Business Environment and Growth Drivers
Incentives for Investing
P.04
P.07
The Most Competitive Sectors
Da Nang: Vietnam’s Emerging Investment Destination
www.vietnam-briefing.com
P.10
Issue 39 • November 2019
From Dezan Shira & Associates
Vietnam Briefing · Issue 39 · November 2019 2
Introduction
ALBERTO VETTORETTIPartnerDezan Shira & Associates
Da Nang has emerged as an attractive investment destination for domestic and international investors, followed only by the capital Hanoi and commercial hub Ho Chi Minh City.
Da Nang is one of the five largest cities in Vietnam and serves as the gateway to the Central Region, which is rapidly industrializing. The city has undergone significant changes in recent years, underpinned by a sustainable approach to urban development. This has helped the city produce sustained economic growth, while also maintaining its reputation as the ‘most livable city’ in the country.
In many ways, Da Nang is in the right place at the right time. As the costs of production in China grow, and the US-China trade war continues, Vietnam has become a go-to destination for investors. Hanoi and Ho Chi Minh City still command the lion’s share of foreign direct investment, but the cities are becoming crowded, driving up land and labor costs in the process. Due to these factors, many investors are increasingly looking to the Central Region, with Da Nang becoming a focal point. Investors that want the edge of an emerging marketing like Vietnam should decide whether Da Nang fits with their business goals.
In this issue of Vietnam Briefing magazine, we examine the central city of Da Nang and its investment opportunities. We first highlight its business environment and growth drivers, before exploring the city’s incentives and industrial parks. We conclude with an overview of the sectors that are attracting investment, describing the scope for investors that are looking to invest in this region.
We hope this magazine will empower you to make an informed decision on where to base your operations in Vietnam. Best regards,
Alberto Vettoretti
CreditsPublisher / Chris Devonshire-EllisManaging Editor / Adam PitmanEditor / Pritesh SamuelDesign / Thu Ha, Nhat Do
ReferenceVietnam Briefing and related titles are produced by Asia Briefing Ltd., a wholly owned subsidiary of Dezan Shira Group.
Content is provided by Dezan Shira & Associates. No liability may be accepted for any of the contents of this publication. Readers are strongly advised to seek professional advice when actively looking to implement suggestions made within this publication.
For queries regarding the content of this magazine, please contact: [email protected]
All materials and contents © 2019 Asia Briefing Ltd.
Asia Briefing Ltd. Unit 507, 5/F, Chinachem Golden Plaza, 77 Mody Road, Tsim Sha Tsui East Kowloon, Hong Kong.www.asiabriefing.com
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Da Nang: Vietnam’s Emerging Investment Destination
Business Environment and Growth Drivers P.04
P.07
P.10
Incentives for Investing
The Most Competitive Sectors
This Issue’s Topic
Table of Contents
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Vietnam Briefing · Issue 39 · November 2019 4
Business Environment and Growth DriversBy Dezan Shira & Associates
Known as a provincial backwater for decades, Da Nang is now emerging into an economic powerhouse.
In 1997, the city separated from Quang Nam province to become its own centrally controlled municipality. The local government has subsequently sought to promote itself with pro-business policies, which have helped the city achieve a consistently high rank in the Provincial Competitive Index (PCI), a report by the Vietnam Chamber of Commerce and United States Agency for International Development (USAID). Da Nang was noted for decreasing entry costs, transparency, and improvements to its labor policy in this year’s PCI.
Da Nang was the first city to start the e-Government system, which it unveiled in 2014. The system provides 1,200 online administration procedures, including one-stop shops, residential management, public transport and water supervision for consumers. The government coined the term “E-Government, E-Citizens, E-Enterprises” to describe the system. Now, the government plans to become a smart city and join the ASEAN Smart Cities Network by 2030 – Da Nang’s development plan will be built in three phases, with a total investment of US$95 million.
Beyond these initiatives, the city offers incentives for investors in the IT, manufacturing, infrastructure, service and tourism industries to complement its many attractive features. It
GRDP
1,285 km2
Area
8
Districts
1 million
Population
5,000
Expats in Da Nang
549,602
Workforce
4.80%
Job creation rate
Urban unemployment rate
4.15%
36
Number of universities and colleges
27,168
Number of non-state enterprises
High-tech manufacturing, IT, Tourism, Education
Top FDI sectors
US$3.12 billion / 715 projects
Inward FDI in Da Nang
US$1.5 billion
Export turnover
US$1.3 billion
Import turnover
US$3.8 billion
Total retail sales of goods and services
Da Nang at a Glance
DA NANG
8% growth per annum
Vietnam Briefing · Issue 39 · November 2019 5
appears to be working: the city has the country’s highest growth rate, and its Gross Regional Domestic Product (GRDP) is US$3.12 billion, which makes it the third largest economic center in the country, after the capital Hanoi and commercial capital Ho Chi Minh City.
