Investment Cost Competitiveness of Vietnam Remains Poor
Recently, the Japan External Trade Organisation (JETRO) conducted an annual survey about investment costs in major cities in Asian countries, including Vietnam. The survey shows that despite some improvements, Vietnam’s competitiveness remains poor in the region. ViB Forum interviewed Yuichibamba, director of JETRO in Hanoi, about the survey.
Q: What are the meanings of the survey’s results?
A: The results of the survey conducted in 21 cities in 15 Asian countries show that labour costs, domestic telecommunication charge, prices of electricity (especially after the double-price mechanism was removed from January 2005) and corporate income tax are the most competitive investment costs in Vietnam. Improvements should be made on office rent, international telecommunication charges and individual income tax. Vietnam’s transportation cost is the least competitive in the region. The survey shows the great efforts made by Vietnam to cut investment costs. It is necessary because the cut in investment costs is not only to ensure that they are lower than previous years but also to ensure that it has been made in the context of developments in the region. This will help improve Vietnam’s competitiveness.
However, apart from fields in which Vietnam is less competitive, there are fields in which Vietnam has become a real rival of many countries in the region. For example, Vietnamese workers have an income of between US$100 and US$200. This is a factor drawing much attention from Japanese investors when they considering labour. As a result, Vietnam is highly competitive in terms of labour. Local telecommunication charges and a corporate income tax rate of 28 per cent in Vietnam are the lowest in the region.
Q: You have said that Vietnam is the least competitive in terms of transportation cost. Can you explain this further?
A: To explain the issue, I would like to take an example of transporting a 40-foot container from Haiphong to Yokohama (Japan). In 2004, when the transportation cost in the region saw a slight increase of eight per cent due to a increase in prices of oil and gas in the world, the average costs increased by 25 and 28 per cent in Hanoi and Ho Chi Minh City, respectively. Last year, the transportation of a container from Hanoi via Haiphong to Yokohama was the most expensive in the region. In 2003, Ho Chi Minh City was the eighth most expensive route. In 2004, it moved up by four ranks, coming behind Hanoi, Karachi (Pakistan) and Bangkok (Thailand). When Japan’s investment in Vietnam is increasing in 2005, the effective management of transportation costs has become the most urgent issue in attracting investors. Despite the impact of the increase in prices of oil and gas in the world, higher transportation costs than other countries in the region, reflect the fact that Vietnam’s competitiveness remains poor.
Q: The survey’s results show that more improvements should be made for Vietnam’s international telecommunication charges, electricity prices and individual income tax. Have reform efforts made by Vietnam not satisfied investors yet?
A: Japanese enterprises have highly appreciated reforms made by Vietnam. However, they share the same idea that prices in Vietnam remain higher than the average prices in the region. For example, the charge of a long-distance call from Vietnam to Japan remains high despite a cut of 28 per cent in 2004 against that of 2003. This shows that a cut of investment costs in Vietnam in comparison with the previous years is not enough. Instead, the cut should be made in comparison with other countries in the region. Regarding electricity prices, even though Vietnam has removed a double-price mechanism, foreigners still have to pay a high price, because they cannot sign contracts with local authorities. Therefore, investors complain that the removal of the double-price mechanism can settle only half a target of cutting investment costs. Also, recent electricity cuts in Hanoi show that production activities in Vietnam aren’t stable yet. This worries Japanese investors.
Also, an individual income tax rate of 40 per cent is the highest in the region in comparison with that of 37 per cent in Thailand or the average rate of 32.55 per cent. Office rent in the region has tended to decline while it has increased by 13 per cent in Hanoi. Prices in Hanoi are higher than many cities in Asia, except Singapore. I think it is because foreign investment has increased in the north, in particular in Hanoi. Domestic companies need offices while the number of newly built office buildings remains low. This may worsen the lack of offices in Hanoi in 2005 and office rent may increase further.
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