Đề tài Some situation and measures taken to attract Japanese foreign direct investment in Viet Nam

h can replace imported goods and actively participate in export. Japanese FDI projects on industry and construction such as posts, telecommunication, automobile production-assembling, electronic and information technology, cement, glass and home appliances productions and infrastructure development account for 65% of the projects and 76% of the investment. The tendency to give priority to industry is absolutely suitable to the potentials of Japan- one of the world’s leading nations in industrial development with strong economy, science and technology. Table 2 Japanese FDI in Industry Sector (2004-2006)- only taking plans Source : Investment Department MPI Unit : VND No Limited Specialty Plans Total investment capital Implemented capital Industry 432 3,409,776,106 3,377,356,858 1 Petroleum and Gas 2 47,000,000 1,067,420 2 Heavy Industry 296 2,252,813,522 1,530,760,564 3 Light Industry 92 248,445,618 153,696,639 4 Foodstuff Industry 20 140,199,010 110,447,390 5 Construction 22 721,317,956 515,031,351 Besides small and medium enterprises, 28 Japanese trans-national corporation certified global 500 are investing 97 projects in Vietnam, accounting for 25% projects and 70% registered capital. Products by those corporations have been familiarized to Vietnamese consumers owing to their high quality such as Toyota, Honda, Isuzu, Suzuki, etc. For example, Toyota Motor Vietnam (TMV) was established in 1995 with the legal capital of US$49.14 million. With the motor of “growth, challenges, development” TMV has made non-stop efforts to achieve success and stronger development. With its highly skillful technicians, TMV has so far assembled five types of motor including Camry, Corolla, Land Cruiser, Zace and Hiace. Until the end of the year 2005, TMV has sold approximately 9,400 automobiles of different kinds and contributed VND 400 billion to the State’s budget. TMV is holding projects market share of 27% in Vietnamese market for automobile. At present, TMV is manifesting its No.1 position in Vietnamese market. Japanese FDI enterprises have made remarkable contributions to the economic development of Vietnam. At present, enterprises that take part in exports account for 76% of the total Japanese enterprises in Vietnam. Enterprises that export 100% products will make 50%, mainly garments, electric, electric equipment and machines. According to the statistics by Division of Foreign Investment Management, Japanese enterprise’s exports will make more than 35% of the total export revenue of the FDI sector in the end of 2006 and 22.6% in 2007.Those enterprises have made a great contribution to making Japan a leading country in the list of Vietnam’s commodity exporter in 2007 with the revenue of US$ 4 billion, making 16.7% of the total export revenue. 2.2.2Service Sector So far, Japanese investors have carried out 86 service projects in Vietnam with total registered capital of US$ 969 million, making 10% of the total projects and nearly 7% of the registered foreign investment in service sector. Those projects cover such transportation, post offices, culture, health, education, finance and banking. Table 3 Japanese FDI in Service Sector (2004-2006)-only taking effect plans Source : investment Department MPI Unit : VND No Limited Specialty Plans Total investment capital Implemented capital 1 Transportation Posts 86 970,571,173 506,039,515 2 Hotel-Tourism 15 470,413,242 164,206,192 3 Finance-Banking 3 51,000,000 49,252,542 4 Culture-Health-Education 15 63,192,198 33,512,905 5 Building House 12 176,487,464 134,469,852 6 BuildingIZ’s Infrastructure 1 76,846 23,107,000 7 Other service 33 31,052,098 18,456,174 Construction project on Thi Vai Port is a typical example of the 86 projects mentioned above, which is capable of loading ships from 30,000 to 50,000 tones in Ba Ria-Vung Tau. It is a joint venture project by Vung Tau Marine Transport Services and Vietnam National Steel Corporation with Keyoei Steel Limited from Japan. The total registered capital of the project stands at US$ 56 million and the legal capital is US$ 18 million. So far, 78% of the legal capital has been realized for the implementation of this project. The most typical project in post and telecommunication sector is the joint business between VNPT and NTT Corporation, which is on the construction, upgrading and supply of telecommunication services. The joint business has US$ 332 million for the total investment (of which 25% is paid by Vietnamese partner, and the rest by Japanese partner). Apart from that, a joint venture project on the production of optical fiber cable, digital loop and wireless networks by VNPT and Fujitsu Limited Company with US$ 6 million. The project shall be effective in Ha Tay province for 15 years. The joint venture project has fully collected the legal capital and stared its production since 1988 with the annual growth in revenue