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Interview: Saigon Hi-Tech Park and Vietnam Infrastructure

In this exclusive and in-depth interview, VentureOutsource.com speaks with Saigon Hi-Tech Park (SHTP) president Nguyen Dinh Mai about the Park and Vietnam’s infrastructure and developing electronics industry. Mr. Mai Nguyen talks about some of the challenges facing Vietnam and SHTP and shares thoughtful insight into what’s being done to further develop Vietnam’s infrastructure, increase foreign direct investment (FDI), encourage multinational corporations (MNC) to set up business operations with SHTP, electronics industry trends, and more.

Transcripts from that discussion follow.

VO: Vietnam continues to attract technology company business and investment. Meanwhile, the country predominately relies on hydroelectric power for electricity which can be vulnerable to weather conditions. The electronics industry has a high electricity consumption rate and some shortages in electricity have occurred in Vietnam in recent years. What can you share with executives interested in setting up businesses in Vietnam but may feel reluctant to do so because their companies may not have the resources required to invest in and create their own uninterrupted supply of energy or power, on-site?

Mr. Mai Nguyen: I can address this question from two different levels of perspective: the national level and the Saigon Hi-Tech Park (SHTP) level.

National level
We acknowledge Vietnam has been experiencing power shortages. This is due to the rapid development of multiple industries internal Vietnam in addition to rising electronics manufacturing foreign direct investment (FDI) – both which require a lot of power and thus also impact the country’s competitiveness. To address the problem, the government has laid out a strategy to liberalize Vietnam’s power sector and diversify power sources to make the country less reliant upon hydroelectric power.

Vietnam is gradually opening up so that by 2020, multiple entities – in addition to Electricity of Vietnam Group (EVN) – will have joined the market to help generate power and either resells their power to EVN for trading and retailing or sell it directly to end-users. (See, also: Steps to develop and promote Indian EMS, and Economic challenges and drivers when creating regional electronics industry)

This strategy, once fully implemented, will create a competitive retail power trade market in which customers, be they individuals or businesses, select power suppliers at their discretion based on supplier pricing; power quality, and reliability. Such an energy market will help guarantee power is generated and supplied from multiple suppliers at competitive costs to help meet growing economical demand.

 

Nguyen Dinh Mai - Saigon Hi-Tech Park (SHTP) Nguyen Dinh Mai
President
Saigon Hi-Tech Park (SHTP)

 

In the meantime, although power generated by these additional entities is not yet allowed to be sold directly to end-users, the power can be resold to EVN (which ultimately increases Vietnam’s total available power supply) thus partially addressing the energy shortage.

As for power ‘source’ diversification to help Vietnam become less dependent on hydroelectric power, the following alternatives or, developments, are being considered or are already underway:

  • Build more thermal power plants and locate these power plants close to Vietnam’s ‘material zones’ rich in natural resources. This effort includes coal-driven power plants (predominantly in Northern Vietnam where coal is abundant) and combined cycle gas turbine (CCGT) power plants (along the coastal and Southern areas rich in oil and gas). The government is also drafting a feasibility study to develop Vietnam’s first nuclear power plant (2,000 megawatts or MW) expected to become operational after 2015.
  • Purchase power from China, Laos, and Cambodia. EVN is constructing several power plants in Laos. The current power capacity result being routed to Vietnam currently is roughly 2,000 MW.
  • Create additional power using recycled materials and alternative energy sources such as solar and wind power. These energy source types can be used predominantly in remote and highland areas where the national grid has yet to reach.
  • Continue to build more hydroelectric power plants at all technically feasible locations with design emphasis placed on mini-plants. Taking the above into consideration, Vietnam’s total hydroelectric capacity should be around 15,000 MW by 2020.

 

Saigon Hi-Tech Park level
SHTP faces similar challenges since our power is currently supplied by EVN. However, the Park is afforded priority status in such that SHTP is provided two independent power sources. This helps ensure chances of continuous power because if one source is down, the other source can still supply power to Park tenants. Priority status also means the Park is the last to be interrupted (and the first to be restored) in the event of power black-outs due to scheduled maintenance or force majeur. At the same time, SHTP has collaborated with Sumitomo Corporation to complete a feasibility study to develop the Park’s own power plant. This power plant will run on natural gas and is intended to join the grid by the end of 2009.

Although growing quickly, Vietnam is still a developing country and as such still experiences many related deficiencies such as power shortages. Since improving Vietnam’s system for power will take some time (against limited State resources), the government is promoting our nation’s industrial park model in a manner whereby specific resources are dedicated to smaller zones. This improves each zone’s ability to meet international standards while also meeting requirements of foreign companies.

 

VO: Economically, Vietnam has one of the smallest GDPs of developed nations in the region but one of the fastest growing GDP rates. Industrial growth had been at 10% for the past decade. Meanwhile, Vietnam has a steady but high inflation rate and consumer prices have increased over 7% each year. Corruption is also a high profile issue. Add to this, the judiciary system can be viewed as relaxed. What is being done for executives considering building businesses in Vietnam so they can feel rest assured their workforces will be economically motivated and corporate business differences brought before the courts, such as intellectual property (IP) disputes, will be dealt with judiciously?

