Where is Japanese capital going to in Vietnam?
Where is Japanese capital going to in Vietnam?
A report from the Japan External Trade Organization (JETRO) showed that Japanese FDI in Vietnam has dropped by 65 percent to $2.02 billion. The report noted a considerable decrease in both the number of projects and registered investment capital, by 10 percent and 15 percent, respectively.
In 2014, according to JETRO, 62.3 percent of Japanese-invested enterprises in Vietnam reported profits, which was slightly higher than the 59.9 percent recorded in 2013.
The most profitable businesses are those that make products for export, with 70 percent of them reporting profits. Meanwhile, only 56 percent of businesses in other fields report profits.
Meanwhile, reports from Vietnamese government agencies show a considerable decrease in FDI in the fields of manufacturing, distribution and consultancy.
A lawyer noted that in the past Japanese had to set up production companies in Vietnam due to restrictions on investments in service sectors stipulated in Vietnamese laws at the time.
However, from 2015, Vietnam has removed these kinds of taxes imposed on service sectors.
As such, the Japanese only need to set up service consultancy firms in Vietnam, and then outsource the production to Vietnamese enterprises. This allows them to minimize production costs and optimize their profits.
Meanwhile, Hirokata believes that Japanese FDI in the manufacturing sector may decline because Japanese investors find the investment registration procedures too complicated.
Some Japanese enterprises plan to relocate their factories from other countries to Vietnam. However, they have had to cancel these plans because they could not bring the existing machines and equipment to operating factories in Vietnam. The Vietnamese laws prohibit the import of old machines and equipment.
Though 62 percent of Japanese businesses made profit in 2014, the additional investment capital registered by operational projects fell sharply by 81 percent.
Japanese business performance, however, was better in Vietnam than in Indonesia, where only 60.9 percent of Japanese businesses reported profits. But business results in Vietnam were worse than in the Philippines, Thailand, Malaysia and China, where profitable Japanese businesses accounted for 71.2 percent, 66.9 percent, 66.4 percent and 60.7 percent, respectively.
Japanese, like other foreign investors, want to receive preferences from the government and find input materials domestically. However, only 14.4 percent of components needed to make products can be found in Vietnam, a proportion lower than in China (38.2 percent) and Thailand (23.2 percent).
Meanwhile, a Vietnamese financial expert pointed out that Japanese investments have fallen in all countries. He attributed this to the 25 percent depreciation of the yen, which has made it too costly to make outward investments.
