Industrial zones in Haiphong to attract $5 billion in FDI in 2021
Industrial zones (IZs) registered $5 billion worth of foreign direct investment at a meeting between Haiphong Party Committee and IZ infrastructure investors aimed to resolve difficulties and promote investment in IZs.
Notably, Sao Do Investment Group JSC registered an investment of $1 billion in Nam Dinh Vu Industrial Park (IP), while VSIP Haiphong JSC will inject $1-1.5 billion in VSIP Haiphong, Saigon-Haiphong Industrial Park JSC $1 billion in Trang Due IP, and Deep C IZs are expected to lure in $1-1.5 billion.
In order to support these IZs’ investors realise the above target to attract $5 billion in FDI capital, Le Van Thanh, Secretary of Haiphong Party Committee asked Haiphong Economic Zones (EZ) Management Authority, and relevant authorities to promote administrative reform to deal with difficulties facing IZs, as well as review their compliance.
“The city will create favourable conditions for investors to implement their projects. Investors also have to comply with the approved planning, expand operations in accordance with sustainable development, and avoid unexpected environmental impacts,” Thanh said.
Meanwhile, the authority proposed the province to accelerate land clearance to create a land fund for investors, while simultaneously allocating land for building housing for workers and building plans for training human resources.
In addition, the authority also proposed the province to build a policy to deal with enterprises’ difficulties caused by the COVID-19 pandemic, as numerous partners cannot enter Vietnam to appraise their projects, impacting business activities. The authority also requested the province to compile policies to support labourers who cannot go home to enjoy Tet.
Haiphong currently has 12 IZs, eight of which are located in Dinh Vu-Cat Hai EZ, and four others are located outside the EZ. These IZs attracted 570 projects, 403 of which come from foreign investors worth $17.1 billion. These IZs generated 158,000 jobs for local labourers.
According to the plan, the city will construct 15 more IZs with the total area of 6,418 hectares this year.
Vietnam’s GDP growth rate may expand at 5.8 per cent
The Vietnam Institute for Economic and Policy Research (VEPR) estimated the country’s GDP growth at 5.6-5.8 per cent – or 1.8-2 per cent if the worst comes to pass.
The most recent resurgence of COVID-19 has been brought under control in short order, with no new breakout expected for the best part of this year. Thanks to that, domestic economic activities will continue to recover and comply with the new normal of the global economy, where sporadic, small-scale resurgences are expected by the VEPR.
Consequently, the impact of COVID-19 will be felt less serious across economic sectors than in 2020, resulting in an estimated GDP growth rate of 5.6-5.8 per cent.
However, under a more pessimistic scenario, the local economy will see larger disruptions by the health crisis, resulting in slower economic growth of 1.8-2 per cent. The scenario includes continued travel restrictions and prolonged difficulties for catering and accommodation services.
The VEPR’s policy recommendations warned Vietnam not to follow other nations’ macro policies such as loosening monetary policy to mitigate prolonged budgetary deficits. Furthermore, preventing COVID-19 and ensuring social welfare are also setting a burden on national budgets.
However, the current priority should remain to assure social security, stabilise the business climate, lessen the pressure on businesses which have temporarily halted operations, and support those that are still operational.
In particular, social security policies should provide more support for labourers working in the informal sector because this group makes up a sizeable portion of the population and are more vulnerable to the crisis, while also having the hardest time accessing welfare packages.
High hopes for economic advances
Despite enduring a heavy toll caused by the global health crisis in 2020, the Vietnamese economy is expected to drive forward strongly thanks in part to a boost in domestic consumption and investment, which will continue being among prime priorities set by the government to achieve its new growth goal.
This impressive achievement, as noted by Deputy Minister of Planning and Investment Tran Quoc Phuong, resulted from the massive efforts of the Party, the state, the public, and enterprises.
“However, massive difficulties remain. While almost all economies in the world are struggling to recover, there is no certain evidence that the pandemic will end soon,” Phuong said. “Vietnam’s economy has also been seriously hurt.”
Two recent large-scale surveys by the General Statistics Office involving more than 130,000 businesses said that around 83 per cent of the respondents admitted they were negatively impacted.
However, Phuong said COVID-19 in 2020 has changed the game for the 2021-2025 period. “Many new trends have emerged, reshaping international financial flows, trade, and investment, especially supply chain shifts, creating many challenges but also opportunities for economic recovery in the long term,” he said. “Taking advantage of new prospects for economic recovery in 2021 and a breakthrough in the 2021-2025 period is important to achieve the goals set out in the Socioeconomic Development Plan for the period.”
Given COVID-19 and many other negative potential impacts from the global economy, the National Assembly (NA) cautiously set a target of 6 per cent in the country’s economic growth this year. However, now more optimistic about the economic outlook, the government says that greater efforts are to be made to reach a growth rate of at least 6.5 per cent in 2021.
The World Bank is expecting Vietnam’s economy to continue to flourish this year.
“By all standards, Vietnam has managed the COVID-19 crisis very well. Looking ahead, Vietnam’s prospects appear positive as the economy is projected to grow by about 6.8 per cent in 2021 and, thereafter, stabilise at around 6.5 per cent. This projection assumes that the COVID-19 crisis will be brought gradually under control, notably through the introduction of an effective vaccine,” said the World Bank in its most recent economic update for Vietnam.
