By: Maxfield Brown, Business Intelligence Associate at Dezan Shira & Associates
Ho Chi Minh City has long stood as a hub for economic activity and a primary attractor of foreign direct investment (FDI) in Vietnam, and guess what? This hasn’t changed. Here are the big numbers: in the first quarter of 2017, FDI investments in the city were up 51 percent over the year prior, amounting to nearly US$600 million total.
There are many reasons for HCMC’s success: an array of logistics links, demographic trends and trade agreements with other countries are all coming together to attract investment. On top of this, and perhaps most importantly, are HCMC’s industrial zones. Right now the city has 19 industrial parks with another eight on the way.
For domestic or international investors setting up in HCMC, industrial parks offer a wide variety of advantages: personal and corporate income tax incentives; improved infrastructure; streamlined compliance requirements; and a range of prefabricated or tailor-made facilities are just some benefits.
Although most industrial zone tenants are domestic companies, today these areas are also highly sought after by multinational enterprises seeking large-scale bases for manufacturing within Vietnam. Some of the heavy hitters? For one, there’s Samsung, which set up a US$2 billion components facility in the Saigon High- tech Park in 2016. And then there’s intel, which established a production facility in 2009 at the same location with a current value topping US$1 billion.
Industrial zones and HCMC’s real estate market
Besides providing good conditions for investment, industrial zones, and the parks within them, often provide opportunities for real estate professionals. After all, building an industrial park also means building roads, utilities networks and other infrastructures. Plus there’s the fact that by supporting investment from small and large investors alike, industrial zones play a significant role in driving demand for residential housing.
With unemployment in HCMC hovering around 2 percent and managerial skills in high demand, new projects in industrial zones are often dependent on workers from other Vietnamese provinces and on managerial staff from abroad. Everyone needs a place to live, and now developers are working to build these affordable housing blocks.
At present, while industrial parks in districts such as tan Phu, district 2 and district 9 are all at full capacity, other areas such as Cu Chi still provide significant potential for future investment.
Keeping costs under control: a constant struggle
If you’re a real estate investor and you want to tap into these opportunities, you should remember: always consider the supply of leasable land in conjunction with the cost of basic materials, wages and the going sale price for real estate within specific districts.
While certain areas within HCMC may be at a relatively low capacity, Vietnam remains one of the most sought-after destinations for investment in the country. As such, leasable land as a whole is in low supply compared to other provinces such as Dong Nai and Binh Duong. Because of this, the minimum leasing rate within HCMC, even within low capacity areas, is near the maximum rate found within other provinces.
While this certainly allows for increased profit for the landlord, the intense demand for materials and personnel has led to higher wages and price inflation for building materials in recent years. These are constantly shifting and should be monitored closely if you’re looking to construct a new factory or housing complex within the city lines.
Districts to watch
With several new industrial projects in the planning stages in HCMC, we’re expecting to see industrial zones play an even bigger part in the city’s future soon enough. Keep an eye on Binh Chanh, Cu Chi and Nha Be districts, which all have projects in various states of planning.
With high occupancy rates and the third- highest average rental prices across all districts in HCMC, Binh Chanh, in particular, is well positioned for real estate investment. With over 1000 ha of leasable land expected to come online in the years to come, the potential for this district cannot be understated. Within Binh Chanh, Le Minh Xuan Industrial Park and Vinh Loc I Industrial Park are expected to provide 580 and 466 ha of new land respectively, accounting for the vast majority of new space coming online in the district. For everyone involved, the ongoing development of new industrial park projects will present significant immediate-term contracting opportunities.
Further downstream, once the listed projects are completed and new workers flood to these areas, we’ll see added pressure on both commercial and residential real estate markets around these areas. However, no matter the location and focus area where real estate investors choose to stake their claim, the impact of industrial zones cannot be discounted. Get ready to see these projects continue to grow HCMC in the years to come.
Editors Note: This article was first published in the May edition of City Pass’ #iAMHCMC Gazette. A full version of the Gazette can be downloaded here.
The first newspaper of its kind in Vietnam, #iAMHCMC is a widely distributed print and online publication from the largest travel and living information website in the country, CityPassGuide.com. Innovo JSC, the parent company of both #iAMHCMC and CityPassGuide.com, is a Ho Chi Minh City-based media agency specializing in travel writing, local marketing and quality content creation published across multiple media platforms.
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An Introduction to Doing Business in Vietnam 2017
An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.
Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.
By: Koushan Das, Business Intelligence Associate at Dezan Shira & Associates
According to a new JLL report, Da Nang is one of the fastest emerging startup cities in Southeast Asia. Other cities in the region include Penang in Malaysia, Chiang Mai in Thailand, and Bali and Bandung in Indonesia. Driven by low cost, a robust engineering talent pool, and government support, the port city is known for attracting established players in the tech field but increasingly is being sought out by startups looking for a foothold or base of operations in Southeast Asia.