from 30% to 70%. The most typical project in hotel and tourism sector is Hai Thanh-Kotobuki Joint Venture project with the registered capital of US$ 80 million and legal capital of US$ 46 million for the construction of a five-star hotel with 250 rooms in Ho Chi Minh City. The project has been working since 2004. In the early stage, it achieved the annual revenue of US$ 1-2 million due to the world’s declining economy. However, since 2004 the project’s revenue had increased by ten times. Japan has invested in three IZ in Vietnam including : Nomura industrial Park in Hai Phong, Thang Long Industrial Park in Hanoi, and Long Binh Industrial Park. Nomura Industrial Park with the total investment of US$ 163 million has been built with complete high quality infrastructure over the area of 153 hectares with such accompanied works as electric and water plans. Thang Long Industrial Park invested by Sumitomo Corporation with the investment of US$ 76.6 million has come into effect. Long Binh Industrial Park, which is US$ 41 million, invested by Nissho Iwai Corporation has finished its first phase over an area of 5 hectares. In healthcare sector, Salonpas production project has become familiar with Vietnam people. In finance and banking sector, two branches of 100% Japanese invested banks (Fuji bank and Tokyo Mitsubishi bank) are operating well. Mitsui and Yasuda Joint venture insurance companies in Hanoi have made projects remarkable contribution to the diversification of finance-banking and insurance operations, created projects fair” play ground” for the finance, banking and insurance market in Vietnam. 2.3Cause of Japanese Foreign Direct Investment Decrease in Vietnam The cause of decreasing Japanese FDI in Vietnam is comprised of many factors from both Vietnamese and Japanese sides 2.3.1Japanese Side Japanese economy’s recession in 1990s, in addition to Asian financial crisis broke the ”bubble” economy of Japan, making Japanese enterprises unable to invest overseas as in the previous decade. 1960s is the rapid growth period of Japanese economy with annual growth rate reached 10.26% while that in 1990s was only 0.79%. Moreover, during Asian financial crisis, Japanese economy’s average growth was as low as – 0.7% and – 1.9%. On the other hand, Pacific- Asia region (including Vietnam and Japan) is the most dynamic region in the world with continuous growth rate of over 6%, despite Asian financial crisis. It is projects paradox and projects great challenge to Japan, because of the economy crisis, it is making FDI and ODA decrease, Japan can hardly reach its target of acting as the leader in the region. In fiscal year of 2003, Japanese economy showed signs of recovery, it was the time when Japanese enterprises continue investing overseas. So far, Asia has been the largest region attracting Japan’s FDI, even more than the US , of which China is the leading country in attracting Japan’s FDI ( there are now 30,000 Japanese firms operating in China, in the coming time, this figure shall increase because about 60% Japanese enterprises want to invest in this market). It is followed by ASEAN region, but in this region Vietnam ranks after Thailand and Singapore in luring Japan’s FDI. Although, Vietnam is evaluated by Japanese investors as the third potential investment market. 2.3.2Vietnamese Side Vietnam has many advantages to attract Japan’s FDI, especially cheap labor, rich natural resource. In addition, Vietnam is considered the trade bridge between ASEAN and China. Politic stability and low criminal rate are also factors encouraging Japanese investors. But such advantages are not sufficient to help Vietnam create a Japanese boom. 2.3.2.1Incomplete and unstable policy, laws systems Laws system, especially Commercial Law and Civil Code are not sufficient to provide regulation on predictable business for many foreign investors, including Japan. Administration in Vietnam is also required to reach higher standard. A typical example of Vietnamese Government’s change of policy is that the Government suddenly decided to ban import of motorcycle parts, this affect severely prestige and image of Vietnam in investors’ view. Foreign Companies are not willing to establish business relation with countries that having unpredictable investment environment. Current Vietnam’s Law on foreign investment still has weak points limiting foreign firms from invest into several areas such as inland transportation service, finance- banking, insurance, telecommunication, advertising, etc. According to projects survey in 170 Japanese companies operating in Vietnam, 81% surveyed Japanese companies are interested in current laws, 71% suppose that the official law’s insurance is slow, 63% are afraid of “ unanimous decision” in Board of Management’s meetings (on post assignment, appointment of Chairman and Vice Chairman), 47% of the companies want the regulation that 80% goods must be exported at the time of Investment License Insurance. Besides, this