According to the National Centre for Socioeconomic Information and Forecast (NCIF) under the Ministry of Planning and Investment (MPI), although the pandemic continues to expand, some positive signals have been seen. Vaccines have begun to be administered in many nations, and this will continue being expanded in 2021.
“Thus, the global economy will gradually warm up, helping increase investment and trade globally and this will have a positive impact on the Vietnamese economy,” said the NCIF’s deputy director Dang Duc Anh.
The Vietnamese economy has in recent years opened itself up further to the global economy. Last year, while GDP hit VND6.3 quadrillion ($273.9 billion), its total export-import turnover reached $544 billion, nearly doubling GDP.
According to the latest forecast by the Vietnam Economics Institute under the Vietnam Academy of Social Sciences, Vietnam’s GDP this year may grow 5.49 per cent (basic scenario), 6.9 per cent (high scenario), or 3.48 per cent (low scenario). The possibility for each scenario to become true would depend on the global situation and the Vietnamese economy’s internal strength in domestic consumption, production, and investment – including public investment.
According to the MPI, from now until the year’s end, boosting domestic consumption and public investment as well as attracting more foreign direct investment (FDI) will be among prime priorities for the government to achieve its new growth goal.
In 2020, the economy’s total retail and consumption service revenue hit over VND5 quadrillion ($217.4 billion), up 2.6 per cent on-year.
“Consumer confidence has gradually bounced back,” said an expert from the World Bank in Vietnam. “Many enterprises have found it difficult to boost exports and then turned to the domestic market. Many enterprises, already boasting a firm niche at the local market, have been expanding operations here.”
The World Bank said that retail sales also continued to grow, thanks to strengthening domestic demand for goods. Specifically, retail sales grew at 9.4 per cent on-year in December 2020, the highest growth rate since February 2020. Growth is driven by domestic demand with retail sales of goods 13.8 percent higher than in the same period last year.
According to the Asian Development Bank, in addition to spurring on local consumption, the government must find all ways to accelerate public investment as one of the key pillars for economic growth this year and beyond.
Figures from the Ministry of Finance showed that as of the end of 2020, nearly VND390 trillion ($16.95 billion), equivalent to 82.8 per cent of the plan allocated, has been disbursed, while the figure as of the end of November was only VND329.9 trillion ($14.3 billion), equalling 70.1 per cent. This is the highest ratio of disbursement in 2016-2020 – with 80.3 per cent in 2016, 73.3 per cent in 2017, 66.87 per cent in 2018, and 67.46 per cent in 2019.
Since early 2020, many state-funded projects, mostly infrastructure works, have been put into operation, fuelling socioeconomic development.
For example, on January 5, the first phase of Long Thanh International Airport in the southern province of Dong Nai commenced construction. The 5,580-hectare airport is expected to cost VND336.63 trillion ($14.64 billion), with the first phase needing over VND109 trillion ($4.74 billion). The airport is expected to relieve overloading at Tan Son Nhat International Airport in Ho Chi Minh City, currently the country’s largest airport.
In another case, in October 2020 the 5.37-km Mai Dich-South Thang Long flyover at Pham Van Dong street in Hanoi was opened to traffic, helping ease chronic traffic jams.
The VND5.34 trillion ($232.1 million) project connects the inner city with Thang Long Bridge and Vo Van Kiet Road to Noi Bai International Airport, and also connects the city’s big industrial zones and Hanoi with northern provinces, making it easier to transport goods.
Not far from this flyover, another one was inaugurated last August with the total investment capital of VND560 billion ($24.3 million), crossing Hoang Quoc Viet and Nguyen Van Huyen streets. The flyover is lengthened by a new road that meets with Samsung’s $220-million research and development project.
Besides prioritising public investment projects in 2021, the government will also focus on attracting more FDI as one of the key pillars for economic growth this year.
Deputy Minister Phuong said that despite causing serious aftermath in Vietnam, the health crisis seems not to be able to prevent FDI inflows to Vietnam in the long term, and an increasing manufacturing industry in the country. These are big drivers of Vietnam’s economic growth this year and beyond.
“Many major foreign groups and companies are eyeing the Vietnamese market, which is succeeding in controlling COVID-19 – this has strengthened their confidence in the market,” Phuong said. “The pandemic is only slowing down FDI inflows into the country. Many projects are temporarily halted, and will be strongly implemented when the pandemic eases.”
He expected that there will be many foreign investors coming to Vietnam as the prime minister has allowed foreign experts into the country to implement projects. “FDI is also contributing greatly to boosting exports,” he said.
Vietnam attracted $28.53 billion in newly-registered, newly-added, and stake-purchased, and capital contribution-based FDI in 2020, with the total disbursed FDI hitting $20 billion.
According to Do Nhat Hoang, director of the MPI’s Foreign Investment Agency, nearly 300 enterprises from many nations are planning to expand their existing investment or exploring investment opportunities in the country. Of this, more than 60 groups have reaped initial results in new and expanded investment projects here. Initial information showed that the total registered capital of these projects will likely be over $60 billion.
“This is quite a good signal that international investors are showing big interest in doing business in Vietnam,” Hoang said.
Larger frame of mind for logistics
Throughout more than three decades of economic reform, Vietnamese companies from many sectors have been venturing abroad and become role models. Yet, the logistics sector remains too focused on the domestic market. Tran Thanh Hai, deputy director of the Ministry of Industry and Trade’s Agency of Foreign Trade, emphasised that local players should follow regional examples and take their business to international arena.