While FDI continues to pour in those cities, Da Nang is increasingly becoming competitive, and with the government’s backing, it is set to become a top FDI destination in the country.
Investment profile
In the first quarter of 2019, Da Nang attracted US$500 million in total investment – its
highest ever. It also granted 32 new FDI projects, an increase from 15 projects in 2018, with total registered capital of US$300 million.
Da Nang has a diverse set of industries, but the main sectors include tourism, high-tech manufacturing, information technology (IT), education, shipbuilding, and textiles. By 2020, the local government wants services to make up 55 percent of Da Nang’s economy, industry to make up 42 percent, and agriculture to make up 1 percent. Local officials have stressed that this is on target.
The Da Nang Investment Promotion Agency (IPA) encourages investment in Da Nang from both domestic and foreign investors. It facilitates the establishment and operation of investment projects in the city and serves as a bridge between investors and municipal authorities.
It also has a separate Japan Desk to cater to Japanese investors.
Top growth drivers
Da Nang has four main drivers that have encouraged its healthy business environment: livability, labor, infrastructure, and regional connectivity.
Livability
Da Nang’s competitive economy has been complemented by the city’s many attractive features. The city is often referred to as the most livable city in the country and is situated among several UNESCO World Heritage Sites, including Hoi An, Hue, and My Son Sanctuary.
The city is known for its clean environment, pristine beaches, and well-established public services. It is one of the cleanest cities in Vietnam and aims to be one of the most environmentally friendly cities in the country.
The cost of living in Da Nang is relatively cheaper compared to Ho Chi Minh City. As such, the city is relatively safer compared to bigger urban centers in Vietnam. The following cost comparison between Da Nang and Ho Chi Minh City from Numbeo is illustrative:
• Apartment rent prices are 13.28% lower than in Ho Chi Minh;
• Restaurant prices in Da Nang are 10.85% lower than in Ho Chi Minh;
• Transportation costs in Da Nang are 9% lower than in Ho Chi Minh;
• Entertainment costs in Da Nang are 2% lower than in Ho Chi Minh.
Labor
Da Nang’s workforce accounts for more than 51 percent of the population. Its young and dynamic workforce has benefitted from the city's educational offerings: there are at least three international schools in the city and 44 vocational training schools or centers.
Business Environment and Growth Drivers
Main Export Products
Unit: in USD million
Rubber products
Toys
Seafood
Garment & textile
Electrical & electronic product
0 100 200 300 400 500 600
Main Export Markets
35%
30%
15%
20%
Japan
Other
EU
US
Vietnam Briefing · Issue 39 · November 2019 6
Business Environment and Growth Drivers
Notably, the University of Da Nang delivers training programs in cooperation with foreign universities.
Investment in Da Nang is creating more jobs – and competition for talent – in tourism, real estate, education, entertainment, and IT. While this has helped attract workers to the area, some businesses find it difficult to hire and retain high-tech workers and senior managers.
Infrastructure
Da Nang’s growth can partly be attributed to its position as a regional transportation hub. The city is known for its broad roads, major highways, seaport, and airport, which connect Da Nang to the rest of Vietnam and other Asian countries. The synchronized transport network allows for easy connectivity, which facilitates the development of economic activities and investment. In this year’s PCI, Da Nang was ranked second best for its infrastructure. The PCI noted that places like Da Nang, which are well governed, generally have higher quality infrastructure.
Da Nang’s inner-city and suburban road networks are continuously expanding, connecting the city center with neighboring suburbs and surrounding areas. The recently completed 80 miles (130km) long Da Nang – Quang Ngai Highway facilitates freight and cargo contributing to the economic development of the region. The highway also connects Da Nang with Chu Lai and Dung Quang Economic Zones. The upcoming La Son – Tuy Loan Highway, which will connect Thua Thien Hue province to Da Nang, will further promote growth and economic development in Da Nang as well as the provinces in the Central Region.
The Da Nang railway station is the largest in the Central Region and plays a key role in the national rail system. City authorities want greater investment in the station to meet increasing demand for transportation in the region.
