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Successfully investing in Vietnam

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last updated on 19 May 2021 | reading time approx. 2 minutes

 

 

How do you assess the current economic situation in Vietnam?

The So­cial­ist Re­pub­lic of Vi­et­nam has ex­per­i­enced a rap­id and re­mark­able eco­nom­ic growth and de­vel­op­ment over the past three and a half dec­ades start­ing with the “Doi Moi” eco­nom­ic and polit­ic­al re­form of 1986. Since then the trans­ition of the eco­nomy fol­low­ing “Doi Moi” has fueled an im­press­ive growth with rising eco­nom­ic in­dic­at­ors in Vi­et­nam.

In the re­cent years, Vi­et­nam has emerged as a prom­ising des­tin­a­tion for many re­gion­al and in­ter­na­tion­al in­vestors thanks to its strong an­nu­al eco­nom­ic growth (cur­rently of around 6 to 7 per cent) and un­der­ly­ing factors that con­trib­ute to such pro­gress, namely stable polit­ic­al sys­tem, young and dy­nam­ic work­force, low wages eco­nomy and a grow­ing middle class.

In 2020, des­pite sig­ni­fic­ant im­pacts of the un­pre­ced­en­ted and on­go­ing Cov­id-19 pan­dem­ic, Vi­et­nam is among a few coun­tries that are likely to post pos­it­ive GDP growth while most eco­nom­ies will con­tract. Vi­et­nam is also es­tim­ated to be the fourth largest eco­nomy in ASEAN this year, be­hind In­done­sia, Thai­l­and and the Phil­ip­pines. Ac­cord­ing to the Gen­er­al Stat­ist­ic De­part­ment, GDP growth in Vi­et­nam in 2020 is 2.9 per cent and 6.7 per cent fore­cast for 2021.
 

How would you describe the investment climate in Vietnam? Which sectors offer the largest potential?

Since its ac­ces­sion to the World Trade Or­gan­iz­a­tion in 2007, Vi­et­namese mar­kets have been ex­tens­ively open to for­eign in­vestors in many sec­tors. Sim­ul­tan­eously, the gov­ern­ment has is­sued vari­ous policies eas­ing busi­ness con­di­tions and re­lax­ing ad­min­is­trat­ive bur­dens. In ad­di­tion, Vi­et­nam has also inked sev­er­al new free trade agree­ments, such as EU-Vi­et­nam FTA and UK-Vi­et­nam FTA, which are prom­ising to boost trade flows and to cre­ate at­tract­ive con­di­tions for busi­ness ven­tures in the coun­try.

For­eign in­vest­ment in­to Vi­et­nam is largely open and lib­er­al­ised, save for very lim­ited areas sub­ject to for­eign in­vest­ment re­stric­tions, ex­ample.g. fin­an­cial ser­vices, cer­tain as­pects of lo­gist­ics, tele­com­mu­nic­a­tions and util­it­ies. Es­pe­cially ac­quir­ing equity in­terests in ex­ist­ing do­mest­ic or state-owned en­ter­prises re­quires the in­vestor to go through an ap­prov­al pro­cess. Vi­et­nam’s lib­er­al mar­ket eco­nomy holds great po­ten­tial for for­eign in­vestors, par­tic­u­larly in the fields of man­u­fac­tur­ing, re­new­able en­ergy, high-tech and IT, the last be­ing sub­ject to at­tract­ive tax in­cent­ives. The coun­try’s in­tern­al mar­ket also of­fers a good basis for for­eign in­vestors due to its rap­idly grow­ing middle class and a high num­ber of con­sumers. The fo­cus on tra­di­tion­al ag­ri­cul­tur­al and labor-in­tens­ive in­dus­tries, such as tex­tiles and tim­ber, is still there, but is cur­rently shift­ing. Re­new­able en­er­gies are still very un­der­developed in Vi­et­nam and of­fer good op­por­tun­it­ies – a fact that has been re­cog­nised by the coun­try’s gov­ern­ment, which is pro­act­ively try­ing to at­tract in­vest­ment in this area.