In this context, logistics activities were affected significantly, with railways, roads, and air transport being the most heavily affected, while waterways and warehouses remained largely unscathed and even saw growing business due to rising inventory.
Different from five years ago, logistics have been given due attention by all state levels, as shown in the directive documents of the government, ministries, and branches, that all considered logistics a crucial aspect of the economy. From there, policy changes and significant investments in infrastructure could be accomplished, along with the easing of administrative procedures for businesses in this sector.
However, one of the current challenges is the lack of large-scale Vietnamese enterprises with influence in the logistics industry, while large foreign-invested enterprises (FIEs) such as FedEx, UPS, and DHL from the United States and Europe dominating the country’s logistics sector.
In Vietnam, telecom, real estate, and manufacturing enterprises have built outstanding businesses that drive their respective industries. Within the logistics sphere, however, there is no such role model.
Companies like Saigon Newport, Gemadept JSC, Transimex JSC, and Sotrans Co., Ltd. are contributing their share but can hardly be called outstanding yet. The general picture of today’s businesses is stiffening, with competing FIEs operating in Vietnam, while those from other countries are integrating into global markets.
Additionally, the domestic logistics sector remains rather small with limited international operations, while this industry is really about going global and partaking in imports and exports. So far, the number of Vietnamese enterprises operating in foreign markets is also small, with even the bigger names not providing services to foreign markets. In the era of global integration, we must go to the world to develop, and thus this remains the Achilles heel of the domestic industry. Moreover, weak links with other service providers elsewhere have not been established and utilised sufficiently. Although Vietnamese manufacturers have been able to export goods to Europe in large volumes, there is no logistical presence of local companies.
As such, logistics groups stop all operations at Vietnam’s gates, after selling and delivering goods to customers, resulting in low added value and a lack of competitiveness against foreign counterparts.
Against this backdrop, the largest difficulties relate not to capital but to the awareness of Vietnamese entrepreneurs, who are typically shy in new environments, especially when confronting foreigners. Many businesses dare to run their operations but mostly focus on the domestic market as they feel that doing business in their own country is easier. Problems here can be handled the familiar Vietnamese way, while they would have to follow foreign rules outside and establish new personal networks and relations. Within the current logistics community, FIEs and state-owned enterprises are relatively stable, but the private sector consists mainly of small-scale businesses, with some newly established or separated from others.
In Vietnam, the number of FIEs is increasing constantly, with nearly 40 multinational corporations and many smaller ones present in the market. However, companies from Japan and South Korea are very ethnocentric and prefer to use the services of their country’s enterprises, which support and protect each other. Meanwhile, European and American businesses are somewhat more open-minded. They use traditional services but do not pay much attention to their partners’ country of origin. Multinationals have financial advantages, so it is easier for them to establish a foundation and attract high-quality human resources than it is for domestic ones. They also make great use of experienced CEOs.
The great advantage of FIEs is their cooperative relationship with partners worldwide. From these relationships, they provide most of the services requested by manufacturers at competitive prices. The service quality of these enterprises is often at a higher level than that of domestic ones, reflected in their professionalism, the assurance of standardised service quality, and strict rules and norms, which provide credibility for these businesses.
Those businesses also pay special attention to customer care and focus on the long-term benefits, instead of immediate returns. Therefore, at some stages, they even accept losses to win customers’ sympathy and build a reputation. Meanwhile, some Vietnamese businesses follow a fast-paced approach that aims for quick profits rather than long-term relationships and market presence. Such a mentality will also not pay attention to quality.
According to one of the prime minister’s decisions, it is a crucial task to form strong logistics groups and leading companies. Vietnam has a convenient location, with a long coastline, and the entire facade of the Southeast Asian peninsula serves not only as a service point for transit to and from China, Laos, Thailand, Cambodia, and Myanmar but is also a stopover transshipment point for major transports from Europe to Australia and from Northeast Asia to South Asia. Currently, the other regional countries take advantage of this though they do not have the same premises as Vietnam.
With a growth rate of 12-14 per cent per year, Vietnam’s logistics sector is growing, albeit merely gradually. It may take another 5-10 years to see strong differences today. As this speed remains slow, Vietnam’s logistics needs to go faster to avoid lagging behind other countries.
Up to now, Vietnam’s logistics growth has mainly relied on the scale of commodity production, consumption, and import-export, which are natural factors for growth advantages. However, these are not intrinsic factors of the logistics sector, they are just objective ones.
If one of these factors changes – such as COVID-19, natural disasters, and the declining domestic demand – the sector’s growth will suffer if it is not well established in foreign markets.
Thus, Vietnamese groups need to step out of their comfort zone, adapt quickly, and avoid thinking of themselves as small and inferior. Small does not mean weak.
At present, Vietnamese enterprises focus only on the domestic market, and give little thought to venturing abroad. Meanwhile, I am confident that Vietnam’s logistics can provide decent services to the regional market, such as Laos, Cambodia, and Thailand – all of which are close by and of similar development levels. Vietnam already has top enterprises in leather, footwear, steel, and automobiles. Thus, the logistics sector can build on their experience and develop leading groups from those sectors.
Singapore can also be a good example for Vietnam. Its government was determined to put all its advantages into developing the logistics sector and to turn Singapore into the largest transshipment port in the world. To do that, Singapore has largely sacrificed marine tourism. Nowadays, the island nation is housing some of the leading enterprises in logistics fields. It boasts PSA Co., Ltd., the world’s largest port operator, which also has a joint venture in Vietnam’s Cai Mep port complex in the south.
