BUSINESS IN BRIEF 9/2 Shoemakers upbeat on prospects for 2015 With the advent of the TPP in 2015 and the steady shift by leading footwear brands away from China to Vietnam, enhancement of the country's production capacity and its competitiveness capacity - there is much well founded buoyancy in the footwear sector over prospects for increased prosperity in 2015. US made footwear accounted for only 2% of the US shoemaking industry in 2014, with the rest coming from imports, mainly Chinese, according to official government statistics. With the Trans-Pacific Partnership (TPP) coming into effect in 2015 and many of the current import tariffs ranging from 3.5 to 57.4% to be abolished, Vietnamese exporters are savouring the growth prospects. So much so, that the Vietnam Leather, Footwear and Handbag Association (Lefaso) has upped the export target to a monumental US$14 billion for the year. According to Lefaso, footwear obtained impressive results for 2014 and was one of the nation’s key products with overall exports escalating 22.96% on-year to US$10 billion. Last year, exports to most markets saw positive growth with the US topping the list with 20% acceleration to US$3.228 billion trailed by Belgium, climbing 27.68% at US$659 million and Germany, swelling 31.10% at US$600 million. Export growth to Brazil skyrocketed a staggering 392.89% although the total value of exports remained a modest US$266 million. Experts said that the robust growth in the US was principally attributed to importers’ shifting orders from China to Vietnam due to improved price competitiveness of Vietnam’s products. Most notably labour costs in the Chinese market have been much higher than in Vietnam and the nation’s labour productivity has been steadily appreciating as the industry retools installing more modern machinery and equipment. Vietnam’s manufacturers are also gaining in reputation for the quality of craftsmanship as they continue to invest in the latest technologies. These advantages have been synergistically elevating Vietnam’s image as a place to do business and steadily attracting more and more foreign investors to the Southeast Asian country. Lefaso also said that FTAs with the Republic of Korea (RoK) and the Customs Union (Russia-Belarus-Kazakhstan) and the EU are expected to be signed in the first half of 2015, which should provide an added boost to exports. Not only do the FTAs benefit Vietnam by reducing tariffs in line with the ASEAN Trade in Goods Agreement (ATIGA)’s tax roadmap but they help Vietnam by expanding export markets in addition to strengthening supply chain formation. However, in the next few years, the footwear sector could still face stiff competition from India, the second largest footwear producer in the world, Lefaso said. India also has advantages of lower labour costs than China and other production costs competitive with Vietnam. Additionally, the Indian government has recently issued a new set of preferential policies for foreign investors. Other experts have also pointed out that when Vietnam’s market opens, foreign footwear makers will be allowed to utilise the nation’s preferential tax policies. If domestic firms do not timely respond, opportunities will be lost to foreign companies. US manufacturers will also attempt to create trade barriers for Vietnam, aiming to protect its own sector when the TPP comes into effect Lefaso has said cautioning domestic firms should keep abreast of the market changes to protect their best interests. To take full advantages of FTAs, local businesses should be proactive in procuring material supplies, making sure there is adequate diversification so they are not overly dependent on any one supplier. Dai-ichi Life Vietnam CEO awarded for excellent business results Tran Dinh Quan, CEO of Dai-ichi Life Vietnam, recently was listed among the “Top 10 Leaders with excellent business results” in the “Top 50 Business Leaders – Mark of Respect 2014” award. The Mark of Respect award, given by the Investment Bridge magazine and Royal Salute brand in Ho Chi Minh city, honours Vietnam’s business leaders with excellent leading competence. The awards include five categories namely the top 10 leaders with excellent business results, the top 10 leaders with excellent human resources, the 10 most creative leaders, the top 10 excellent female leaders and the top 10 young and prosperous leaders. Quan was the only leader in the life insurance industry named among the top 50. “This accomplishment is due to the dedicated devotion of our management board, staff and financial consultants, who are always side by side with me in our tireless efforts of providing quality products and services, as well as authentic values to our customers and the local community,” he said. “The prize is a great encouragement and serves as a driving force for me and our colleagues to strive more in our mission of leading Dai-ichi Life Vietnam to become the best life insurance company in Vietnam,” he added. Established in 1902, Dai-ichi Life Insurance Company is one of the leading life insurance companies in Japan and in the world with the total asset of $366.4 billion as of March 31, 2014. Dai-ichi Life has been developing its overseas life insurance business in Vietnam, India, Thailand, Australia, Indonesia and the US as well as having regional headquarters in Asia Pacific region (Singapore) and North America (New York). Dai-ichi Life Vietnam was established in January of 2007 as a wholly-owned subsidiary. It currently serves one million Vietnamese customers through the network of 600 staff and 30,000 financial consultants at 