Slow administrative procedures hinder Korean investments in Vietnam: KoCham chair

By Minh Tuan

Fri, July 12, 2024 | 11:58 am GMT+7

The potential for further investment from South Korea remains huge, but administrative obstacles need to be dealt with to tap that potential, Hong Sun, chairman of the Korean Business Association (KoCham) in Vietnam, tells The Investor.

Albeit being optimistic about business prospects in Vietnam, issues with minor administrative procedures such as visas and temporary residence cards may cause annoyance to South Korean investors and make them hesitate to expand their investments, Hong Sun says.

Ongoing concerns about investment conditions

Statistics show that direct investment from South Korea has decreased, pushing Korea down to fifth place in 2023 among the economies investing in Vietnam. Do you think this reflects pessimism among Korean businesses or Vietnam's investment environment?

It’s commonly known that Korean people act as they talk. We are waiting for the announcement of many projects, including in the energy sector. According to the original plans, those projects would have started many years ago and should have been completed by now, not just started. This has led to caution among Korean investors.

Many investors are insecure about power supply, although Vietnamese government leaders have affirmed that there will be no more power shortages. New investors in the field of semiconductors and high-tech manufacturing need stable power supply to make investment decisions.

There is currently a trend of developing artificial intelligence (AI) and investing in data centers, which are two areas that consume a lot of electricity. For industries that consume a lot of electricity, investors need guaranteed electricity supply. Meanwhile, domestic demand for electricity in Vietnam is very high, especially when the weather is hot.

The next big obstacle is the labor force. Due to rapid economic development, there is huge demand for trained human resources in Vietnam. Many factories cannot operate because of failure to recruit senior engineers.

Although unskilled labor is abundant, some industrial production hubs still lack workers. This is due to a shortage of housing and social welfare for migrant workers from rural areas.

Another reason why the investment environment in Vietnam is gradually losing its attractiveness is the Global Minimum Tax (GMT), which is affecting the "giants" investing in Vietnam. The EUR750 million threshold for the tax is relatively low, so dozens of Korean companies will be hit by the tax. The Vietnamese government is directing the development of measures to support foreign businesses, but there have been no clear conclusions.

Progress of developing decrees related to the GMT has been slow. Businesses that reach the revenue threshold of EUR750 million a year should have had to pay a minimum tax of 15% from the beginning of this year, but there are still no clear regulations on the level and type of support the government plans to offer. A big investor cannot make decisions without clear regulations.

I do not agree with some Vietnamese economists who say that foreign investors are always asking for support and incentives. However, without this kind of support, it will be difficult to attract FDI amid fierce competition with neighboring countries. Samsung received more than $6 billion in cash support and TSMC (Taiwan) received more than $20 billion in support from the U.S. government to invest in factories in the U.S.

Due to the important role of semiconductors, the U.S. and many countries want to ensure that the domestic supply chain is safe, reducing reliance on imports. Previously, when the free trade trend prevailed, investors felt secure, but now, faced with geopolitical risks, governments want to ensure secure supply chains within their national territories.

If Vietnam wants to develop further, it needs to look at investment incentives. However, the GMT has made the investment environment in Vietnam less attractive. Previously, foreign businesses enjoyed tax exemptions and deferrals, but now a minimum tax of 15% is set to be imposed.

Regarding administrative procedures, many businesses are complaining that the speed of implementation is not as fast as before. Outstanding issues include work permits, temporary residence cards, and visas. In other countries, foreign investors have no problems with residence permits, even with investments of only a few hundred thousand dollars. However, the residency regime for the largest and smallest investors in Vietnam is the same.

Every work permit requires a lot of time with notarized procedures, consular legalization, and confirmation from South Korea’s Ministry of Foreign Affairs and Vietnam’s Ministry of Foreign Affairs.

Many people even think that applying for an investment license is easier than applying for a temporary residence card. When applying for an investment license, businesses have to wait 2-3 days for an industrial park management board to issue one. If investors face problems, they will look elsewhere.

It's widely agreed that the fight against corruption has made local leaders and government agencies reluctant to make decisions, causing delays in the investment licensing process. What is your view? Is this an unintended consequence of the anti-corruption campaign?

We support efforts to fight corruption in Vietnam, handle violations, and clean up the Party's internal affairs. In the short term, this can cause some difficulties, but in the long run, the system will become more transparent.

In fact, many projects have problems with land lease procedures. For example, some projects have been put into operation, but have not yet signed actual land allocation or lease contracts with the local government. Some projects in the Lang-Hoa Lac Hi-Tech Park have been in operation for a long time but have not received land use rights certificates, and this affects subsequent investments.

Vietnam's advantages in attracting FDI will not last forever

In recent years, due to geopolitical tensions between major powers and supply disruptions, Southeast Asia in general and Vietnam in particular have been considered ideal destinations for FDI flows. What is your take?