In the aviation industry, it has Singapore Airlines – a 5-star airline which for many years maintained its position as the world’s leading airline. Before the pandemic hit, Changi Airport was consistently one of the busiest airports in the world.
Another model is Taiwan, which has strong logistics development. Of course, there are also more developed economies like Japan or Germany whose level of development is already at a much higher level. The country needs it, the government needs it, and the businesses that want to grow strong also need to be bold and venture abroad with an outward-looking spirit. Vietnam opened its doors to global integration 35 years ago, but it is now up to businesses to step out or not. The government alone cannot do this.
Power structure balance required
Vietnam’s energy sector has been developing rapidly throughout the last few years, in which renewables show the strongest development. However, the existing imbalance between power generation and transmission threatens the national power supply. As such, relevant government agencies are now tasked with finding sustainable approaches to tackle the situation.
GENCO 1 has an installed capacity of over 7,120MW, which stems from several sources such as coal, hydroelectricity, and solar power. Nguyen Manh Huan, deputy general director of GENCO 1, said that his company is now facing risks of not being able to recover investment costs under the electricity price plan. This development left a huge impact on GENCO 1’s finances as the company added many new sources of renewable energy in a short time, causing its thermal power plants to not reach its designated 6,000 hours per year.
Becoming a leading corporation in the energy sector has become a more challenging target for GENCO 1 in the context of the complicated developments during the COVID-19 pandemic and decreasing water flows towards hydroelectric reservoirs due to climate change.
The scale of Vietnam’s electricity system ranks second in Southeast Asia and 23rd in the world, with total installed capacity by the end of 2020 reaching 69,300MW, an increase of nearly 14,000MW compared to 2019, according to the calculation of state-run Electricity of Vietnam (EVN).
The total capacity of renewable energy sources amounts to 17,430MW, a stunning increase of 11,780MW compared to 2019, which accounts now for a quarter of all national power sources.
However, the asynchronous development between renewable energy and the national power grid throughout the last few years has caused Vietnam’s lines to be overloaded, affecting the mobilisation of traditional power sources, peak hour changes, and transmission rates.
Specifically, La Hong Ky, an expert from the National Steering Committee for Electricity Development told VIR that the biggest disadvantage of solar power is its instability, due to its heavy dependence on weather.
“Meanwhile, the cost of this power source is still high, energy storage is difficult, and the necessary land area is often large, as one megawatt peak of solar power needs roughly 1.2 hectares,” Ky said.
He explained that many solar investors have asked for additional planning and quickened project implementation, leading to an asynchronous development of solar power within the overall structure of renewable energy. “For instance, up to now no document or guidance is regulating the percentage between solar and rooftop solar power sources,” Ky added.
The Ministry of Industry and Trade’s (MoIT) data from reviewing the implementation of the previous four years of power development shows that thermal power sources only grew by 57.6 per cent while renewable energy sources rose by up to 205 per cent. The completion rate of 500kV transformer stations came out at 73 per cent, while 88 per cent of 500kV transmission lines were established, 77 per cent of 220kV stations, and 84 per cent of 220kV transmission lines.
“Renewable energy has grown too hot,” claimed Bui Huy Phung, a senior expert from the Vietnam Institute of Energy Science under the Vietnam Academy of Science and Technology.
During Vietnam’s electricity development up to 2020, the country has formulated two national energy development strategies; seven national electricity development plans; five coal industry development plans; three oil and gas development plans, and one renewable energy plan. According to Phung, these strategies and plans have guided and provided important contents for the development of the energy sector in Vietnam.
However, they also show the inadequacies of applied methodology, a lack of systematisation and computational data, and their appliance to the construction, appraisal, and implementation of power projects, which then usually lasted only a few years before they needed adjustment.
Although the aforementioned electricity plans were calculated meticulously, they still present inadequacies. The current energy intensity to GDP (kWh per US dollar) of many countries is currently at 0.3-0.6kWh per US dollar, while Vietnam’s is approximately as high as 1. During the past few years, the country was required to decrease this ratio from 1.5-1.6 to 1, with previous forecasts and actual results showing that the ratio cannot be further reduced without adjustments.
Additionally, the power grid had to be built in a rush, which was difficult to implement and led to many projects not meeting their desired progression. The plans of power plants for 2020 were behind schedule by 1-2 years, with the biggest slowdown happening in the projects of the country’s state-run oil and gas group PetroVietnam. Nevertheless, reports from the MoIT and EVN still stated that the entire national electricity supply in 2020 was basically guaranteed.
Meanwhile, the demand for coal as a resource for electricity is huge, with an estimated 78 million tonnes by 2020 and 190 million tonnes by 2030. Yet, it remains unknown where the supply is supposed to come from.
The total investment in the electricity sector in the 2011-2020 period amounted to $48.8 billion, of which 33 per cent was reserved for the national grid. In the 2021-2030 period, the total investment will be around $75 billion, of which 34 per cent is planned to be used for the national grid.
Thus, within 20 years with the total investment of $123.8 billion, only a third have and will flow into the grid, which, in turn, explains the transmission gaps in recent years.
Considering the data from the previous four years, the MoIT’s Institute of Energy is now making preparations for a new national power plan.
“Considering the previous plan, most power and grid projects have not met the set goals, with only renewable energy – mainly solar and wind – exceeding the plan by over 200 per cent,” Phung commented.
