Bottlenecks make Vietnam industrial parks less competitive

By Hoang Thang, Dat Nguyen   June 10, 2020 | 08:45 pm GMT+7
Bottlenecks make Vietnam industrial parks less competitive
A ship docks at the Tan Cang - Cai Mep International Terminal in Ba Ria - Vung Tau Province, southern Vietnam. Photo by Shutterstock/Hien Phung Thu.

Infrastructure constraints and low environmental standards could diminish the competitiveness of Vietnam’s industrial parks in attracting foreign investors exiting China, industry insiders say.

Le Trong Hieu, CBRE director for industrial and logistics services, said that one reason for the slow increase in the supply of industrial land in the country was limited infrastructure connecting industrial parks with ports.

It takes at least two years for developers to expand their existing parks to serve more companies, and even longer for a brand new park, he told VnExpress.

"It costs a developer of industrial parks in Vietnam more money and time than their counterparts in Thailand, Indonesia, India, Malaysia and the Philippines," Hieu said.

A recent CBRE report said that there were concerns about Vietnam’s capability to absorb the new wave of manufacturing relocation from China, including infrastructure capacity constraints and the lack of an equipment manufacturer ecosystem.

Su Ngoc Khuong, senior director of real estate service firm Savills Vietnam, said that infrastructure and storage capacity are key factors in attracting multinationals.

Major ports in Ho Chi Minh City, the southern province of Ba Ria-Vung Tau and Hai Phong in the north have become busier in recent years thanks to increasing trade, but this has also led to congestion due to limited infrastructure, he said.

"It might be convenient to travel from Hanoi to Hai Phong City, but not so from Hai Phong City to its ports."

Vietnam in recent years has been developing infrastructure for housing and office needs, but not for industrial needs, he said.

Higher transport and storage costs make Vietnam less competitive than Thailand, Malaysia, Indonesia and India in attracting foreign companies, he added.

Pollution is another concern. Economist Dinh The Hien said most industrial parks in Vietnam, apart from factories of major manufacturers such as Honda and Samsung, fail to meet standards in dealing with solid waste and providing a safe environment to workers.

Companies shifting from China require high environmental standards to make their products able to be exported to developed countries, while many industrial parks in Vietnam are ignoring these standards, he said.

"Existing industrial parks are suitable only for assembling, not manufacturing, due to failing to meet these standards," he stressed

Vietnam has become a promising manufacturing destination for multinationals post-pandemic thanks to its early and effective efforts to contain the novel coronavirus. The country’s close proximity with China also makes moving the supply chain easy, while its many trade pacts, such as one with the E.U., allow more opportunities for trade.

One of the country’s largest companies, conglomerate Vingroup, has jumped on to the industrial land bandwagon by announcing a plan to pour over $400 million into developing an industrial park in Hai Phong, seeking to host suppliers for its automaking business.

It is expected that the country’s 260 operating industrial parks, with another 75 under construction, will benefit from rising demand among foreign direct investment companies.

But industry insiders have warned that increasing the quantity of parks is not as important as improving the quality and the infrastructure that comes with it.

Trinh Van Quyet, chairman of property developer FLC, said that many have seen the potential of industrial parks as supply chains shift, but a park needs to have more than just factories. An infrastructure ecosystem determines the value of the park, he said.

Ha Thu Thanh, chairwoman of tax service firm Deloitte Vietnam, said that tax and land fees incentives are not enough to attracting foreign firms. The country needs a holistic development of logistics, labor productivity and supporting industry, she said.

 
 
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