Mr. Mai Nguyen: Inflation is an indispensable part of any country experiencing a rapid growth rate. Vietnam is no exception and has gone through a very challenging 2005 in which the country’s inflation rate exceeded what was anticipated. Vietnam’s government has taken several measures in 2006 and still, through 2007, to hammer out the problem. Among these measures include a tightened monetary policy and establishment of a quasi governmental watchdog group to closely monitor Vietnam’s consumer price index.

Attention is also being focused on pricing for several crucial commodities such as medicine, gasoline, and food so that corrective measures can be executed immediately should prices of these products rise significantly — following worldwide trends. One example of this includes several reductions in gasoline import duties when world petrol prices had skyrocketed. This provided Vietnamese gasoline importers opportunity to pass their savings to local economies to help stabilize the market. Within the next three years, when Vietnam fully executes its World Trade Organization (WTO) commitments, all market sectors will be open. This will allow imported products to compete head-to-head with Vietnam domestic products and Vietnamese consumers will find they will be afforded more competitive prices.

Equal attention and resources are also being dedicated to intellectual property (IP) protection. Multiple procurement agreements have already been signed between Vietnam government agencies and Microsoft, as well as with other international software vendors, to promote distribution and usage of ‘legitimate’ software in the market. At the same time, local authorities are collaborating with software vendor representatives to crack down on sales of pirated software copies.

When disputes do emerge, businesses can raise the issues with local arbitrators, or international arbitrators, to make sure cases are tried fairly. Since Vietnam is in strict compliance with regulation set forth by the WTO, in which IP protection is a very key item, businesses can also elevate disputes to the WTO if they find disputes are not being dealt with properly at local levels.

Personally, I believe intellectual property protection issues and infringements in Vietnam are not as thorny and acute as those in other countries across Asia. Vietnamese people prefer brand names plus quality whenever they can afford either or both. This helps explain why Vietnam’s consumers would rather purchase a used Honda scooter over a brand-new copy from China. Thus, I have confidence as Vietnam’s income per capita continues to improve (as a result of reforms) and as corporations continue to work with local authorities to offer localized and legitimate product at competitive prices, problems with intellectual property protection and infringements will resolve themselves.

 

VO: From a supply chain infrastructure perspective, Vietnam’s transportation network continues to evolve. While air and sea ports have improved in recent years, cost for shipping from Vietnam still remains higher vs. shipping from Shanghai. Additionally, less than 45% of Vietnam’s roads are covered in asphalt. What are your thoughts on what is happening in the country currently and, how are these changes going to help improve the competitiveness of companies with global operations supply chain requirements?

Mr. Mai Nguyen: Using official development assistance (ODA) and export revenue, Vietnam’s government continues to spend billions of U.S. dollars on its infrastructure with emphasis on power and energy; roads and bridges, and deep water ports. Over the last two years, Vietnam has invested approximately ten percent of its gross domestic product (GDP) into the country’s infrastructure. Many bridges connecting the southern region of the country with the central and northern areas have been built recently to help ensure good flow of transportation and commerce from North to South. Additionally, another North-South highway is currently being developed that will run parallel to an existing one.

Vietnam is also seeking assistance from Japan to help finance construction of a new high-speed railway for passenger transportation whereby our currently existing railway will then be used exclusively for transportation of goods. A new airport terminal in Hochiminh City (South Vietnam) able to accommodate 15 million passengers will also be operational September 2007 while planning for an additional airport terminal, to be located in central Vietnam, is already underway. These changes will help improve the transportation of goods via air, sea, and railway.

As for shipping costs, these are not something that can be lowered overnight. Although the government has already streamlined related administration and customs processes to remove redundant fees, our total shipping costs are still higher than those in the Asia region. The long-term solution is to liberalize the logistics industry so that companies with economies of scale can enter the market and offer cost-competitive pricing options.

 

VO: Production of electronics goods in Vietnam is growing rapidly yet most of the country’s imported electronics components are sourced from China; Japan, Taiwan, and South Korea – with tariffs on these imports up to 30%. This will change as the country’s electronics industry supply base continues to develop. In what ways does the South Asia Free Trade Agreement (SAFTA) help make the decision more compelling for executives looking at Vietnam?

Mr. Mai Nguyen: The Association of Southeast Asian Nations (ASEAN), along with China; Japan, and Republic of Korea (ROK, or South Korea) each signed three Framework Agreements to support comprehensive economic partnerships. Titled ASEAN+3 FTA, the shared rule of behavior mechanism’s mission is to minimize barriers and deepen economic relations between ASEAN and China, Japan, and ROK; lower total cost of business, increase intra-regional trade and investment, improve economic efficiencies, and create a larger market with greater opportunities and larger economies of scale for the businesses of ASEAN; China, Japan, and ROK.

Import tariffs among member countries will also be lowered to less than 15% while intra-regional investments will be increased — as countries offer special treatment to one another.

As a member of ASEAN, Vietnam is fully entitled to the benefits brought about by these agreements. Technology MNCs investing in Vietnam will be able to import parts and components (against lower import duties) from China; Japan, and ROK and, at the same time, be able to export their finished products to agreement member countries without being saddled by numerous barriers.

Although, when looked at independently, these mechanisms might not put Vietnam in a better position than other neighboring countries when competing for FDI, the benefits thereof combined with Vietnam’s other competitive advantages, such as low cost and quality labor and political stability, will definitely help make Vietnam more compelling to foreign executives considering the country as an alternate host for their business investments.


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