Mekong Delta, composed of 13 provinces, 20 percent of the country’s population, and 18 percent of the national GDP, has consistently recorded one of the highest average provincial competitiveness indexes amongst all provinces since 2014.
Provincial Competitiveness Index
According to the 2017 Provincial Competitiveness Index (PCI), five cities from Mekong Delta are among the top 10 cities and provinces. It includes Dong Thap, Long An, Ben Tre, Vinh Long, and Can Tho. Its PCI score increased 59.12 in 2014 to 63.4 in 2017, making it the top region in Vietnam.
Companies operating in the region have the easiest access to land while incurring the least costs. In addition, the region’s business environment has the least complex administrative procedures, simplest business registration conditions, and the least bureaucratic red tape.
In 2017, Mekong Delta’s gross regional development product (GRDP) growth stood at 7.6 percent, higher than the national average of 6.81 percent. The region’s per capita gross domestic product reached US$2,700 per year, with Can Tho, the region’s economic hub, having the highest at US$3,500.
There are over 53,000 businesses in the region, ranging from agriculture and seafood processing, urban development, transportation, trade, services, and tourism.
According to a recent study by the Can Tho city chapter of the Vietnam Chamber of Commerce and Industry in 2017, around one-third (32.5 percent) of the firms in the region were involved in farm produce, while manufacturing-processing-apparel and finance-trade-services accounted individually for 24.3 percent of the firms. Construction and real estate accounted for 13.5 percent, while only 5.4 percent of the firms were involved in the pharmaceuticals industry.
The same study revealed that 38.9 percent of the firms in Mekong Delta performed much better in 2017, an increase of 6.8 percent. Almost half (47.2 percent) of the firms have had stable operations in the last year. In terms of revenue, 63.9 percent achieved higher revenues, the highest in the last three years, and a significant increase of 20.5 percent from 2016. In addition, 57.1 percent of the firms achieved increased profits.
Best performers included firms involved in the processing for import/export, construction, and real estate.
The increase in the number of firms with stable operations and turning a profit were due to a number of growth factors such as an increase in technology adoption, employee training, self-sufficiency in materials and stable consumption, and improved product quality.
Despite being a major seafood and farm produce processing region, the region suffers from lack of fishery materials. In addition, climate change, competition with ASEAN members for market share, and smuggling are the major concerns for firms in Mekong Delta.
Annual exports from the region are between US$13-15 billion, with rice, seafood, and fruit accounting for the majority of the exports. These products account for half of the total agricultural sector exports, which by itself accounts for almost half of the region’s total exports.
Foreign direct investment
In the last few years, foreign investment in Mekong Delta has mostly been low compared to other regions in Vietnam. However, the region is fast emerging as an investment destination, especially for Asian investors.
In the first 11 months of 2017, the total registered capital invested stood at US$2.06 billion, for 121 projects. The cumulative figure stood at US$20 billion for 1,421 projects. The top regions attracting investors include Long An and Kien Giang Province, while major investors include Malaysia, Korea, and Taiwan.
The region offers numerous incentives for investments in preferred sectors and specific geographical areas. It includes reduced corporate income tax, favorable licensing and procedures, tax exemptions, and exemptions or reductions in land rent.
In October 2017, Mekong Delta issued a list of 80 projects for investments worth US$7 billion (VND 160 trillion). It includes 45 projects focusing on agriculture, industry, processing, manufacturing, and logistics infrastructure worth US$ 6.6 billion (VND 150 trillion), and 33 real estate and tourism projects worth US$ 342 million (VND 7.8 trillion).
In the last few years, to increase connectivity, infrastructure investments in roads, waterways, ports, airports, and power, have been on the rise and such investments will continue to remain a priority for the provincial governments.
The region needs US$3.2 billion (VND73 trillion) for 39 road transport projects, US$806 million (VND18 trillion) for 23 sea transport projects, and US$493 million (VND11 trillion) for 12 river transport projects. Around one-third (31 percent) of the required capital will be invested by the State, while Official Development Assistance (ODA) and private investments will account for the rest.
As of June 2016, there are 78 industrial zones and export-processing zones, with a total area of 14,787 hectares in the region.
The road transport network consists of over 2,030 km of national highways, along with 7,718 km of provincial roads. Earlier, the bad condition of the road network was a major hurdle for investors. However, the quality of roads in the region has recently improved. As of now, 82 percent of the provincial and 50 percent of the district roads are paved, higher than the national average.
