FTAs make Vietnam more attractive to foreign investors

09:52 | 17/03/2020 Economy

(VEN) - A growing number of Japanese business are choosing to invest in Vietnam due to its continuously improving business environment and international integration as reflected in state-of-the-art, wide-ranging free trade agreements (FTAs).

ftas make vietnam more attractive to foreign investors

The 2019 survey by the Japan External Trade Organization (JETRO) found that 65.8 percent of the 858 Japanese enterprises operating in Vietnam made a profit or reached a saturation point, and 63.9 percent said they have plans to expand operations in Vietnam in the next one to two years, down 5.9 percentage points from the previous survey. Despite this decline, the respondents rated Vietnam as the highest in Southeast Asia and the third highest in Asia and Oceania, the JETRO Hanoi Office announced at a recent media briefing.

According to JETRO, the Japan Business Association in Vietnam (JBAV) currently has 1,943 members out of about 3,000 Japanese firms operating in the country. The number of JBAV members increased by more than 100 enterprises annually, reflecting a trend of continuous membership growth.

According to Takeo Nakajma, Chief Representative of JETRO Hanoi, Vietnam’s varied free trade agreements (FTAs) are having a significant, positive impact on Japanese investment strategies due to the export advantages they provide to foreign investors in Vietnam. About 54 percent of surveyed Japanese businesses said they are taking advantage of FTAs signed by Vietnam, seven percent higher than in 2018. Japanese investors will consider investment in export production, retailing, technology, construction, health and tourism to take advantage of the opportunities offered by FTAs, Takeo Nakajma said.

However, the undeveloped support industries in Vietnam concern Japanese investors. According to the survey, Japanese enterprises in Vietnam have only reached a local content of about 36 percent, compared to 60-70 percent in Thailand.

Over the past 10 years, while Vietnam saw its local content improving annually, China and Thailand experienced a considerably faster improvement, Takeo Nakajma said. Supply chain management and control will still be difficult if the local content growth in Vietnam remains low, he warned, urging Vietnam to assist businesses improve their technological capacity in order to help Japanese enterprises reduce costs and increase confidence.

Although the rate of Japanese enterprises purchasing raw materials from China is not high, the Covid-19 epidemic is expected to affect their production, as it is affecting raw materials supply for them, the JETRO representative said. Most Japanese enterprises are maintaining stable production, as they still have a large amount of imported materials in inventory. But, if the epidemic continues for a long time, it will surely affect material purchases from China.

Another challenge for Japanese enterprises in Vietnam is the lack of high-quality human resources. According to Takeo Nakajma, if Japanese businesses need 1,000 employees, they can only find 500 meeting their standards in Vietnam, and they have to set up workspaces in other countries to make up for lack of production capacity. Human resources is one of the important factors that Japanese enterprises will consider before deciding to expand their businesses in Vietnam. When the EU-Vietnam Free Trade Agreement (EVFTA) comes into effect, Vietnam will attract many more European businesses, which will also need a skilled workforce to create international-standard products, and therefore the EVFTA is expected to help improve the quality of Vietnam’s human resources, Takeo Nakajma said.

Do Nhat Hoang, Director of the Ministry of Planning and Investment’s Foreign Investment Agency said Vietnam’s investment outlook is bright given the high rate of foreign businesses making a profit and applying high technology in the country, and tax procedures have improved significantly.

Hoang said the Politburo issued Resolution 50 on foreign investment promotion in the new period, based on which the government issued action plans for localities to improve their investment environment. The resolution implementation will help ease the problems faced by Japanese businesses, improve Vietnam’s institutions, policies and foreign investment cooperation quality from now to 2030, including support industry development.

Vietnam and Japan are signatories to the Vietnam-Japan Economic Partnership Agreement (VJEPA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), while the EU-Vietnam Free Trade Agreement (EVFTA) is expected to create competitive advantages and export opportunities for Japanese enterprises investing in Vietnam.

Hoa Quynh