Japanese investment in Việt Nam is expected to grow this year, given Japan’s recent initiative to shift investment to Việt Nam and other Mekong River nations, as well as free trade agreements (FTA), experts said.
According to Hironobu Kitagawa, chief representative of the Japanese External Trade Organization (JETRO) in Hà Nội, the Vietnamese market will remain attractive to Japanese investors in 2019. Japan was the largest investor in Việt Nam last year with registered capital of nearly US$8 billion.
“Currently, many Japanese investors are coming to Việt Nam to seek business opportunities and I expect Japan and Việt Nam will maintain good business ties,” Kitagawa told Việt Nam News.
“Competitive human resources, economic and market growth, and a dynamic society are considered factors that make Việt Nam an attractive destination for Japanese firms to develop their business in the future,” Kitagawa said, noting Japanese investors can promote the advantages, given by Việt Nam’s expanding economic ties with many other countries across the world thanks to its active participation in FTAs such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Kitagawa said a JETRO recent survey on investment trends among Japanese firms operating in Việt Nam in the 2018 fiscal year showed nearly 70 per cent of Japanese businesses want to expand operations in Việt Nam after gaining good business performance last year. A total of 65.3 per cent of the 723 Japanese companies recorded high profits in Việt Nam in 2018, according to the survey.
The majority of these companies said the market scale and growth are the greatest advantages of Việt Nam’s investment environment. Other positive factors include low labour cost and political stability.
“Việt Nam ranked fourth in political and social stability, and cheap labour cost while its market size and growth took the sixth position in the ASEAN, Southwest Asia and Oceania regions,” Kitagawa cited the survey as saying.
Besides, experts forecast the Japanese investment inflow to Việt Nam would benefit from a Japan Chamber of Commerce and Industry initiative to shift Japanese investment to Việt Nam and other Mekong River nations with an aim to enhance economic partnerships between the two sides.
“Japan's initiative to move its investments to the Mekong region nations will likely see Việt Nam receive a significant slice of the pie, particularly if these investments are in lower-end manufacturing,” Jason Yek, country risk analyst of Fitch Group’s Fitch Solutions, told Việt Nam News.
Yek explained China accounts for 11.6 per cent of Japan's total outbound FDI in 2017 as compared to just 2.1 per cent for Việt Nam. Given the Chinese government's goal of moving the Chinese economy away from low-end manufacturing and the rising labour costs in China, this will likely see much of these Japanese direct investments shift to countries like Việt Nam, which boasts a relatively cheap and educated labour force alongside a large and growing working class population.
However, instead of just focusing on manufacturing, Kitagawa forecast Japanese investment inflow to Việt Nam’s non-manufacturing industries would keep rising in 2019 and in the next few years.
“Japanese investment in Việt Nam’s non-manufacturing industries, such as retail, wholesale, IT, professional support and education, will continue to increase, fuelled by the rising growth of Việt Nam’s consumption market,” Kitagawa said.
Nearly 70 per cent of Japanese businesses want to expand operations in Việt Nam. VNA/VNS Photo
Non-manufacturing industry accounted for about 70 per cent of Japan’s total investment capital in Việt Nam in recent years. Especially, the growth rate of the industry was higher than that of the manufacturing.
According to experts, the shift of this investment capital flow is aimed to catch up with huge opportunities from the CPTPP and the Regional Comprehensive Economic Partnership (RCEP).
Việt Nam, which is considered one of the attractive consumption markets in the region with a population of some 100 million people, is luring foreign investors, including Japanese. Like China 10 years ago, incomes of Vietnamese consumers are getting higher and they are also spending more for consumption.
Fine-tuning legal framework
According to Kitagawa, Việt Nam's business environment is relatively good compared to other countries in the ASEAN region.
However, to further attract Japanese investors to Việt Nam, he noted the JETRO's survey showed it was important for Việt Nam to streamline the country’s legal system as it remained inadequate and less transparent.
According to the survey, local authorities still lack prior research on legal content and delay in issuing documents to guide the implementation of laws, which cause adverse impacts on investors’ works and an inconsistency in the laws and execution.
In addition, Việt Nam’s tax regime, such as personal income tax, transfer pricing and value added tax (VAT) invoice, remains complicated and inconsistent.
Besides, Kitagawa suggested the Vietnamese Government should further promote existing plans, such as the Japan-Việt Nam Joint Initiative and the Việt Nam Business Forum, which would enable it to continuously listen to the opinions of Japanese businesses with an aim to improve the country’s business environment.
“In addition, the implementation of investment promotion seminars with careful and effective preparation on Việt Nam's investment environment-related documents should be also enhanced to facilitate investors in seeking information on investment and business opportunities in the country,” Kitagawa said. — VNS
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