Waterways continue to be a major transport network in the region. Although the delta has over 30,000 km of rivers and canal, port infrastructure in the region is weak and usually operates below capacity. This is mainly due to the lack of connectivity between the inland waterways, ports, and road networks. The region has seven seaports, 31 harbors, and 57 inland ports in Mekong Delta. Despite this, around 80 percent of the goods are still transported by land to seaports in the region.
The volume of freight carried by waterways increased from 73,626.70 thousand tons in 2014 to 80,071.30 thousand tons in 2015, an increase of 8.8 percent year-on-year. The government has to invest in increasing the port capacity and expanding the network, to increase connectivity and efficiency, if it wants the growth momentum to continue.
In addition to the Phu Quoc International Airport in Kien Giang Province, there are three more airports in Can Tho, Rach Gia, and Ca Mau provinces.
Due to its geographical location, agriculture is a major contributor to Mekong Delta’s economy. The delta is also the third-largest industrial region in the country after Ho Chi Minh City and Hanoi. Other industries in the region include mechanical engineering, food processing, textiles and garment, leather and footwear, and renewables.
Mekong Delta is a major agriculture and seafood production hub in Vietnam. The region accounts for 95 percent of the country’s rice exports as well as an annual seafood output of 3.5-4 million tonnes. The delta accounts for 65 percent of aquaculture and 60 percent of fish exports of Vietnam. In addition, it is also a major fruit and vegetable exporter, accounting for 70 percent of the national fruit production.
As the sector matures, the opportunities for investors involved in food processing and high-value products such as fruits will grow, which in turn will increase the need for raw materials, equipment, and capital.
In 2017, Mekong Delta received over 22.4 million tourists, generating a revenue of US$ 495 million (VND 11.31 trillion). Last year, Can Tho and Kien Giang were the two most visited places in the region, with tourism income reaching US$127.6 million (VND 2.9 trillion) and US$201.4 million (VND 4.58 trillion) respectively.
The delta tourism potential lies in areas such as ecotourism, resort, and exploration tourism. According to the Boston Consulting Group (BCG), the tourism industry has the potential to create an additional 300,000 jobs by 2025 in the region, leading to a sustainable and diversified regional economy.
Construction and real estate
Construction continues to be one of the top performing sectors in Mekong Delta. Driven by the public and private investments in infrastructure such as roads, bridges, ports, and power plants, opportunities will continue to grow in the industry, with the government prioritizing the development of supporting infrastructure to attract FDI.
In addition, the development of commercial centers, office buildings, and housing projects, has made real estate one of the fastest growing sectors in the region.
Mekong Delta with is sandy soil offers limited options for heavy manufacturing, which opens up the possibility for light manufacturing, especially closer to Ho Chi Minh City, due to its connectivity and labor-intensive industries such as footwear, leather, and garments.
Sectors such as retail, healthcare, and education, which are driven by the increase in urbanization, disposable incomes, and favorable demographics are also emerging as prominent sectors.
Climate change – an investment opportunity
Majority of the delta’s population and economic establishments are located in coastal lowlands areas, which makes it one of the world’s most affected regions by climate change. In fact, it is ranked among the top five deltas that are most severely affected by climate change. The government has earmarked funds for roads, energy facilities, dikes, and embankments to counter its effects. However, government funds would not be enough and this presents an opportunity for investors.
The following areas which are a priority for the government are an investment opportunity:
- investments focusing on adapting existing infrastructure (such as roads, bridges, water and energy infrastructure, embankments, and dikes) to climate risks
- management of water resources
- management of salinization in aquaculture and agriculture
- mangrove rehabilitation projects
- shift from agriculture to aquaculture in coastal areas
Need to do more
Historically, Mekong Delta has never been a major FDI destination. However, in the last few years, the pace of investments has picked up. In order to continue the momentum, the government needs to further simplify administrative procedures, increase access to capital for domestic firms, develop supporting infrastructure, and increase connectivity with the rest of the country.
Going forward, with the EU Vietnam FTA and CPTPP coming into effect, Mekong Delta has to focus on increasing the skill level of the workforce, corporate governance, and product quality to remain competitive and achieve a sustainable growth.
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