138 offices and general agencies across the country. In 2014, Dai-ichi Life Vietnam’s new business premium reached VND965 billion ($45 million), up 36 per cent on year, total premium income VND2.55 trillion ($120 million), up 37 per cent. Pretax profit is estimated at VND248 billion ($11.6 million), up 23 per cent. January’s on-year hike in FDI points to a bumper year ahead Foreign direct investment accelerated in Vietnam in January both in commitment and disbursement capital, highlighting the growing momentum of inward investment inflows into the country. The Ministry of Planning and Investment’s (MPI) Foreign Investment Agency last week reported that foreign investors had poured $505 million of fresh investments into Vietnam during January, up 8.6 per cent from a year earlier. Meanwhile, the new commitment of investments  in the period reached $663 million, strongly increasing 67 per cent year-on-year. The industrial manufacturing remains the largest recipient of foreign direct investment, accounting 91.3 per cent of the total foreign direct investment (FDI) commitment in the month, followed by the retail and distribution industry. China’s garment and textile firm Shenzhou International Group Holdings Limited, through its affiliate Worldon Company, last month registered to build a $300 million factory in Ho Chi Minh City. Another Chinese garment and textile company, Regina Miracle International, also decided to invest an additional $90 million to its existing factory in the northern port city of  Haiphong. The rise in the FDI disbursement highlights the growing momentum in foreign investment expansion in Vietnam during 2013-2014. Last year, the total commitment of inward investments in the country reached $20.2 billion, with disbursement of $12.3 billion. “I believe FDI will keep on increasing in Vietnam, as the nation has become increasingly competitive,” said Hong Sun, secretary general at Korea’s Chamber of Business in Vietnam. He said many South Korean companies were studying investment opportunities in Vietnam, especially small and medium enterprises, following electronic giants like Samsung and LG. In addition, he said, the upcoming free trade agreements with the European Union, South Korea and Customs Union of Russia, Belarus and Kazakhstan would also boost investments into the country. Sun added that FDI this year would benefit from the amended laws on Investment and Enterprises, which will take effect from the middle of this year. “We expect FDI this year will exceed last year. We’re already working hard on introducing locations for foreign investors who plan to build factories here,” said Tran Duy Dong, director of the MPI’s Economic Zones Management Department. India’s Tata Group, for instance, is thinking of producing its Titan watch in Vietnam this year, and also expands its investments in car manufacturing. The Indian group is now negotiating with the Ministry of Industry and Trade for a $2 billion coal-fired power plant in the southern province of Soc Trang. Ocean Group to sell property projects According to information disclosed by Ocean Group’s (OGC’s) board of directors, the decision has been made to sell a series of real estate projects including Star City Hotel, Lega Fashion House and Star City Centre. OGC was founded in 2005. It has developed business in rapidly growing and diverse sectors including: private aviation, agriculture, real estate, corporate finance, banking and fiduciary services, technology, media and internet. The group has overseas offices in New York, London, Geneva and Moscow. In August 2011 OGC and the Vietnam High Command of Border Guard signed the cooperation agreement to build a complex consisting of a trade centre, office buildings, hotels and apartments for lease at 25 Tran Khanh Du street, Hoan Kiem district, Ha Noi. According to the provisions of the agreement OGC would carry out the necessary construction works for the above-mentioned project. However, in January 2015, OGC decided to establish TKD Vietnam Real Estate Investment Trading Co., Ltd as a subsidiary. The company has the chartered capital of VND115 billion ($5.4 million) and OGC contributed 98 per cent of the stakes, an equivalent of VND112.7 billion ($5.3 million). In October 2010, the group announced that it would invest VND600 billion ($28.1 million) in the Lega Fashion House complex of office buildings and shopping centre in Ho Chi Minh City, which it promptly started construction in 2011. By the end of 2012 OGC invested more than VND28 billion ($1.3 million) in the project. Meanwhile, Star City Centre in Hanoi is another complex of luxury apartments, hotels and office buildings for lease. More drastic measures needed to revive pangasius industry Deputy Head of the Central Economic Committee Le Vinh Tan said that local authorities should closely work with Vietnam Pangasius Association and relevant agencies to implement more drastic measures for successful restructuring of the overdeveloped and downward tra (pangasius) fish industry. He made the statement at a meeting hosted in the Mekong Delta province of Dong Thap by the Southwestern Steering Board and the association yesterday morning. According to Mr. Tan, it is necessary to improve policies and implement key solutions to drive the restructuring strategy successful, for instance estimating the implementation of Government’s Decree 36 on tra fish processing and exports. From that local authorities and the Vietnam Pangasius Association could launch more drastic measures to reorganize the industry, he said. Tra fish industry had showed downward signs for the last five