnam is in the field of manufacturing and processing industries (accounting for 83.7 percent of Japan's total investment and 24 percent of total FDI in the manufacturing and processing), thereby helping Vietnam develop industry and serve the goal of industrialization-modernization of Vietnam. As of September 20^th 2013, Japan had 2,047 valid projects in Vietnam with a total registered capital of over US$33.4 billion. Besides, Japan is the biggest ODA donor for Vietnam, accounting for about 30 percent of the total committed ODA of the international community for Vietnam. Currently the two countries signed the Agreement on free promotion and protection of investment, and jointly implemented “Vietnam-Japan Joint Initiative” to improve the investment climate and increase the competitiveness of Vietnam.

With a young population, abundant natural resources, huge market, cheap human resources and open investment environment, Vietnam is the leading investment destination in Japan and its businesses are planning to expand investment into this potential market in the future, which focuses primarily on supporting industries. However, this opportunity does not guarantee success, especially in the context that other countries in the region such as Myanmar, Cambodia, Indonesia are taking positive actions to improve investment efficiency. Mr Yasuzumi Hirotaka, Managing Director of Japan External Trade Organization, Ho Chi Minh Office (JETRO) warned, "Vietnam will lose the opportunity to welcome an investment wave from Japan if it does not continue to improve and increase the attraction for the investment climate."

Also according to Mr Yasuzumi Hirotaka, Japanese enterprises looking to invest in Vietnam still face many barriers, such as opaque and inconsistent legal framework, unclear tax policy, poor infrastructure and increasing labour costs, etc. Especially one of the major obstacles that Japanese firms are cautious when investing in Vietnam is that the supporting industries have not developed adequately and remain very fragmented. To increase effectiveness to attract Japanese investors, Mr Yasuzumi Hirotaka recommends Vietnam improve and increase attractiveness of the investment environment through: building stable legal framework and enhancing transparency in the field of taxation, customs, support for small and medium enterprises in infrastructure, access to capital and tax incentives, investment procedures, support for training high-quality human resources. Besides, Vietnam needs to invest more as well as issue specific rules and policies specific for the development of supporting industries and improving incentives for investment projects in supporting industries.

Regarding attraction of Japanese investors in Ho Chi Minh City, Ms Nguyen Thi Hong - Vice Chairwoman of Ho Chi Minh City People’s Committee said that Japan was the leading country for foreign investment in the city. In addition, preferential loans from Japan also helped Ho Chi Minh City build key projects such as the East-West Highway project, urban railway No. 1, environmental projects with the committed funds of more than US$1.8 billion so far. The city has also twinned with the city of Osaka, Okinawa, Yokohama to create opportunities for enterprises of the two countries to meet, exchange experiences, techniques and technologies toward signing trade-investment partnership. Ms Hong said: "Through the forum, I hope the two countries' business communities will find their partners towards long-term cooperation and efficiency, contributing to raise the cooperation in trade and investment between the two countries to a new height."

Hong Hanh