The Da Nang International Airport is located within 3 miles (5km) of the city center and is the third busiest airport in the country, after Hanoi and Ho Chi Minh City. The facility is connected to 48 international air routes with 462 flights per week connecting the city with China, Japan, South Korea, Thailand,
and Taiwan. The airport saw more than 13 million passengers transiting in 2018 and has two terminals with a third expected this year to meet increasing passenger traffic. Authorities will increase the airport capacity to 28 million passengers by 2030.
In 2018, the local government approved the city’s logistics infrastructure development planning – with a vision towards 2045. Authorities forecast that the airport and seaports will handle 80 percent of cargo traffic through Da Nang by 2045. The plan, worth US$606 million, aims to build the city into a key logistics service center in the Central Region, becoming a traffic hub for the entire country.
Regional connectivity
Da Nang serves as a gateway to Vietnam’s Central Region, which is emerging as a key destination for foreign investors in its own right. Da Nang is sandwiched between Thua Thien-Hue province in the north and Quang Nam province in the south. Their close proximity to Da Nang has encouraged regional growth as investors look to diversify their manufacturing hubs.
Da Nang, being a gateway to the Central Region, is a great opportunity for investors that are looking for alternatives from Hanoi in the north and Ho Chi Minh City in the south.
International trade corridor
Da Nang is on the eastern end of the East-West Economic Corridor (EWEC), which was established in 1998. It acts as a key import and export platform for the virtually untapped market between Vietnam and Laos, Thailand, and Myanmar.
The EWEC is 900 miles (1,450 km) long by road and presents significant opportunities for Da Nang to promote economic exchange with other countries, such as Cambodia, China, Laos, Myanmar, Thailand, and Vietnam, that are part of the Greater Mekong Subregion (GMS) and the Mekong-Ganga Cooperation (MGC).
The GMS is an economic area involving Cambodia, China, Laos, Myanmar, Thailand, and Vietnam, while the EWEC is one of the three economic corridors being developed in the GMS. The MGC was established in 2000 as an extension to the EWEC, allowing for greater cooperation and trade among Cambodia, India, Laos, Myanmar, Thailand, and Vietnam. The MGC aims to facilitate closer contact among people inhabiting the two major river basins of the Ganga and Mekong.
East West Economic Corridor
DA NANG
VIETNAM
MYANMAR
LAOS
THAILAND
MAWLAMYINE
Vietnam Briefing · Issue 39 · November 2019 7
Incentives for Investing
In addition to efforts designed to improve the business climate, the authorities in Da Nang offer incentives in several sectors to foreign investors. Many businesses are eligible for investment incentives, depending on a business’ investment destination and industry.
The government wants to provide favorable conditions to investors who invest in specific geographical areas, such as the Da Nang High-tech Park, or encouraged industries, such as software.
As an illustration of the local incentives on offer, we have highlighted and detailed incentive schemes for the Da Nang High-tech Park, the software export sector, and the general supporting industry.
Locations
Da Nang hosts six industrial parks (IPs) and one high-tech park spread out across the city. The government always describes industrial parks and high-tech parks separately due to the different incentive schemes applicable to them.
IPs are designated areas earmarked by government for the production of industrial goods and services. High-tech parks are a type of an industrial park but are specifically meant for high technology enterprises that produce state-of-the-art products, such as computer chips, aircraft components, and medical components.
Incentives in Da Nang
Da Nang High-tech Park
Incentives Duration
Corporate Income Tax Exempt First 4 years
Tax reduction of 50% Next 9 years
10% Subsequent 15 years
Import tax Exempt for goods imported for fixed assets Entire lease period
Land Rent Exempt for high-tech industries and production Entire lease period
Fair, exhibition, supermarkets exempt 19 years
Exempt for infrastructure of commercial operations inside High-tech park 15 years
Infrastructure usage fee Exempt for projects in R&D, incubation, and training 2 years, reduced by 50%
following 3 years
Exempt for projects in list of high-tech products for development 2 years
Exempt for projects in supporting industries 2 years
Software export enterprises
Corporate Income Tax Exempt 4 years
5% Next 9 years
10% Next 2 years
Import tax Exempt for machinery, equipment used in software production Entire lease period
Personal Income Tax
50% reduction on salary based and wage-based incomes of individuals working in ICT sector Entire lease period
Labor training 30% subsidy for initial training expense Entire lease period
Sales & promotion
100% subsidy of registration costs of software copyright protection domestically Entire lease period
Vietnam Briefing · Issue 39 · November 2019 8
Supporting Industry
Corporate Income Tax
10% 15 years
Import tax Exemption for goods imported to created fixed assets
Infrastructure usage fee
50% off for SMEs investing in supporting industry products in IPs
2 years
Waste water treatment free
50% off for SMEs investing in supporting industry products in IPs
2 years
R&DUp to 50% subsidies for trial of supporting industrial production
Entire lease period
Technology transfer, innovation
Up to 75% cost subsidies for transferring technology in material manufacturing projects
Entire lease period
HR development
Monthly allowance of up to US$23 per employee and maximum training period of 3 months
Entire lease period
Da Nang Hi-tech Park
High-tech parks specialize in research, development, the application of high technology and training of high-tech HR staff. Industries such as biotechnology, nano-technology, and microtechnology are especially suited for high-tech parks in Vietnam.
