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First & foremost

Released at: 23:06, 01/11/2014 VN-South Korea Relationship

First & foremost

After two years in third place, South Korea overtook Japan and Singapore to become the leading investor in Vietnam in the first three quarters of 2014.

by Minh Tien

From almost any vantage point around West Lake the Lotte Center Hanoi is clearly visible. The new skyscraper is like a symbol of South Korea’s strong commitment to investing in Vietnam. Registered capital South Korea investors poured into Vietnam stood at around $33 billion as at the end of October, in more than 4,000 projects. In the first three quarters of the year the figure was $3.558 billion in 374 projects. Most analysts share a belief that South Korea will likely maintain its leading position in Vietnam’s foreign investment landscape this year. 

The judgement comes as South Korean officials constantly evaluate Vietnam as having a positive investment environment and many of the country’s large corporations have expressed an intention to continue to expand after operating in Vietnam for some time. In particular, despite having invested nearly $10 billion already, Mr Shim Won Hwan, General Director of the Samsung Complex in Vietnam, said it will continue to expand its manufacturing facilities in the future. Besides electronics, Samsung may also pour money into other sectors such as hydropower, airports, shipbuilding, and petrochemicals.

Samsung is one of South Korea’s largest corporations investing in Vietnam. “South Korean giants such as Samsung, LG, Doosan, Posco, and CJ develop only 5 per cent of all the foreign-invested projects in Vietnam but those projects account for more than 70 per cent of the total registered capital by all South Korean investors, and the giants play a significant role in contributing to Vietnam’s strong and stable economic development,” said an executive official from the Ministry of Planning and Investment (MPI). The other 95 per cent are mainly projects in low-profit industries. 

A transformation of business sectors, however, began recently with the appearance of satellite companies in electronics industries and other high-tech fields for giant South Korean multinationals. South Korean corporations have also paid more attention to heavy industry, petrochemicals, electricity, financial services, logistics, and entertainment, among others. At the same time, to proactively prepare for opportunities that may come from the Trans-Pacific Partnership, South Korean corporations have also paid particular attention recently to support industries in textiles and garments.    

Expansion continues

Many may believe that South Korea’s investment has already reached its apex but that seems unlikely. Mr Su Ngoc Khuong, Savills Vietnam’s Associate Director of Investment, said that in the real estate field specifically, investment from South Korea may not be as vibrant as it was a few years ago but it is certainly not the case that South Korean investors have turned their backs on Vietnam. South Korean investors still appreciate the country’s real estate market but tend to be much more cautious these days, especially investors that are new to Vietnam. Instead of investing directly, as in 2006 to 2009, South Korean investors now often choose to cooperate with domestic enterprises to “share” the procedural and site clearance obstacles. 

Mr Neil MacGregor, Managing Director of Savills Vietnam, said that South Korean investors are aiming to purchase properties with stable cash flows, such as office blocks, serviced apartments, and hotels, rather than developing giant real estate projects like in the golden days of the 2000s. Even so, an executive director at KHM Capital said that a giant South Korean investor is currently completing legal procedures for a billion-dollar complex in Hanoi and that, besides Hanoi and Ho Chi Minh City, South Korean investors are being more and more flexible when choosing segments for investment in other major cities of Vietnam, such as Hai Phong and Bien Hoa.

In the electronics and high-tech sector, Mr Shim Won Hwan’s commitment was confirmed by Prime Minister Nguyen Tan Dung during talks with South Korea’s former President Lee Myung-Bak, when he said that Samsung is preparing an additional investment plan and has sought relevant approval. Samsung Electronics is looking for additional investment to significantly expand its mobile phone production facilities in northern Bac Ninh and Thai Nguyen provinces and it appears to have decided to make additional investment of up to $3 billion in the northern region as part of an effort to expand production capacity.

Samsung’s Bac Ninh factory has created many new jobs and improved the quality of life for local people. The company’s plan to expand its investment is reasonable as it is currently enjoying unprecedented incentives in Vietnam, with many tariffs being reduced or exempted for certain periods, for instance. These incentives allow Samsung to maintain a firm lead over rising Chinese rivals. Not just phones but many other products will follow this path. In addition to the mobile phone investment, Samsung is also pushing forward with an investment of $1.4 billion to build a large home electronics factory in Ho Chi Minh City.

New aspects

At a recent working session in Seoul with Mr Vuong Dinh Hue, Head of the Party Central Committee’s Economic Commission, Minister of Trade, Industry and Energy, Yoon Sang-Jik, expressed South Korea’s eagerness to conclude negotiations and sign a free trade agreement (FTA) with Vietnam by the end of this year. Affirming that Vietnam is currently the most attractive market for South Korean investors, the minister believed there would be a much larger wave of investment from South Korea into Vietnam once the FTA is inked and so asked Mr Hue to help push for the signing of the agreement as soon as possible.

For his part, Mr Hue appreciated the minister’s proposals, saying that the Economic Commission would encourage relevant agencies to conclude the negotiations shortly and that the two countries need to expand cooperation in economics, trade and investment in new areas to tap their full potential. On the other hand, acknowledging Mr Hue’s proposal seeking South Korean government assistance for the establishment of another Vietnam - South Korea Incubator Park in northern Vietnam, Minister Yoon said he would submit the proposal to the government for consideration. The first incubator park is expected to come into operation in the Mekong Delta’s Can Tho city in June 2015.

In addition to industries and areas where South Korean giants have invested heavily in Vietnam, Minister Yoon also suggested the two countries expand their partnership in the agro-forestry-fishery sector, especially in the Mekong Delta, as Vietnam has a range of advantages in the field. He also touched on the promotion of infrastructure development by the Vietnamese Government, especially transport and logistics, in order to create an attractive operating environment for new investments.    

Regarding Vietnam’s activeness in attracting investors from South Korea, Minister Yoon also welcomed Mr Hue’s initiative to boost South Korean garment and textile investment in Vietnam in anticipation of a new wave of investment as soon as the Trans-Pacific Partnership (TPP) is signed. The minister also underlined that the two countries would have to foster collaboration in developing Vietnam’s support industries by assisting small and medium-sized enterprises (SMEs) as well as expanding training programmes for human resources at different levels to create the basis for production links and, consequently, the development of regional as well as global value chains. 

Ten giant South Korean banks and financial institutions have also expressed a desire to invest in Vietnam. Nevertheless, Minister Yoon emphasised that, in the future, when the FTA comes into being, South Korean SMEs will play a significant role in bringing Vietnam potential to fruition and investment will boom in every sector and in greater depth.

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  • South Korean
  • Japan

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