VIETNAM INVESTMENT GUIDE

September 2018 AEC+ Business Advisory KASIKORNBANK

1 Table of Contents

Country & Economic Overview

Key Industries & Opportunities

Doing Business in

KASIKORNBANK’s Support

2 Why Vietnam?

In ASEAN, Vietnam has

 The 3rd largest population (around 95 million) . Large pool of inexpensive workforce . Attractive consumer market, which is increasingly urbanized.

 The highest international trade increment . Rapid industrialization driven by foreign direct investment . Favorable trade terms (GSP and AFTA) to integrate with global markets . Upcoming trade agreements (CPTPP, EU-FTA and RCEP) which are under negotiation 3

Source Data : IMF and ADB Major Cities for Business Activities by Region

Hanoi

Hanoi (Capital) Hai Phong Bac Ninh Quang Ninh NORTHERN Bac Ninh Hai Phong . Retail . Construction materials . E&E . Logistics . Administrative centre; location . Food & beverage . Real estate . Supporting Tourism . of the capital city; hub of hi- . Textile & garment . E&E industries Manufacturing tech industries; close proximity . E&E . Logistics to

Da Nang Da Nang Da Lat Quang Nam . Hub for Central Vietnam . Tourism . Food processing C ENTRAL Quang Nam . Tourism . Tourism . Still less industrialized; tourism resources such as Paper beaches, highlands and historical sites . Rubber & plastic products Da Lat

Ho Chi Minh City Binh Duong Mekong Delta Vung Tau Binh Duong . Packaging industry . Manufacturing . Agriculture (Rice) . Oil and gas SOUTHERN Ho Chi Minh . Food & beverage . Chemicals . Fishery . Manufacturing Key commercial centre; busiest Vung Tau . Retail . Garment . Retail trading port and manufacturing hub . E&E . Footwear Mekong Delta 4 Table of Contents

Country & Economic Overview

Key Industries & Opportunities

Doing Business in Vietnam

KASIKORNBANK’s Support

5 Country Overview

Vietnam has undergone drastic economic reforms since the mid-1980s. It is expected to be one of the fastest growing nations and manufacturing powerhouses in the Southeast Asia region. Vietnam’s foreign direct investment has turned it into an export-oriented economy.

Timeline and Milestone:

1986 1995 2007 2014 2015 2035 Doi Moi ASEAN WTO - EU-Vietnam Modern Industrialized Economic Membership Membership Vietnam FTA FTA Country Reform

Country Name: The Socialist Republic of Vietnam Six transformations by Vietnamese Government 1. Enabling economic modernization Area: 331,150 sq. km. 2. Building the technological and innovation capacity Population: 94.6 million (2018F) 3. Managing urbanization and transformation to achieve Government: Single party system by Vietnamese Communist Party (VCP) greater economic efficiency Currency: Vietnamese Dong (VND) USD 1  VND 23,206 (August 2018) 4. Charting an environmentally sustainable development path 5. Promoting equality and inclusion of the marginalized groups GDP (Current Price): USD 240.7 billion (2018F) 6. Building a modern, rule-of-law state with a democratic GDP per capita: USD 2,545 (2018F) society and a fully established market economy 6

Data Source: IMF, World Bank Group , Ministry of Planning and Investment Economic Overview

Vietnam’s steady economic growth at over 6% since 2015 makes it one of the fastest growing markets in the world, buoyed by rising domestic demand, booming foreign direct investment and the country’s increasing attractiveness as a global export hub.

GDP and Economic Growth Outlook, 2015-2019F Changes in Economic Composition, 2000 and 2016

400 8 100% 6.7 6.8 6.6 6.2 6.5 80% 39 300 264.9 6 44 Services 240.7 220.4 191.5 201.3 60% 200 4

Percent 40% 37 USD BillionUSD 39 100 2 Industry 20% 25 0 0 17 Agriculture 2015 2016 2017 2018F 2019F 0% 2000 2016 GDP (USD billion) GDP Growth (Percent) Key factors contributing to economic growth: Industry and services sectors continue to expand:

► Rising consumer spending and macroeconomic stability have ► Manufacturing and construction sectors play an important lifted domestic consumption and consumer confidence. role in driving the economy. ► Boom in foreign investment particularly in manufacturing ► Retail and financial sectors are also growing due to a surge in sector has boosted exports. middle income class and more urbanized population. 7

Source: IMF, Central Intelligence Agency, The World Bank Foreign Direct Investment

FDI inflows in Vietnam, mainly from other Asian investors, have seen steady and strong growth. This enables Vietnam to emerge as a manufacturing hub in the region, thanks to its favorable labor market and trade privileges.

FDI Inflows by Sector, 2017 *Accumulation Top Foreign Investors* as of 7M2018 Others USD 3.3 billion RANK COUNTRY NO. OF PROJECTS REGISTERED CAPITAL 16% E&E 1st 249 USD 5,815.5 million USD 1 billion 5% USD Garment 46% Energy and 2nd S. Korea 589 USD 3,326.1 million USD 1.5 billion 7% 21.1 Resources USD 9.7 billion billion rd 15 USD 664.4 million 13% 3 Manufacturing USD 2.8 billion 13% ► Investments from Japan and South Korea are about 70 percent of total foreign direct investment in Vietnam, mainly in the electronics sector. Real estate and Construction USD 2.8 billion ► Most Thai businesses are in manufacturing sector, some have flown into retail sector by acquisition, and some are in energy sector.

