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Business as usual

Released at: 03:26, 08/10/2014

Business as usual

Vietnam appears to have largely escaped any fallout from the disturbances at industrial zones relating to tensions in the East Sea.

by Linh San

Confidence. More than ever, Vietnam’s economic development depends on the confidence of investors, especially given the recent tensions with China over the East Sea. Protests at industrial zones in southern Dong Nai and Binh Duong provinces in May against China placing an oil rig in the East Sea undoubtedly had some effect on foreign enterprises, though nearly all of those affected by the riots have now resumed operations.

Representatives from the largest foreign business associations in Vietnam, who gathered together at the twice-yearly Vietnam Business Forum (VBF) in early June, still expressed their confidence in the country despite the current challenges. “We believe the Vietnamese Government needs to make a public announcement to foreign investors all over the world that it is making its best effort and taking measures to re-stabilise the business environment for foreign-invested enterprises in the country,” said Mr Kim Jung In, Chairman of the Korean Chamber of Business in Vietnam.

A set-back

The riots gave customers and investors a negative impression of Vietnam that runs counter to its reputation for stability. “AmCham and many other FDI investors and business associations were shocked and dismayed by the failure of government authorities and public security forces to protect the property of the FDI companies and the safety of their Vietnamese and foreign workers during the civil disturbances in mid-May,” said Mr Herb Cochran, Executive Director of AmCham Vietnam in Ho Chi Minh City.

According to Mr Cochran, many AmCham companies depend on FDI “partner factories” in Vietnam from Taiwan, South Korea, Hong Kong and elsewhere. “Most exports from Vietnam to the US come from these factories and consist of apparel, footwear, and furniture, so AmCham companies were also seriously affected, although indirectly,” he said. “Most of the impact will be felt in the future, with supply chain disruptions to trade, FDI projects delayed or cancelled, and lower business and leisure travel to Vietnam.”

During the disruptions, protesters destroyed property belonging to the State, businesses and individuals, including foreign firms, and clashed with the police. Mr Chiang Chih Ming, head of the association of Taiwanese businesses in Dong Nai province, said the recent unrest had affected 131 Taiwanese businesses in the province, with 80 per cent slightly affected and 10 per cent seriously affected. Prompt assistance and support from local authorities, however, helped businesses recover and resume normal production quickly, he added, noting that customs agencies had paid visits to affected businesses to complete procedures for tax-related support. All 44 affected businesses in Binh Duong have now resumed normal production.

Soon after the riots the immediate need of enterprises to restore stable production and minimise any impact on their workforce were discussed at constructive meetings between the government and foreign business associations on May 20 in Hanoi and May 30 in Ho Chi Minh City. The government announced measures to mitigate any impact on affected enterprises, who in turn sought compensation, interest-free loans, and other measures to restore operations. “In addition to compensation measures, we hope that the government will pursue its legal rights and interests to resolve disputes over maritime boundaries in a peaceful manner in accordance with relevant international agreements,” said Mr Cochran.

Prompt implementation of these measures will go a long way to restoring confidence, but longer-term questions about supply chains and international sources of raw materials also need to be addressed.

During the VBF, Prime Minister Nguyen Tan Dung pledged that the Vietnamese Government would guarantee safety and stability for foreign investors in Vietnam, including Chinese companies. The government will provide further support to foreign investors in Vietnam, he added, and improve the competitiveness of the country’s investment environment.

Confidence remains

HSBC’s latest macro-economic report for Vietnam states that the country will feel only limited impacts from the East Sea tensions with China. While the long-term impact is still uncertain, Vietnamese manufacturers will likely try to increase localised inputs as well as improve their supply chain management, to lessen dependence on China for inputs, and meet TPP requirements. Taking a close look at Vietnam’s exposure to China to analyse the short to medium-term impacts of recent developments, HSBC said most of the FDI stocks currently in Vietnam are owned by Japanese, South Korean, American and Taiwanese companies. Though registered FDI from China to Vietnam has risen in recent years, its total remains small.

