VN expects a new wave of investment from Japan towards promoting green growth

September 12, 2023 - 06:52
Japanese investors registered to pour more than US$2.58 billion investment in Việt Nam in the first eight months of this year, making Japan the third largest investor in Việt Nam in the period, coming after Singapore with an investment of $3.83 billion and China with $2.68 billion.
A plant of Japanese motorcycles and automobiles manufacturer Honda in Hà Nam Province. Việt Nam expects a new wave of investment from Japan in promoting green growth. — VNA/VNS Photo Đại Nghĩa

By Mai Linh - Mai Hương

HÀ NỘI — Việt Nam expects to attract a new wave of investments from Japan in sectors which will contribute to accelerating the country’s digital transformation process, promoting innovation and realising the green growth ambitions.

Since Việt Nam promulgated the Law on Foreign Investment in 1987, which paved the way for foreign direct investment (FDI) to flow into the country, the capital from Japan has seen significant increases and played an increasingly important role in the industrialisation and modernisation of Việt Nam and in promoting the country’s socio-economic development.

The latest updates from the Ministry of Planning and Investment showed that Japanese investors registered to pour more than US$2.58 billion investment in Việt Nam in the first eight months of this year, making Japan the third largest investor in Việt Nam in the period, coming after Singapore with an investment of $3.83 billion and China with $2.68 billion.

Registered FDI from Japan accounted for more than 14.2 per cent of the total registered capital in Việt Nam in January – August period and saw a significant increase of 73.1 per cent over the same period last year.

Japan has remained one of the three largest investors in Việt Nam with an accumulated registered capital of more than $71 billion in 5,168 projects since the Law on Foreign Investment took effect in 1988, the ministry’s statistics showed.

The FDI from Japan was present in 57 out of 63 provinces and cities in Việt Nam and across 19 sectors, with a majority of capital flocking into the processing and manufacturing industries; and science and technology, which was consistent with the Vietnamese Government’s development orientations towards a modern, industrialised economy.

Figures show that Japan’s investment in Việt Nam saw several waves during the past three decades. The first was in 1994 – 97 after the US lifted its 30-year trade embargo on Việt Nam and the strong appreciation of the yen, opening up a period of massive Japanese investment into the country. Japanese investment in Việt Nam surged from $200 million in 1994 to $1.3 billion in 1995, making Japan the third largest investor.

The second boom was in 2005-09, which was fuelled by the Việt Nam – Japan Joint Initiative launched in 2003, the Agreement Between Japan and Việt Nam for the Liberalisation, Promotion and Protection of Investment signed in November 2003 and the Việt Nam -Japan Economic Partnership Agreement signed in December 2008. Japan became the second largest investor in Việt Nam in 2008, with a record total registered capital of $7.28 billion worth in that year before a decline in 2009 as an impact of the global financial crisis.

The FDI inflow from Japan flourished in the following years to set a record in 2017 with a total registered capital of $9.11 billion, accounting for 25.4 per cent of the total FDI into Việt Nam in that year. Japan gained the position of the largest foreign investor in Việt Nam in 2017 which was maintained to 2018 with a total registered capital of $8.59 billion.

Due to the impact of the COVID-19 pandemic and the economic slowdown, FDI from Japan to Việt Nam saw a drop to $2.93 billion in 2019 and $2.3 billion in 2020. However, after the pandemic, Japanese investment in Việt Nam recovered impressively to reach $3.9 billion in 2021 and $4.78 billion in 2022.

Ô Môn 2 Thermal Power Plant, with a registered capital of $1.31 billion and Quảng Ninh LNG power plant, worth nearly $2 billion were major projects with Japanese investments in recent years.

Investment from Japan played a very important role in Việt Nam’s process of attracting FDI during the past 35 years, Phạm Quang Hiệu, Vietnamese Ambassador to Japan, said at an investment cooperation forum in Japan in September.

A new wave

Việt Nam remains an attractive investment destination for Japanese investors.

According to a 2022 survey by the Japan External Trade Organisation (JETRO), 60 per cent of Japanese investors in Asia – Pacific said they planned to expand operations in Việt Nam within the next two years. The rate was the highest in ASEAN and the third in Asia – Pacific region, coming after India and Bangladesh.

Việt Nam is also the second favourite destination for Japanese investors, after the US, JETRO’s findings showed.

Investment promotions were taking place strongly between Việt Nam and Japan recently on the occasion of the 50th anniversary of the establishment of diplomatic relations between the two countries this year.

Prime Minister Phạm Minh Chính, at a business conference held in Japan in May, called for Japanese investors to increase investments in Việt Nam, especially in the fields of part-supplying, electronics component, electric car production, science and technology, innovation, research and development, green economy, digital economy, knowledge economy, semiconductor production, new energy (such as hydrogen), renewable energy, eco-industrial park and smart city.

Pledging an effort to create favourable conditions for foreign investors to invest successfully and sustainably in Việt Nam, he expected Japanese investors to provide support in all five aspects, including institution, capital, technology, human resource and governance, while strengthening research and development, innovation and technology transfer to enable Vietnamese enterprises to participate in regional and global supply chains in accordance with the green development trend.

Director of the Việt Nam Foreign Investment Agency under the Ministry of Planning and Investment Đỗ Nhất Hoàng in an interview with said that the investment climate of Việt Nam improved significantly thanks to timely solutions of the Government such as ensuring macroeconomic stability, implementing three strategic breakthroughs in improving institution, infrastructure and human resources.

The improved investment climate brought significant opportunities for Việt Nam to attract the FDI inflow, especially in the context that Việt Nam aimed to promote digital transformation, green transition, innovation and renewable energy, he said, forecasting that investment flows into the country would be robust in the coming months.