The Da Nang Hi-tech Park was established in 2010 and is about 13 miles (22kms) from the city center. It was one of the first three national, multifunctional, high-tech parks in the country. The high-tech park was built to attract high-tech resources, promoting
technological innovation and high-tech enterprises and incubation, reinforcing Da Nang as a major technological and scientific hub of Vietnam.
Industrial parks
All IPs in Da Nang are well equipped with power, water, telecommunications, and roads. Investors from Japan, Singapore, South Korea, Malaysia, and the US have the most number of FDI projects in these IPs.
Da Nang’s IPs, however, have been occupied quickly, and currently only two of the six IPs – Lien Chieu and Hoa Khanh Expanded
IP – have available space for investors. To plan for future growth, the Da Nang IP management board has planned three additional industrial parks – such as Hoa Cam – Phase II, Hoa Nhon, and Hoa Ninh.
Investors that require space in the area urgently may explore other nearby alternatives. For example, there are two IPs in Thua Thien Hue and Quang Nam provinces, which have space available and are in close proximity to Da Nang. However, investors should note that these spaces are also in high demand and are likely to fill up in the near future.
The labor sourcing edge
Employers find it comparatively easier to source qualified labor in Da Nang due to well established universities and vocational schools in the area. Reports state that the number of employees with technical skills account for one quarter of its total local labor force.
But there are many training courses provided in the area to help labor upskill. Training courses in the area predominately focus on science, engineering, IT, and economics, which help equip workers with technical knowledge the workforce needs.
Many employers also find that it is compa-ratively easier to source and retain labor at Da Nang. In contrast to other areas where IPs are far removed from city centers, the industrial parks in Da Nang are situated within the city and nearby areas on the outskirts of the city.
This benefits many workers. Global trends show that employees prefer a short commute, and this is also true for the Vietnamese, who often like to live in the city with their families.
For industrial parks that are away from city centers, investors can arrange transportation for employees that live in Da Nang. For example, employees interviewed at IPs in Thua Thien Hue and Quang Nam provinces said they were happy to work there since their employers provided transportation.
Incentives for Investing
Da Nang’s Industrial Parks
Lien Chieu Industrial Park
Da NangIndustrial Park
Da Nang Seafood Service
Da Nang International Airport
Hoa KhanhIndustrial Park
LIEN CHIEU DIST.
HOA CAM DIST.
THANH KHE DIST.
HAI CHAUDIST.
NGU HANH SON DIST.
