Foreign firms flock to IZs

According to the latest report released by Savills Vietnam, many investors in the textile and garment industry from China, Taiwan and Hong Kong have recently entered the fray to be one step ahead of the Trans-Pacific Partnership (TPP) approval. Large-scale projects approved for the industry in the first half of 2015 drove the manufacturing sector, which accounted for 76% of fresh foreign direct investment (FDI) commitment (US$4.18 billion) to Vietnam in the period.

The textile and garment industry is expected to achieve double-digit growth when the TPP is approved. The partnership stipulates that fabrics and final garments exported within the TPP should be produced in TPP member countries.

Recent research by Standard Chartered bank showed a shift of investment from China to the ASEAN community in a bid to capitalize on the upcoming TPP. 44% of respondents said they would choose Vietnam foe a large domestic market, 29% for lower operational costs, and 18% for an ample labour supply.

Notably, giant tech Microsoft has closed its two Nokia plants in China in favour of a new location in Vietnam. The company was reported to expand its US$210 million plant in Bac Ninh’s Vietnam-Singapore Industrial Zone (VSIP) and triple its current 5,000 head count.

In addition, the Regional Comprehensive Economic Partnership (RCEP) and ASEAN Economic Community (AEC), in which Vietnam and Singapore are members, also facilitate bilateral investment opportunities. Singapore-based Mapletree Invesments has reportedly committed to investing US$1 billion in developing industrial zones (IZs), offices, and apartments in Vietnam. Other Singaporean peers, such as Famed Banyan Tree, Keppel Land and CapitaLand, have announced plans to invest in large-scale property projects in Vietnam.

Savills Vietnam’s report also points out that Vietnam has accelerated more legal reform by asking local authorities to scale down or even close IZs with low occupancy rates to make room for other development plans.

In this sentiment, Jonathan Tizzard , director of Research and Valuation at Cushman and Wakefield Vietnam, said that Vietnam was becoming a favourable destination for foreign manufacturers, as the government had made efforts to implement further legal reform. The strong investment in education and training also helps increase the educated workforce. This, coupled with low wage costs compared to other countries in Southeast Asia, makes Vietnam more attractive.

“Vietnam continues to grow as a manufacturing destination, climbing one place in 2014 to top our Growth Index. The pace of growth in its retail market continues to present opportunities to retailers and manufacturers of fast-moving consumer goods alike as the sector expands,” he noted.

By July 2015, there were 299 IZs in Vietnam, with the total area of approximately 84,000 heactares, of which the total leasable area was 56,000ha (66%). The leased area is currently operating at 46% occupancy.