According to the Central Institute for Economic Development (CIEM), there was significant room for Japan and Việt Nam to promote cooperation for green growth after the pandemic.

Việt Nam had strong commitments at COP26, including net zero emissions by 2050. Commitments to sustainable development were also integrated into new-generation free trade agreements (FTAs) such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the EU-Việt Nam FTA.

The Vietnamese Government issued many policies to implement this ambitious commitment, including the national strategy on green growth, the national action plan on green growth in 2021-30 and the project of developing circular economy. The Government approved the National Power Development Plan VIII between 2021-30 period with a vision to 2050, one of the focuses of which was to accelerate the development of renewable energy resources in Việt Nam.

To achieve the ambitions, it was critical for Việt Nam to enhance international cooperation, CIEM said.

The Government thinktank pointed out there were four fields of green growth that the two countries could enhance the cooperation in, which were improving institutional capacity, sustainable infrastructure development in Việt Nam, promote low-carbon/emission value chains and promoting the development of international treaties, rules and standards related to green growth.

Regarding sustainable infrastructure, CIEM said that Japanese investors could provide support in the development of sustainable energy projects in Việt Nam and promote the establishment of low-carbon emission value chains in agriculture, renewable energy and electronics industry and realise projects in the circular economic development pilot mechanism.

According to Takeo Nakajima, Chief Representative of JETRO Hanoi, Japanese possible contributions included energy efficiency and conservation, environment protection and renewable energy.

Rising global economic instability, the rearrangement of global supply chains together with anticipated impacts of the global minimum tax were posing challenges to countries which were in the race to attract FDI, including Việt Nam.

According to the Ministry of Planning and Investment, Việt Nam was speeding up the process of developing policies to adapt to the global minimum tax and remain attractive for FDI, which did not violate international regulations and commitments while harmonising the interest of all parties and fair treatment between enterprises.

The focus would be on hastening reforms to create the best business environment towards the standards of Organisation for Economic Co-operation and Development (OECD) and preparing favourable conditions in terms of infrastructure and skilled labour and competitiveness of domestic enterprises to attract FDI.

Flourishing Việt Nam-Japan ODA cooperation

Besides FDI, the Official Development Assistance (ODA) from Japan contributed significantly to the socio-economic development in Việt Nam.

Over the past three decades, the ODA cooperation between Việt Nam and Japan has flourished, solidifying their enduring partnership. This collaboration has yielded remarkable results in various sectors, including economic cooperation, investments and the cultivation of human resources.

"Since the resumption of ODA to Việt Nam in 1992, Japan has contributed over three trillion yen (equivalent to approximately VNĐ600 trillion) in cumulative ODA capital. Japan holds the distinction of being the most significant ODA donor among OECD member countries, underscoring its steadfast commitment to Việt Nam's development," JICA's chief representative, Sugano Yuichi, told Việt Nam News.

Throughout the 30-year journey of cooperation between Việt Nam and Japan, there have been over 100 ongoing projects spanning diverse domains, such as education, healthcare, transportation, energy and agriculture. Việt Nam stands among the top five countries benefiting from Japanese ODA.

Japanese ODA has had a profound impact on infrastructure development in Việt Nam, with projects like the National Highway 1, the North-South Expressway, and port constructions such as Lạch Huyện and Cái Mép – Thị Vải ports fortifying Việt Nam's economic foundation. The energy sector has also experienced substantial growth through the Japanese ODA, with the construction of power plants bolstering the nation's energy infrastructure.

Japan's support has significantly benefited healthcare in Việt Nam, with investments not only in core hospitals like Bạch Mai Hospital but also in vaccine production. Collaborating with JICA has facilitated the production of 100 per cent of measles and rubella vaccines, contributing significantly to expanded vaccination plans.

In the field of education, JICA's partnership with Cần Thơ University, spanning over half a century, is emblematic of their enduring relationship. Recent initiatives like the Việt Nam Japan University (VJU) project, which began in 2016, continue to produce high-quality human resources for Việt Nam while fostering international student exchanges.

As the 50th anniversary of Japan-Việt Nam diplomatic relations approaches, the future of this dynamic partnership remains promising. Prime Minister Phạm Minh Chính has articulated his aspirations for sustainable development and a green economy, setting the stage for upcoming ODA cooperation plans.

"In the future, JICA will continue to contribute to Việt Nam’s sustainable development, both in terms of physical infrastructure and the development of human resources, thereby further strengthening the burgeoning bond between Việt Nam and Japan," Yuichi said.

Looking ahead, Yuichi said JICA will prioritise four key areas of cooperation. Firstly, there will be a focus on high-quality infrastructure projects, notably the HCM City urban railway and Nội Bài International Airport. Secondly, human resource development will continue to be a cornerstone of collaboration, with Cần Thơ University and VJU at the forefront.

Thirdly, the health sector will receive attention, with JICA supporting the implementation of remote medical systems and digital transformation techniques at local medical facilities. Additionally, collaboration with Japanese private enterprises, NGOs, and universities will enhance rehabilitation techniques and medical care to address the challenge of an ageing population in Việt Nam.

Lastly, JICA will actively engage in climate change initiatives, utilising the Green Climate Fund (GCF) to support afforestation activities and natural environment protection. This aligns with the Vietnamese Government's vision of achieving carbon neutrality by 2050, marking a significant step towards addressing climate change challenges.

"In the future, I hope that not only JICA but also related parties such as Japanese universities, local governments, private companies and non-governmental organisations will continue to participate in ODA projects to enhance people-to-people exchanges and further promote the growing relationship between the two countries," JICA’s chief representative said. — VNS