While FDI is declining, new industrial park investments are becoming increasingly attractive among foreign manufacturers.
Vietnam’s efforts to attract foreign direct investment (FDI) in the high-tech sector took off when Intel, the world’s largest chipmaker, opened a $1 billion assembly and testing plant last year. Since then there have been a number of high-tech companies entering the market and paving the way for a renaissance in Vietnam’s industrial sector.
While the bulk of the industrial sector today remains driven by traditional exports such as coffee, rubber, rice, and textiles, major multimillion and even billion dollar investments this year from the high-tech sector have put the spotlight on the dawn of what could be a new era for Vietnam’s industrial sector. Such new entrants include First Solar (with a $300 million plant), Nokia (with a $280 million plant), Kyocera Mita (with $250 million in initial investment), and Samsung (who increased its project capital commitment to $1.5 billion).
IP supply - greater than ever
Vietnam witnessed a fall in new FDI during the first nine months of this year, with 675 projects worth $8.2 billion; 31.5 per cent less in capital and 29.6 per cent in project numbers against the same period last year. But while FDI is declining, committed FDI into industrial parks (IPs) in the first half of the year was up 15 per cent year-on-year, to $3.315 billion - an impressive result amid the economic downturn.
A report from CBRE in September showed that IPs and export processing zones (EPZs) are the driving force behind economic development, with production value reaching $25 billion in 2010 and accounting for 25 per cent of GDP. IPs and EPZs attracted 8,500 projects worth a total of $70 billion. Forty-eight per cent of provinces in the south have industrial zones, as opposed to 20 per cent in the north.
At last count there were over 250 IPs, of which 171 were fully operational and 84 were under development. Numbers are increasing as developers now invest in building IPs to meet demand among foreign manufacturers taking a long-term view of Vietnam.
The Vietnam Singapore Industrial Park Joint Venture Co (VSIP JV) signed a memorandum of understanding (MoU) in October with authorities in Quang Ngai province to build a 1,020 hectare integrated township and industrial park. VSIP will conduct a comprehensive feasibility study for building the township, which will comprise a 500-hectare industrial park located within the Dung Quat Economic Zone. The project is expected to begin development next year. When realised, the VSIP in Quang Ngai will be the fifth integrated township and IP of the joint venture in Vietnam.
Vietnam Infrastructure Limited (VNI) previously kicked off the Ba Thien 2 Industrial Park project with total investment capital of $65 million. The 308-hectare Ba Thien 2 is owned by Vina-CPK Company Ltd, a joint venture between VNI and CPK Vinh Phuc JSC.
The IP is in Vinh Phuc province, 50km from Hanoi and close to Noi Bai International Airport. The project is expected to be completed within three years and will welcome both domestic and international investors in light industry, high-technology and electronic equipment installation and manufacturing.
Ascendas Pte Ltd, Asia’s leading business space provider, and Protrade Corporation, a prominent Vietnamese State-owned enterprise, have teamed up to create the Ascendas-Protrade Singapore Tech Park (APSTP), a superior business address in southern Binh Duong province.
According to Mr Han Ann Foong, Country Head for Ascendas in Vietnam, many enterprises from Singapore, Japan, the US, Malaysia and Canada have expressed a keen interest in investing in APSTP, with several already having made firm commitments.
“Apart from multinational corporations and manufacturers, service providers from Singapore are also very interested, including investors in worker dormitories, amenity centres and vocational training facilities,” said Mr Foong. “With our tested concept of work-live-play-learn in our other acclaimed industrial parks in Asia, we believe APSTP will represent the new generation of IPs in Vietnam.”
Mapletree, a leading Asia-focused real estate company that has established a track record in developing and managing logistics and industrial developments across the region, started the development of the 75-hectare Mapletree Business City @ Binh Duong (MBC@BD) in 2008, which is designed to support the needs of modern businesses.
“Due to our distinctive products and our aim to build long-term relationships with our tenants, we receive a significant number of calls every month,” Ms Ng Kia, CEO of Mapletree in Vietnam, told VET. “We have a 100 per cent commitment for our first phase at MBC@BD. Interest comes mainly from processing and manufacturing industries, such as food packaging and semi-conductors, among others.”
According to IP developers, Vietnam is seen as a viable manufacturing alternative to China. Low industrial costs and proximity to China are among the key factors. Some also choose to locate in Vietnam instead of expanding their manufacturing facilities in China, for risk diversification.
Other factors include its stable political environment, favourable investment climate and the availability of a young and increasingly educated workforce. “With its relatively lower costs and long-term growth potential, Vietnam will continue to attract investment in the processing and manufacturing sectors,” said Ms Ng Kia.
But the current economic uncertainties have resulted in an unequal matching of supply and demand at IPs in Vietnam. Some manufacturers are delaying their expansion or relocation plans. However, the supply of industrial space is still continuing to come on stream.
Challenges for developers
According to Mr Greg Ohan, National Head of Industrial & Logistics Services at CBRE, many foreign manufacturers require more investment encouragement policies. Labour cost alone is not the only driver for manufacturers’ decisions any more. “In terms of achieving operational efficiencies for many manufacturers, industry clusters within industrial zones are necessary to attract and develop further investment, particularly in the high-tech sector,” he said.
Mr Foong added that a lack of tax incentives for investors within IPs makes Vietnam less attractive compared to other countries such as Indonesia, Malaysia, China and India. “Other issues include a shortage of human resources, both skilled and unskilled, poor and undeveloped infrastructure such as roads and electricity, and unproductive bureaucracy and burdensome paperwork,” he said.
As Vietnam’s industrialisation process is still in its early stages, general manufacturing and low-medium tech industries still play a key role in creating jobs and providing workers with the opportunity to upgrade their skills.
Eventually, these low-medium tech industries will help to seed the growth of high-tech industries and help prepare workers for the higher skill levels required in the newer high-tech industries. “We feel that it is important for the government to continue to provide preferential tax incentives to foreign enterprises at this stage,” said Mr Foong.
“Also, to attract international standard IPs, which in turn will attract good quality foreign investors, IP developers should also be given tax incentives, given their long-term investments in infrastructure and the key role they play in transforming Vietnam’s economy from an agricultural to an industrialised economy.”