Small foreign firms make beeline for VN

Monday, Jan 12, 2015 08:00

Japanese companies, who were the third biggest investors in Viet Nam last year, registered for investments of $1.7 billion in a slew of small projects.

by Le Hung Vong

After investments by large foreign companies in the past decades, Viet Nam is currently seeing an influx of capital from small and medium enterprises from countries and territories all over the world, according to Vuong Dinh Hue, head of the Central Economic Commission.

This is seen especially in the textile and garment industry where investments include US$50 million by Sheico Viet Nam Ltd and $140 million by Worldon Viet Nam Ltd in HCM City.

According to a report from the HCM City Export Processing Zone Authority, SMEs, who have been exploring the local market, have invested mainly in supporting industries. Their initial investments are not big but they will have expansion plans if the investments are profitable.

They are mostly from Japan, South Korea, Taiwan, and European Union countries like Germany, the Netherlands, and Switzerland.

Japanese companies, who were the third biggest investors in Viet Nam last year, registered for investments of $1.7 billion in a slew of small projects.

Hideo Okubo, founder and head of the Tokyo-based Forval Corporation, said though investments have slowed down, Viet Nam remains one of the favoured destinations for Japanese investors. But most recent Japanese investments are in small projects, he said.

Speaking about the new trend, Hue said that at recent investment conferences, seminars, and forums, the envoys of many countries have been talking about "the era of SMEs' development" which involves using imported technologies and management and local labour to manufacture quality consumer goods to meet the needs of Viet Nam's 90-million population.

This trend would help attract more medium and small FDI enterprises to Viet Nam, Hue has been quoted in the media as saying.

In the near future they would invest in areas like tuna production, beef processing, manufacturing tableware and garments, and others, he said.

The value of the local garment industry's output would rise significantly if imported technologies and management are used, he said.

Le Dang Doanh, a former head of the Central Institute for Economic Management Study, said the rising number of foreign SMEs in Viet Nam is a "positive" (for the country's economy).

He said any contribution to boosting economic development should be welcomed.

Oil or foreign currency reserves?

With crude prices slumping in the global market, the Government should consider buying more oil to add to the national reserve, the HCM City People's Committee Chairman Le Hoang Quan has suggested.

Speaking at an online conference between the Government and local authorities on December 29 when crude prices dropping to $52 per barrel, Quan said: "In such a situation, we would like to suggest that the Government should consider a plan to increase purchases to stock up oil.

"This is an important occasion. We can temporarily suspend or lower oil production and replace foreign currency reserves with oil, which is a very important material for production," Quan was quoted by Tuoi Tre (Youth) newspaper as saying.

According to Minister of Planning and Investment Bui Quang Vinh, the relentless fall in crude prices without any sign of recovery has not affected the country's oil drilling since the production costs of Vietnamese oil fields are $35-37 per barrel.

On the other hand, the slump in oil prices would have a "positive" impact on the country's economy by helping reduce prices, stimulate production and consumption, and enthuse businesses, he said.

Vinh said a 10 per cent fall in fuel prices would help cut production costs by 0.57 per cent and consumer prices by 0.55 per cent and add 0.91 per cent to GDP.

But some economists question Quan's proposals.

Le Dang Doanh, pointing out foreign currency reserves play an important part in ensuring economic growth, urged the Government to establish an independent committee to study Quan's suggestion.

Vu Dinh Anh said increasing foreign exchange reserves is preferable to enlarging the oil reserve.

Figures tabled at the conference showed that the country produced 15.5 million tonnes of crude in 2014, a year-on-year increase of 1.8 per cent, exporting nearly 9.1 million tonnes.

The situation could change as the price of Brent crude fell below $50 per barrel on January 7, the lowest level since May 2009.

Many observers expect prices to fall further since North American producers continue to supply increasing quantities of oil and gas, and oil cartel OPEC resists calls for cuts in production to support prices, according to the BBC.

Stable fillip

The economic outlook remains positive largely due to the country's continuing macroeconomic stability and strong export performance by the foreign-invested manufacturing sector, and this helped boost the HCM City housing sector in the last quarter of 2014, according to CBRE.

In a report, the British property consultancy said Viet Nam's GDP growth increased steadily from 5.06 per cent in Q1 last year to 6.96 per cent in Q4 while headline inflation was controlled at 4.09 per cent on average.

The performance of the property sector has seen improvement, especially the residential segment. Stalled building projects have restarted and construction progress has accelerated thanks to cheaper and more readily available funding.

Last year the property sector was second in terms of FDI inflows, accounting for 12.6 per cent of the total.

Falling interest rates, improving market confidence and favourable changes in the Housing Law underpinned the housing market recovery, with the last quarter of 2014 witnessing some significant projects beginning construction and launching in the market.

The developments included Vinhomes Central Park (1,100 units launched in Q4 out of a planned total of 10,000 units) in Binh Thanh District, Masteri Thao Dien (1,449 units out of 3,012) in District 2, and Scenic Valley (Blocks D2 and E1, 270 units) in District 7.

The quarter saw 6,760 units launched, an increase of 117.8 per cent q-o-q and 150.2 per cent y-o-y. It sent the total for 2014 rising to 14,807 units, 3.2 times the 2013 number.The high-end segment showed a notable turnaround with a high absorption rate, especially at newly launched projects. Scenic Valley (Block D2 and E1) achieved 100 per cent sales on the launch date, while the rate at Masteri Thao Dien rose to around 85 per cent within two months. Thanks to this, the sales rate in the high-end segment reached 60 per cent in 2014. This was followed by the affordable segment at 35 per cent.

Duong Thuy Dung, head of research and consulting at CBRE, said: "Thanks to the good sales performance, primary prices in Q4 2014 continued to revise up compared to the same period last year.

"A strong increase in prices was witnessed in the mid-end segment — 8.8 per cent q-o-q and 15.5 per cent y-o-y. This was mainly due to the reasonable prices and good locations, which led to high demand."

In the secondary market, while mid-end segment prices improved on both a q-o-q and a y-o-y basis, prices in the high-end segment decreased by 5 per cent y-o-y due to fierce competition from the expanding supply in the primary market. Nevertheless, the high-end segment remained a highlight, accounting for over 50 per cent of total sales.

Newly launched projects accounted for most of the sales since they have good locations, easy accessibility, and reasonable unit sizes. Preliminary figures indicate that 7,500 units were sold in Q4, double the number of the previous quarter.It is expected that new launches will continue their strong run, especially in Districts 2, 9, Thu Duc, and Binh Thanh, thanks to improving infrastructure and a high sales rate.

The high-end segment will increase more strongly than in the last two years. The return of both end-users and investors (speculators) to the market will translate into increasing sales volumes. — VNS

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