Stat­ist­ic­ally, man­u­fac­tur­ing is still the most pop­u­lar area of dir­ect for­eign in­vest­ment in Vi­et­nam with a total in­vest­ment cap­it­al of over 3 bio. US Dol­lar (55.7 per cent of the total for­eign in­vest­ment cap­it­al) in 2021, fol­lowed by dis­tri­bu­tion, power gen­er­a­tion and con­struc­tion.
 

What challenges do German companies face during their business ventures into Vietnam?

Ac­cord­ing to the Vi­et­namese in­vest­ment in­dex, as of 2020, Ger­man com­pan­ies in­vest­ing in Vi­et­nam ranged at 18th out of 136 coun­tries by volume of in­vest­ment in Vi­et­nam with total 361 or more projects in di­verse fields. Ger­man com­pan­ies op­er­at­ing in Vi­et­nam do face a num­ber of chal­lenges: from in­fra­struc­tur­al prob­lems, such as the un­der­developed road net­work to non-trans­par­ent ad­min­is­trat­ive de­cision mak­ing. Con­tra­dict­ory le­gis­la­tion and in­ef­fi­cient bur­eau­cracy re­main ser­i­ous prob­lems that the coun­try still has to man­age.


Due to the im­pact of vari­ous free trade agree­ments, cus­toms reg­u­la­tions have been sig­ni­fic­antly re­duced. However, cus­toms pro­ced­ures still re­main largely non-trans­par­ent. On the Trans­par­ency In­ter­na­tion­al Cor­rup­tion In­dex, Vi­et­nam just re­cently slipped fur­ther down and now ranks 104th, at the low rate in the re­gion. For for­eign in­vestors, however, it is pos­sible to un­der­take all de­sired and ne­ces­sary pro­ced­ures in a trans­par­ent man­ner. However, suf­fi­cient time should be sched­uled to al­low for fi­nal­isa­tion of com­plex pro­cesses.
 

What opportunities does the latent US trade conflict with China hold for Vietnam's economy?

Vi­et­nam has con­tinu­ously de­veloped in­to an at­tract­ive sup­ply-chain di­ver­si­fic­a­tion op­tion to China. China's trade con­flict with the United States is lead­ing to in­creased and un­pre­dict­able tar­iffs across the board. Vi­et­nam of­fers a more cost-ef­fi­cient and pre­dict­able trade op­tion with the US through a vari­ety of free trade agree­ments. The lib­er­al mar­ket entry and the fact that de­pend­ence on loc­al part­ners is not man­dat­ory in most areas res­ults in a strong in­vest­ment in­flow.
 
Vi­et­nam will not be­come a sub­sti­tu­tion­al al­tern­at­ive to China in the fu­ture, but the coun­try will con­tin­ue to be seen as a val­ued di­ver­si­fic­a­tion op­tion. From a risk man­age­ment point of view, sup­ply-chain de­pend­ence on one coun­try such as China should be re­duced, and Vi­et­nam of­fers an op­por­tun­ity to do so.
 

In your opinion, how will Vietnam develop?

Des­pite no­tice­able de­fi­cits in the areas of le­gis­la­tion, reg­u­la­tions, bur­eau­cracy, cor­rup­tion, in­tern­al pro­cesses and in­fra­struc­ture, Vi­et­nam con­tin­ues to de­vel­op pos­it­ively. Backed by stable and pre­dict­able polit­ic­al frame­work, the short­com­ings are gradu­ally be­ing re­duced in or­der to make the coun­try even more at­tract­ive – es­pe­cially for for­eign in­vestors.

Vi­et­nam will con­tin­ue to work hard on the de­vel­op­ment of its in­dustry and to­wards the coun­tries mod­ern­isa­tion, ef­fect­ive­ness and sus­tain­ab­il­ity, in or­der to gen­er­ate a high­er com­pet­it­ive­ness as a stable basis of an in­dus­tri­al­ised na­tion. The coun­try will be able to ex­ploit and take ad­vant­age of op­por­tun­it­ies from signed Free Trade Agree­ments to re­move trade bar­ri­ers which will in turn sup­port the do­mest­ic ex­port ori­ented in­dus­tries and there­fore open new and ad­di­tion­al op­por­tun­it­ies for trade and for­eign dir­ect in­vest­ment.

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