The impact of this imbalance, according to Phung, can lead to disturbances in regional and national planning, making it difficult for the transmission and control of the system, as some areas are overloaded during the day while at night it could be difficult to ensure electricity supply.
Meanwhile, in principle, ensuring energy security often needs to be based on several factors, such as forecasts of the power demand in relation to the country’s socioeconomic development plans, the domestic availability of energy sources, including renewable energy and import capacities, and a pricing scheme suitable for the development level of the country.
The issue of sustainable power source development has been recognised in all countries, especially as the consequences of climate change and depletion of many traditional energy sources become ever so visible. As a result, most countries are transforming their energy use structures towards a sustainable direction while increasing social equality in access.
To regain the balance in its power source structure, Phung said, “It is important to calculate Vietnam’s power grid planning and compliance with socioeconomic development. Vietnam can only achieve sustainable development when the contents of such plans are carefully calculated and define the demand and structure for optimal and rational use of electricity sources.”
Specifically, the MoIT is directing the creation of the Power Development Plan VIII – the master plan that will concretise the Politburo’s Resolution No.55-NQ/TW on the orientation of Vietnam’s national energy development strategy to 2030, with a vision towards 2045.
The Institute of Energy announced its initial results from the first workshop last July, which include methods, documents, and 11 electricity development scenarios for the country.
However, Phung, who has more than 40 years of expertise on energy, remarked that it is necessary to clarify the MoIT’s concept of “soft planning” in the next plan, while also considering specific solutions for the imbalance in national power development.
Economy shows positive signals at the beginning of the year
2021 has been identified as the year of economic recovery in Vietnam with a growth rate target of 6.5% set by the Government, 0.5 percentage points higher than thatassigned by the National Assembly, requiring the whole political system to drastically take part right from the first days and quarter of the year.
In the first month of 2021, the economic outlook showed positive signals. Specifically, the industrial production index in January 2021 increased by 22.2% over the same period last year; export revenue of goods increased by 50.5%, of which six items achieved revenue of more than US$1 billion, accounting for 67.3% of total export turnover. The disbursement of public investment capital increased by 24.5%.
Notably, business registration activity grew impressively on the index of newly established enterprises, registered capital and labour, thereby adding more than VND395 trillion in investment capital to the economy, up 10.5% over the same period last year.
In terms of the attraction of foreign direct investment (FDI), some localities continue to attract high-tech projects, such as Foxconn’s US$270 million project in the northern province of Bac Giang. The fact that Foxconn, one of the largest manufacturers of electronic components and computers in the world, specialising in Apple products, invested in Vietnam at this time has strengthened the confidence of international investors in the country’s investment and business environment.
Meanwhile, foreign enterprises investing in Vietnam are also more optimistic about their business prospects. For example, in its latest survey results, the Japan Trade Promotion Organisation (JETRO) have announced that 46.8% of Japanese enterprises will expand production and business in Vietnam in the next one to two years, thanks to optimistic forecasts about potential growth in domestic and export sales as well as high levels of growth in general.
However, the economy is also facing risk as the COVID-19 epidemic reappeared in the community at the end of January. Industrial production has not recovered as quickly as it did before the epidemic. Enterprises continue to lack production materials. Many export markets have not been able to recover because major economies in the world continue to restrict imports due to social distancing and border closures.
The service sector has not yet recovered and continues to face difficulties even before the new wave of the pandemic. According to calculations by the Ministry of Planning and Investment (MPI), if the COVID-19 epidemic is promptly controlled in the first quarter of the year, it is estimated GDP in the first quarter of 2021 will increase by 4.46%, 0.66 percentage points lower than the target set out in Government Resolution No. 1 on the main tasks and solutions to realise the socio-economic development plan and State budget estimates in 2021.
In order to achieve the set growth target, the MPI proposethe Government should continue to make disease prevention and control a top priority, ensuring the health of the people as well as limiting the negative impacts caused by the epidemic on the economy.
Socio-economic development solutions must be implemented by ministries, branches and localities in a more urgent and drastic manner. The independence and self-reliance of the economy should be enhanced in the new situation.
Specifically, new strategies and policies should be devised to promote innovation, apply science and technology to seizing opportunities opened by the Fourth Industrial Revolution; research, monitor and update new trends, models and policies from countries that impact Vietnam, improve the internal capacity, self-reliance and resilienceof the economy. The MPI is currently completing a master plan on improving the internal capacity and self-reliance of the economy and will soon submit it to the Government.
M&A activities still buoyant
At a recent seminar, Tran Thanh Tung, partner lawyer of Global Vietnam Lawyers, said with a range of regulations in the Investment Law, the Enterprise Law, the Securities Law and the Competition Law, businesses seeking M&A deals seem to be obliged to join a hurdle race, as they have to comply with many administrative procedures to reach the finish line. Each law has a different angle on M&A.
Of note, while the 2020 Enterprise Law, to be effective from 2021, has modifications towards betterment and openness for investors and regulations to protect them, the Competition Law restricts M&A activities with the requirement for reporting the threshold of economic concentration with criteria for total assets and total revenue from sale or purchase in Vietnam, the value of transactions and the combined market share of businesses in the relevant market, as stated in Decree 35/2020 effective since May 15, 2020. According to Mr. Tung, this threshold of economic concentration is low, and in reality, there may be abuse of the reporting, which makes M&A transactions more complex and costly.
