Hai Phong growth A vision for

1

JLL Research Report

Hai PhongA vision for

April 2019

growth

2 Hai Phong - A vision for growth

ContentsIntroduction

Vietnam’s Unique Fundamentals

03

04

10

11

12

Fostering Industrial and Logistics Growth

Favourable Economic Backdrop

Strategic Location

Strong infrastructure spending

Encouraging business Environment

Hai Phong – A Vision for Growth

Hai Phong Economy – One of the best performers

Development of Strong Infrastructure Backbone

Expanding Industrial and Logistics Market

•

•

•

•

•

•

•

A Way Forward

Case study: Deep C Industrial Zones

3

IntroductionVietnam has gathered momentum over the past few years to establish itself as the production hub for Southeast Asia (SEA) and now offers a viable alternative for companies looking to establish their operations outside of China. This is backed by a number of key fundamentals, which include: strategic zlocation, business friendly environment and competitive labour costs. In 1986 there was 335 hectares of land dedicated to industrial land, since then, Vietnam has quickly become one of the brightest manufacturing hot spots in SEA. The country now boasts more than 80,000 hectares of industrial land, a phenomenal growth over the past two decades.

With a coastal line stretching over 3,200 kilometres along the East Sea, Vietnam possesses an advantageous geographical location that provides great access to the world’s major shipping lanes. As a result, sea transport has been the

most prominent mode of freight transportation facilitating international trade, with the majority of cargo going through the shipping hubs located at either end of the country. The South with the presence of long-standing ports such as Cat Lai Port, Hiep Phuoc Port and the deep sea Cai Mep Port typically contributes more than half of the country’s total sea cargo throughput while its counterpart in the North with the port cluster in Hai Phong, accounts for more than 30% of the total. With an increasing proportion of FDI pouring into the north over the past decade, Hai Phong is fast becoming a focal point, providing companies with easy accessibility to transport their goods on a global basis, which will create considerable growth opportunities. In light of this backdrop, this paper will discuss how Hai Phong will gear up to become an internationally recognized trading hub and a driving force for development in northern Vietnam.


Vietnam’s

Unique Fundamentals Fostering Industrial and Logistics Growth

5

Economic Backdrop1Vietnam’s GDP growth in 2018 reached 7.08%, an eleven-year record which surpassed the year’s target of 6.7%. The prevailing transition of economic structure from primary to tertiary industry is expected to result in wealth creation growth, rising consumption, and a growing trained labour force that all bolster the further development of the Vietnam economy. The country’s GDP is set to grow by 6.0-6.5% on average per annum until 2025.

FDI SEA countries have received increasing foreign direct investment, net FDI flow into SEA rose by 11% y-o-y to $150 billion in 2018, outperforming the global figure of minus 5.1% over the same period1. With FDI influx exceeding $19 billion, Viet Nam was the third largest recipient within SEA in 2018 and accounted for more than 60% of flows to CLMV countries2. This trend is set to continue as escalating U.S. - China trade tensions and increasing cost in China prompt manufacturers to relocate to Vietnam. With 25 FTAs currently agreed, Vietnam is on a journey to become an export-driven economy and one of the most opened economies in the region.

Figure 01: Pace of growth after GDP exceeds USD1,000 per capita

Figure 02: Vietnam top the SEA in FDI in manufacturing sector, 2009-2018 (USD bn)

Source: IMA, JLL Research

Source: National State Bank, JLL Research

1 Oxford Economics, JLL estimate2 Cambodia, the Lao People’s Democratic Republic, Myanmar and Viet Nam

Vietnam from 2008

1,000

01 2 3 4 5 6 7 8 9 10 11 12 13 14 15

2,000

3,000

4,000

5,000

GDP

per c

apita

USD

Philippines from 2002Years

India from 2008 China from 2000

High in the Value Chain Immitation

Cham

pion

New

Business Model More Fiscal Resources

Risk Taking

E

ntre

pren

eurs

hip

Economic Reform

MOR

E LOCAL AUTONOMY

IMMIGRANT

INFL

OW FDI ATTRACTING

16.58

0.0

5.0

10.0

15.0

20.0

25.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Malaysia Vietnam Indonesia Thailand Philippines


Favourable Demographic LandscapeExcellent Labour Market Lower labour costs is one major reason why foreign manufacturers are attracted to Southeast Asia and Vietnam stands out as the country’s labour cost remains competitive when compared to the region. In 2018, the country’s total working population aged 15 or older accounted for 77% total population.

