The Vietnamese economy hit a bump in the road over the last few years; however, the government is taking steps to ensure prosperity for the future.
Vietnam has not been immune to the swamp that the global economy has been bogged down in - one market sector hit particularly hard has been the real estate market. With an estimated GDP growth rate of only 5-5.4 percent in 2013, according to the Vietnam Centre for Economic and Policy Research, lower than the targeted 5.5 percent, the Vietnamese economy is heading into their third straight year of growth under 6 percent since 1988. Typically the country's backbone, Vietnam's agriculture sector only saw a growth of 2.2 percent in the first quarter of this year, the lowest since 2010.
However, breaking through the economic clouds in Vietnam is the security market, clenching on to double-digit growth in 2013. Although the security market in Vietnam has yet to establish a strong presence in comparison to its Asian neighbors, security manufacturers and distributors alike have high hopes for its future. Also, the market is determined to make its presence known.
One of the driving forces behind this growth can be attributed to the migration away from Chinese over to Southeast Asian manufacturers. With a youthful population (one third of the country's population is under the age of 20), cheap labor, and substantial potential for consumption, Vietnam has established itself as an up-and-coming manufacturing market, and is an ideal place for companies looking to invest in the future.
Overseas Investments
Overseas investments make up an important component of the Vietnamese economy. Vietnam has seen foreign investments grow exponentially over the last 10 years. Virtually nonexistent a decade ago, foreign investments have grown to US$10-11 billion per year over the last five years, according to statistics from the US Department of State.
Over the last two years more and more major international companies from Korea and Japan have been turning towards the Southeast Asian market and are investing in markets like Vietnam. This potential for growth has been noted by companies like Panasonic Systems Asia Pacific, who is currently in the process of setting up an office in the country, according to Nguyen Minh Cuong, Assistant Manager at Panasonic Sales Vietnam.
This shift from China to Southeast Asia, namely Vietnam, will directly benefit the production sector of the overall economy in Vietnam. It may even position Vietnam to one day take over as the manufacturing giant from competitive China.
The country's overall improved manufacturing capability has also stimulated local manufacturing in Vietnam. Dinh Thi Thu Ha, MD at Vantech, a local company in Vietnam, stated that they plan to build a factory in Ho Chi Minh City (HCMC) to manufacture their own brand of security products. Currently Vantech has 150 employees on staff and over 20 technology R&D persons. Although a local brand, Dinh pointed out that Vantech's sales are not limited to their local market. Trying to promote their brand name in Southeast Asia, Vantech has been expanding its reach within the region. The company began exporting to Thailand, Indonesia, Singapore, and Malaysia three years ago where they have partners that distribute Vantech branded products.
Incentives from the Government
After hitting a 13 year low in 2012 the government has taken strides to boost its slowed economic growth rate. Most recently, in an effort to reinvigorate the economy the Vietnamese government has voted to reduce the corporate income tax (CIT), hoping to attract and give incentive to foreign investors and keep Vietnamese businesses competitive. The reduction will lower the CIT to 22 percent from the previous 25 percent beginning Jan. 01, 2014, which will further be reduced to 20 percent on Jan. 01, 2016.
The government has also put forth a bank loan package worth $1.4 billion in preferential loans to help bolster the depressed property market, which has particularly suffered during these difficult economic times. With an interest rate of 6 percent on this loan package, the package could significantly reduce interest payments, and pressure, for real estate investors, as well as have a positive long term effect on the real estate market.
Furthermore, in an effort to resolve bad debts and restructure the country's banking system, the Vietnamese government has established an asset management company to begin operations in mid-July of this year. Expected to resolve $4.8 billion in bad debts, the government hopes that the creation of the asset management company will help businesses and stimulate production in the country.
Industrial Zones & High-Tech Parks
Lower CIT rates are reflected in several of Vietnam's export processing zones (EPZ), industrial zones (IZ), and high-tech parks with the goal of luring foreign investors to set up shop in the country.
The Ho Chi Minh City Export Processing and Industrial Zones Authority (HEPZA) offer tax incentives hoping to attract investments in mechanical manufacturing, electronics and IT, the chemicals industry, and high technology. HEPZA offers a CIT rate of 10 percent for the first 15 years to those operating within their 16 EPZs and IZs that fall under certain sectors such as software manufacturers, high technology, and infrastructure to name a few.
Similarly the Dongnai Industrial Zones Authority (DIZA), which governs the 30 IZs in Dong Nai Province, offers investment incentives for foreign investors as well. Ong Keo Industrial Zone is the largest IZ in Dong Nai Province under the DIZA, covering a space of 823 hectares. It is ideal for industries - such as car manufacturers, building materials production, metallurgy, etc. - that require use of their on-site wharf.
Apart from these EPZs and IZs is the state-owned Saigon Hi-Tech Park (SHTP). Located only 15km from the heart of HCMC, SHTP is one of the country's three hi-tech parks. The SHTP offers zero percent CIT from the first year of profit for the first four years. Additionally, equipment, machinery, and construction materials imported as fixed assets for projects are exempt from VAT and import duties.