years, he said. About 80 percent of businesses in the field are in difficult conditions, breeders and processing plants have been pessimistic and uninterested in further investment any longer. Main consumption markets have seen a shortfall, trade barriers have more and more been set up by large export markets, businesses have unhealthily competed with each other affecting breeders’ prestige and brand names of export products. These are considered as unavoidable consequences from excessive development of the tra fish industry, he added. Secretary General of the Vietnam Pagasius Association Vo Hung Dung said that tra fish industry restructuring project aimed to improve quality, build new images, make business finance healthier, increase capital access ability for breeders and businesses, deepen export markets, and build a distribution channel to broaden consumption markets. Accordingly, tra fish industry reform will focus on restructuring the market, product quality, business finance, and administration, he added. Statistics from the Vietnam Pangasius Association showed that Vietnamese tra fish products have been exported to nearly 150 nations and territories worldwide, farming areas have reached 6,000 hectares. Last year export value hit US$1.76 million, up 0.4 percent against the previous year. It was down to major markets like the U.S. and the EU but up in some emerging markets such as China, Hong Kong (China), Columbia and Mexico. Import duty differentials benefit fuel firms Local fuel wholesalers are making big bucks from lower tariffs on fuel imports from the markets in the Association of Southeast Asian Nations (ASEAN) than other parts of the globe. Circular 165/2014/TT-BTC, with effect on January 1, regulates fuels imported from ASEAN are taxed at 20% for normal products, 10% for jet fuel, and 5% for diesel. Local importers are allowed to enjoy these preferential duty rates if they prove the origin of imported fuels. Meanwhile, the current import tariff rates used to calculate the base price for fuel are 35% for kerosene and 40% for diesel. A source from a fuel enterprise told the Daily that enterprises had not paid much attention to the origin of imported fuels because the local tax rates were usually lower than those committed by Vietnam in trade agreements. However, they now ask the importers for documents about the origin of fuels to enjoy the preferential tax rates. “The differential of a dozen percentage points is significant,” the source said. However, the source said consumers will not benefit from the import tax differences as local fuel traders cannot sell fuel products imported from various markets at different prices. Moreover, relevant agencies only apply the common tax rates to calculate the base prices of fuels. Statistics of the General Department of Customs indicated local fuel wholesalers spent US$7.67 billion importing over 8.6 million tons of fuels last year. Nearly 2.6 million tons of it came from Singapore, 1.73 million tons from China, 1.26 million tons from Taiwan, and 888,000 tons from Thailand. Imports from the ASEAN markets are rising. Growth expected in textile, footwear export turnover Several Vietnamese companies have received full orders for textile products by the end of the first quarter of this year, according to the Ministry of Industry and Trade. The ministry said that some large firms have also received orders for delivery by the end of the second quarter. In January, the textile and apparel export turnover was expected to be US$1.9 billion, a 1.2 per cent increase year-over-year. The output of textile products has increased, compared with January 2014. The production of textiles made from natural fibres is estimated to rise by 9.7 per cent to reach 25.2 million sq. metres, while that of synthetic-fibre and man-made-fibre textiles will see a 14.8 per cent boost to touch 61 million sq. metres. The turnover of footwear exports is estimated to increase by 23.2 per cent in comparison with January last year, gaining $1.05 billion. The production of shoes and sandals this January is expected to reach 24 million pairs, a 19.8 per cent increase over January 2014. The significant increase in the turnover of footwear exports comes from FDI companies, rather than state-owned firms. The ministry said that in order to take advantage of preferential trade agreements, local enterprises need to be more proactive in producing and diversifying material resources. It also asked them to do research to meet the demands of customers, and enhance the added value of exported products. Vinacas sets high export growth for cashew nuts At a conference in Hanoi on February 6 the Vietnam Cashew Association (Vinacas) revealed that for calendar year 2014 Vietnam exporters  shipped cashew nuts to 50 nations around the globe. The US market accounted for the lion’s share of exports with a 30% market share, followed by the European Union (EU) at 25% and China at  20%. Last year was a highly successful year for Vietnam cashew exports with an overall volume of US$2 billion and processing capacity reaching 1.2  million tonnes, a representative of Vinacas said. The representative added that this year the cashew nut sector has set a target of amassing total export revenues of US$2.5 billion. Tran Van Hoa, Vice President of Binh Phuoc province’s cashew association in turn said that in recent years, the nation’s output averaged  400,000 tonnes per annum while local businesses’ processing capacity hit 1 million tonnes. Mr Hoa stressed that Vietnam still has to import 50-60% of its exports and faces tough competition from other nations, especially those from  Africa. Therefore, the industry should enhance its competitive edge to secure a firm foothold in the global market. Last year, cashews continued to be one of the country’s key farm produce exports, just after rice, rubber and coffee.   