Nearly 56% of foreign firms plan to expand their operations in Vietnam, a healthy level, but also a slight decrease from the apex of 60% last year, according to the latest survey conducted by the Vietnam Chamber of Commerce and Industry (VCCI).
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FIEs in Vietnam getting smaller
According to the report, the share of firms increasing investment dropped to 11.8% from 13.2%, while only 58.2% of respondents added employees compared to 62.4% in 2017.
Notably, the majority of FIEs (53.1%) reported profits in 2018, while 36.7% suffered losses, roughly equivalent to 2017 levels.
“These high figures show that the spike in activity in 2017 is not just a blip, but also rather a new trend,” Tuan said.
However, Tuan noted the size of FIEs seemed to be getting smaller. Just 9% of respondents have less than five employees, 11% employ between five to nine, and 32% employ less than 50. The corresponding numbers for 2017 were 7.4%, 10.9% and 31%.
The share of respondents employing more than 1,000 workers dropped to 4% from 6.4% in 2017, and 5.4% with 500 – 900 employees, down from 5.8% in 2017.
The FIEs’ shrinking labor forces went hand-in-hand with a reduction in equity. In 2018, more FIEs than ever fell into the equity categories of under VND0.5 billion (US$21,500), VND0.5 – 1 billion (US$21,500 – 43,000), and VND1 – 5 billion (US$43,000 – 215,025).
The report suggested many small FIEs are entering Vietnam solely to serve as satellites – suppliers for larger FDI projects.
“Such FIEs may crowd out domestic suppliers and prevent the domestic sector from integrating into global value chains,” Tuan said.
To deal with the problem, the Ministry of Planning and Investment (MPI) has considered imposing minimum requirements on the size of FDI projects.
In terms of sector, manufacturing is the leading foreign-invested sector with 37% of the surveyed, followed by service 27%, construction 6% and agriculture 2%. The shares of FIEs operating in mining and finance/banking/insurance are both miniscule, at 0.13%.
The largest sources of FDI in Vietnam are still the advanced East Asian economies, as South Korea claimed the top spot with 459 firms in 2018, followed by Japan with 408, Taiwan with 183 and China with 96.
Western FIEs in Vietnam remained few and far between, in which 34 are American, 13 French, 14 Australian and 11 British.
Positive responses on Vietnam’s business environment
Overall, FIEs have provided positive responses regarding Vietnam’s business environment, Tuan said.
Among them, time costs for regulatory compliance have been reduced, informal charges have been significantly lessened, and harassment related to inspections has diminished.
Moreover, infrastructure enhancements in Vietnam are also acknowledged.
“However, several areas require the government’s immediate attention, such as customs clearance, social insurance, taxes and inspections,” Tuan added.
In addition, labor quality, especially high-skilled labor supply, remains the bottleneck in the investment environment in Vietnam, as perceived by foreign invested enterprises.
VCCI survey includes 1,557 foreign enterprises from the 20 provinces and cities with the highest concentration of FIEs.