We do not doubt the development potential of Vietnam and investment from South Korea. The problem is how much Vietnam wants to develop, to a moderate level like some other countries in Southeast Asia or to outperform the rapid development of South Korea and Japan. Surely, Vietnam wants to develop more than South Korea. For that, Vietnam needs to receive strong investment flows. Therefore, the country’s leadership needs to have determination, focus, and confidence.

Currently, the FDI sector accounts for more than 70% of Vietnam's total export turnover. But Vietnam's advantages may not last forever, as low labor costs and investment incentives will not always be better than other countries. When Vietnam's minimum wage climbs above other countries, investors will look alternatives.

LG and Samsung are currently major manufacturers of home appliances and phones in Vietnam. Their revenue sometimes accounts for 25% of Vietnam's total GDP. What will happen if those giants withdraw from Vietnam? What will be left of Vietnam? Currently, Samsung has completely withdrawn from China, leaving only the semiconductor segment there.

We must invest in industrial and technological foundations, not exports of agricultural and aquatic products or minerals, which do not create high added value. It is necessary to add more brainpower and added value to industrial products produced in Vietnam.

I am very concerned about the future of Vietnam. FDI cannot last forever, so priority should be given to developing the domestic industry. Policy support and special incentives from the government are needed. Businesses like Samsung, Hyundai, and LG would not have reached their current scale without support from the Korean government.

Similar to Vietnam, South Korea is an export-oriented country and has many specialized export agencies such as the Korea Trade and Investment Promotion Agency (KOTRA) and Food and Agriculture Trading Company Korean Seafood (aT).

We consider large exporters and manufacturers heroes. Vietnam should also respect these businesses. To do that, businesses must operate accordingly, and not rely on lobbying or relationships with state leaders.

Reports from large organizations such as JBIC, AHK, ands KOTRA show a lot of optimism about the investment prospects in Vietnam. What is KoCham's stance on Vietnam's investment environment?

Vietnam has many bilateral and multilateral free trade agreements which are attractive to exporters. Another advantage is human resources. Compared to other countries, Vietnam has abundant and skillful human resources. In addition, the Vietnamese government actively supports and creates favorable conditions for manufacturers and exporters. Therefore, many businesses are interested in investing in Vietnam.

However, although Vietnam has many advantages, there are still some small problems that cause discomfort and insecurity for Korean investors. Issues related to visas, temporary residence cards and work permits are not trivial.

Vietnam should think carefully about new laws and evaluating their impact on businesses. Government agencies like the Ministry of Planning and Investment and the Ministry of Finance also differ in opinions when it comes to foreign investment policies. Therefore, the parties need to rebalance their approaches.

Another problem that arises is the delay in VAT refunds, which affects business operations. Some foreign enterprises are waiting for hundreds of billions of dong. Tax refunds should be done automatically.

Some businesses have huge problems that are only being slowly resolved, making them tired and unwilling to expand their investments here. Prime Minister Pham Minh Chinh's visit to South Korea helped remove many obstacles for important projects and open up strong investment capital flows.

South Korea currently has 10,000 businesses investing here, and no other country has such a large number of businesses. Nearly 200,000 Koreans live here. We love life in Vietnam. My wife's parents are Korean-American and really want to stay here, but they have difficulty getting a visa or have to reapply every 6 months. Vietnam does not have a visa for retirees and allows only short-term visas.

I have invested and lived here for 30 years, but every two or five years I have to apply for a new visa. Even though I am the chairman of KoCham, there are no exceptions.

KoCham is preparing to conduct a large-scale survey on the operating situation of Korean businesses in Vietnam. We will synthesize their opinions and problems to send to the governments of South Korea and Vietnam, and make appropriate recommendations.

Could you tell us about upcoming Korean investment trends in Vietnam?

Traditional industries such as garments, shoes, and handbags still need encouragement. If in the past, Vietnam produced cheap products, but now it produces branded products with high added value.

Korean semiconductor manufacturing businesses want to continue expanding here, but need to ensure a number of conditions such as infrastructure, power sources, human resources, etc. Therefore, they need the Vietnamese government to continue to focus on addressing their concerns.

Back to the issue of power sources, Vietnam should consider restarting nuclear power projects. Without nuclear power, it will be difficult for Vietnam to carry out its future plans. In this field, Korean businesses have advantages in technology and price.

Other potential fields include gas-to-power and high-speed railways. Korea has operated expressways for decades with good efficiency, and Korean businesses are also interested in investing in this field.

Overall, we really want to expand investment, but the process of handling problems remains slow. We are not interested in Vietnam's internal issues, but just want administrative procedures to be business as usual.

Currently, the relationship between the two governments is sound, with many high-level visits. Therefore, now is the time to focus on economic, trade, and investment cooperation.