Such a change could enhance the attractiveness of Vietnam's investment environment, particularly in high-technology sectors like semiconductors.
Journalist: - High technology and semiconductor industries are focal points for the Vietnamese government in attracting new-generation FDI capital. What do you think Vietnam needs to do to attract more projects in these areas?
Mr. Hong Sun: - Since 1992, Samsung has been a dominant player in Korea's domestic market. At that time, 95% of Samsung's revenue came from domestic sales, with only 5% from exports. However, Chairman Lee Kun Hee reformed the company’s strategy to focus on global exports. This shift transformed Samsung into a powerful conglomerate and one of the world's largest technology giants. Today, 95% of Samsung's revenue comes from international markets, with less than 5% from domestic sales.
This transformation illustrates that to achieve significant development, one must expand globally and prioritize exports. Vietnam is in a similar position. FDI companies are investing in Vietnam due to advantages such as cheap labor, skilled workers, and a demographic dividend. However, once this demographic phase passes, FDI companies might shift to new countries like Myanmar, Bangladesh, or India for their investments.
For Korean investors, Vietnam remains attractive due to cultural closeness, but for investors from other countries, Vietnam needs strategic measures to retain them. To attract high-quality FDI in sectors like semiconductors, Vietnam should leverage this period with its labor advantages and offer targeted incentives to attract investors.
High-tech industries prioritize tax incentives over labor costs because they use less labor but require significant investment in equipment. Each project can involve billions of dollars in investment, and without special incentives, few companies would choose to invest. Providing favorable tax policies and other incentives can make Vietnam a more appealing destination for high-tech investments.
- Previously, you, as a representative of KOCHAM, suggested that the SBV consider raising the USD deposit interest rate cap. Can you elaborate on this?
- Currently, the Vietnamese government does not have specific regulations on incentives for companies. We believe Vietnam should learn from the incentive policies of countries like the US and Korea in attracting high-quality investments, not only in corporate income tax but also in direct financial support for sectors like semiconductors and high technology.
This is essential to attract investors. The scale of a semiconductor project can reach tens of billions of dollars. Recently, Samsung expanded a semiconductor plant in the US with an initial investment of under $20 billion. Due to inflation, the total investment exceeded $20 billion. In Vietnam, no company has invested in such large-scale projects, so foreign investors face significant risks. Without guaranteed legal frameworks, incentives, and support, it is difficult for them to make investment decisions.
Therefore, we hope that besides continuing reforms to create a favorable investment and business environment, the Vietnamese government will also implement policies to support and stimulate economic growth. We propose removing the 0% interest rate cap on USD deposits for companies holding or directly investing (FDI) from USD deposits of a certain scale, while still adhering to the underlying regulations and purposes.
Currently, the SBV's regulation on USD deposit interest rates has been effective since December 2015 at 0%. Companies operating in Vietnam continually face opportunity costs related to USD deposits. Korean manufacturing companies investing in Vietnam often import raw materials from outside Vietnam and export finished products abroad. Hence, maintaining a certain USD margin is necessary.
In recent years, as the US Federal Reserve (FED) raised interest rates significantly (from 0.25% to 4.50% in 2022 and subsequent increases in 2023), the opportunity cost of USD deposits for Korean companies investing in Vietnam has risen rapidly, becoming a burden on business operations.
Most countries still set interest rates on USD deposits, but in Vietnam, the rate is 0%. We often transact in USD, but idle USD deposits in Vietnamese banks earn no interest. We hope the SBV will reconsider the USD interest rate to utilize the USD deposits that Korean and other foreign investors are holding in Vietnamese banks, thereby easing the pressure on FDI companies.
By raising the USD interest rate cap, Vietnam can make it more attractive for foreign investors to hold and deposit their capital within the country. This, in turn, can lead to a more favorable balance of payments situation and strengthen the national reserves. When investors see that they can earn returns on their USD deposits, they are more likely to bring in more capital, which can be used for further investments in high-tech projects.
Moreover, as the global competition for high-quality FDI intensifies, countries that can offer better financial incentives and stable economic policies will stand out as preferred destinations. Vietnam, by adjusting its USD deposit interest rate policy, can send a strong signal to global investors that it is committed to creating a conducive investment environment.
In addition to attracting more capital, this policy change can also lead to greater financial stability. Companies with significant USD holdings will find it more beneficial to keep their funds within Vietnamese banks rather than seeking investment opportunities elsewhere. This can lead to increased liquidity in the financial system, which can be utilized for further economic development and infrastructure projects.
- Thank you very much.