SON TRADIST.Expanded
Hoa Khanh
Hoa CamIndustrial Park
Da Nang Hi-Tech Park
Vietnam Briefing · Issue 39 · November 2019 9
Da Nang IP Stats
General Industrial Zone Information Utilities
Province Name Surface (ha)
Occupied Status Industries
Land price
($/m2)
Factory price
($/m2)
CIT (%)
CIT holiday (years)
CIT reduction
(year)
Da Nang
Dien Nam Dien Ngoc 418 100%
Electrical, electronic industry,agricultural, forestry, marine products, garment, cosmetic and plastic products, wrapping and consumer goods production, services and trade
20 3
Da Nang IZ 50.1 100%
Textile and garment, leather, electrical and electronic appliances, processing industrial products, food and beverage, wrapping and printing production, handicrafts, jewelry, plastic products
100 5
Da Nang seafood service
50.63 100% Seafood producing and processing industry, pollution control industries 30 5
Hoa Khanh 394 100%
Electric, electronics, IT and software production computer, peripherals, office machines, mechanical engineering, measurement equipment, medical equipment, supporting industry for mechanical engineering, automotive assembly
75 5
Expanded Hoa Khanh 132.6 91%
Electrical industry, electronics, IT and software, new materials, computer, peripherals, office machines, mechanical, measurement equipment, medical equipment, supporting industry, automotive assembly
75
Hoa Cam 149.84 100%
Electricity, electronics, IT and software production, new materials, computer, peripherals, office machines, mechanical engineering, measurement equipment, medical equipment, supporting industry, automotive assembly
35 5
Lien Chieu 289.35 65%
Electricity, electronics, IT and software production, new materials, computer, peripherals, office machines, mechanical engineering, measurement equipment; medical equipment,supporting industry for mechanical engineering, automotive assembly
65 3
QuangNam
Tam Thang II 103 50% Leather shoes, electronics, IT, clean industry 37 3 10% for
15 years 450% for 9
years
Tam Thang 197.1 80%Textile and garments, electronics, machinery, chemical, pharmaceutical, plastic
35 3 10% for 15 years 4
50% for 9 years
Thua Thien Hue
Sai Gon - Chan May
138.94 20%Electricity, electronics, precision engineering, garments, food industry, automobile assembly
30-35 2.5-3 10% for 15 years 4
50% for 9 years
Incentives for Investing
Vietnam Briefing · Issue 39 · November 2019 10
The Most Competitive Sectors
Encouraged Investment Sectors
SERV
ICES
IND
UST
RY
Microelectronics, mechatronics and opto-electronics
ICT Supporting industries
Airport and seaport logistics
Trade, wholesale and retail
Healthcare Education and
training
Tourism,real
estate
Banking and
finance
High-tech industries Biotech
Automation, precision machines
New (renewable) energy,
nanotechnology
Tech applied for petrochemistry or other
special industries
In this chapter, we highlight and discuss the sectors that are encouraged by the Da Nang government for investment. Investors that choose to invest in these sectors will find support from the government and find it easier to set up their operations as the city becomes selective on the type of foreign investment it receives.
Tourism
Da Nang is an important tourism hub located close to several UNESCO Heritage Sites. In 2018, most tourists came from South Korea, China, Japan, and the US. To cater to this diverse set of visitors, tourist facilities are continuously improving to meet international standards. Business-class hotels and resorts managed by Hyatt, InterContinental, and Novotel have a presence.
While Da Nang is a popular tourist destination, tourists are also exploring surrounding areas, such as Thua Thien Hue and Quang Nam provinces. This has created a boom in real estate from the hospitality and entertainment sectors. This has helped Da Nang in becoming a hub, as tourists travel to Da Nang and then explore the surrounding areas.
To be sustainable, the city is promoting eco-tourism to enhance the competitiveness of its offerings. City officials are working to expand the meetings, incentives, conferences and exhibitions (MICE) sectors by working with ministries, business firms, and diplomats. These initiatives help illustrate the trajectory of the sector, and some of the opportunities for investors, particularly regarding the need for hotels, resorts, entertainment centers and supporting industries.
Airport and seaport logistics
The increase in tourists and businesses has increased pressure on Da Nang’s airport and seaports. Recently, the Da Nang city authorities proposed to build a third terminal at Da Nang International Airport to meet increased demand and future growth requirements. As the airport expands, this offers investors scope to become involved with infrastructural development, logistical services, and related commercial activity, such as retails shops, hotels, and restaurants that cater to travelers and traders.
Da Nang also plans to become an ASEAN logistics center by 2030. To meet these goals, the government is investing in its seaports, which will be the primary growth driver for this
project. The city’s seaport system is expected to handle 29 million tons of cargo by 2030. Investors have already poured capital to build the Lieu Chieu deep water seaport, while roads and railways are also being developed to better connect to seaports in the area.
Retail
Da Nang is a popular shopping destination and the retail market in the city is growing. The city is peppered with domestic and foreign retailers, such as VinMart as well as Lotte Mart, respectively. Convenience stores are the fastest growing segment in the retail market. In addition, with the number of foreigners visiting or working in the city, there has also been an increase in specialized markets, including a market for furniture and preserved foods.
Vietnam Briefing · Issue 39 · November 2019 11
The Most Competitive Sectors
Son Tra district accounts for the lion’s share of retail at 45 percent, followed by Hai Chau and Tanh Khe districts at 40 and 15 percent, respectively. Da Nang’s newest shopping mall VV mall, which is yet to be completed, has already received almost 100 percent occupancy.
Education
The education sector is open for foreign investment and there is a large demand for high-quality education. Da Nang has 36 universities and colleges, churning out 44,277 graduates a year.
