City Spotlight: Investment Opportunities in Hai Phong
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.
To solidify recent gains, the government has plans to establish an international logistics gateway, dubbed the Hai Phong International Gateway Port. The port’s intended role is to act as a maritime economic center for Southeast Asia with hopes of making Hai Phong a leading actor in Vietnam’s economy. Specific components of the government’s plan include:
- Road system improvement: given that the whole Vietnamese economy relies on ground transportation, the government has implemented several projects to improve road and highway conditions. The aim of these actions is to facilitate the production and distribution of goods, both domestically and internationally. One key project in this regard has been the Hanoi – Hai Phong Expressway, which opened to traffic on December 5, 2015. The connection, which cost Vietnam a total of US$2 billion, consists of a 105 km expressway linking the two cities and helps to reduce travel time from 2.5 to 1.5 hours.
- Future infrastructure plans involve the creation of a fast connection between Hai Phong and Ha Long City. Aptly named the Ha Long – Hai Phong Expressway, this connection will open in 2016 at a date still to be decided. In the near future, in order to improve inland transportation to China, this new expressway will also be extended to Mong Cai Border gate, according to the government.
- Seaport expansion: The Vietnamese government recently invested US$1 billion in the development of Lach Huyen Deep Sea Port (Hai Phong International Gateway Port), which will be completed by 2020. The port will be able to handle up to 800 TEUs of containers vessels, and its transiting cargo throughput is expected to be 28.2 – 34.8 million tons by 2020. The magnitude of this data proves that Hai Phong International Gateway Port will be the biggest seaport in Vietnam, allowing Hai Phong to quickly catch up with HCMC seaport.
- Airport upgrading: By 2025, Hai Phong’s Cat Bi International Airport will be able to accommodate 8 million passengers and 250,000 tons of cargo per year, thanks to continued government support. The long path of upgrading started in 2015, when the airport was provided with a 3,050-meter second runway, a new terminal, and a new apron. On May 12, 2016, Cat Bi became an international airport, able to receive 2 million passengers. At the moment, a project to upgrade the existing runway is being implemented.
Where to invest?
Historically, Hai Phong has never been a tourist city; it has always focused on becoming an agricultural, fishing, and forestry hub in Vietnam. Now, thanks to consistent government investment, additional industries are becoming viable such as trading, manufacturing, and infrastructure.
Logistics industry and infrastructure: Hai Phong lies in a strategic position. Well connected with southern China, along the Vietnamese northern economic corridor, and really close to Hanoi, the city is quickly becoming a huge port and an important logistics hub. Two types of foreign investors may take advantage of Hai Phong’s new location. First, logistics companies could establish their businesses in the region with a Vietnamese partner by offering inbound and outbound transportation services. Secondly, construction investors may take advantage of Hai Phong’s infrastructure needs by engaging in public private partnerships (PPP). To support this end, public tenders are regularly fielded by government officials for the latest infrastructure requirements in Hai Phong.
Manufacturing: In recent years, Hai Phong has become an important location for final product assembly, as the port is just 200 km away from the Chinese border. This allows Hai Phong to easily connect supply chains with what is undoubtedly the world’s largest and most diverse source of inputs. Being mindful of these advantages, many companies have moved their production to Hai Phong. Microsoft, for example, after acquiring Nokia’s production lines, moved its operations within Vietnam. Furthermore, LG Electronics, on May 6, 2016, pledged US$1.5 billion to establish a screen factory in Hai Phong. Samsung has also started investing in the region, attracted to its cheaper costs, abundant but well-educated workforce, and tactical location. On top of this, Bridgestone recently invested US$575 million in the Dinh Vu Industrial Zone, where it established its 50th manufacturing base. Lastly, Japanese companies, including Mitsui OSK Link and Nippon Airways, are experimenting with the same business strategies within the region.
Each investor keen to invest in Hai Phong has to respect different procedures, according to the type of investment strategy implemented:
- Capital projects of foreign direct investment: Subject to registration and verification of an investment certificate. As part of this process, investors have to pay registration fees or request for an investment certificate and dossier from the OSS Department of Planning and Investment Profile. The department, after having received and processed the application, prepares a proposal, which is submitted to the City People’s Committee for the investment certificate’s final approval.
- Activity branches or representative offices of a company with foreign capital: In this case, the only difference from the formerly explained process is that the public authority instructed to evaluate the investor’s previously-checked-by-the-OSS-application is the Municipal People’s Committee.
Regardless of the form of investment implemented, every investor should be aware of the fact that there is a list of “lines of business investment”, which itemizes some conditional sectors for which the implementation of investment and business activity must meet preset conditions. Production lines finding their way onto the list are generally categorized as such for reasons of national defense, national security and order, social security, social ethics, and the health of the community. For a complete list see: http://vietnam.tpo.ir/uploads/67-2014_law_on_investment.pdf (Art. 7 – 8).
Incentive policies in Dinh Vu – Cat Hai Economic Zone
Dinh Vu – Cat Hai economic zone is one of the two northern economic zones in which the Vietnamese government intends to establish an international logistics gateway – the Hai Phong International Gateway Port as mentioned previously – which is expected to become a maritime economic center for Southeast Asia. At the moment, the economic zone covers an area of more than 22,540 ha and it has at its disposal further 7,000 ha for future development.
In order to incentivize investment in the economic zone, the government has put into place a number of incentives aimed at reducing costs for investors:
- Corporate income tax: Fixed at 10 percent for 15 years. The normal rate is 20 percent. This applies from the first year in which a company generates revenue from activities that would otherwise be taxed or to enterprises having earnings before taxes from investment projects;
- Personal income tax: Rate is halved for subjects directly working in the economic zone;
- Import-export tax, value-added tax, special consumption tax: In non-tariff area, the government has provided tax exemption.
To sum up, a number of Hai Phong’s attributes present the city as an up and coming manufacturing hub in the north, and among Vietnam’s most strategic locations for ‘China plus one production’. Key among its strengths is a commitment among authorities to improving the city’s infrastructure as well as the city’s provision of numerous tax incentives within specialized economic zones.
While success and prosperity looks to be just around the corner, many of the government’s current plans must come to fruition before Hai Phong will truly be able to provide investors with a comprehensive set of competitive production conditions. As a matter of fact, according to the 2015 Provincial Competitive Index (PCI) report, Hai Phong ranked just 28th out of 63 cities and provinces.
For investors seeking to get in on the bottom floor in Hai Phong, it will be imperative to position operations in close proximity to the city’s current infrastructure and incentives while maintaining a degree of flexibility to permit operations to tap future developments. Successful execution of establishment will require not only foresight and strategic planning with regard to investment, but also a continuous process of regulatory monitoring to ensure that every development is capitalized upon effectively.