The city hosted Startup Fair 2016 last year to highlight its capabilities and foster the startup ecosystem. The event attracted over 500 participants, including policy makers, investors, domestic and international partners, as well as local businesses and entrepreneurs. In 2016, the city also established the Danang Entrepreneurship Support Company, a US$1.3 million incubator to run incubation programs. The incubator aims to support startups through its investors and partner with local universities for skill development programs.
By Alexander Chipman Koty
Established in 1998, Hanoi’s Hoa Lac High-tech Park (HHTP) was Vietnam’s first high-tech park and is currently the country’s largest. While Vietnam has over 190 industrial parks and plans to increase this number to 500 by 2020, HHTP is one of only three national-level high-tech parks, alongside Saigon High-tech Park and Danang High-tech Park. The HHTP was created with the intention to become Vietnam’s leading high-tech industry cluster for manufacturing, research and development, and innovation.
Due to start-up difficulties and incomplete infrastructure, the park initially struggled to attract high profile investors. However, Vietnam has rapidly industrialized since the park’s establishment, becoming a leading recipient of foreign direct investment and an increasingly prominent electronics manufacturer. As a result, the HHTP has become equipped with higher quality infrastructure, and is beginning to fulfill its promise as a tech hub. While Ho Chi Minh City has pulled ahead as Vietnam’s most popular area for investment, Hanoi can be particularly advantageous for operations with supply chains in China due to the city’s proximity to the border.
By Mike Vinkenborg
As Ho Chi Minh City battles growing traffic congestion, municipal authorities are considering a range of measures to improve transportation in the bustling city of over eight million. The city is currently debating altering work hours to spread out traffic during peak hours and trimming sidewalks to create more space for vehicles, while also building several new overpasses. These are just a few of the many proposed measures to tackle the gridlock issue that is becoming increasingly problematic.
These are all short-term solutions that fail to tackle the root of the problem, however. Every day, an estimated of 1,000 new motorbikes and 180 new cars are registered in Ho Chi Minh City. In total, 8.5 million motorbikes and 627,000 cars are currently registered in the city, the latter indicating a 500 percent increase compared with the year 2000. And as Vietnam is set to cut tariffs on ASEAN car imports in 2019, thereby reducing car prices by 42 percent, these numbers are poised to increase even more in the future. As a result, cars on major roads didn’t exceed an average of eight kilometers per hour during afternoon rush hours as of 2010, and the situation has not improved since then.
By: Dezan Shira & Associates
Editors: Erasmo Indolino & Beatrice Beardo
Hai Phong, the “Red Flamboyant City”, is the main industrial hub and biggest port in North Vietnam (accounting for 98 percent of North Vietnam’s throughput in 2014). One of the five centrally-controlled cities at the province level, Hai Phong’s municipality is the third largest city in the country, after Ho Chi Minh City and Hanoi. It is also one of the most crowded cities in Vietnam, with 1,946,000 inhabitants as of 2014. Like Nha Trang and Binh Duong, Hai Phong’s economy is quickly becoming a powerhouse. The city is largely responsible for an 88 percent increase in throughput seen in Northern Vietnam between 2008 and 2014. Much of this success can be attributed to the strategic coastal position of the city, the development of import/export activity via its seven seaports, and its latest improvements to infrastructure.
By: Dezan Shira & Associates
Editor: Kurt Nguyen
Many may know of Da Nang as a major U.S. air force base during the Vietnam War, but the modern-day city has few remnants of its war-ravaged history. Nowadays, Da Nang has developed into a major urban center— Vietnam’s third largest economic center with the highest growth rate and urbanization ratio in the country. Endowed with a strategic location along the central coast, Da Nang is easily accessible through major highways, seaport and affordable international flights connecting it to other Asian countries. The local government’s pro- business policies offer many incentives for investors in the fishing, manufacturing, infrastructure, service, and tourism industries. The city has consistently ranked first in USAID’s Vietnam Provincial Competitive Index for the past 3 years, yet Da Nang’s FDI inflow has been low compared to its true potential, leaving future investors with ample opportunities.
By: Aysha Nesbitt
On May 6, LG Display Group, a subsidiary of South Korea’s LG Electronics, pledged US $1.5 billion to establish a screen factory in Hai Phong. Launching next year, the factory will produce high-tech digital displays using LG’s organic light emitting diodes. This investment comes just a year after LG opened a US $1.5 billion factory in Hai Phong and follows similar investments from the likes of Samsung and Nokia.
Over the past four years, Vietnam’s electronics sector has grown by 78 percent, becoming the country’s number one export in 2013. With pro-foreign investment policies and a competitive labor force, Vietnamese electronics production has also quickly surpassed regional rivals such as Thailand and the Philippines and is expected to grow at a modest five percent over the next two years, positioning Vietnam to surpass Singapore as the region’s fifth largest electronics exporter.
App Downloads Record Strong Growth Due to Gaming Culture
The app market in Vietnam has shown strong growth every year purported by a strong gaming culture. In a recent industry report, gaming app downloads contributed to half of the growth on the Google Play Store. Local users have a strong interest in local game publishers with ZingPlay in the list of top ten downloads. Three of the top 10 game downloads on the Google Play and iOS App Store were from local publishers.