Vietnam’s 1 2 3 4 Key Competitiveness: Large pool of Favorable trade terms Strategic location: Political stability affordable workforce with major economies proximity to East Asia 8

Source: FIA, Vietnam Briefing, Government Statistic Office of Vietnam and KPMG compiled by AECplusadvisory Vietnam Trade Overview

Vietnam International Trade, 2011-2017 2017 Key Vietnam’s Trade Partners and Products

USD Billion Exports Partners and Products 250 Export from Vietnam 214 211 200 Import by Vietnam USA Telephones & computers 162 166 (19%) (33%) 150 132 132 97 107 EU Garment & footwear 100 (18%) (22%) 50 China Machinery & equipment 0 (16%) (6%) 2011 2013 2015 2017 Import Partners and Products Recent Trends:

• EXPORT: Mostly final products produced by foreign investors, China Electronic products & parts including telephones, computers, footwear, articles of clothing and (27%) (18%) machine and its parts • IMPORT: Mostly raw materials for the production of final goods S. Korea Machinery & equipment (22%) (16%) • OPPORTUNITIES: Foreign consumer goods have potential to grow in Vietnam because their quality and designs are better than local and ASEAN Plastic & polymer materials Chinese products. (13%) (6%) 9

Source: General Statistics Office of Vietnam Thailand – Vietnam Trade Overview (1/2)

Thailand ranked 5th among Vietnam’s top trade partners in 2017, accounting for 5% of Vietnam’s total trade. Most of the trade between Thailand and Vietnam is in intermediate goods.

Thailand – Vietnam Trade Value, 2011-2017 2017 Key Export Products From Thailand USD Billions 12 Machinery & equipment (17%) Export from Thailand 10.5 10 Automobiles & parts (11%) Import by Thailand 8.3 8 6.4 6.3 Electronic products & parts (9%) 6 4.8 4 3.1 3.2 2017 Key Import Products by Thailand 1.9 2 Telephones and televisions (41%) 0 Machinery & equipment (6.4%) 2011 2013 2015 2017 Refined fuel (6.3%) Recent Trends: • Vietnam has become Thailand’s top export destination in Opportunities: ASEAN: Vietnam needs not only more intermediary components and capital equipment for industrial sector, but also consumer Tapping into Vietnam’s growing industrial and consumer markets goods. and taking advantage of its fast-growing demand on capital funds and products 10

Source: Trade Map and AECplusadvisory Thailand – Vietnam Trade Overview (2/2)

Though Thailand has exported more intermediate goods than final goods to Vietnam, the portion of final goods exports to Vietnam has been increasing. Those goods include daily necessities and luxury goods.

The shifting structure of Thai exports to Vietnam Thailand’s top 10 exports to Vietnam, 2017

Fruit Seafood USD Billion 1 6 11.7 (25.5%) (5.1%) 12 Pickups & trucks Washing machines 2 7 9 (11.2%) (4.2%) 65% Beverages Cosmetics 5.8 3 8 6 (11.0%) (3.8%) 78% Air conditioners Personal vehicles 3 4 9 35% (10.3%) (3.3%) 22% 0 Refrigerators Computers & parts 5 10 2010 2017 (5.9%) (3.2%) Final and retail goods Capital and raw material goods Opportunities:

Recent Trends: • In Vietnam, Thai consumer goods are perceived as having high quality at reasonable prices. Demand for consumer goods is growing in Vietnam, with a proportion of exports from Thailand compared to our capital goods. • The designs of Thai products are different from those produced in Vietnam or China, e.g. premium cosmetics, snacks and home decorations. 11

Source: Ministry of Commerce of Thailand Infrastructure Overview

Logistics costs in Vietnam represent 20-25% of annual GDP, owing to a lack of adequate infrastructure and logistics facilities. However, the situation is improving as more private firms, especially large global firms, see opportunities in entering the sector. Average Freight Transport Composition, 7M2018 Road Maritime Major transportation means, carrying 94% Vietnam is one of the world’s busiest sea Road of passenger traffic and 77% of freight cargo lanes with a coastline length of 77.2% traffic and connecting Vietnam with 3,260 km. Recent move to privatize key Inland Waterway Cambodia, China and Lao PDR seaports is aimed at improving efficiency. Freight transport via 933 17.7% air and road had fast- million growing volume of tons carriage, comparing to Maritime Railway Inland Waterway 2015. 4.8% Others Single north-south railway line to China; Dense river and canal network mainly 0.4% new route (Thailand – Laos – Vietnam) supports energy sector and provides under construction alternative transportation mode for cement, fertilizer and paper sectors. th Ranked 4 best performing logistics in ASEAN in 2017, closing the gap with Thailand. Telecommunication Aviation However, the logistics sector in Vietnam still faces several 4 International Airports: challenges: Penetration Mobile: 147% 1. Tan Son Nhat Airport (HCMC) 2. Noi Bai Airport (Hanoi) ► Need for infrastructure upgrades Rate in 2016 Internet: 53% 3. Da Nang Airport (Dan Nang) ► Undersupply of professionals 4. Cat Bi Airport (Hai Phong) New ► Unreliability in supply chain (delays, lack of planning, lengthy procedures, etc.) New Long Thanh Airport (Dong Nai) To begin operations in 2025 12

Source: General Statistics Office of Vietnam, Vietnam Telecommunications Authority, The World Bank, Vietnam Logistics Business Association Road Network