law still does not publish the list of areas permitted to be invested with 100% foreign fund and the list of foreign investment limitation, that make investors not believe in Vietnam’s Laws. As for Land Law, rent duration for foreign investors in Vietnam is often 50 years, and may be 70 years in special cases. However, sometimes in industrial parks or processing zone, time for compensation, ground clearance and construction of infrastructure can last up to 10 years. Therefore, actual business time shall be decreased. Moreover, foreign investors are not issued with Land Use Right. Limitation on Land partly make Vietnam’s investment environment less attractive. For Labor Law, Japanese investors suppose that the new Labor Law limits flexibility of FDI enterprises in recruiting new employees. The current Labor Law specifies that the employer must sign indefinite-term contract is signed, the contract can only be terminated with the employee’s consent. FDI enterprises suggest Vietnamese State should not intervene too much in their recruitment. Besides, the new Law also regulates far higher extra-hour salary, which the enterprises have to pay the employees than old salary. In particular, extra-hour wage specified by the old Law is no higher than twice of basic salary, but according to the new Law, this level is raised up to three times, which is too high. 2.3.2.2High Business Cost Every manufactures consider that business attaches much importance to input costs in deterring product selling price, so as to figure out business outcomes. Business coats in Vietnam such as electricity, water charges, freight and fares, telecommunication fees are twice higher than those in such countries as China, Thailand. Moreover, the prices on materials such as petroleum, cement, iron and steel are controlled by State- owned Corporations. Increasing prices for input jacks up sales prices on goods. For example, a television is assembled at a cost of $6- 7 unit in Vietnam, even $8-9 unit at some companies, compared to $3 in ASEAN countries, and only $1 in China. In telecommunication area, according to calculation of Japanese firms, telephone expenses from Vietnam to Japan is three times higher than those from Thailand. It is understandable, Vietnam’s telephone systems are controlled by State-owned enterprise, thus the competition pressure is not high. Vietnam now has to hire Singapore’s and Hong Kong’s Internet gateways, in addition to backward infrastructure of Post-telecommunication sector, has rise postal-telecommunication fees. For supply of power such as electricity, according to JETRO experts, in immediate future, Vietnam can’t build nuclear power plant to meet sufficiently domestic demand but just rely on Hydro, thermo electricity plants so the possibility of electricity shortage will be very high and of lowered electricity price will be low. The increase of the corporation income tax on foreign- invested projects from 25- 28% as of January 1st 2004, complicated methods in taxation refund and the control over expenditure for advertising, trade promotion and marketing at 7 to 10%, combine to push the corporate income tax rate to over 40%, Similar accumulative rates are 33% in China, 30% in Indonesia, and 22% in Singapore. Formalities relating to tax refund for re-investment are so complicated they cause logistical nightmares for investors and ultimately discourage re-investment. 2.3.2.3Low working productivity, insufficient skilled worker Now Vietnam does not possess such strong competitive advantage of cheap and plentiful labor force as previous years. Japanese investors are not interested much in quantity but now in quality. Working quality in Vietnam is too low while labor price increase. The majority of Vietnamese laborers are working in labor-concentrated but un-intellectual sectors such as garment, seafood and aquatic products processing. The number of workers in high tech manufacturing sectors in minor, for instance, after 10 years of operation, Toyota Motor Vietnam (TMV) only has 600 Vietnamese people working there. According to Ms.Nguyen Xuan Lan, Socio-economic Policy Board, Vietnam’s labor source is rich, but with low qualification and industrial style of work. In 10-grade scale, Vietnam’s human resources is assessed by the international area with 3.79 mark, compared to 4.04 mark of Thailand, 5.73 mark of Malaysia, 5.76 mark of India. Additionally, according to survey of Labor Science and Social Issues Institute, in FDI enterprises, the percentage of technical skills employee requiring retraining is 34.59%. 