The Prime Minister’s announcement in front of hundreds of foreign investors at the June VBF confirmed the government’s determination to maintain the country as an ideal investment destination for foreign companies, who play a vital role in the country’s economic growth. Though the riots were certainly a set-back for Vietnam, it became clear that confidence in Vietnam among foreign investors had not been shaken.

Binh Duong province held a ceremony on June 4 to hand over investment licences to 41 FDI projects with combined capital of $146 million. According to Mr Mai Hung Dung, Director of the Provincial Department of Planning and Investment, among these projects were ten from Japan, nine from South Korea, five from China, four from Hong Kong, and three from Taiwan. This is a positive sign for the province, as it was one of three localities most seriously affected by the disturbances.

Mr Hideo Okubo, Chairman of the Supporting Committee for Globalisation of Japanese Small and Medium Enterprises, said that more and more Japanese businesses are flocking to Vietnam. “Japanese investors have confidence in the country and consider Vietnam their most attractive destination,” he said. “However, a few Japanese businesses have raised concerns over the recent disturbances at some industrial zones.” Ms Liu Mei The, Chairwoman of the Council of the Taiwanese Chamber of Commerce in Vietnam, said that Taiwanese businesses would expand their investment activities and continue with projects in Vietnam. She added they were pleased with the quick response and measures adopted by the Prime Minister and relevant ministries and localities to stabilise the situation, ensure security and safety, and create the best possible conditions for the continued operation of Taiwanese businesses.

In early June representatives from leading US businesses met with Vietnam Fatherland Front (VFF) Central Committee President Nguyen Thien Nhan, expressing their desire to deeply penetrate into Vietnam’s market. Businesses, which included those in insurance, energy and education and training, said that during their one-day visit they were scheduled to discuss measures to boost bilateral trade relations and accelerate TPP negotiations with government officials and the local business community. According to Mr Cochran, Vietnam has been an attractive destination for US FDI investors and their “partner factories”. “Recently, a number of US companies have invested in modern manufacturing facilities for the export of higher technology, higher value-added products to global markets,” he said. “However, a recent survey by AmCham in Southeast Asia shows that the impression of Vietnam’s attractiveness as an investment destination have deteriorated significantly in the last five years.”

As the government acknowledged in Resolution No 19 in March, “Vietnam’s national competitiveness is rated lower than other regional countries and ranked below the average among ASEAN countries, with delayed improvements to the institutional framework, infrastructure and business environment. This is highlighted by the problems with start-up businesses, protection mechanism for investors, property rights, intellectual property rights, the efficiency of the State apparatus, tax payments, access to electricity, and dealing with business insolvency.” And Vietnamese businesses have also recognised the need for drastic reform, or a “second Doi Moi”.

The results of the 15th quarterly EuroCham Business Climate Index (BCI) survey, conducted in May 2014, show that business confidence and outlook among European businesses in Vietnam have continued to increase. This quarter the BCI is back to its 2011 levels - having gone from last quarter’s 59 to 66. This further underlines the commitment of European companies to Vietnam. It is believed that the continued positive development of the BCI is linked not only to ongoing trade negotiations, such as EU-Vietnam FTA, but also the creation of the ASEAN Economic Community in 2015.

“Overall, we believe there will be a short-term effect on investor confidence due to the East Sea tensions, assuming there are no further violent acts or major riots in Vietnam. We noticed negative sentiment from the events in Binh Duong, but leading up to that point there was little to no effect on investor sentiment.”

Mr Christopher Piro, Director of Sales and Marketing at Indochina Land

“The riots were a serious set-back for Vietnam. In addition to compensation measures, we hope that the government will pursue its legal rights and interests to resolve disputes over maritime boundaries in a peaceful manner in accordance with relevant international agreements.”

Mr Herb Cochran, Executive Director, AmCham Vietnam in Ho Chi Minh City.

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