For a developing country, Vietnam scores exceptionally well globally on education of the workforce and labour market flexibility. According to IMA Asia survey, Vietnam scores in global standardized mathematics competency tests are in the same level as Japan, Switzerland and Singapore. This generation will be part of Vietnam’s workforce for the next five decades, provid-ing companies the quality talent required for growth.

Urbanisation has been constantly improving, particularly in key economic zones that have attracted a large number of migrants from nearby provinces as well as foreigners. Only 36% of population live in cities in 2018, fast forward to 2025, Vietnam is projected to attract 41 million urban residents, 45-50% of total population.

Growing middle income class Households earning more than USD 20,000 annually is expected to be seven times higher by 2030 and make up 23% of the population in 2030 compared to just 4% currently.

IndonesiaVietnam202320182010

ThailandMalaysia

wage0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.100M

anuf

actu

ring

wag

e as

% o

f Chi

na

IndonesiaVietnam Thailand SingaporeMalaysia Philippines

2025-20352018-2025

0.0%

1.0%

2.0%

3.0%

4.0% 3.5%3.1% 2.9%

2.7% 2.7%

1.6%

Urb

an p

opul

atio

n gr

owth

IndonesiaVietnam0%

2%

4%

6%

8%

10%

12%

ThailandMalaysiaPhilippines

Figure 03: Manufacturing wage in Southeast Asia compared to China

Source: IMA Asia

Figure 04: Vietnam has the fastest urban population growth in SEA

Source: World Bank

Figure 05: Vietnam’s middle income population to grow 12% CAGR in 2018-2030 (Constant 2015 prices)

Source: Oxford Economics, JLL estimates

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Located in SEA, one of the fastest-growing regions and in close proximity to major market such as China and India, this S-shaped country with its 3,260 km coastal line offers easy access to a market of over three billion population within five days of shipping or four hour flight time.

Hours

Laos

Chia

ngm

aiSiem Riep

Guangzhou

Macau

Bangkok

Hong Kong

Shenzhen

Yangon

Kaohsiung

TaipeiMan

ilaShan

ghaiKuala LumpurSingapore

Fukuoka

Deagu

Busan

Nogoya

Seoul

Osaka

Tokyo

2

2

1

1

3

3

4

4

5

6

Hanoi

5

6

Non-stop flight

Vietnam Strategic Location

Shortest flight time available

Source: Google flight search


Vietnam spends 5.8% of its GDP on infrastructure, the highest level in SEA and the second highest in terms of total spending on transport infrastructure. According to the 2018 World Bank report, Vietnam, for the first time, has featured in the top five PPI countries with ten projects at a total of USD 3.4 billion.

Vietnam is playing an increasingly important role in the global supply chain, which has raised the interest of an increasing number of logistic companies, who are eyeing Vietnam as their next port of call.

Strong Infrastructure Spending 2

Indonesia Vietnam ThailandSingaporeMalaysia

2015 2020 2025

0

20

40

60

80

100

Philippines

The country is keen to improve its inefficient port infrastructure to further support its attractiveness. According to Vietnam Maritime Administration, the country aims to achieve the annual throughput of 1,040-1,160 million tonnes by 2030.

Although the lack of well-developed infrastructure still prevails across the country, constant improvements in the transportation network under the Government’s effort to position the country as a regional manufacturing hub is expected to continue to tempt companies and investors into the country.

Figure 06: Vietnam has the second highest spending on transport infrastructure (road, rail, sea and airports). In USD billion (2015 constant prices)

Source: Oxford Economics, cited in PwC “Understanding infrastructure opportunities in ASEAN”, 2017

9

Global and regional uncertainty Amid the ongoing wave of disruption in the global trading system,Vietnam has stood out as the largest beneficiary given its flattering economy, demographics and location.

Free trade agreementVietnam is considered as one of the Asian economies most open to international trade. The country’s integration has developed at both regional and global level, supported by the progressive development of WTO and the most recently ratified CPTPP. This underpins the impressive trade results of the country over the past two decades and put Vietnam ahead of its goal of balancing trade by 2025.

$

Government supportEstablished itself as an export-driven economy and focused on transforming towards more efficient and sustainable development, Vietnam government has created favourable environment for businesses with business incentives offered within industrial parks and economic zones.