Ha Nam : Additional RoK enterprise granted investment license A Republic of Korean- invested company was granted investment license in a ceremony in the northern province of Ha Nam on February 5. Operating within the Dong Van 1 industrial park, the KMW Vina Co.Ltd covers over 30 hectare of land with initial investment capital of US$100 million, manufacturing telecommunications, radio engineering and lighting equipment. The company is expected to produce 220,000 telecommunications and radio engineering devices and 380,0000 LED lighting equipment a year, and help to create jobs for 5,000 workers. As schedule, the project will officially put into operation by end of 2015. Ha Nam is home to 125 foreign direct investment (FDI) enterprises from 10 countries and territories. In 2014, the province attracted 35 FDI project with total investment up to US$300 million. Residential real estate market on the road to recovery The Vietnam government approved a law late last year allowing for expansive foreign ownership of residential property, as it seeks to boost an ailing property market and accelerate economic growth. Those foreigners who possess a valid visa in addition to foreign enterprises and international organizations conducting operations in Vietnam are now eligible to acquire an ownership interest in residential real estate. The new rules allow for a maximum foreign ownership of 30% in any multi-family housing complex or 250 houses in any single ward. Prior to the new law’s enactment only foreigners who were married to a Vietnamese national and had been determined to have made significant contributions to the nation’s development were permitted to acquire an interest is such property. Passage of the law was the latest move by the government to help underpin the stagnate property market and part and parcel of its overall plan to not only stimulate economic growth but clear up bad debts. Most leading economists believe opening up the market has been a good move as a considerable portion of the banks’ bad debts are tied to residential real estate and there is a synergism between the two. In other words, what is good for residential real estate directly benefits the nation’s bad debt problem. Moreover, the new law has loosened many regulations and created conditions more conducive for foreign investors to get involved in Vietnam’s residential real estate market. Hanoi Real Estate Club President Nguyen Huu Cuong, said these laws have allowed investors, entrepreneurs and foreign institutions to possess residential property in Vietnam. This is a great opportunity for foreign investors. The residential real estate sector has not only attracted huge monetary inflows from foreign investors but has also been the repository for significant overseas remittances. Some US$2-2.6 billion of overseas remittance are pumped into the real estate market annually. Nguyen Hong Son, Savills Hanoi’s Head of Valuation and Financial Advisory said the new law demonstrates the Government’s commitment to simplifying administrative formalities and accelerating in-depth and strong integration. Son said it also projects a positive global image of an opening of the economy and makes the market more attractive to Vietnam-based expats that want to buy in Vietnam adding that both domestic and foreign investment will increase in the time ahead as a result of the move. In fact, it may create a boom in attracting foreign investment to Vietnam in 2015. However, if not the market will still see bright prospects for 2015 and following years thanks to the newly issued polices and good things emanating from it. Last year, foreign investment in both commercial and residential real estate accounted for 40% of the country’s total foreign investment. The residential real estate sector ranks second in attracting foreign investment, just after foreign direct investment (FDI) in the processing and manufacturing industries. Business Association High Quality Product awards The Business Association for High Quality Vietnamese Products has recognised 522 of Vietnam’s leading companies for their talent that is driving new and exciting innovative products. The awards were presented to the winners at a ceremony held on February 5 in HCM City in the presence of Deputy Minister of Industry and Trade Tran Tuan Anh and Minister of Science and Technology Nguyen Quan. They are one of the the highest accolades that a Vietnamese company can achieve and aim to raise the profile of Vietnamese businesses, enhance their reputation and instill trust in the Made-in-Vietnam brand. The winners were selected based on the results of a nationwide survey of 20,000 consumers. Japan firms eager to expand in VN About 66 per cent of the 458 Japanese firms based in Viet Nam, plan to expand their business during the next one or two years, a recent survey pointed out. The survey was conducted by the Japan External Trade Organisation (JETRO). The JETRO survey of Japan-affiliated companies in Asia and Oceania in 2014 showed that 32.4 per cent of the enterprises want to maintain their existing level of business, while only 1.3 per cent want to scale back their operations. The most common reason for business expansion is expected sales growth of 85 per cent, followed by sizeable growth potential of 45 per cent and greater receptivity for high-value added