2.3.2.4Some other causes Competitiveness of Vietnamese economy is low, market liberty is not high, while infrastructure is backward, with low domestic demand, short investment information. This makes many investors hesitate and they may invest in China instead. Chinese economy is the most rapid developing economy in the world, annual GDP growth is 9 to 10%, compared to 7% of Vietnam, income per capital of China reaches US$ 1000/person, compared to US$ 200/person of Vietnam. With the advantage of having 1.2 billion over Vietnam’s 82 million people, China brings in a huge consumption market to foreign investors that nowhere can be found, even in Vietnam. In general, Japanese FDI projects in Vietnam have gained significant outcomes, product quality is high, meeting domestic and foreign market’s demand, with low rate of breaking down (13%) compared to national average rate (19%). However, during the course of operation in Vietnam, Japanese investors have to cope with many difficulties raised by Vietnamese Government’s change of policy to suit Vietnam’s post-crisis situation, prices, input charges, personal income tax are higher compares to many countries, infrastructure development is not synchronous, economic growth is high but still does not meet the country’s development need, etc. These are barriers to investors who want to invest in Vietnamese market. 3.Development Strategy Trends to Attracting Japanese Foreign Direct Investment in Viet Nam 3.1Responding to development needs (Efforts by Vietnam’s Government and an evaluation to them) Vietnam has been compiling a basic document that indicates the direction for economic and social development in the form of a five-year Plan, and has formulated and implemented policies based on this plan so far. In addition, the Socio-Economic Development Strategy for the period 2001-2010 that was formulated in 2001, describes a vision for Vietnam to carry out the transition to an industrial economy by 2020. The Comprehensive Poverty Reduction and Growth Strategy (CPRGS) is the Vietnamese version of the Poverty Reduction Strategy Paper (PRSP) which sets out an action plan to realize a variety of development strategies and plans, setting goals for the achievement of economic growth and poverty reduction. The Vietnamese Government has also formulated development strategies and plans for five and ten- year periods in major sectors. On the basis of the above-mentioned strategies and plans, Vietnam has identified the following three items as development challenges for the future (first announced in a speech delivered by Deputy Prime Minister Vu Khoan at the Consultative Group (CG) meeting in December 2002). These three items are consistent with the challenges above: *To enhance quality, efficiency and competitiveness of the economy with a view to ensuring rapid and sustainable growth. *To make significant progress in comprehensive human resources development, address urgent social issues, and improve the social and natural environment. *To build a clean, strong and effective public administration, combat and tackle corruption, wastefulness and excessive bureaucracy, and promote democracy and transparency while enforcing disciplines in state organs and society. 3.2Analysis and Evaluation of Japan’s Assistance to Vietnam to date Japan resumed full-fledged assistance to Vietnam from 1992, and since 1995 has been the country’s top donor. The country assistance program for Vietnam, formulated in 2000, identifies five priority areas for the implementation of assistance to Vietnam: *Human resource and institutional building (particularly assistance for market economy reforms) *Infrastructure development, including power, transportation and so on *Agricultural and rural development *Education, health and medical care *Environment Japan’s assistance to Vietnam to date has been characterized by balanced assistance for economic infrastructure development and assistance in the social sector, and also by active assistance to policy research, human resource development and institutional building, which contributes to the creation of a market economy. This assistance is considered to have made a significant contribution to Vietnam’s economic growth, improving lifestyle and social conditions including poverty reduction. At the same time, the following issues have been highlighted from the perspective of further improving Japan’s assistance. 3.2.1General Assessment *Issue of linking assistance with Vietnam’s own reform efforts should be addressed *There is room for improvement in the application of aid coordination as a means of implementing effective and efficient assistance. 3.2.2Issues for the adoption and implementation of projects *Lack of clarity concerning a mid-term vision for assistance objectives in each sector. *There is room to further specify priority areas in sub-sectors, and it is necessary to clarify assistance policy for each sub-sector. *Lack of policy dialogue with the Vietnam counterparts concerning selection of projects and a limit to request-based procedures and project studies and adoption in the context of each assistance scheme (issue of conveying and consulting over Japan’s policy plans under a mid-term vision. There is room to improve the demarcation of each assistance scheme). *There is room for improvement in coordination and partnership with other donors. *There is room for improvement in cooperation and partnership with non-governmental organizations (NGOs) in sectors in which projects could be jointly undertaken. *Issues arising from implementation of assistance schemes (issues of grant aid costs, and response to trust funds) exist. 