Vietnam has also launched a clear plan on industrial development by 2035. Mechanical manufacturing, Electronics and New energy are three key pillars driving the country’s economy.

Growing demand for logistics servicesThe robust growth of e-commerce has set a tone for the growing domestic demand for logistics/warehouse properties. In addition, the shift of manufacturers from China to Vietnam, due to its strategic location and competitive labour cost are the key demand drivers for cross border logistics/warehouse services. Mordor Intelligence1 projected the value of the Vietnam freight and logistics market would reach USD 113.32 billion by 2023, reflecting a CAGR of 16.6% over the 2018-23 period. The market is set for strong growth on the back of 1) Vietnam’s export-driven economy; 2) Vietnam’s industrial expansion and 3) The growth of the domestic consumption market.

Favourably support the

development of Industrial

and Logistics

Business Environment3

1 Mordor Intelligence, cited in Vietnam Freight & Logistics Market Study - Market Trends, Analysis & Forecasts to 2023 report


Hai Phong A vision forGrowthHai Phong is one of five major municipalities in Vietnam, with direct connection to the central authority. Located on the main economic corridor, along the north-eastern coastal area, Hai Phong is set to become the main gateway for import and export for the Northern Region.

Given its proximity to China, being only 200 km from the border, the city is widely regarded as the China+1 manufacturing base in ASEAN to take advantage of China-ASEAN FTA.

Hai Phong has been the spotlight for FDI investment, garnering attention and support from the central authority, supported by a major infrastructure boom and numerous governmental incentives.

The Hai Phong Economic Zone, which offers companies preferential treatment when they set up operations, is also acting as a catalyst to tempt more investors to the region.

11

Hai Phong A vision for

Vietnam

GD

P a

nnua

l gro

wth

(%)

HCMC Hai Phong Da Nang Hanoi Can Tho20182017201620152014

5%

7%

9%

11%

13%

15%

17%

Home to nearly 2 million inhabitants, Hai Phong is the third largest city in Vietnam, after HCMC and Hanoi. The city’s rapid urbanisation has underpinned its exceptional growth over the past five years.

The central government has shown its commitment to continue Hai Phong’s exponential growth by offering numerous special tax incentives, which has paved the way for it to become a foreign investment magnet, as streams of FDI pour it’s way into the city’s economy. The constant improvement of Hai Phong’s Provincial Competitiveness Index (PCI) rating demonstrates the authorities continued efforts to enhance the business environment, which will further bolster the attractiveness of Hai Phong.

Hanoi Da NangHai Phong

4,2925,672

4,082

9,800

6,628

0,0002,000

4,000

6,000

8,000

10,000

USD

per c

apita

12,000

6,700

HCMC Can Tho Vietnam2018 2020 target

Hanoi

Regi

ster

ed FD

I(U

SD b

illio

n)

0

2

4

6

8

Binh DuongHai PhongHCMC Bac Ninh

2016 2017 Q2 2018

Da Nang HCMCLong An Can Tho

Q2 201820172016

Hai PhongHanoiQuang Ninh

Rank

ing,

Low

er is

Bet

ter

0

5

10

15

20

25

Hai Phong Economic - One of the best performers

Figure 07: Hai Phong is the fastest growing localities over the past three years

Figure 08: Hai Phong registered the second highest GDP per capita in 2018

Figure 09: Registered FDI in Vietnam - Top 5 Localities

Figure 10: Hai Phong PCI amongst the top three in the north

Source: Vietnam GSO

Source: Vietnam GSO

Source: Vietnam FIA

Source: Vietnam PCI

EAST VIETNAM SEA

Hanoi - Hai Phong Highway

Hai Phong - Ha Long Highway

Van Don - Mong Cai H

ighway

Hai Duong

Quang Ninh

Mong CaiFangchenggang

Cai BauIsland

Cam Pha

Ha Long

Uong Bi

Coas

tal R

oad

NR. 18

NR. 5A

NR. 1

0

NR. 18

NR. 18

Bac Giang

Lang Son

Thai Nguyen

Vinh Nguyen

Bac Ninh

Hung Yen

Phu Ly

Ninh Binh

Nam Dinh

HANOI

Hai Phong

Cat Ba Island


Hai Phong InfrastructureDevelopment of Strong Infrastructure Backbone

PORT SYSTEM

Lach Huyen Deep Sea Port

Dra� -14 m

Annual capacity 32 mil. tons in 2020

No. of berth 23

Hai Phong Port

Dra� -7 m

Annual capacity 92 mil. tons / year

Port throughputgrowth

16.67% (2016-2017)