Dr. Nguyen Quoc Vinh, partner lawyer of Tilleke & Gibbins, argued that many businesses will have to report on economic concentration, as the threshold is quite low. The risk for relevant parties who “forget reporting” is they will be penalized by State agencies.
Nguyen Thi Vinh Ha, deputy general director and head of the corporate advisory division of Grant Thornton Vietnam, told the Saigon Times that she has seen a number of cases where businesses are impacted by the regulation for economic concentration. Though their M&A deals are small, those businesses operate in the niche market (providing a certain product) within a larger market. In view of the niche market for that product, they hold a relatively large share. However, viewed from the larger market, they are completely out of the scope of economic concentration. Nevertheless, with the current regulation, they still have to submit a report on economic concentration, which has significantly obstructed the progress and the likelihood of success of the M&A deal.
Ms. Ha said the regulation has also caused difficulties for other cases of M&A activities. For instance, parties who have reached the threshold of economic concentration for the shares auctioned by divested State-owned enterprises must do the reporting. What matters is the compliance will cost businesses a lot but the success in the auction is still uncertain. Further, the time for assessment of economic concentration by the National Committee for Competition may be longer than the maximum time when the businesses joining the auction must make a public offer.
At the present time, Ms. Ha stressed, the fact that the National Committee for Competition is not yet established, concrete guidelines are not yet available, competent agencies do not have experience in assessment and interpretations about the concept of “the market for relevant products” are not yet clear is causing many difficulties for M&A activities. Businesses are at a loss to determine whether their deals are subject to reporting and they may have to wait for a long time for feedback from competent agencies. “We observed that under the new regulation, the combined market share is not the only factor to determine whether an M&A deal is prohibited or not, as it needs assessment of many other factors. All has created a heavier obligation for demonstration for parties to M&A deals,” Ms. Ha said.
At the seminar, Dinh Anh Tuyet, director of the law firm IDVN, said businesses may feel uneasy to do reporting on economic concentration, but this is a necessary and not so fearful job. Besides criteria for assets, revenue from sale and purchase, and market share expressed by numbers, there are also other analyses. With a complicated M&A deal which takes a lot of time for completion, it’s regretful if it is subject to the regulation for abolishment due to failure to complete the procedure for reporting on economic concentration. In addition, the fine for violation by the business concerned amounts to 5% of its revenue in the relevant market in the year before the year of the violation.
A concrete example is Grab’s acquisition of Uber in Singapore. The two parties determined that they were not at the threshold to report on economic concentration and did not do the reporting. Afterwards, competent authorities in Singapore determined that they were at the threshold and fined them several million Singapore dollars.
Nevertheless, Ms. Tuyet commented that regardless of the new regulation, M&A activities will continue, as investors will consider the market prospect and M&A parties have strong legal teams to ensure compliance.
Justin Gizs, member of the legal council under the European Chamber of Commerce in Vietnam (Eurocham), said the legal factor must be attended to because it is the decisive factor to facilitate M&A deals, especially those with foreign involvement. EU investors highly appreciate the Vietnamese market and want to enjoy appropriate, favorable policies under the Vietnamese legal framework to boost M&A activities.
Ms. Ha from Grant Thornton Vietnam noted that apart from the legal factors, a more important factor is the market. Vietnam now has a significant position and advantages when the country has duly coped with Covid-19, maintaining safety for her economic activities. Further, Vietnam is emerging as a convincing alternative destination for foreign enterprises seeking to move their operations out of China. Therefore, she thought that M&A activities will continue to be buoyant in 2021.
New Covid-19 outbreak dents Vietnam’s hospitality recovery
The latest outbreak of Covid-19, which began in late January, has put an immediate impact on Vietnam’s hospitality business with numerous cancellations across the country, not only in the affected destinations but anywhere with access via an airport.
The outbreak has seen preventative measures reinstated nationwide. In many localities, containment measures have been back, with greater focus on hygiene, mask wearing, hand washing, and restrictions of unnecessary travel and social gatherings, according to Savills Hotels APAC.
January started on a positive note, with city hotels seeing increased MICE (meeting, incentive, conference and event) bookings while in some resorts, corporate bookings started to return.
The market in 2021 is expected to be broadly similar with most of 2020, at least until borders reopen to leisure and business. Hotels have adapted by considerably reducing operating costs to establish lower breakeven points.
“Prior to these local transmissions, the industry was anticipating increased travel demand during and after the Tet holiday, which would have been a good start to the year. However, the situation has changed everything,” said Mauro Gasparotti, director of Savills Hotels APAC.
Travel interests are diminishing in a mist of uncertainty with air travel demand dropping 15% immediately after the news release. The Tan Son Nhat International Airport in HCMC estimated a sharp drop of 26.5% in air passenger traffic over the Tet holiday compared to last year. Online flight search demand to Danang and HCMC during this peak period of the year dropped over 30%, according to OTA Insight.
Some companies immediately enforced travel restrictions, with requests to limit attending events or large gatherings. This has directly affected MICE business in city hotels, where several conferences have been put on hold or delayed. Drive-to destinations have also been affected by weekend cancellations.
“The resurgence of local Covid-19 transmission once again demonstrates its immediate impact on the tourism industry. Travel agencies and hotels are no longer surprised with “the unexpected” but this happening right before the Tet holiday has hurt public travelling interests,” said Mauro Gasparotti.
