After playing second fiddle to Indonesia for the past two years Vietnam has returned to the number one location in Asean where American businesses operating in the region plan to expand.
According to the 2017 Asean Business Outlook Survey 40 per cent of American firms in Asean nominated Vietnam as their preferred location to expand into, compared with 38 per cent who nominated Indonesia, 34 per cent who favoured Myanmar and 30 per cent who nominated Thailand. At the opposite end of the field only 6 per cent of respondents nominated Brunei as being a desirable place to expand, 1 percentage point higher than last year, while American firms in Asean planning to expand their presence in Singapore increased 6 percentage points to 18 per cent.
Conducted annually by Amcham Singapore in collaboration with the US Chamber of Commerce and other Amchams in the region, the Asean Business Outlook Survey polls the business sentiment of some 500 senior executives representing US firms in all ten Asean member countries.
Vietnam’s attractiveness to US firms is no secret. America is the Vietnamese textile industry’s largest market, while tech giants like Microsoft and Intel have expanded aggressively in recent years. Additionally, reports surfaced earlier this month claiming that Apple may establish a US$ 1 billion data centre in Da Nang, though local authorities have subsequently denied the rumours. Such a move would be Apple’s first in the country.
The 2017 Asean Business Outlook Survey highlighted strong optimism among leaders of American firms in Asean for Vietnam with an impressive 80 per cent of respondents already present there saying they plan further expansion, second only to Myanmar where 96 per cent said they intended to beef up their presence. Further, 61 per cent of US firms in Vietnam expect their workforce to grow this year, second only to Myanmar for bullishness where 87 per cent of respondents are planning the same.
When it comes to the local investment environment 72 per cent of American companies in Vietnam described it as improving, marginally behind the the 77 per cent of respondents in the Philippines who said the same thing. In the quest for additional profits American firms in Myanmar were the most bullish with 91 per cent forecasting increased profits in 2017, marginally ahead of the 87 per cent of respondents from Vietnam.
Malaysia was the top pick for 2017 for American companies with operations in China planning to diversify some investments or businesses over the next two years into Asean, with 19 per cent of respondents nominating it as their planned location. This was marginally ahead of Vietnam and Lao PDR at 17 per cent, and Cambodia as the third favoured with 15 per cent.
When it came to the Asean Economic Community (AEC) which came into effect on December 31, 2015, 93 per cent of American firms in Asean believe the AEC is important to their companies’ future investment plans, with respondents in Indonesia and Laos giving it a unanimous thumbs up. Only 21 per cent of respondents felt that full implementation of the AEC will have an effect on their companies’ operating locations, while only 19 per cent said their expansion plans will be affected by the still under negotiation Regional Comprehensive Economic Partnership (RCEP).
TPP’s Impact on Asean Investment
The 2017 Asean Business Outlook Survey also notes the importance of the Trans-Pacific Partnership (TPP), a wide-ranging agreement between 12 Pacific Rim countries, including Vietnam, that represent 40 per cent of global GDP. While the TPP has been signed by all members, none have as yet ratified it; including the US who became the TPPs driving force after joining the trade pact talks in 2008.
Until at least six states representing more than 85 per cent of the GDP of the signatories – more specifically Japan and the US – ratify it, the TPP remains dead in the water.
This is bad news for supporters of the TPP as both major candidates in the US presidential election have come out in opposition to the agreement. Although President Obama remains confident in getting approval for the TPP before he leaves office in January 2017, there is no guarantee given the current political climate in the country.
Nonetheless, American firms in Asean remain upbeat over the TPP. Fifty-six per cent of respondents in Asean TPP member countries – Brunei, Malaysia, Singapore and Vietnam – believe the trade deal will benefit regional trade and investment, while 75 per cent of American business leaders in Vietnam think the TPP will help their company’s’ trade and investment. Only 1 per cent said it will hinder their business.
In a solid vote of support for the TPP 61 per cent of the 2017 AmCham ASEAN Business Outlook Survey participants in Vietnam said the trade deal will impact the location of their future investments, by far the highest figure among respondents from other Asean countries.
Downsides: Corruption & Skills Shortage
However, despite the positive business sentiment in Vietnam, notable shortfalls remain.
Although the Vietnam government has attempted to curb corruption, it remains widespread and endemic. As a result only 6 per cent of respondents said they are satisfied with the lack of corruption in the local business environment, only marginally better than Indonesia, Cambodia, and Myanmar where 5 per cent, 4 per cent and 0 per cent respectively said the same, just one percentage point behind Thailand at 7 per cent. Those most pleased with the lack of corruption in the business environment were American firms in Singapore and Brunei where 95 per cent and 53 per cent respectively said they were happy.
Bureaucratic red tape remains problematic as well, in addition to anemic regulations and the rule of law. No American firms in Vietnam indicated that they are satisfied with Vietnam government agencies, while 46 per cent said they were dissatisfied with Vietnam Customs and 42 per cent with the Vietnam tax department. Just 8 per cent of American firms in Vietnam expressed satisfaction regarding the prevalence of local protectionism, while a dismal 9 per cent are satisfied with laws and regulations. A massive 89 per cent of American firms in Vietnam believe laws are not enforced fairly.
American firms in Asean also reported a shortage of employees with suitable creativity and innovativeness skills (45 per cent), analytical and problem solving skills (44 per cent), and technical skills (44 per cent). Lao PDR suffers most from a shortage in employees with technical skills (83 per cent), while finding staff with suitable analytical and problem solving skills is most difficult in Myanmar (74 per cent). In Cambodia and Singapore employees with creativity and innovativeness are the most difficult to find according to 58 per cent of respondents there.
Despite this, foreign investment in Vietnam is moving forward at full steam. Vietnam FDI hit $11.2 billion in the first half of 2016, according to the Foreign Investment Agency, a 105 per cent increase over the same period in 2015. The confidence in Vietnam which US firms showed in the 2016 Asean Business Outlook Survey has been borne out by the numbers. Even with its glaring corruption and flawed rule of law, Vietnam is cementing its position as one of Asean’s strongest investment magnets.
- Vietnam overtakes Indonesia as ASEAN’s top investment magnet: survey (VN Express)
- Vietnam: Is Apple setting up a $1b data hub in Danang? (Deal Street Asia)
- VN attracts over $11b FDI in first half of 2016 (Viet Nam News)
Click here to download the full 2017 AmCham ASEAN Business Outlook Survey
Additional reporting by John Le Fevre in Phnom Penh
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