Vietnam needs breakthrough incentives for semiconductor development: expert

The Vietnamese government needs to consider incentives beyond the existing regulatory framework to stimulate the development of its fledgling semiconductor industry as the country seeks further integration into global chip-related supply chains, an eminent expert has suggested.

In a talk with The Investor, Pham Chi Lan, former vice president of the Vietnam Chamber of Commerce and Industry (VCCI), said that during its decade-long presence in Vietnam, Samsung, the largest foreign investor in the country to date, has not succeeded in creating an ecosystem of supporting industries here. Most of its suppliers come from its home country, not Vietnam.

Lan, therefore, proposed that incentives for the semiconductor industry be bolder than those granted for Samsung and other high-tech projects.

“The government has to learn lessons from the past when it comes to preferences. We need to attract sectors that can transform our economic structure and export composition and really engage the participation of Vietnamese businesses,” Lan stressed.

She recalled a lesson Prof. Nguyen Mai, former Vice Chairman of State Committee for Cooperation and Investment, now Ministry of Planning and Investment, has repeatedly spoken about. At Mai’s proposal, the then Prime Minister Phan Van Khai established a task force to persuade Intel to build its plant in Vietnam at a time the U.S. chipmaker was considering three other alternatives – India, China, and Thailand. The mission was accomplished when the government granted breakthrough incentives for Intel, including its first-ever financial support.

Lan proposed three criteria for semiconductor investors. First, they should come from a country with source technologies such as the U.S., Europe or Japan, not from a country that steals technology from others. Second, their home countries should not be caught between a geo-economic competition of powers. Third, they need to commit to involve Vietnamese firms in their supply chains.

Strong interest from U.S. chipmakers

Lan’s reminder comes at a time when a host of multinational corporations are looking to Vietnam as a highly potential destination for semiconductors. Minister of Planning and Investment Nguyen Chi Dung said last week that the country has all the conditions and factors required to develop a semiconductor ecosystem.

Vietnam made international headlines during U.S. President Joe Biden’s two-day visit to Hanoi last month, during which bilateral relations were upgraded to a comprehensive strategic partnership – the highest designation in Vietnam’s diplomatic hierarchy.

In July, U.S. Secretary of Finance Janet Yellen came to Hanoi touting “friend-shoring”, a strategy designed to secure U.S. semiconductor supply chains in amiable nations.

Foreign interest in Vietnam’s semiconductor potential is not a fresh story. California-headquartered Intel opened its Vietnam plant in 2010 and has produced more than 3.5 billion products, putting Vietnam on the world’s chip map. Vietnam makes up over 50% of its global output.

During Biden’s Hanoi visit, senior executives of Intel, Amkor, Marvell, and GlobalFoundries joined an innovation and investment summit in the presence of Biden and Vietnamese Prime Minister Pham Minh Chinh.

Much of Chinh’s working visit to the U.S. last month centered around cooperation in high technology and innovation, including semiconductors. U.S. firms highly valued the potential of Vietnam’s semiconductor industry, and even talked of setting up chipmaking plants in Vietnam.

Among them, Synopsys signed agreements with Vietnam’s Ministry of Information and Communications and National Innovation Center (NIC) on assistance to foster the semiconductor industry, including personnel training and a chip design incubator.

Besides, the NIC signed a memorandum of understanding with Cadence Design Systems on capacity building and development of semiconductors. Other deals on workforce training were inked between Vietnam’s FPT Semiconductor and Silvaco, and the NIC and the University of Arizona.

Legal framework for incentives in place

Minister of Planning and Investment Nguyen Chi Dung stated last week that semiconductor investors will enjoy the highest preferences available under Vietnamese legislation.

Investors in high-tech projects, including semiconductors, are entitled to exemption to and reductions of corporate income and import taxes, and land rentals.

In addition, the government has issued a decree guiding the implementation of the Law on Investment, and other decisions that detail criteria for high-tech classification and special incentives.

Notably, Clause 5, Article 20 of the Law on Investment 2020 clearly states: “The government submits to the National Assembly to decide on the application of investment incentives other than the investment incentives prescribed in this law and other laws in case it is necessary to encourage the development of a particularly important investment project or special administrative-economic unit”.

Lan expressed hope that the government will consider more appealing policies for this industry. Article 20 of the Law on Investment adopted in 2020 and effective from January 2021 opens up space for the government to make bold decisions to attract critical investments that Vietnam really longs for.

“We need better mechanisms, and I expect the government to use its authority to the maximum for the benefit of the semiconductor industry. They can discuss thoroughly the incentives before asking for endorsement from the National Assembly,” Lan suggested.

As Vietnam plans to apply the Global Minimum Tax from next year, Lan suggested the Vietnamese government make grants to offset this tax.