Vietnam seeks to promote development of industrial clusters via new Decree: Allen & Gledhill

23 May 2024

Effective 1 May 2024, Vietnam’s Decree No. 32/2024/ND-CP provides for the management and development of industrial clusters in the country (“Decree No. 32”).

This article provides an overview of Decree No. 32.

Scope and purpose

The purpose of Decree No. 32 is set out as being for the:

development, establishment, and expansion of industrial clusters;
investment in construction of technical infrastructure, business, and production facilities in industrial clusters;
incentives for and policies to provide assistance in development of industrial clusters; and
State management of industrial clusters.

It applies to enterprises, cooperatives, units investing in construction of technical infrastructure of industrial clusters (“technical infrastructure investors”), organisations and individuals carrying out production and business in industrial clusters, and other agencies, organisations and individuals related to the management and operation of industrial clusters.

An “industrial cluster” is defined in Decree No. 32 as a place for industrial manufacturing or the provision of services in support of industrial manufacturing and cottage industries, with a specific, uninhabited, geographic boundary of within 10 to 75 hectares that is mainly developed to attract and relocate small-and-medium-size enterprises, co-operatives, and consortiums to conduct business therein.

Enterprises encouraged to invest in, relocate to industrial clusters

Decree No. 32 lists the following industries that the State is specifically targeting to invest in and/or relocate to industrial clusters:

Processing and manufacturing in support of agriculture;
Machinery/mechanical (including automobiles, agricultural machines, construction/medical equipment);
Textile, apparel, footwear;
Electronics;
Smart energy;
Digital technology (including automation, high-end equipment, new materials, biotechnology);
Information technology and communications;
Local industries and cottage industries to be preserved and developed; and
Warehousing services, packaging, transport of goods, repair and maintenance of machinery, industrial equipment and other services directly serving local industrial and cottage-industrial production with a total area not exceeding 10% of the industrial cluster area.

It is also noted that industries not falling in the categories set out above but which employ high, clean, and energy-efficient technologies resulting in high value and sustainable development will also be able to invest in and/or relocate to industrial clusters. Similarly, industrial and cottage-industrial production establishments which cause pollution or are likely to cause pollution in craft villages and populated areas are encouraged to relocate to industrial clusters.

Establishment and expansion of industrial clusters

Decree No. 32 sets out the process for both the establishment and the expansion of industrial clusters, which begins with an industrial cluster development plan. An industrial cluster development plan must be associated with policies and solutions for synchronous management and investment in construction of technical infrastructure of a province or central-affiliated city for environmental protection, economical and efficient use of land and other local human and natural resources. The industrial cluster development plan is an integral part of, formulated and integrated with, the provincial planning in accordance with regulations of law on planning.

Conditions

Decree No. 32 sets out the basis on which an industrial development plan can be formulated and the information to be provided.

The conditions for the establishment or expansion of an industrial cluster are set out below.

Category	Establish industrial cluster	Expand industrial cluster
Location / land	· The industrial cluster is on the list of industrial clusters in a province approved by a competent authority · Available land is suitable for land use planning in the district	· Total area of the industrial cluster after expansion must not exceed 75 hectares · Available land is suitable for the land use planning in the district
Technical infrastructure investor	· An enterprise, cooperative or organisation (“E,C,O”) that has a legal status and capacity for investment in the construction of technical infrastructure applies for approval as a technical infrastructure investor	· An E,C,O that has a legal status and capacity for investment in construction of technical infrastructure applies for approval as a technical infrastructure investor
Occupancy	· In the event industrial clusters have been established within a district, the average occupancy rate of those industrial clusters must exceed 50% or the clusters’ total area of industrial land yet to be leased out must not exceed 100 hectares	· The occupancy rate is at least 60% or the demand for leasing industrial land in the industrial cluster exceeds the area of current industrial land of the industrial cluster
Infrastructure requirements	N/A	· Essential shared technical infrastructural constructions have been completed and put into service (including internal roads, constructions for water supply and wastewater collection and treatment) in line with the approved detailed planning

Application procedure

An enterprise, cooperative, or organisation may apply as a technical infrastructure investor to establish or expand an industrial cluster via an application form (“application”) to which a report on the investment (“report”) and a map illustrating the location and boundaries of the cluster is appended. Additional documentation is required to be submitted with the application, including financial information.