ROAD NETWORK

Hai Phong – Hanoi Expressway 105 km

Hai Phong – Ha Long - China 200 km

Coastal Highway 550 km

CAT BI INTERNATIONAL AIRPORT

No. ofPassengers

2.7 mil(2018 , ▲ 28.5% y-o-y)

No. of Cargo 17,128 T/year(2018 , ▲50% y-o-y)

Highway Future HighwayRailwayNational RoadExisting RoadsFuture RoadsCat Bi International AirportMajor Ports

Haiphong Railway Station

LEGEND

Industrial clusters

EAST VIETNAM SEA




ighway

Hai Duong

Quang Ninh

Mong CaiFangchenggang

Cai BauIsland

Cam Pha

Ha Long

Uong Bi

Coas

tal R

oad

NR. 18

NR. 5A

NR. 1

0

NR. 18

NR. 18

Bac Giang

Lang Son

Thai Nguyen

Vinh Nguyen

Bac Ninh

Hung Yen

Phu Ly

Ninh Binh

Nam Dinh

HANOI

Hai Phong

Cat Ba Island

13

Development of Strong Infrastructure Backbone

Hours

Days

Bang

kok

Shenzhen

Seoul

Jakatar

Singapore

Osaka

Busan

KaosiungGuan

gzho

u

Shan

ghaiYo

kohama

Los Angeles

Sydney

Melbourne

Manila

Vancouver

New York

Santos

2

105

1

3

15

4

20

5

6

25 30

Non-stop flight

Maritime

Hai Phong

Recognizing that infrastructure is a crucial element to leverage economic development, Hai Phong will mobilise its resources to develop modern and synchronous transportation infrastruc-ture, which will improve connections to key surrounding regions. This will contribute to establishing Hai Phong as the main maritime trade gateway of the economic corridor in the northern region.

City’s infrastructure has undergone significant improvements through the completion of three core projects of Hanoi-Haiphong Expressway, Tan Vu – Lach Huyen Highway, and Dinh Vu – Cat Hai Bridge. By facilitating the linkages to the Hanoi-Lao Cao Express Way, these projects will reportedly help reduce the commute time between the northern province of Lao Cai and Hai Phong International Gateway Port (HIGP) to approximately six hours.

Shortest flight and shipping time available

Source: Google search

Group 1 in the North from Quang Ninh to Ninh Binh provinces

Group 2 in the North Central Coast from Thanh Hoa to HaTinh provinces

Group 3 in the Central Coast from Quang Binh to Ha Tinh provinces

Group 4 in the South Central Coast from Binh Dinh to Binh Thuan provinces

Group 5 in the Southeast of HCMC including Ba Ria Vung Tau province

Group 6 in the Mekong Delta River including Phu Quoc Island and southwest islands

Figure 11: Vietnam’s container cargo throughput by 2030

Source: Vinamarine

30% 33% 32% 35%

0%10%20%30%40%50%60%70%80%90%

100%

2016 2017 2020 2030

Group 1 Group 2 Group 3 Group 4 Group 5 Group 6

61% 62% 55% 49%

Quang Ninh

Mong Cai

Cai BauIsland

Cam Pha

Ha Long

Uong Bi

Lach HuyenDeep Sea Port

Dinh Vu Port

Cat Ba Island

Cai LanPortHai Phong Port

Cat BiIntl. Airport

Coas

tal R

oad

EAST VIETNAM SEA

NR. 18

NR. 5A

NR. 1

0

NR. 18

NR. 18



Bac Giang

Thai Nguyen

Vinh Nguyen

Bac Ninh

Hai Duong

Hung Yen

Phu Ly

Ninh Binh

Nam Dinh

HANOI

Hai Phong


ighway


Hai PhongIndustrial and Logistics Landscape

HighwayRailwayNational RoadExisting RoadsFuture RoadsCat Bi International AirportMajor Ports

LEGEND

Existing Industrial ParksFuture Industrial Parks

Dinh Vu Cat Hai Economic zone

Future Highway

Haiphong Railway Station

Key facts

Total Land Area (ha) 4,701Average Net Rent (sqm/lease term)USD 92Occupancy Rate52%

Total Ready Built (sqm) 395,000Average Net Rent (sqm/month)USD 4.6

Note: Map only illustrate future projects having clear address and development plans.

