Investment report -Vietnam Electronics industry supply chain 8M/2022
World socio-economic Overview
After 2021, the world GDP recorded a strongly recover after the Covid-19 pandemic (5,8%) by stepping up the vaccination campaign and restoring economic trade. Still, in 2022, the world economy suffered many negative impacts from the military war between Russia – Ukraine led to fuel prices and inflation raise. Besides, China’s policies of Covid-19 prevention measures, other geopolitical and economic conflicts, and supply chain bottlenecks have reduced the GDP growth forecast in 2022 to 3,2% (according to World Bank).
World FDI is on a downward trend from 2017 to 2021. In 2021, global FDI inflows increase by 30% compared to 2020. However, in 2022, global FDI is predicted quite bleak compared to 2021 because of the uncertainty from investors and risk of supply chain disruptions and raw material costs soaring, and other risks from political and economic conflict in the world. Global FDI this year is forecasted to be flat or lower than the number in 2021.
The electronics industry is one of the fastest growing and strongest industries in the world in recent years. With the diversity of products and services as well as the innovation of production technology, the electronics industry has been and will continue to have a great influence on daily life and activities in the current digital era. According to the Japan Electronics and Information Technology Industries Association (JEITA), the global production value of the electronics and IT industry in 2020 will reach 30.3 trillion USD. In 2021, this value increased by 11% because the Covid-19 pandemic in the other hand is the driving force behind the development of the digital industry (reaching about 33.6 trillion USD). It is forecasted that in 2022, the global production value of the electronics and IT industry will increase slightly by 5% to 35.3 trillion USD.
Viet Nam socio-economic Overview
GDP growth in the second quarter of 2022 is estimated to increase 7.72% over the same period last year, according to the General Statistics Office (GSO). This is the highest second-quarter growth rate in a decade. In the context that the world situation is complicated with inflation shocks in many countries at the beginning of 2022 and Vietnam is just in the early stages of post-pandemic growth, the growth figure is expected to increase. This is extremely impressive, showing that the economy is thriving very clearly. In which, more than 39% contributed to the increase coming from industries and construction sectors.
The index of industrial production (IIP) of the electronic industry has improved significantly since January 2022. The highest number was in March 2022, the IIP index increased quite well to 17.7%. Until August 2022, production at electronic manufacturing enterprises is gradually recovering and developing.
Factors affecting investments in the electronics industry in Viet Nam
Electronics is one of the labor-intensive industries (only after the textile and footwear industry for FDI enterprises), so the labor force is always an important factor, especially in recent times when there is a serious shortage of high-skill workers in this industry.
According to Decree No. 31/2021/ND-CP, producing electronic components, accessories and assemblies is one of the industries that are encouraged and enjoy incentives when investing by the government. In addition, investment projects with capital greater than 6000 billion VND (equivalent to about 250 million USD) – large assembly projects investing in Vietnam of the electronics industry according to HOUSELINK’s statistics often have similar capital levels, also enjoy investment incentives when investing in Vietnam. Some types of taxes enjoy preferential treatment such as:
- Enterprises’ incomes are entitled to the tax rate of 10% for a period of 15 years, of which the maximum tax exemption will not exceed 4 years and the 50% reduction in payable tax amount for no more than 9 subsequent years.
- In case the investment project is in an area with difficult socio-economic conditions specified in Appendix II Decree 118/2015/ND-CP the enterprise can select to take the most favorable corporate income tax incentives (According to Clause 5 Article 4 of Circular 83/2016/TT-BTC).
- Exemption from import tax on goods imported to create fixed assets (According to Clause 5 Article 4 of Circular 83/2016/TT-BTC).
- 50% reduction of non-agricultural land use tax and full exemption or reduction if this investment project is implemented in an area with difficult socio-economic conditions specified in Appendix II Decree 118/2015/ND-CP.
The situation of investment projects in the electronics industry
Before the Covid-19 epidemic, the number of electronic projects entering the Vietnamese market grew very well (average increase 19%), peaking in 2019. Since the appearance of the epidemic, the number of projects joined tended to decrease markedly and continuously. After 8 months of 2022, the negative influences from economic and political events in the world have led to investment anxiety, thereby making the number of electronic projects invested in the Vietnamese market is still quite low.
In terms of total investment capital, Vietnam’s electronics industry investment market reaches a volume of 28 billion USD of total registered capital and 1,795 of total projects from 2013 up to now. Besides the investment in this industry heavily depends on the big players in the industry, especially from FDI capital. Typically, the years of 2013,2014,2016 recorded a large amount of capital because big players in the industry such as Samsung and LG entered the market. The good news in 2019, 2020, 2021 was Vietnam market recorded an investment from large electronic technology companies also but the capital trend in other years is downward, apart from a few big players, other investors are still investing in Vietnam with small scale. With this growth rate, in 2022, it is difficult for electronics projects to be recovered.
In recent years, Vietnam has begun to attract electronic projects from many different countries. Korea maintains its leading position in term of investment.
During the period of investing in the electronics industry from 2013 till now, we have recorded several countries in the top countries that invest a lot in the electronics industry in Vietnam such as: Korea, China, Hongkong, Taiwan, Japan. In which, Korea has always maintained the leading position during the past time in terms of both the number of investment projects and the scale of capital.
In terms of registered capital, if in the past, large capital projects mostly came from Korean investors, but in recent years other countries such as Japan, Taiwan, Hongkong, and Singapore have started to choose Vietnam as an ideal location to invest in large-scale projects. In 2022, Korea still leads in terms of investment capital, followed by Hong Kong and Taiwan, but the difference between the countries has been significantly shortened compared to the time before.
According to HOUSELINK’s data, we recorded that in the two years 2021-2022, the Vietnamese electronics market, especially the electronic components industry, has received a number of semiconductor processing and raw semiconductor materials projects, which are favorable signal for attracting more projects in this industry in the future.
Electronics industry investment supply chain in Vietnam
From 2013 till now, the supply chain of investment in the electronics industry in Vietnam is now relatively complete with a full range of investors who have invested in supporting industries, manufacturing-processing of components/accessories/assemblies and the assembling, processing, and finishing of products. Almost projects are mainly and fully located in the North. The number of components/accessories/assemblies projects dominate in our country’s electronics industry but projects of processing, assembling, and finishing of products ranked first in terms of investment capital.
Potential electronics projects in the future
According to HOUSELINK’s data, upcoming projects are mostly concentrated in the North (accounting for 70% of the number of projects about to be deployed). 18% of projects under preparation is in the South and about 12% of projects are located in the Central region. In the future, the Northern market will continue to be a dynamic market for electronics projects. Especially, most of them are projects in the preparation stage, have not yet conducted bidding, and have not selected the main contractor.
This report is released in Vietnamese version, English version.