“With the Government speeding up vaccine testing and imports, I hope the situation is soon under control. Hospitality is highly vulnerable to adverse effects. It will only be when people feel confident and safe enough to travel when recovery will truly be underway,” he added.
Covid-19 has caused significant disruption to the Vietnamese tourism industry. In 2020, international arrivals of just 3.8 million were down 78% compared to 2019, while the 56 million domestic travelers were down 34%.
Performance of hotels and resorts slumped, with many forced into temporary closure. Occupancy and average daily rates both dropped, resulting in revenues being down 70% compared to 2019.
In Hanoi, average occupancy of 32% compared to the average of 80% last year, while in HCMC it dropped from 72% in 2019 to 23%. The average occupancy of 62% country wide in 2019 collapsed to just 24% in 2020.
2020: A success, 2021: An unkown
Although it failed to fulfill the year’s targets, Vietnam’s export is not only a key growth driver for the economy but also a rising star on the international marketplace.
A government report submitted to the National Assembly last October projected the export growth in 2020 at only 3.5-4% In reality, the total export sales for the whole year might amount to US$281 billion, posting a growth rate of 6.5%.
Compared to the 7% growth target, Vietnam almost made it. This was the third time during the past 10 years the country failed to achieve this important goal. Nevertheless, in the context that the domestic market was gloomy due to Covid-19, export still played an important role in enabling the economy to reach an overall growth rate of 2.91%.
First of all, instead of attaining an average growth rate of 13.4% per year as in the past 10 years, Vietnam’s total retail sales and service and consumption revenue in 2020 are estimated to rise only 2.4%; and if compared to gross domestic product (GDP), export accounted for 82.6%, up 2.4 percentage points year-on-year, whereas the total amount of retail sales, services and consumption revenue were just 63.5%, down 1.1 percentage points.
In other words, instead of contributing 52% to the output of economic growth in 2019, export in 2020 made up 66.4% of the output economic growth, while the domestic market with nearly 100 million consumers contributed 33.6% (instead of 48%) because of Covid-19.
Vietnam’s growth rate higher than that of the top-40 exporting countries in the world during the past decade (2010-2019) helped Vietnam pick up a staggering 18 notches—from the 41st to the 23rd—in the list of 50 nations having the largest exports in the world compiled by the World Trade Organization (WTO). It is very likely that Vietnam’s position in 2020 will be further improved.
Secondly, while export growth rate was positive, import tended to be stagnant despite a year-on-year surge of 22.7% in December. As a result, Vietnam obtained a record high trade surplus of US$19.1 billion in 2020.
It should be emphasized here that the argument which asserts a decrease in import will give rise to an increase in trade surplus associated with a shortage of materials for production is probably groundless. Statistics show that the total import spending of 18 commodities was over US$51 billion, down 11.3% from 2019, but compared with 2019 prices, Vietnam benefited more than US$25 billion. That means if the price decrease was excluded, the import value would rise by 32.3% while import volume would rise by 12%.
This indicates that the record trade surplus comes from the fact that Vietnam has accelerated export plus the “basket of imports” includes many groups of goods having sharp price decrease, which help Vietnam earn huge profits from price fluctuations in the world.
Meanwhile, the “basket of exports” shows that the processing and manufacturing industry contributed a great deal to the record trade surplus. In 2017, Vietnam incurred a trade deficit of US$6.5 billion from these groups of goods; the country saw a trade surplus of US$4.7 billion in 2018; the figure soared to US$9.2 billion in 2019, and is estimated to reach US$14.5 billion in 2020.
Thirdly, viewed under the export market structure, the United States is perhaps a motive for Vietnam to obtain her export targets and trade surplus. It is estimated that export turnover to this market in 2020 will reach US$76 billion, accounting for 27.2% of the total export revenue to the world, whereas import spending will be around US$13.5 billion, resulting in a trade surplus of US$62.9 billion with the U.S.
Meanwhile, Vietnam suffered huge trade deficit with China and South Korea, US$35.4 billion and US$27.5 billion, respectively.
Unknown for 2021
It is forecast that the world economy post-Covid-19 will recover this year, but the recovery process will not be the same for all nations, especially less positive for the U.S. and European countries. The International Monetary Fund (IMF) has forecast that while GDP of the emerging economies and developing countries increases 6.05%, that of developed countries rises just 3.6%. This is not a positive signal for Vietnam’s export prospect in 2021.
The U.S. and Europe are the major export markets of Vietnam, so their slow recovery makes it hard for Vietnam to boost export into these countries.
In addition, the fact that the U.S. designates Vietnam as a currency manipulator—although it has not yet exerted any impact on Vietnam’s export stateside—will prompt Vietnamese exporters and importers to be cautious, not to mention the possibility that Vietnam will find it harder to enjoy a big trade surplus again after such allegation.
To cope with the currency manipulation label, Vietnam will have to prevent goods that are deliberately disguised in made-in-Vietnam brands from being exported to the U.S. Therefore, if the fight against origin fraud is more successful, exports will decrease proportionately.
Furthermore, though the EU-Vietnam Free Trade Agreement (EVFTA) took effect a few months ago, the possibility to increase exports to this market is still much to be desired because the downward trend in 2020 still continues and the economy in this bloc is still mired in trouble in 2021.
In such context, export increase should be focused on Asian markets, particularly the member countries of the Regional Comprehensive Economic Partnership (RCEP). However, this is a formidable mission.