The report must include a variety of information, including:

impact of industrial parks and industrial clusters in the locality on the investment efficiency and occupancy rate of the industrial cluster being established or expanded;
current use of land, conditions for land expropriation, estimated demand for land;
land use structures and attractiveness for investment in the industrial cluster;
assessment of ability to connect technical infrastructure inside and outside the industrial cluster;
expected total investment, structure and ability to balance and mobilize sources of investment capital for project execution; and
costs of servicing, maintenance and operation of the system of technical infrastructural constructions, other relevant costs.

Decree No. 32 provides for the following timeframe for the establishment or expansion of an industrial cluster.

Action	Next steps	Timeframe
E,C,O submits documents for approval as technical infrastructure investor	· District-level People’s Committee publicly announces receipt of application to local mass media (“announcement”)	· Announcement is made within five working days from receipt of first document from E,C,O
E,C,O applies to establish or expand industrial cluster	· E,C,O and district-level People’s Committee cooperate to prepare two sets of the application for establishment or expansion of the industrial cluster · Application submitted to provincial Department of Industry and Trade (“DIT”) for appraisal	· E,C,O submits application within 15 days from announcement · DIT completes appraisal within 25 days of receipt
DIT submits appraisal to provincial People’s Committee	· Provincial People’s Committee decides on application to establish or expand industrial cluster	· Decision is made within seven working days from date of receipt of application and report from DIT

Investment in construction of industrial cluster infrastructure

Decree No. 32 provides incentives and assistance to enterprises, cooperatives, and organisations acting as technical infrastructure investors. Selecting these investors for industrial cluster projects will be part of the process of establishing or expanding the cluster in accordance with the provisions of the Decree. The procedure to be utilised to select the investor is set out in the Decree and involves the convening of an assessment council and the investment plan being awarded points for different aspects.

Financial assistance

The local government budget (including extra funding from the central government) shall provide financial assistance for the investment and development of technical infrastructure systems inside and outside industrial clusters in the locality. The following are set out in Decree No. 32 as being priority sectors for financial assistance:

Provision of assistance in investment in technical infrastructural constructions serving environmental protection of industrial clusters that have been put into operation;
Assistance in investment in essential shared technical infrastructural constructions of industrial clusters in disadvantaged and extremely disadvantaged areas; and
Industrial clusters developing in the direction of linking industries, specialisation, assistance, ecology, preservation of traditional craft.

Decree No. 32 provides the following limits in relation to financial assistance:

Financial assistance provided by the State will not exceed 30% of the total investment capital of the industrial cluster infrastructure construction project;
Financial assistance shall be excluded from the total investment of the project in determining rents for subleased land and infrastructure for investment projects in the industrial cluster; and
The technical infrastructure investor shall manage, repair, and regularly operate technical infrastructural constructions that have received financial assistance for the benefit of the industrial cluster’s common activities.

Provisions for investment incentives for industrial cluster infrastructure construction projects and for production and business investment projects in industrial clusters are also provided for in Decree No. 32. State assistance for the construction and development in industrial clusters is available.

Rights and obligations

Decree No. 32 sets out both the rights and obligations of technical infrastructure investors. For example, it stipulates that investors are able to raise capital for the construction of the industrial cluster’s infrastructure and invest in the construction of factories, warehouses, and offices for lease or sale. Obligations listed include the requirement to establish a department to manage and operate construction projects and the need to organise the execution of projects in accordance to approved, detailed plans thus ensuring that they are executed on schedule. It should be noted that Article 19 of Decree No. 32 provides that termination of the project or delay in its execution may incur penalties as prescribed by law.

Technical infrastructure investors will be the point of contact for organisations and individuals wishing to relocate to or invest in an industrial cluster and shall sign an in-principle agreement relating to the location and area of industrial land expected to be leased.

Decision 821

Ministry of Industry and Trade Decision 821/QD-BCT (“Decision 821”) also came into force on 1 May 2024. Decision 821 announces new administrative procedures relating to the establishment of industrial clusters under its purview and sets out the steps to be undertaken by both the investors and the relevant district People’s Committee and the applicable timeframes, with a total processing time of 57 days from the date of receipt of complete and valid documents.