City Spotlight: Investment Opportunities in Da Nang
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.
Where to Invest?
Fishing and Food Processing: With its coastal location, Da Nang has a booming fishing industry that is worth $110 million dollars. The industry will see lower tariffs thanks to free trade agreements, such as the TPP, which will reduce or eliminate tariffs by 90%. The industry’s biggest markets include Japan, U.S. and E.U.; the former has a combined worth of $1 billion in tuna and shrimp imports in 2015. However, the industry’s sale figures have been declining due to increased competition as well as more stringent regulations. With the signing of the TPP and EVFTA, Vietnam’s fishing industry needs investment in farming and processing technology to meet high standards abroad. To support this, Da Nang has its own dedicated Seafood Service Industry Zone, along with two other industrial parks that are open to fishery products processing. In addition to seafood processing, opportunities abound in the local demand thanks to increasing disposable income and flourishing tourism, especially in wheat flour and beer production.
Manufacturing: With Vietnam transitioning into China +1, there will be opportunities for companies in the supporting industries as local suppliers lack the R&D to move from basic parts to more complex components, which are currently imported. The key industries that utilize these components include machinery, electronics, chemical, and shipbuilding. Da Nang’s industrial production value in 2015 is estimated at $1.8 billion, up 11.3% against the previous year. Shipbuilding is an attractive industry with the South China Sea tensions boosting demand for naval and coast guard ships. The Song Thu Corporation has experience building and repairing ships for the Vietnamese navy, coast guard, marine police, search and rescue, and other non-military agencies using purchased designs. The company has started exporting its own boats and conducted 340 scientific studies about tech innovations.
Infrastructure: Meanwhile, as Vietnam’s Singapore, Da Nang has shown its appetite for efficient governance as well as urban planning and infrastructure, especially in the face of the growing manufacturing sector and environmental concerns. In Da Nang, GE, Cisco, and IBM have been involved with the government’s infrastructure efforts in electricity, telecommunications, and cloud-based governance solutions, respectively. GE upgraded and energized 14 of 18 series capacitor banks in Central Vietnam, including Da Nang, as part of its work on Vietnam’s transmission lines. Cisco installed 186 miles of fiber optic cables, as well as set up Da Nang’s Metropolitan Area Network, improved its network infrastructure, administration and security. Da Nang also won $50 million from IBM for transportation, water supply and drainage management. Elsewhere in Central Vietnam, GE and the Korean SolarPark have already been involved with recent wind and solar farm projects. Given the national trend towards sustainable energy and the city’s proclivity for sustainable development, it’s safe to assume that there will be more opportunities in this sector in Da Nang.
Service and retail industry: The development of major coastal property projects has been accelerating and investors in the service industry stand to benefit from the middle class that is growing in both size and income and the skilled foreign workforce staffing the factories. According to CB Richard Ellis, Da Nang is among the top 10 cities where retailers tended to open stores in 2014. This is driven by local demand, as well as neighboring localities. By 2020, 2/3rd of Vietnam’s growing middle class will be outside of Ha Noi and HCMC, and often, they are ignored by investors in favor of the 2 main urban centers. Da Nang is home to a large portion of this growing group of sophisticated consumers with an average annual income of $2,506. In addition, tourists, expats, and overseas Vietnamese help drive the preferences for non-Chinese imported groceries.
The abundance of engineers trained by the local universities and software technology centers have also spawned a software outsourcing industry. The industry overall has proved resilient to economic fluctuations, with a revenue of $238 million in 2013 and a growth rate between 20 and 30% since 2008.The most successful firm is FPT Software Da Nang, the largest software exporter in the city with a 26 million USD revenue in 2015, 70% of which is from the Japanese market. Support industries, such as education for the workforce are another potential area of investment, as limited linguistic abilities remain a barrier to workers. Skills training is another area of potential investment; local universities have partnered with India’s APTECH and Japan’s AOTS to train its local engineering force.
Tourism: With the easing of visa requirements for 5 European countries, an uptick in cruise ship tourism, and an increase in promotional efforts, Da Nang has achieved an average growth rate of tourists of 20.14% and a 30.7% average increase in revenue between 2011-2015. By the end of 2015, Da Nang had 74 tourism investment projects worth $8.4 billion; 16 are foreign investments worth $1.2 billion. The city has been accommodating to the tourism industry; it is the only city in Vietnam to allow overnight gambling, as well as duty-free shopping on foreign cruise ships. 80-90% of cruise ship passengers opt to take local tours in Da Nang and nearby Hoi An. According to Golf Digest, Da Nang also has one of the best golf courses in Vietnam and with the presence of prestigious international hotel chains, the city is a prime destination for international events. In 2015, the city hosted the International Clipper race and the Asian Beach Games. It held its first electronic music festival with an international headliner in June 2016, which drew a lot of young local urbanites.
Understanding Investment Procedures
To reduce the bureaucratic loops and increase transparency, investors are assisted by Da Nang Investment Promotion Center (IPC), a “one-stop shop for receiving and processing all applications for registration of investment projects and companies”. If you’re a first time investor, you will have to obtain an investment certificate, regardless of whether you want to create your own company or cooperate with a local partner(s) through a Business Cooperation Contract (BCC). For BCC, there is no new legal entity being created, but rather a contractual agreement with regards to the sharing of responsibilities and profit-sharing. For company creation, foreign investors can create either Limited Liability (LLC) or Joint Stock (JS) companies; the capitalization could be either 100% foreign owned or joint venture. The following information is from the Da Nang government’s website: https://danang.eregulations.org/?l=en, with more details on the registration procedure.
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 email@example.com or visit www.dezshira.com.
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