GMS Network Roads QL19,22,51 QL1A • Parts of the Southern Economic Corridor. • The southern arm serves as a key link • Part of Eastern Economic Corridor. Though between Bangkok, Phnom Penh and Ho Chi it runs the entire length of the country, Minh City. Traffic congestion is often a only parts around Hanoi and Ho Chi Minh problem, especially around Ho Chi Minh City are used heavily for trade. city. • From Hanoi, the road leading to Lao Cai • The other significant portion is from Ho Chi border is an important entry point to Minh City to Vang Tao and Cai Mep port. China. • QL19, the northern arm to Quy Nhon, is not often used since the Quy Nhon is not QL9 currently a major trade hub. • Part of East-West Economic Corridor. It is used for transporting goods between Laos and Vietnam as well as transiting goods Other Key Roads from Thailand’s Mukdahan through Laos. • The route provides Laos and Thailand access to Danang Port. QL5B • Major road linking Hanoi to Hai Phong, QL80 where Hai Phong port is one of Vietnam’s major ports which sees the highest cargo • Part of Southern Coastal Sub-corridor traffic. Hai Phong is also home to a that runs from Bangkok through number of industrial zones. Cambodia’s biggest deep sea ports and • The route is used extensively for Vietnam’s industrial zones: Sihanoukville and Koh international trade. 13 Kong. Seaport Infrastructure

As Vietnam is a lengthy coastal country, sea transport infrastructure is imperative to its evolving international trade.

Total 44 Seaports & Total Capacity of up to 500 Million Tons/year Overview Sea transport is an important driving force behind Vietnam’s economic growth due to its Number of 10 Largest Seaports Max Allowed DWT strategic geographical position and long coastal Elemental Ports line. However, challenges still remain: North (1) Inadequate facilities 1. Quang Ninh 1 70,000 (2) Poor management of operating system 2. Hai Phong 5 10,000 – 20,000 3. Cua Lo (Nghe An) 4 30,000 – 50,000 Development Plan 2020 4. Chan May (Thua Thien Hue) 3 30,000 In the face of rapid growth in international trade volume, focus is in particular on international 5. Da Nang 3 30,000 – 50,000 gateway ports: 6. Dung Quat (Quang Ngai) 2 20,000 – 70,000 (1) Hai Phong in the North 7. Quy Nhon (Binh Dinh) 1 50,000 (2) Ba Ria – Vung Tau in the South 8. Van Phong (Khanh Hoa) 2 350,000 (Oil transport) 9. Vung Tau 3 30,000 – 50,000 The mega-port Hon Khoai in Ca Mau province in Southern Vietnam is under construction and South 10. Sai Gon (HCMC) 3 20,000 – 30,000 expected to finish by 2020. Once completed, it will be able to handle up to 250,000 DWT vessels. 14

Source: JLL Vietnam, KPMG Table of Contents

Country & Economic Overview

Key Industries & Opportunities

Doing Business in Vietnam

KASIKORNBANK’s Support

15 Key Industries and Opportunities

With its plentiful supply of labor, natural resources as well as an expanding middle class and retail market, Vietnam offers attractive opportunities for both trade and investment.

Construction Electrical & Textile & Fishery & Retail Plastic Electronics Apparel Processing Construction Material

16 Electrical & Electronics

17 Electrical & Electronics - Overview

Vietnam’s E&E sector is the 3rd largest in ASEAN, owing to the surge in foreign direct investment by global companies, attracted by Vietnam’s abundance of youthful, affordable workforce, trade terms, and open investment environment.

Vietnam E&E Equipment Exports, 2013 – 2017 Top Electronic Device Top Electrical and and Parts Exports, 2017 Machinery Exports, 2017 98 2017 15 Phones & Parts Printers FDI from South Korea and Japan (55%) (28.4%) boosted E&E trade value which; 47 • Export turnover has grown from 2015 IC & Micro Assemblies 13 USD23 billion in 2012 to more than Computers & (15%) Laptops (27.5%) USD71 billion in 2017. 32 • It is 2.5 times greater than textiles 2013 13 sectors Top Export Destinations, 2017 Billion USD 0 20 40 60 80 100 120 1 China (21%) Mostly assembled products Electronic equipment & parts Electrical appliances and parts 2 USA (13%) such as mobile phones and their accessories, computers, Key Trends 3 South Korea (6%) cameras

Surge in Electronics Manufacturing and Exports Top Import Destinations , 2017 • 12th largest electronics exporter in the world in 2017 1 South Korea (32%) • 44% of Vietnam’s total export value in 2017 came from E&E products. Mostly components and parts 2 China (31%) for assembly and heavy Rising domestic demand for cable and wire machinery for production The sector is poised with growth due to the fast growth of many 3 Japan (7%) infrastructure development projects, especially those in the power sector. 18

Source: International Trade Center, Forbes, Dezan Shira & Associates., hkexnews, vietnamnews.vn

Electrical & Electronics - Opportunities Trade Opportunities Investment Opportunities

Vietnam - Thailand E&E Trade by Product Type, 2017 Electrical Appliance Production 2,500 1,985 2,000 ► Produce / assemble household appliances in Vietnam to 1,415 1,545 1,500 effectively capture the growing local demand.

1,000 ► Long term opportunity: make Vietnam an export hub for USD MillionUSD 500 290 electrical appliances. 0 Electrical Appliances & Parts Electronic Equipment & Parts Vietnam's Imports Vietnam's Exports Electronic Part Production Export Opportunities:

► Manufacture electronic parts and enter the supply chain of Household Tap into increasing urbanization and major electrical and electronic appliance producers; Electrical growing purchasing power in 1 Appliances Vietnam ► This is feasible especially for suppliers of foreign investors (such as Japanese and South Korean) based in Vietnam. Electronic The local supply chain of this sector in Parts and Vietnam has recorded rapid growth but 2 the industry is still weak and relies on Components labor-intensive production. 19

Source: Vietnam Electronic Industries Association and International trade Center Garment and Footwear

20 Garment and Footwear - Overview

Vietnam’s garment and footwear is a key economic sector in terms of employment creation and contribution to exports. It creates 20 percent of jobs for the Vietnamese industry. Its export turnover is the country’s 2nd largest and Vietnam is the world’s 5th largest garment and footwear exporting country. Key Export Markets, 2017 Top Garments and Footwear, 2017 Nationalities of Major Foreign Firms

USA 35% Footwear China USD20 billion China, 9% Total Japan, 9% Apparel and clothing, not USD54 knitted or crocheted billion USD14 billion South Korea, 7% Apparel and clothing, Germany, 7% Other knitted or crocheted Taiwan 33% USD13 billion Key Trends International Brands Produced in Vietnam: 60% of export revenue is generated by foreign-owned companies From 2018-22, the export tax of some products will be reduced to zero, creating new opportunities for the country to increase value-added export products, thus promoting the economic growth. 21 Source: International Trader Center, Textile World Asia, VPBS, Vietnam Briefing and WSJ Garment and Footwear - Opportunities

The Vietnamese textile sector offers opportunities such as (1) raw materials exports and (2) investment in textile production for export purposes and to cater to the domestic market.

Textile and Garment Raw Material Import, 2015 and 2017 Potential Business Opportunities

7 6.0 2015 2017 6 4.9 1 Export Raw Materials 5 4.3 3.8 3.3 3.6 4 2.9 2.9 There is growing demand for raw materials for textile production; some USD BillionUSD 3 Thai products enjoy 0% tariff compared to 2-5% for Chinese products. 2 1 - 2 Invest in Textile Production Knitted or Cotton Manmade Manmade Crocheted Filaments Staple Fibres • Benefit from the cost advantage (affordable workforce) and trade Fabric incentives (e.g. GSP, other FTAs with major economies) to export across the world. Top Sources of Raw Material Import, 2017 • Firms could also produce apparel products that suit local tastes to serve the domestic market. 1 China (50%) 90% of raw materials 2 South Korea (12%) were imported for Investment Incentives for Textile Industry 3 Taipei (9%) apparel production, As the Vietnamese government is pushing for more value added mostly from China. activities, investment in the textile industry may not enjoy attractive tax incentives except for large scale investments. 22 8 Thailand (2%)

Source: International Trade Center, business.inquirer Fishery & Processing

23 Fishery Processing - Overview

With its long coastline, branches of rivers and over 3,000 islands offshore, Vietnam’s landscape provides plenty of resources for fishery processing industry and it is the 4th largest aquatic product exporter in the world (from 5th in 2016).

Vietnam’s Fishery Products Exports, 2017 Vietnam’s Fishery Exports Value Seafood Products Export Destinations, 2017

Non-Processing, 0.5% 1 USA (21%) 2010 2017 Thailand is now Secondary 2 Japan (15%) th CAGR Vietnam’s 4 Processing USD Billion USD Billion largest export 30.1% Preliminary 4.9% 3 Korea (11%) Processing 5 7 market, up from 69.4% 4 Thailand (4%) 6th place in 2014 5 UK (4%)

Moving forward, more value added Top Seafood Export Products, 2017 Seafood

► Vietnam’s two major seafood export products Fish fillets & pieces Production are shrimp and pangasius. 1 (fresh, chilled or frozen) 29% Area (mainly in ► With the Vietnamese government’s aims of Crustaceans 28% the South) increasing value-addition for natural 2 resource exports, secondary processing will gain more share in the future. Crustaceans & molluscs 3 (prepared/preserved) 21% 24

Source: International Trade Center, Viettrade, OFCO Fishery Processing - Opportunities

Foreign businesses may consider to invest in (1) fishery processing, especially high value-added activities and (2) supporting industries such as fishing / aquatic farming equipment, cold storages and packaging materials. Business Opportunities

Lower value-added Potentially serve: • Frozen products Processing 1. Domestic market – to serve the increasingly urbanized and growing Factory middle income groups. Higher value-added 2. Export market – to benefit from tariff privileges that Vietnam has with • Canned products major trading economies. Vietnam has been exporting seafood products to • Ready to eat foods over 130 countries.

• Fishing equipment and supply (feed) Supporting • Demand of these supporting activities would grow in tandem with an • Cold storages Activities expansion of the fishery processing industry. • Materials for packaging

Key Considerations: 1 High Competition 2 Food Safety Certificates 3 Technology Adoption Most players are large firms. Should meet international standards. Local firms are slow in applying technology; they should to be upgraded. 25 Construction and Construction Materials

26 Construction - Overview

Vietnam’s construction industry is bullish with USD 12.8 billion achieved in 2017, and will continue to grow in 2018. Vietnam allows full foreign ownership for investment in this sector and relaxes related regulations to stimulate growth.

Construction Output by Economic Sector Construction Output by Sub-segment, 2014 Top Investors, as of 2014 4.4% 3.5% 6.5% 6.5% Infrastructure Residential 41.2% 40.6% 1 South Korea: 21%

72.9% 82.3% 83.6% 85.0% 2 : 17%

22.7% 14.2% 9.9% 8.4% 3 Taiwan: 13% 2,008 2,011 2014 1Q2016 Industrial 18.3% Foreign Private Public

► Private investment contributes to development of not only residential ► Key infrastructure development projects are transport sector, but also infrastructure segment via Build-Transfer, Build-Operate- infrastructure, energy and utilities, while key residential Transfer, Build-Own-Operate and Public-Private-Partnership contracts project is mainly in affordable housing projects.

► The Vietnam government strives to create favorable conditions for ► With 8.7 percent growth in 2017, slightly drop from 9.1 construction regulations by (1) removing 41.3% of the existing percent in 2016, the industry has been driven to build a construction preconditions and simplify another 43.7% of regulations. better investment environment and drive its economy. 27

Data Source: General Statistics Office of Vietnam, Vietnam News, Financial Times, Dezan Shira & Associates, Rider Levett Bucknall Co. Ltd Construction Materials - Overview

Local firms in Vietnam export certain construction materials, but there are gaps to fill, especially in higher-end and more sophisticated products, of which imports are growing.

Vietnam’s Construction Material Imports and Exports in 2017 Top Import Destinations in 2017

0.10 Sanitary ware Import Exports 7.2% 3% 0.11 81% 0.35 China Thailand Ceramic Tiles 0.13 Key Construction Material Products Cement 10.31 9.24

0 2 4 6 8 10 12 USD Billions Tile Current Situation Cement Sanitary ware Brick

► Local production of construction materials has improved strongly to Market Tips reach the regional and global standards. ► There is insufficient technological and financial capacity to address Demand for construction material usually spikes two months the needs of high-end segment with more sophisticated demands. before Tet (Vietnamese New Year based on Lunar calendar) when ► Still heavily rely on imports, especially ceramic tiles. developers speed up construction of housing projects and people ► Growing FDIs in this sector as investors can benefit from locally renovate their houses prior to the New Year. available raw materials, affordable wage rates and trade privileges. 28

Source: UN International Trade Centre, Vietnam News Construction and Construction Materials - Opportunities

Vietnam’s Rationale: Opportunities: construction sector offers . Vietnam’s infrastructure sector still . Invest in construction projects: has ample room for development. infrastructure or residential. opportunities for construction . Property demand is booming with . Operate as contractor/ the implementation of the new consultant/architect and project foreign ownership regulation. design service provider. developers, service 1 Construction Projects providers as well as market . Demand for construction equipment . Supply construction equipment opportunities for would increase in tandem with an to Vietnam. construction expansion of the construction sector. equipment and Construction Equipment materials. 2

. Local firms still lack technology and . Export high quality and know-how to produce high-end, high- environmentally friendly quality and aesthetic construction construction materials.

material. . Invest in manufacturing facility to 3 produce locally with advanced Construction Materials technology 29 Retail

30 Retail - Overview

Vietnam’s retail sector is evolving fast due to the bourgeoning middle class and expanding retail sector with the entrance of foreign players who are attracted to the country’s various trade pacts.

Vietnam’s Basic Demography in 2014 and 2020 Major Cities for Retail Sector Shift to modern retail and E-Commerce 2014 2020 Traditional Markets Modern Retail Population 91 million 96 million

Middle Affluent Class 12 million 33 million Per Capita Monthly Income USD 171 USD 269

Current Situation E-Commerce sector ► Modern retail’s share in consumer spending is around 20-25%. Number of Stores, 2017 • Several e-commerce websites have been ► Modern retail currently accounts for 25% of retail market and operated such as Lazada, Nguyen Kim is expected to increase to 45% by 2020. Supermarket 800 and Tiki. ► Foreign retailers in convenience store and e-commerce have Shopping Center 150 • Vietnam’s E-Commerce market grew entered into this huge and fast growing retail market. over 25 percent in 2017. Traditional Market 9,000 ► Rising demand for consumer products and electrical • Key products: fashion, electronic goods, appliances thanks to higher income of Vietnamese people. books and food. 31

Source: GSO Of Vietnam, World Bank, UN Population Data, CEICE, Insider Retail Asia and Vietnam Retailers Association, JLL Research Retail - Opportunities

Foreign investors could venture into Vietnam’s retail market by (1) investing in trading / wholesale / retail businesses, or (2) exporting products to distributors based in Vietnam. Investment Opportunities Export Opportunities

Invest and expand in trading / wholesale / retail Export products (especially food and beverages, activities in Vietnam. apparel and electronics) to local market.

Regulations ► 100% foreign-owned firms are able to run one ► Firms could export to importers who possess retail outlet with business license. Regulations (1) rights to import, and (2) distribution rights. ► To operate multiple retail outlets, they need to pass an Economic Need Test (ENT) which takes ► Products such as food and beverages should into account several local market criteria. have product standard publication certificates to fulfill Vietnam’s requirements for food hygiene and safety.

Key ► Lack of transparency and clarity in ENT. Key ► Seek local importers who has extensive Considerations ► High rental cost in major cities, especially in Considerations networks and are able to collaborate in key commercial areas. marketing activities. ► Intense competition with international giants ► Consider challenges such as fragmented and local players. distribution between the northern and the ► Regional difference in terms of consumer southern regions of Vietnam. behavior. 32

Data Source: Nielsen, PwC Doing Business in Vietnam Demographic Overview

Large market with expanding urbanization Vietnam Population Pyramid

80+ Working age: 70 Percent 75-79 Male Female Vietnam is one of the most promising 70-74 65-69 markets in ASEAN. 60-64 The population is expected to reach 100 55-59 50-54 million by 2025. 45-49 40-44 35-39 30-34 ‘Demographic Min. wage: USD118 /month 25-29 20-24 sweet spot’ The rapidly growing number of young and 15-19 affluent consumers with high purchasing 10-14 power leads to stronger demand for 5-9 consumer goods. 0-4 6 4 2 0 2 4 6 Million people • The largest age groups are among 20-34 years old, which are relatively young compared to other middle-income Growing population in urban countries. area Projected to expand from 32% (2015) to • Unlike Thailand, Vietnam’s total fertility rate is still 43% (2030), along with infrastructure moderately high, maintaining the proportion of young development and changing lifestyle. population in Vietnamese demography in the future. 33

Source: Euromonitor, General Statistical Office Vietnam, KResearch Consumer Behavior

Owing to their political and geographical differences, consumers in the North and the South have different consumption patterns and product preferences. Consumer Behaviors in Northern and Southern Vietnam

Northern Behavior Southern Behavior

• Spend more carefully • Spend more easily • Prefer quality to good prices • Prefer cheap prices to quality • More sensitive to promotional campaigns • Sensitive to promotional campaigns • Comply with others’ suggestions • Use personal attitudes • Loyal to brands and be fashionable • Eager to try new brands • Passionate about luxury brands • Embrace changes

Tips / Key Recommendations

► Vietnamese consumers are attracted to promotional ► Vietnamese people are willing to pay more for higher quality. campaigns such as price discounts and free gifts. ► Thai products are perceived as having middle-to-high quality. ► Better quality and healthier products become more popular ► Food and beverages, cosmetics and household goods could as people have stronger purchasing power. be promising Thai exports to Vietnam. 34

Data Source: World Bank and Primary Research Plastics

35 Plastics - Overview

Vietnam plastics industry is new compared to others such as E&E and textile & apparel industries. With 15-18 percent of the sector growth rate, the industry has attracted foreign investors including Thais to operate manufacturing activity there.

Vietnam’s Plastics Raw Material Imports in 2017 Key Plastic Exports, 2017

Polymers of styrene 0.7 of Articles of plastics 0.9 80% raw material is Flat shapes of plastics 0.9 Articles of Plastics Sack & Bag Clothing Accessories Stationery imported for 20% 19% 4% 3% Non-cellular plastics 1.1 production Polymers of propylene 1.4 Current Situation Polyacetals & polyethers 1.4 Polymers of ethylene 2.0 ► Vietnam is the largest plastic product importer in ASEAN in 2017, with USD11.8 Billion while Thailand was the 2nd largest 0.0 0.5 1.0 1.5 2.0 2.5 importer with the value of USD8.6 billion. USD Billions ► There are over 2,200 plastic companies and about 85% Is local companies, most of them are small and medium-sized Top Import Destinations in 2017 enterprises with limited technology.

Outlook Some foreign investors entered Vietnam’s plastic production industry S. Korea China Taiwan Japan Thailand via merger and acquisition. This will add large-scale investments 24% 21% 10% 8.2% 8.1% and a high number of machines. 36

Data Source: Trade Map, Plastic & Rubber Vietnam Plastics - Opportunities

Amid growing demand for intermediate goods, Thailand, as major regional supplier for Vietnam, especially plastic pellets, could leverage these advantages to expand our manufacturing base into Vietnam.

Locations of Vietnam’s Plastic Key Drivers for Investment Supply Chain Clusters Plastic Pellet Demand Opportunities

. Local production of plastic pellets is Thai plastic pellet manufacturers may insufficient – Vietnam needs to import high take these opportunities to expand volume of plastic components. Approximately their production base into Vietnam to • Currently, Thailand 75-80% of total inputs are required for its supply these potential industries: is one of the top downstream plastic production. five import sources Food & Beverage

of quality inputs for . Growing downstream sectors and exports Plastic Packaging

Vietnam’s plastics require a larger quantity of input. Currently, industry. the plastics industry in Vietnam requires Construction (industrial roughly 3.5 million tons of input materials per • Capital costs goods , house year. However, domestic capacity is only of Thai entities accessories, 900,000 tons. are relatively construction materials)

lower than Vietnamese . Moreover, Vietnam’s plastic demand is Plastic technical firms. projected to increase to 8.3 million tons by products (for 2020 due to growing FDI and increased exports automotive and E&E to advanced markets, such as US and EU. industries) 37

Data Source: SIDEC and Vietnam Plastics Association VPA , Global Research & Data Services compiled by KResearch Table of Contents

Country & Economic Overview

Key Industries & Opportunities

Doing Business in Vietnam

KASIKORNBANK’s Support

38 Major Costs – Labor and Utility

Vietnam announced the revised minimum wage rate, effective January 2018. There are two types of minimum wages, i.e., common minimum wage and regional minimum salary.

Common minimum wage Regional minimum salary Vietnam’s Minimum Wage Rate by Region, 2017 • Only for employees in • Only for employees in all Minimum state-owned non-state enterprises Region Covered Areas wage organizations and • It is set based on 4 enterprises. regions as defined by the 1 Urban Hanoi and Ho Chi Minh City USD 170 • Common minimum wage government and range Rural of Region 1 and urban Can Tho, Da Nang 2 USD 151 is USD 61/month. from USD 118-170/month and Hai Phong

Minimum Monthly Wage in ASEAN 2018, USD 3 Bac Ninh, Bac Giang, Hai Duong and Vinh Phuc USD 132 4 The remaining localities USD 118 Myanmar 107

Lao PDR 128 Utility Costs Vietnam 118 170 Cambodia 170 Utility For USD Philippines 144 174 Manufacturer 0.424 – 0.452/cu.m 95 237 Electricity Services sector 0.5 – 0.643/cu.m Malaysia 197 247 Manufacturer 0.28/cu.m Thailand 284 304 Water Business 0.37/cu.m 0 50 100 150 200 250 300 350 39 USD Data Source: Dezan Shira & Associates, Vietnam news, DITP, Vietnam’s FIA compiled by KResearch Tax System

Corporate Taxes Personal Income Tax (PIT)

Monthly Employment Income Type of Tax Tax Rate Tax Rate (VND Million) Corporate Income 20% Tax 0-5 5% Value Added Tax 10% 5-10 10% No tax, unless paid to Dividends individuals where a 5% tax 10-18 15%

rate is imposed 18-32 20% 5%, unless the rate is Withholding Tax Interest reduced under a tax treaty 32-52 25%

10%, unless the rate is Royalties 52-80 30% reduced under a tax treaty Above 80 35% • VAT is also applied to imported goods and payable at the same time as import duties. Residents are subject to PIT: 1. Residing in Vietnam for 183 days or more • Double Tax Agreement (DTA): Vietnam has more than 65 DTAs or including one with Thailand. 2. Having permanent residency in Vietnam. 40

Source: Deloitte, PWC, KPMG and Ernst & Young and HSBC Investment Incentives - Tax Incentives

Corporate Income Tax (CIT) Exemptions Tax incentives such as CIT reduction and exemption are based on locations and Criteria Period CIT 50% CIT CIT Rate Newly established enterprises in: Applicable Exemption reduction activities of foreign investment.

• Projects in difficult locations specified by the Investors investing in preferential sectors and/or location government; • Hi-tech; biotech, specific supporting industries; may also apply for: • Important infrastructure projects, projects 15 years 5-9 years related to education, sports , health care. or (when CIT First • Large manufacturing projects (e.g. with whole exemption Tax Exemption 10% 4 years investment capital of VND6,000 billion, 3000 operation period workers, capital of VND12,000 billion). period expires) . VAT exemption for imported machinery, equipment and • Projects related to agricultural manufacturing materials which are: or processing in difficult locations. . Not yet able to be produced domestically • Software production, environment protection . Required for direct use in scientific research and Whole • Manufacturing or processing agricultural technological development activities. operation 15% products in normal locations . Allowance of tax loss up to 5 consecutive years. period • Projects in difficult locations, 17% • Manufacturing of agricultural machinery and 10 years 2 years 4 years Import / Export Duties Exemption equipment, high quality steel • Investment projects located in industrial zones . Import duty exemption on machinery and equipment, raw 20% (with the exception of those located in areas - 2 years 4 years materials and components for the manufacture of goods for having favorable socio economy conditions) export. . Export duties are charged mainly on natural resources. 41

Source: KPMG, Am Cham Vietnam, Vietnam Foreign Investment Agency Industrial and Economic Zones

Vietnam has several types of Industrial and Economic Zones

Border-grade An economic zone located in an international Industrial Park Production of industrial goods or provision of services for manufacturing goods that will be Economic border checkpoints or major border 1 (IZ) 6 sold largely in the country. Zone (BGEZ) checkpoints.

Export Coastal Specialized zone for production of goods to An economic zone located in border areas Processing Zone 2 be exported and related activities. 7 Economic that have access to access to the sea. (EPZ) Zone (CEZ)

R&D and application of high technologies; Economic Zone A general term for a zone that has a separate 3 Hi-Tech Zone training of hi-tech human resources; 8 economic space with a particularly favorable (HTZ) manufacturing of hi-tech products. (EZ) investment and business characteristics.

Information Activities related largely to R&D, training, Incentives 4 Technology production and trading information Centre (ITC) technology products and services. • Visa exemption for foreign workers • Land use levy exemption or reduction Agricultural An agricultural production area, where high • Tax exemption or reduction 5 Hi-tech Park technologies are used to produce • Business operation support (AHTP) competitive agricultural products. • Provincial/ State budget support 42

Data Source: Runckel & Associates, JLL Non-Tax Incentives and Trade Privileges

Non-Tax Incentives

Guarantee . Lawful assets of investors shall neither be nationalized nor Protection . Protection on foreign confiscated in accordance with administrative measures. investors’ intellectual . Guarantee relating to remittance of assets of foreign property, market access and investors abroad. the right to remit their capital . Business investment guarantees in event of changes in laws and assets out of Vietnam. or policies.

Trade Agreements

ASEAN: Association of Southeast Asian Nation Signed FTAs but not effective yet • ASEAN-Hong Kong, China Free Trade Agreement WTO: World Trade Organization • Comprehensive and Progressive Agreement for Trans-Pacific Partnership FTAs being negotiated GSP (Generalized System of Preference) [Implemented] Preferential trade to export to • RCEP (Regional Comprehensive Economic): A deeper liberalization of advanced nations such as Japan, US and EU. trade among 10 ASEAN countries, China, Japan, South Korea, , Australia and New Zealand, covering 3.4 billion people. • Eurasian Economic Union (EEU) 10 Free Trade Agreement (FTA) signed • European Free Trade Association (EFTA) with 55 countries, such as ASEAN, Russia, China, • Israel 43 Japan, South Korea, Russia and India. Source: ADB, KPMG, Am Cham Vietnam and Australian Department of Foreign Affairs and Trade, KResearch Forms of Investment

Update: Foreign investors are allowed to 1 2 3 own up to 100% shares of listed Wholly Foreign-owned Joint Venture Business Co-operation companies, except in industries Enterprise (JV) Contract (BCC) operated under the government’s policy e.g. Banking (30% maximum) Forms of Commercial Presence 1) Representative

Office (RO) 2) Branch 3) Legal Entity • A common form of • Not that popular Feature Limited liability company Joint stock company Partnership initial establishment form of commercial for foreign business. presence for Required One or more number of At least three - Unlimited liability partners: • Able to do market foreign business. number of member shareholders; no At least two general partners survey and • Limited to special members/ restriction on - Limited liability partners: commercial business sectors shareholders maximum organizations or individuals promotion activities. such as non-life • Unable to do direct insurance, banking, Liability of Limited to the extent of Limited to the extent - Unlimited liability partners profit-making securities, fund members/ the registered capital of the registered - Limited liability partners activities. management and shareholders contributions into the capital contributions tourism. company into the company 44

Source: Economic Research Institute for ASEAN and East Asia (ERIA), KPMG, Kasikorn Reseasch and Ministry of Foreign Affairs of Vietnam Types of Economic Activities

