In the past three years, Japan’s foreign direct investment (FDI) into Vietnam has kept going up. In 2014, Japan invested in 298 projects in Vietnam worth of nearly US$1,210 million, according to the General Statistics Office. However, to remove barriers and create more favourable conditions for Japanese firms to do business in Vietnam, the business environment and the legal system in Vietnam need to be further improved.
Growing interests in market expansion in Vietnam
The Ministry of Planning and Investment of Vietnam said Japan’s FDI into Vietnam may increase more. Japanese investors will boost its investment capital into pharmaceutical, chemical, steel, machine, electricity, vehicle, wholesaling and retailing.
The ministry explained that after suffering from natural disasters such as earthquakes and tsunamis, Japanese firms have learned that focusing so many production facilities in a country is possibly riskier. Therefore, they will spread risks by seeking new investment destinations.
China is a major recipient of Japan’s investment capital but increased pays, reduced incentives for foreign investors in China, and political conflicts between China and Japan are diminishing China’s appeal. According to the Ministry of Planning and Investment of Vietnam, with its advantages of being near to China, having political stability and fostering a close relationship with Japan, Vietnam will attract more Japanese investors.
According to annual surveys on business operations of Japanese companies in Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam and India by the Japan External Trade Organisation (JETRO), with respect to production expansion option from China to another nation, Vietnam receives 20.5 percent of votes, nearly 2.8 times higher than the runner-up, Thailand.
In addition, strategic partnership and investment incentives like the formation of specialised industrial zones exclusive for Japanese investors in Haiphong City and Ba Ria – Vung Tau Province will bring more Japanese investors into Vietnam.
Perfecting legal system
According to a survey with some 10,000 Japanese firms by JETRO in early 2014, main weaknesses of the Vietnam market made its investment environment less attractive infrastructure is poor infrastructure, undeveloped legal system and law enforcement problems and undeveloped supporting industries. These problems needed to be addressed to draw more investment capital from other countries in general and from Japan in particular.
In the coming time, Vietnam is committed to continuing to build a fair, transparent and conducive business environment to attract foreign investors, utilise bilateral and multilateral cooperation mechanisms to introduce special treatments which are attractive enough to draw investors, including Japanese.
According to the Ministry of Planning and Investment, in order to lure more investment capital from Japan in the coming time, Vietnam needs to quickly implement specific policies and plans stated in Vietnam Industrialisation Strategy in the framework of Vietnam – Japan cooperation towards 2020, with a vision to 2030, where specifies six priority sectors for development: Electricity, electronics; food processing; agricultural machinery; shipbuilding; environmental industry and energy conservation; automobile and parts.
Additionally, Vietnam needs specific plans and policies to quickly develop supporting industries to meet industrialisation requirements and exert a pull on foreign investment, especially bettering the legal system, particularly studying and revising investment policies and incentives to make breakthroughs in FDI attraction in the upcoming period. Investment policies must ensure attractiveness and competitiveness in relation to other countries in the region.
Besides, Vietnam needs to speed up infrastructure improvement investment like roads, power grids and water systems to meet all requirements for investors; have plans to train professional and foreign languages (Japanese) for workers to meet requirements of Japanese investors; and consider the effectiveness of specialised industrial zones exclusive for Japanese companies to widen this model in order to draw more FDI capital from Japan.
The Ministry of Planning and Investment said that Vietnam needs to make continued research on reforming and perfecting foreign investment promotion methods to ensure efficiency and avoid national resource wastage; build a full domestic and foreign business database system in Vietnam to provide information for investment promotions as well as investors’ requirements. Particularly, it should continue to promote investment promotions in Japanese localities to provide information and guidance for Japanese small and medium businesses keen on investing in supporting industries in Vietnam. It also needs to coordinate with Japanese competent agencies to organise business delegations to Vietnam to study the investment environment.
Last but not least, Vietnam must continue its efforts to lure Japanese investment into transport infrastructure development, energy, industrial zone infrastructure, education and healthcare, particularly in the form of public-private partnership (PPP) investment.