3.3Trends in Assistance to Vietnam from each donor and NGOs 3.3.1Trends in Assistance from each donor and NGOs Looking at trends in assistance from each donor shows that in financial terms, Japan, the World Bank and the Asian Development Bank (ADB) are the top donors to Vietnam. In the same way as Japan, The World Bank and ADB focus their assistance on support for the transition to a market economy, human resource development and institutional building, in addition to economic infrastructure development and social sector assistance. Although the World Bank takes a different approach from that of Japan, by placing priority on providing program loans for policy and institutional reforms as laid out in the Vietnamese Government’s PRSP, the efforts of Japan and the World Bank are mutually complementary. The World Bank also places emphasis on the three items for development identified by Vietnam, taking an approach that aims to address these issues. Although assistance from European countries is on a limited scale, it is focus on the social sector, including basic education, forestry, natural disaster control and regional transportation and governance. There are currently more than 400 NGOs operating actively in Vietnam, and looking at trends in their activities shows a wide range of activity areas that are being targeted, including assistance from a humanitarian perspective, such as urban poverty issue, street children, assistance for persons with disabilities and nutritional improvements, rural development projects, research activities including poverty assessments, as well as policy proposals targeting poverty reduction. Given their activities at the front-line of assistance work, local information they have and richness and diversity of their experience, the importance of NGOs as ODA partners is continuing to grow. In addition, in a country under one-party rule like Vietnam, NGOs play an important role not only in implementation aspects of ODA, but also in gauging public opinion. 3.3.2Recent Developments When the World Bank launched the Comprehensive Development Framework (CDF) in 1999, Vietnam was chosen as the pilot country, and working groups were formed in each sector and dialogue (partnership) between the Vietnamese Government and Donors was initiated. The Vietnamese Government also initiated full-fledged work on the formulation of its PRSP in 1999, and the resulting CPRGS was formulated in May 2002 as the first PRSP in Asia. The CPRGS purposefully added “growth” in the title of the strategy and described the importance of economic growth. However, as the CPRGS did not make any reference to the contribution of growth promotion measures such as large-scale infrastructure development to poverty reduction, Japan took an initiative in reviewing the CPRGS so that it would address this point. Consequently, the revised strategy included a chapter on large-scale infrastructure, which was reported to the Consultative Group meeting held in December 2003. In addition, currently, in the international area vigorous discussions are ongoing on the harmonization of assistance procedures, from the perspective of improving the effectiveness and efficiency of development assistance. Under the circumstances, Vietnam became a pilot country for multilateral development banks’ efforts on this subject, and efforts have been promoted to harmonize procedures among the Japanese Bank for International Cooperation (JBIC), the World Bank, ADB, the French Development Agency (AFD). In the area of grant aid also, the Like-minded Donor Group mainly made up of Europe, the Europe Union (EU) and United Nations (UN) organizations have been making various internal efforts towards harmonization. In these developments, both the Vietnamese Government and Donors have trended to focus on the importance of capacity building for Vietnam in the implementation of assistance. 4.Institutional Framework for FDI in Vietnam The legal framework for FDI has evolved with major and minor changes throughout the 1990s. There are a lot of efforts have been made to attract more investors come in. A various policy and legal framework have been adopted. The first LFI in Vietnam was promulgated by the Vietnamese National Assembly on 29 December 1987. This Law has been amended and revised several times in 1990, 1992, 1996, 2000 and recently that was Amended Foreign Investment Law in 2003, which provides general regulation for setting up a foreign-invested company in Vietnam to suit the practice of business and closer to conformity with national treatment as well as improve the business environment. Yet other legal and administrative changes have been equally important