products at 17 per cent, the survey said. It also noted that 51.4 per cent of Japanese firms in Viet Nam expected their operating profits to surge in 2014, compared with the year before, while 54.8 per cent hoped their profits in 2015 would surpass those reported in 2014. When asked to identify the problems or challenges of doing business in Viet Nam, most Japanese firms outlined wage increases as the top concern. This was followed by difficulty in procurement of raw material and spare parts, complicated customs' clearance procedures and the challenges involved in ensuring quality control and quality of employees. Meanwhile, Japanese enterprises in Viet Nam also expect simplified customs clearance and they want to avoid double taxation and correct irregular withholding tax rates. Japanese firms in Viet Nam are also seeking mutual duty exemption among CLMV (Cambodia, Laos, Myanmar and Viet Nam), integration of interpretation and management concerning the rules of origin and a reduction in non-tariff barriers, such as license requirements and mandatory standards, as the ASEAN Economic Community is expected to be assembled by the end of this year. The survey, which was conducted from October 10 to November 14 last year, was intended to understand the business activities of Japan-affiliated companies in Asia and Oceania. The surveyed firms operate in wide range sectors, including automobiles, machinery, chemical and pharmaceutical, as well as food, textile, retail and transport, ICT and finance. Construction sector to bolster competitiveness The Government has recently approved a plan of restructuring the construction sector to increase the quality and competitiveness for the period of 2014-2020. The restructure aims at meeting the demand of socio-economic development and the country's industrialisation and modernisation process, increasing the production capacity, quality and competitiveness, and gradually approaching the international market. The plan sets an annual growth target of 9 – 14 per cent for the construction section during the period. In terms of construction investment, the plan set a target by the 2020 of building essential construction works which are well-designed, good quality and reasonable prices. According to the plan, spontaneous and lavish investment, losses and corruption in the construction investment, especially for the State-funded project, will be closely controlled. Management and using the public fund sources will be closely supervised as well as increase the proportion of non-State investment capital, especially focusing on model of public-private partner (PPP). In the field of urban development, the plan aims to develop sustainable, clean and green urban cities, and to form some cities as big and modern as the ones of the other countries in the region. By the year of 2020, the target of urbanisation will be reached about 40 per cent. During the period of 2016-2020, 12.5 million of sq.m of social houses in urban areas will be built and per capita housing area will reach 25 sq.m nationwide. The real estate market will be sustainably developed with a proper mechanism to overcome the present imbalance of demand-supply. The construction sector must provide a wide range of products and service as well as meet the demands of housing and real estate. It should further invest into building social houses and high-end houses as well as house-for-rent projects. The revenue from real estate and land trading will account for 10-15 per cent of the total State revenue. To fulfil the objectives, the government needs to further its role of management and control to the real estate market by legal tools and regulate the market by issuing proper policies relating to credit and tax issues. The projects relating to real estate and housing nationwide will be also re-assessed and re-classify requiring the real demand of the market. The construction sector must have concrete plans to solve suspended projects in big cities especially in Ha Noi and HCM City. As per the plan, the Government will have incentive policies through the financial aids, tax and credit programmes to encourage all economic sector to invest into social houses for privileged people, public employees, armed forces, and low-income people. Besides, real estate trading will be opened for foreigners and foreign entities and overseas Vietnamese as well. The restructuring will include speeding up the equitisation of the State-owned companies with a model which the government will not hold main shares. The management will be improved in order to ensure the businesses operating under the market mechanism and health competition. Viet Nam FoodExpo to open in HCM City The International Food Industry Exhibition 2015 (Viet Nam FoodExpo 2015) will be held from May 13 to 16 at the Sai Gon Exhibition and Convention Centre. The event will have 500 stalls of 300 enterprises from the food and beverages sector in Viet Nam and 15 other countries and territories. It is the first and the only nationwide food industry exhibition, sponsored by the government as a National Trade Promotion Programme. Viet Nam FoodExpo will get technical support from Centre for the Promotion of Imports from developing countries, an agency of the Netherlands Ministry of Foreign Affairs. The exhibition is being organised by the Viet Nam Trade Promotion Agency under the industry and trade ministry, in co-operation with other trade promotion agencies including Korea Trade Investment Promotion Agency (KOTRA) and Japan External Trade Organisation (JETRO). Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR