- Green Growth
- Your Consultant
This year, Vietnam and South Korea celebrate 20 years of diplomatic relations. Could you please talk about developments in the overall fields of economics, investment and trade between the two countries?
The relations between Korea and Vietnam have been upgraded to strategic cooperative partnership since 2009. The bilateral economic relations have constantly been tightened and strengthened.
Currently, there are about 3,000 Korean enterprises operating in Vietnam, employing more than 600,000 local workers, which is contributing greatly to job creation in Vietnam. In 2012, there are about 130,000 Koreans living in Vietnam and a similar number of Vietnamese residing in Korea. Furthermore, there are about 65,000 Vietnamese workers in Korea, making Vietnam a major source for foreign labour for Korea.
Bilateral trade between the two countries has been growing significantly. In 2012, bilateral trade has reached about $18 billion and is targeted to expand to $20 billion by 2015. Bilateral trade relations are complementary as a large number of Korean companies in Vietnam imports intermediate part and materials from Korea which are not available in Vietnam such as steel, aluminum, fabrics/textiles, footwear materials, synthetic resin, and IT parts to proceed in Vietnam and corporate into final products mainly for Vietnam’s exports to the world.
Korea’s fast growing exports to Vietnam have coincided with a substantial increase in Korea’s FDI in Vietnam. Vietnam has emerged as a strategic partner for Korean firms and as a major destination for Korean investment. Until July 2010, Korea was the top foreign investor in Vietnam in terms of cumulative number of projects with over 2,500 investment projects with the registered capital of about $23 billion, hiring about 400,000 local workforces.
Additionally, Vietnam has also been the largest receiving country of Korea’s official development assistance (ODA) and Korea has been the second largest ODA providing country to Vietnam. In 2011, Korea provided Vietnam with $150 million for 205 projects.
According to the MPI, as of late July this year, Korea was the second biggest foreign investor in Vietnam, with 3,071 projects capitalised at $24.2 billion. What are your opinions about operation efficiency of these projects in Vietnam?
Based on the experience of Korean companies investing in Vietnam, they usually point out some factors for their success. First is an abundant labour force. More than 50 per cent of the total Vietnamese population is under 30 years old. Second factor is cost saving compared to China, both in labour and operation costs.
The third factor is location. Since Vietnam is the regional hub connecting China, India and South East Asian countries, accessing to these gigantic markets is easier and faster compared to other countries. Lastly, due to the cultural resemblances of Korea and Vietnam, corporation with labour unions and bringing up the harmonised team spirits can be naturally acquired in the process of long term operations in Vietnam.
Currently, Vietnam is focusing on attracting hi-tech projects. How does this investment attraction orientation of Vietnam affect Korean investment in Vietnam? What should Vietnam do to attract more South Korean investors in the coming time?
Labour cost is one of the most important decision factors when investing into a foreign country. Since the labour cost is rapidly escalating in Vietnam, Korean companies are looking for investment chance in electronics, machinery and other technology oriented industrial field other than labour condensed business.
Even though Vietnam is highly appreciated for its potential investment opportunities, there are still some concerns. Firstly, there still exists loop hole in Investment Law, leading to misunderstanding of true meaning of its purpose. Secondly, more transparency needed in the field of customs, taxation and some of government work procedures.
Thirdly, government regulation needs to match with actual business field. Lastly, more strategic policies are in need such as spending more government budget, incubating and providing skilled work force and other supporting means to foreign companies.
Vietnam and South Korea have announced the launch of negotiations on a bilateral free trade agreement (FTA). What do you expect at Korea’s investment in Vietnam after the FTA is signed?
The Vietnam-Korea FTA desires to benefit both countries from expanding bilateral trade and investment, and improvements in such criteria as GDP, welfare and labour income, hence further strengthens the existing political, economic and cultural relations of the two countries and provides a comprehensive and institutional framework in which a wider range of bilateral cooperation would evolve.
A Vietnam-Korea FTA might firstly, cover progressive liberalisation and promotion commitments on trade in goods, trade in services, and investment. The second important part of this FTA is rule issues, such as SPS, TBT regulations, dispute settlement procedures, transparency, intellectual property rights and other mutually agreed issues.
The third critical part is a comprehensive economic cooperation framework concerning, but not limited to small and medium sized enterprises, customs procedures, tourism, trade and investment promotion, capacity building, energy and mineral resources.