Illustrative image (Source: VNA)Vietnam News talks about the JBIC FY2016 Survey with Deputy DirectorGeneral of the Policy and Strategy Office for FinancialOperations Noriyasu Yuge, who used to be the Chief Representative of JBICOffice in Hanoi.
Could you tell our readers about the objectiveand execution of the survey?
The survey was conducted by sendingquestionnaires to 1,012 manufacturing companies that have three or moreoverseas affiliates in July 2016. From July to September 2016, 637 companiesreturned them with valid responses.
The objective of the survey is to research thecurrent trends, agenda and outlook of the overseas business operations ofinternationally active Japanese manufacturing companies.
After considering the findings of this survey, JBIC will support the overseasbusiness activities of Japanese firms, while holding dialogues with hostcountry governments, in an effort to improve their investment climate.
Could you highlight the results of Vietnam’sranking, in terms of Japanese expectations for business operations?
In general, 32.7 percent of respondents chose Vietnamas one of the top five countries that have promising prospects for medium-termbusiness operations, taking the country to the fourth place in the 2016 surveyfrom its fifth place in 2015, after India, China and Indonesia.
The proportion is 5.2 percentage points higher than the previous year. This isthe second highest increase after India, which had an increase of 7.2percentage points.
In the small and medium enterprises (SMEs) category, Vietnam’s ranking ishigher. It holds the second place with the percentage share of respondents(37.1 percent) hitting its highest level in five years, up from the fourth in2015.
Most SMEs engages in labour intensiveindustries, and Vietnam has advantages in these sectors.
In the long-run, Vietnam remains in the fourth place.
By industry wise category, Vietnam ranks thirdas a promising country in the electrical equipment and electronics and thegeneral machinery industries, fifth in the chemicals sector and seventh in theautomobiles field.
What are the reasons for Vietnam to be chosen asa promising place?
Most of the companies choose Vietnam becausethey see growth potential in the local market, as well as its current size.
As you may know, Japan’s economic growth rate over the past two or threedecades was low, around 1 and 2 percent and its population is now shrinking.Therefore, many Japanese enterprises are keen on the opportunities to captureoverseas market and to disperse their production base overseas for optimisingglobal supply value chain.
However, compared with Japan’s total manufacturing Foreign Direct Investment(FDI) all over the world, the share of FDI in Vietnam is still modest. Over thepast three years, the share has jumped up, but it is still below 4 percent.This sharply contrasts with the high expectation of Japanese companies.
Stability of the social and political situation in the country, and its cheapand qualified human resources are also taken into consideration. However, thepercentage of companies saying that they chose Vietnam because of its laboursource and social or political situation, decreased over the year.
For SMEs, Vietnam’s position is higher, meaningthat it is more favoured by them. However, over the past years, the“inexpensive source of labour” is gradually no longer cited as the top reasonfor being promising. Could you further explain the contradiction?
The comparative advantages of investmentenvironment are changing dynamically. Some five or 10 years ago, many Japanesefirms in general focused on cheap labour force. It used to be a greatattraction, but now it is important in some cases, but not always.
Japanese SMEs is labour intensive, but they also need skilled, experiencedworkers. We have a strong manufacturing industry and SMEs in the sector needtechnology transfer for their overseas produciton. They have to share all theirown technology and know-how to the host countries.
Vietnam now is the biggest producer of footwearand assembler of mobile phones. These are labour intensive sectors, whileJapanese companies are more capital intensive. So, cheap labour is moreimportant for Nike or Samsung, for example, but not always for us, quality ofworkers also matters.
The country needs to change its growth modelfrom one dependent on increase of input, such as labour force andcapital, to one driven by progress of efficiency and technology.
Do you think that the rise of Vietnam’s position in medium term is closelylinked to the Japanese entrepreneurs’ expectation of the ratification of TransPacific Partnership deal to which Vietnam is a member?
I think there is some impact but Vietnam’s positionhas been highly ranked for a past decade long before TPP negotiation.
Looking at the survey, you can see that the ratio of support to Mexico, whichis also a TPP country, was very low in 2011. After that, it jumped up. It isnot necessary the outcome of TPP expectation, but because Japan’s major carmanufacturers such as Honda and Mazda started production in Mexico. First-tierand second-tier, and components companies also intend to invest in Mexico. Thatspurred Mexico’s ranking.
Recently, economists have warned of the returnof protectionism which could affect firms’ decision to expand business abroad.Meanwhile, Vietnam is also determined to improve its investment environment tolure more foreign investors. Under the situation, what do you think about Vietnam’sranking prospect in the future?
Obviously, some major economies are now seekingtheir own ways to set up tariff barriers or impose more restrictions oninvestment and trade. Maybe this kind of environment makes business moreuncertain but Japanese companies will continue to seek overseas activities forfurther growth.
Vietnam still has the potential to get higherranking in the future, but it will take time. There are no quick solutions toimprove the investment climate and it also takes time to improve the quality ofhuman resources. In short, efforts should be devoted.
From the survey results, what do you recommend Vietnamshould do to further improve its business and investment environment?
An existing issue in Vietnam is the execution of its legal system. In moredetails, regulations are not always transparent, consistent or adequate.Administrative procedure is sometimes lengthy and unclear. The VietnameseGovernment needs to define regulations better.
Another thing is the underdeveloped infrastructure.Of course, recently we have not experienced breakout or suspension ofelectricity. Stable provision of electricity is a concern because the demandfor power is increasing, especially in the southern areas. The area isattractive for FDI. In addition, despite improvements, transport infrastructureis still lagging in comparison with other Asian countries.
JBIC’s operation in Vietnam is also to supportinitiatives of infrastructure enhancement in localities. For examples, we areproviding financial aids for the construction of several power plants along thecountry as well as arranging loans for Japanese companies to invest in Vietnam.
In conclusion, I would like to highlight that Vietnam’sshare of Japanese FDI is still modest despite the investors’ high expectation,so it is necessary to bridge this gap. If the Government continues to improvethe investment environment and support FDI enterprises, the gap will benarrowed.
Vietnam is chasing Thailand, Indonesia andChina, but the country is also chased by Myanmar, Cambodia and Laos. So it isan endless competition for FDI.-VNA
VNA