2. Not Permitted to 1. Promoted Sectors for Investment 3. Permitted with Special Conditions Foreigners 1. Manufacturing for the purpose of export. 1. Activities detrimental to the 1. Only permitted as BCC activities: Telecommunication, 2. Breeding, growing and processing of environment, nation, health or telecommunication service and post. agricultural, forestry and aquaculture national culture. 2. BCC or JV activities Allowed: Cultural products, products. 2. Projects that are related to the minerals, transportation, services related to forestry, 3. Use of high technologies and advanced treatment of toxic wastes and agriculture and hunting, tourism (restaurant &hotel), techniques, protection of the manufacturing of hazardous advertising and service related to Mining environment. chemicals that are banned by 3. Required Prime Minister’s approval: Activities that 4. Labor-intensive industries. international law. have at least USD 15 million registered capital and or 5. Infrastructure construction and are in conditional sectors development.

Note:

• There are 243 conditional business lines. • For JV activity, foreign investors are allowed to invest at least • Companies doing business in conditional business industries are 30 percent, but not exceeding 70 percent. required to fully satisfy the applicable conditions; • For investments in any conditional sector via JVs with - minimum capital Vietnamese partners, foreign investors, who have shares not - foreign ownership limitation more than 51 percent, can directly apply for domestic - requirement on facilities and personnel investment registration without having to obtain an investment - operation license certificate. 45

Source: Economic Research Institute for ASEAN and East Asia (ERIA), KPMG, Kasikorn Reseasch and Ministry of Foreign Affairs of Vietnam Procedure for Investment Approval (1/2)

Step 1. Pre-investment approval  Sectors:  Required documents  Timeframe • Petroleum exploration • Application • 35-150 days • Nuclear power plant • Financial statements • Press and publication • Detailed use of restricted technology • Seaports & sea transport • Proposed use of land • Airports • Environment impact assessment • Telecommunication • Socioeconomic efficiency evaluation • Development of infrastructure in economic zones

Step 2. Apply for an “Investment Registration Certificate (IRC)”  Importance of IRC  Required documents  Licensing authority • Being Required for all 100 percent • Details of investment project • For Legal Entity and BCC: foreign owned investment activities • Lease agreements or outlined land use Provincial Department of • Being the right of the foreign needs Planning and Investment (DPI) or enterprise to invest in Vietnam • Financial statements Management Board of special purpose zone  Form of investment:  Timeframe • For PPP: Ministry of Planning • Legal Entity • 15 days (25 days for PPP) and Investment or Local People’s • Business Co-operation Contract (BCC) Committee • Public Private Partnership (PPP) 46

Data Source: Dezan Shira & Associates and KPMG Procedure for Investment Approval (2/2)

Step 3. Apply for an “Enterprise Registration Certificate (ERC)”

 Importance of ERC  Required documents  Licensing authority • Required for all activities that seek to • Application • For Legal Entity and PPP: DPI set up new entities • Company charter • BCC needs to apply “Certificate of • It is accompanied by a number that • List of all board members Operation Registration” to DPI instead can will double as the tax registration • List of legal representatives and takes 15 days of timeframe. number of the entity • Letters of appointment and authorization  Form of investment:  Note: • Legal Entity  Timeframe • Documents must be in Vietnamese language. • Public Private Partnership (PPP) • 3 days • ERC and IRC can be applied concurrently.

Step 4. Post licensing procedures - Things needed for operating business, including:

Seal Bank account Labor Business license Charter capital Public announcement of carving opening registration tax payment contribution company establishment 47

Data Source: Dezan Shira & Associates and KPMG Etiquette Tips for Doing Business with Vietnamese

Making an appointment: Greeting: Business negotiation: • English is commonly used for business • Handshakes are common as a way of • Enlist the services of an interpreter, contacts with large or multinational greeting and saying goodbye. who is a native Vietnamese speaker corporations. • Traditionally, businessmen, who are senior and is knowledgeable about the • Smaller outfits tend to do business in (in age or in rank) usually initiate the nature of the business under Vietnamese language. handshake. The other side then sticks out discussion. both hands to grasp the other’s hands. • • Making an appointment is essential and Start with introducing yourself, should be done 2-3 weeks prior to the • Prepare some gifts for your potential topics for discussion and basic desired date. partners. information of the company. • Being on time is necessary. - Do use colorful wrapping paper for a Note: gift • Business cards are also vital. During the talks, Vietnamese partners - Do not give a gift in black and white may gesture positively. However, these • When exchanging business cards, it is flowers gestures do not necessarily mean that considered appropriate to show respect they will go along with everything, but are by paying attention to the card you - Do not give a sharp weapon gift such more of a way to express their attention. receive. as knives or scissors 48

Data Source: Compiled by KResearch, Ministry of Culture Table of Contents

Country & Economic Overview

Key Industries & Opportunities

Doing Business in Vietnam

KASIKORNBANK’s Support

49 Representative Offices - Overview

Hanoi Representative Offices

Mr. Sittiphat Chariyakul Chief Representative - Hanoi Tel: (+84) 2439460007-8 E-mail: [email protected] Address: Unit V807, 8th Floor, Pacific Place Building, 83B Ly Thuong Kiet Street, Hoan Kiem, Hanoi, Vietnam

Ho Chi Minh City Representative Offices

Mr. Loedchai Thongvigitmanee Chief Representative – Ho Chi Minh City Tel: (+84) 2838274147-8 E-mail: [email protected] Address: 14th Floor, AB Tower, 76A Le Lai Street, Ben Thanh Ward, District 1, HCMC, Vietnam 50 Representative Office Support

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