Decree 86, which took effect in August 2018, is further expected to help the education sector by allowing foreign investors to build international schools. The reform increases the number of Vietnamese students an international school can enroll, from the previous 10 percent to the new 50 percent.
The 10 percent ceiling limit of Vietnamese students in the previous regulation was a barrier for foreign investors and the new cap will make many international schools more viable.
The reform also provides clarity on cooperation between local and foreign players – giving confidence to local schools to work with foreign partners to develop services – as well as guidelines on the issuance of certificates by foreign language training centers.
Investors from Australia, the UK, US have invested in over 21 FDI projects, with US$174 million in total investment capital as of 2018 in Da Nang.
High-tech manufacturing
With the government’s push to make Da Nang a smart city, several firms – such as EU-based ABB – have signed agreements with local authorities to achieve this goal. This has created a demand to produce high tech devices, such as chips and physical devices, connected to ICT to monitor data and meet smart city requirements.
Most recently, US-based Universal Alloy Corporation (UAC) made an investment of US$170 million at the Da Nang High-tech park. The firm manufactures electronic devices for airplanes built by Boeing and Airbus. The firm also plans to partner with location universities and vocational schools to boost education in training in aerospace. Up to 1,200 workers are expected to join the firm.
Investors specia l iz ing in high-tech manufacturing should consider operations at the Da Nang High-tech park due to government incentives tailored to it. Beyond these incentives, investors would find a growing ecosystem for high-tech manufacturing that has been increasing steadily.
IT
Da Nang is becoming a magnet for domestic and foreign IT investors. The city is one of the leading places for developing IT and software industry in the country. The IT sector contributes around 5.5 percent to Da Nang’s GDP. Of the 700 IT businesses in the city, around 43 percent specialize in software production and outsourcing. Large companies, such as FPT software, Gameloft, LogiGear, Global Cybersoft, and Asnet, provide software outsourcing services for partner firms in Japan, North America, and Europe.
These companies have benefitted from educational facilities in the city. The University of Da Nang has partnered with several universities in the US to provide training in digital systems, automated production and automation, software engineering, and industrial computing. The abundance of engineers trained by local universities and software technology centers has underpinned the success of the area’s software outsourcing industry.
Beyond the local talent pool, Da Nang is the most advanced telecommunications hub in the country. It has a citywide wireless broadband network with about 350 access points across the city. As a telecom hub, Da Nang links Vietnam with nearly 40 countries in Europe and Asia though an undersea communications cable, an international transmission line of 10Gbps.
New energy, nano-technology
Da Nang is also embracing new energy, which is also known as renewable energy. With an average of 2000 hours of sunlight, city authorities have approved a 4.4 MW solar farm in Lieu Chieu district at a cost of US$5 million.
Most recently, Da Nang partnered with the EU to build solar energy systems at hospitals, schools and households. The project aims to educate businesses and households on the use of renewable energy technology. Already, 30 percent of the city’s population uses solar power for water heaters. The sector is a great
opportunity for investors nationally: Vietnam aims to develop the ratio of electricity from renewable sources to 43 percent by 2050.
Da Nang has also become a leader in the use of nano-technology. In 2016, the authorities approved an investment license to the city’s first nano-technology project, which was developed by local firm Danapha in partnership with two Japanese companies. The city government has also used nano-lighting technology to reduce 30 percent of power consumption at public sites. The government plans to use nano-technology for LED, solar cell, water treatment, as well and oil and gas representing diverse investment options for foreign firms.
Supporting Industry
Da Nang has undergone a substantial change over the last decade to shift its economy from agriculture to industry to the services sector. But it remains crucial for businesses that want to realize greater efficiency to develop a sustainable supporting industry by increasing the localization rate with a stable supply of raw materials, components, and spare parts.
Vietnam’s localization rate has been improving over the years (the localization rate grew to 36 percent in 2018 from 32 percent in 2017), but it still needs to improve further. Local firms are still not able to match the high standards demanded by foreign investors with several components being imported, increasing costs.
While the involvement of the Vietnamese supporting industry in the supply chain of foreign invested enterprises remains low, the local government has provided several incentives to allow this sector to flourish in Da Nang.
The incentives given by the government for high-tech manufacturing and agriculture will further have a knock-on effect for the supporting industry, allowing it to develop further and become more profitable. While still developing, the sector is an attractive investment option for investors. With manufacturing making up over 80 percent of the country’s total pledged capital, this sector is continuously expected to grow, creating further demand for the supporting industry. Investors that can capitalize on this demand are likely to see further investment gains.
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