At least 20 million gamers have been recorded in the country, and more than 10,000 mobile games are available on Vietnamese app stores. By 2017, the market is expected to be worth U.S. $161.6 million. While the high growth of smartphones and e-commerce make Vietnam attractive to app developers and publishers, setting unique regional preferences is key to growing the market. In addition, while the gaming culture has experienced significant growth, a large part of the population does not have access to high-speed Internet service. Nevertheless, investors should make key inroads into the industry as it’s not a market that can be ignored. Foreign investors should acclimatize and gain on the ground information if considering the industry.
Garment Industry Wants Long Term Plan
The garment and textile industry plans to revise a development plan to 2020 with a vision for 2030. The current plan, which was approved in April 2014, stated that garment exports would reach U.S. $25 billion by 2020. However, the garment industry has already earned an export turnover of U.S. $27.5 billion in 2015. Given this, the Vietnam Textile and Apparel Association (VITAS) demanded another long term plan until 2040 in line with the country’s economic development. VITAS has set the current growth of the sector to be between U.S. $40 and U.S. $50 billion by 2020 rather than the targets mooted by the current plan. Foreign direct investment (FDI) brought in U.S. $2 billion into the garment sector in 2015.
Despite the growth in the industry, VITAS has raised concerns about several challenges that have caused many companies to close down. It wants government support to initiate policies and make the sector attractive to investments. Some of these measures include designated industrial parks and key economic zones, infrastructure development, incentives for investors as well as quality waste water treatment plants.
Stable Outlook for Vietnam by Rating Agency
Rating agency Standard & Poor’s (S&P) on 29 April gave Vietnam a stable outlook, unchanged from March 2015. The rating reflects strong economic growth, while macro-economic factors have been recognized showing the improved outlook by the agency and investors. Factors that have contributed include the relatively diverse and flexible economy, per capita income reaching around U.S. $2,200 in 2016 and macroeconomic stability, which has made a positive impact on exports and foreign direct investment.
All these factors along with a comparative labor cost compared to other countries have helped the competitiveness of the country. S&P stated that the country should now pay attention to controlling its budget deficit as well as the increasing rate of public debt and bad debt in the banking sector. The government plans to control and bring the budget deficit to below 4 percent of the GDP, while controlling the public debt growth rate within the upper limit of 65 percent of the GDP.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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Annual Audit and Compliance in Vietnam 2016
In this issue of Vietnam Briefing, we address pressing changes to audit procedures in 2016, and provide guidance on how to ensure that compliance tasks are completed in an efficient and effective manner. We highlight the continued convergence of VAS with IFRS, discuss the emergence of e-filing, and provide step-by-step instructions on audit and compliance procedures for Foreign Owned Enterprises (FOEs) as well as Representative Offices (ROs).
Navigating the Vietnam Supply Chain
In this edition of Vietnam Briefing, we discuss the advantages of the Vietnamese market over its regional competition and highlight where and how to implement successful investment projects. We examine tariff reduction schedules within the ACFTA and TPP, highlight considerations with regard to rules of origin, and outline the benefits of investing in Vietnam’s growing economic zones. Finally, we provide expert insight into the issues surrounding the creation of 100 percent Foreign Owned Enterprise in Vietnam.
Tax, Accounting and Audit in Vietnam 2016 (2nd Edition)
This edition of Tax, Accounting, and Audit in Vietnam, updated for 2016, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who must navigate Vietnam’s complex tax and accounting landscape in order to effectively manage and strategically plan their Vietnam operations.
Foreign Specialists Exempt from Personal Income Tax
Recent government announcements indicate foreign specialists will be exempt from paying personal income tax. The exemption applies to expatriates that are in Vietnam implementing projects for non-governmental organizations. The exemptions will comply with Decision 06/2016 / QD TTg.
However, foreign specialists will only be exempt if they meet the following terms:
- They are foreign nationals.
- The foreign national must be contracted with one of the following:
- A Non-government organization (NGO)
- A company managing the project of an NGO
- The sponsor of an NGO that is active in Vietnam
Expatriates in Vietnam that plan to work in such projects will welcome the new rules. In addition, local economists believe that these regulations will enable Vietnam to attract a more talented labour force in NGOs and related sectors, which is likely to catalyze development within the country.
By: Erasmo Indolino
Based on survey results by Indochina Research (Vietnam) ltd.
In February 2016, the Trans-Pacific Partnership (TPP) was signed in Auckland, New Zealand. In total, the agreement brings together 12 contracting countries: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Japan, Peru, the United States, Singapore and Vietnam. Experts consider TPP to be one of the largest trade agreements ever concluded, and its negotiations alone have taken more than seven years to reach an agreed upon text.
If ratified by all members, the TPP could come into force as early as Q1 2018. To facilitate transparent discussions prior to ratification by respective member states, the agreement’s full text was published in November 2015. Since then, Vietnam has rapidly emerged as the agreements’ prime beneficiary, with experts touting the many ways that TPP’s least developed economy can tap demand of larger members.