Quang Ninh

Mong Cai

Cai BauIsland

Cam Pha

Ha Long

Uong Bi

Lach HuyenDeep Sea Port

Dinh Vu Port

Cat Ba Island

Cai LanPortHai Phong Port

Cat BiIntl. Airport

Coas

tal R

oad

EAST VIETNAM SEA

NR. 18

NR. 5A

NR. 1

0

NR. 18

NR. 18



Bac Giang

Thai Nguyen

Vinh Nguyen

Bac Ninh

Hai Duong

Hung Yen

Phu Ly

Ninh Binh

Nam Dinh

HANOI

Hai Phong


ighway

15

Over the past years, Hai Phong had established itself as a core industrial hub in Vietnam. Bene-fiting from the positive effect of the China – ASEAN FTA, and the Official Development Assistance (ODA) from Japan, Hai Phong is the preferred destination for manufacturing giants in high-tech industries. Along with numerous incentives available to interested investors, Hai Phong, together with Bac Ninh, are transforming the industrial landscape across the Northern region.

Key Developers Key Occupiers by Sector

32%

20%14%

11%

23%Deep C Industrial Zone JSC

Sao Do Investment Group JSC

Kinh Bac City

Vietnam Singapore IP JVC

Others

32%

20%14%

11%

23%Deep C Industrial Zone JSC

Sao Do Investment Group JSC

Kinh Bac City

Vietnam Singapore IP JVC

Others

14%

10%

10%

10%5%4%

47%

Computer Electronic and Optical ProductsMachinery and Equipment N.E.CChemicals and Chemicals ProductsLogisticsPlastic and Rubber ProductsTextile and ApparelOther

14%

10%

10%

10%5%4%

47%

Computer Electronic and Optical ProductsMachinery and Equipment N.E.CChemicals and Chemicals ProductsLogisticsPlastic and Rubber ProductsTextile and ApparelOther


Case study

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WhoFounded in 1997, DEEP C had established itself as one of the biggest industrial land developer groups in Vietnam. It was derived from a successful partnership, between:

Rent-a-Port – A Belgian company specialized in industrial zones, renewable energy and marine infrastructure developmentHai Phong People’s Committee

•

•

•••

WhyDEEP C has recognized the strong potential of Haiphong and Quang Ninh to become a core industrial and logistics hub in Vietnam, giving its strategic location, proximity to China, logistics infrastructure, diversified economy along with its population density.

DEEP C wants to foster the growth of manufacturing and supporting services to turn the region into leading destination for sustainable investment.

WhatDeep C Industrial Zones consist of five subprojects in the industrial area upstream of the Lach Huyen Port, with over 3,386 ha of industrial land. DEEP C offers a variety of options for investment consideration, including:

Industrial land for leaseReady-built-factoryLogistic warehouseBuilt-To-Suit solutionsOffices for lease

HowDEEP C has made green growth, sustainability and reliability a key priority for its Industrial parks. Besides advanced synchronous infrastructure and special tax incentives, all investors will be benefitting from the reliable utilities such as redundant underground energy supply partially sourced from renewables, iso-certified waste water treatment facilities as well as advanced telecom systems. The company is also investing in a hybrid barging service via its inland waterway terminal. All these efforts made DEEP C a truly eco-industrial park and the best choice for investors in north Vietnam.


Unlocking Hai Phong Potential

A Way Forward

There are many examples of port cities around the world including London and Amsterdam. When developed successfully, they can drive economic activity and serve as a crucial connection between sea and land transport. Hai Phong has all the necessary ingredients to develop into a true global port city and with continued investment in the development of new roads, improvement of the city’s traffic management system, improvement of rail and inland waterways, increase in labour productivity, efficient custom and administration procedures, development of supporting industries and embracing innovation and technology we firmly believe that Hai Phong has a vision for growth which is set to continue for many years to come.

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© Copyright 2019 JLL. All rights reserved. This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.

Key Contacts

Trang BuiSenior Director of [email protected]

Van NguyenDirector of [email protected]

Authors

Trang LeResearch and Consulting [email protected]

Hung NguyenResearch and [email protected]

Stephen WyattVietnam Country [email protected]

Xuan PhamMarketing and [email protected]

Documents

Hai Phong growth A vision for