Vietnam –Korea Making Great Strides Forward

Could you please share how the global economic downturn affects the two countries' trade activities in the first 6 months of 2009?
I understand that no country has been free from the impact of the recent world-wide economic recession. The consumption in the developed countries has plummeted. Then, the global trade decreased sharply. Many factories in the world had to reduce their operation or be shut down due to the declined demand. 

 

In the first half of this year, Korea's trade fell by 28.7% while Vietnam's trade decreased by 24% against the same period of last year. Consequently, two way trade between Korea and Vietnam dropped by 25.6%, from US$ 5,543 million to US$ 4,126 million in the first 6 months of 2009.

 

We need to look into the trade of 2007. Trade between our two countries recorded US$ 3,250 million in the first 6 months of 2007. Although the trade between Korea and Vietnam decreased sharply this year compared with last year, their trade figure in the first half of this year, US$ 4,126 million, is still higher than that in the same period of 2007. This may indicate that trade between our two countries will quickly rebound with the recovery of the world economy.  

 

Is Vietnam still a potential market for Korean corporations and investors, and will they continue to come and invest in Vietnam?
In the first half of this year, foreign direct investment in Vietnam was down by 73% compared with the same period of last year. The main reasons of this year's drastic drop in FDI, I think, come from external factors.

 

Regardless of recent world-wide economic recession, Vietnam still has tremendous potential for growth. More than half of its population is less than 30 years old. This means that Vietnam has a large young workforce. With political and social stability, Vietnam has abundant natural resources: energy sources, minerals, water and fishery resources. Vietnam is located in the hub of Southeast Asia, which is convenient for Korean companies to access markets in North America, Europe, the Middle East and ASEAN countries. Moreover, Korea and Vietnam are highly complementary in economic structure and natural resources. I think Vietnam's strengths will continuously attract Korean investors.

 

This April, the Korean Chamber of Commerce conducted a survey on about 250 Korean companies operating in Vietnam. According to the result of the survey, 93.5% of the Korean companies responded to maintaining or expanding their business in this country with optimistic views on the prospect of business activities in Vietnam. Only 6.5% of the Korean companies said they would decrease their business activities or move to other countries.

 

In the first 6 months of this year, Korean FDI in Vietnam recorded US$ 1.1 billion, a similar amount with that in the same period of last year. Now, Korea ranked second with the most investors in Vietnam with the total amount of US$ 20.2 billion as of the end of August 2009. 

 

Statistics from HCMC People's Committee, Dong Nai and Binh Duong People's Committees show that some Korean companies are facing difficulties. What solutions do you suggest to solve the problems?
There are about 1,300 Korean companies in Ho Chi Minh City and its neighbouring provinces. Under the world economic recession triggered by the financial crisis last year, many Korean companies operating in the field of the labour-intensive industry, such as garment, textile, footwear and electronics have suffered from triple burdens. 

 

First, Korean currency depreciated by about 30% from early October to late December last year, while Vietnamese Dong was relatively stable. This prevented Korean companies from bringing funds from Korea to Vietnam, because they needed about 30% more money in terms of Korean currency than before. Second, financial institutions tightened their lending policies as a result of the financial crisis. Then, it became more difficult for companies to get or extend loans from financial institutions including banks. Third, companies especially focusing on exports suffered from the drastic decrease in orders from developed countries. Consequently, their revenue plummeted.

 

The triple burdens inevitably put some Korean companies into a difficult financial situation. Then, several Korean companies didn't pay wages of workers on time or delayed the payment of social insurance fees. In order to solve theses problems, we held meetings with the Labor Department of Ho Chi Minh city People's Committee as well as Dong Nai and Binh Duong People's Committeeseveral times. Now, the problems have been much relieved. 

 

What is your proposal to the People's Committees of the city and provinces to support Korean companies to overcome difficulties?
During the world-wide recession, the most important thing is the survival of companies. Shutting down of companies will cause mass unemployment, and laborers will face the worst situation. It is desirable to restrain the raise of wages for a while, because the wage increase will put additional pressure on the companies which are already suffering from the shortage of funds. I hope the stimulus package by the Vietnamese government will continue until the global economy gets out of this recession. 

 

In terms of investment procedures, which obstacles are Korean companies most concerned about? To continuously attract Korean investment, what changes do you think the Vietnamese Government should make?
As you know very well, major obstacles of attracting foreign direct investment into Vietnam are shortage of skilled workers and weak infrastructure, especially electric power, seaport facilities, roads & bridges. Besides infrastructure and skilled workers, another major obstacle for foreign investors is complicated administrative procedures. 

 

In March this year, the Korea Trade and Investment Promotion Agency conducted a survey on Korean investors in Vietnam. More than 40% of the respondents complained about the cumbersome administrative procedures. In this regard, it is desirable to establish "one-stop service center for foreign investors" to reduce red tape and speed up investment procedures.

 

In the light of frequent delays in land compensation and clearance for projects, it is also desirable to strengthen the power of local authorities and to improve administrative procedures in a way to expedite the land and site clearance. 
Ngoc Trang