Statistics show that in the first 11 months of last year, Vietnam exported goods worth some US$103 billion into these regional markets, but imported nearly US$167 billion from them. Her two major partners were China and South Korea, with tremendous trade deficit. Vietnam also suffered lower trade deficit with the remaining 12 partners. These were Vietnam’s problems for years, so the hope to increase exports into these regional markets is almost impossible, especially in the short run.
In other words, decreasing trade deficit in the short run should rely on the result of the fight against origin fraud. In the long run, it should rely on the development of supporting industries as well as industrial sectors producing materials to enjoy preferential tariffs as stipulated in the EVFTA.
Given the recovery of the world economy in 2021, it is likely that prices of goods on the world market will rise, and Vietnam’s exports will not suffer from low prices as in 2020. However, her imports will not enjoy advantages in terms of prices, and she will no longer attain high trade surplus as in 2020. The soar of import in the final month of last year might be a “reverse” signal in the balance of trade in 2021, or might at least indicate that trade surplus would not be as high as in 2020.
In short, if there is no breakthrough in the fight against Covid-19 around the world, it will be hard for Vietnam to accelerate export in 2021, whereas import will soar, resulting in a decrease in trade surplus.
HCMC’s tourism sector in distress
The average hotel room occupancy is less than 10% while travel businesses have reported massive Tet tour delays and cancellations, according to the HCMC Department of Tourism. Tourist sites and entertainment areas in the city are not as crowded as in previous years due to Covid-19.
Guests started to delay or cancel tours from January 28 when Covid-19 reemerged in the northern provinces of Quang Ninh and Hai Duong. Only a few agreed to reshedule their travel plans.
“The Tet tourism season this year is worse than that of last year,” according to the HCMC Department of Tourism’s report. Last year, when Tet came, Covid-19 also broke out in Vietnam. All inbound, outbound and domestic tours were gradually cancelled till March 2020.
The report also said that the average room occupancy of hotels in HCMC was less than 10%.
During the Tet holidays, the tourist sites such as Dam Sen, Van Thanh, Binh Quoi and Suoi Tien have been temporarily closed. Many entertainment areas have also scaled down their operations to ensure safety.
Indonesia imposes anti-dumping tariffs on cold steel sheet from Vietnam
It is the final conclusion of an Indonesian agency for cold steel sheet imported from Vietnam.
The Indonesian Anti-dumping Committee (KADI) will impose anti-dumping tariffs on cold-rolled steel imports from Vietnam and China after a 16-month investigation, according to the Trade Remedies Authority of Vietnam under the Ministry of Industry and Trade.
The anti-dumping duties of 3.01-49.2% on steel imports from Vietnam will affect Vietnamese major exporters including Hoa Sen and Ton Dong A Corporation which will pay 5.34% and 3.01%, respectively, according to the Trade Remedies Authority of Vietnam (TRAV).
Earlier, the TRAV was informed by the KADI that Vietnam’s cold steel sheet manufacturers are selling their products in Indonesian market at less than fair value which has caused injury to Indonesian cold steel sheet companies.
In August 2019, the Indonesian committee announced an anti-dumping investigation on aluminum coated steel imports from Vietnam and China.
Immediately, the TRAV sent a letter protesting some contents in the draft conclusion of KADI which it said unreasonable. Specifically, some conclusions are inconsistent, not reflecting the actual situation of Vietnamese enterprises such as value added tax, duplication in calculations. These inaccuracies have led to a high margin of dumping and is detrimental to Vietnamese enterprises.
Then, on August 24 2020, KADI decided to extend the investigation for another six months as the agency needed more time to conduct thorough probe.
Hanoi tax revenue from e-commerce surges by five times
Increasing online shopping has resulted in higher tax revenue.
The amount of tax collected from e-commerce activities in 2020 was five times higher than in 2019, as online shopping has become more popular among Hanoi’s consumers, according to the Hanoi Tax Department.
The city earned a VND123 billion (US$5.3 million) tax revenue from e-commerce last year. Some individuals willingly declared their earnings and paid millions of dollars in personal income taxes.
Last year, the tax authorities have tightened supervision over e-commerce activities in accordance with the amended Law on Tax Administration, which requires individuals doing business via internet to declare income and pay tax. The law took effect on July 1, 2020.
A 28-year-old girl, in Cau Giay district, declared an income of VND330 billion (US$14.4 million) and paid VND23.4 billion (US$1 million).
A man, 30 years old, in Cau Giay district, earned VND260 billion (US$11.3 million) from writing applications for Google Play and App Store, and paid tax of VND18.1 billion (US$787,342).
“Online selling has developed well in recent years. Among online businesses, a lot of young individuals, especially students have also applied technology to do business, profited from the model and paid a huge amount of tax,” Director of the Tax Sub-Department of Cau Giay district Le Quang Hung said. “In this difficult context, it is a great contribution of taxpayers to the socio-economic development of the city.”
This year, the municipal Tax Department continues to coordinate with commercial banks and trading platforms to collect data and instruct e-commerce operators to fulfill their tax obligations, Director of the Hanoi Tax Department Mai Son said.
The department will also enhance the supervision of income for better tax collection. The law stipulates that credit institutions and commercial banks should provide information about taxpayers’ accounts to the taxation department.
In 2017, the department sent 13,000 messages to subscribers who posted physical addresses for selling goods on social media. As the result, more than 2,000 traders on social networks have registered for tax filing.
Source: VNA/VNS/VOV/VIR/SGT/Nhan Dan/Hanoitimes