Successfully investing in Vietnam

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last updated on 16 June 2023 | reading time approx. 5 minutes

 

 

How do you assess the current economic situation in Vietnam?

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 recent years, Vietnam has emerged as a promising destination for many regional and international investors thanks to its strong annual economic growth. Underlying factors that contribute to such progress are among other things a stable political system, a young and dynamic workforce, low wages economy and a growing middle class. In particular in 2023 and 2022 we have also seen that Vietnam has managed to control inflation which throughout this period stayed below 5 percent.
 
Currently, Vietnam seems to be one of the beneficiaries of changing global frameworks and rapid adjustments to supply chains. On one hand Southeast Asia and in particular Vietnam attracts European, Asian and North American companies wishing to diversify their supply chains due to the dynamic and sometimes unpredictable developments of trade relations between the US and China. Vietnam is ideally positioned to support the diver­sification efforts due to the Free Trade Agreement with the EU and also good trading relationships with China and the US. Furthermore, market entry strategies into Southeast Asia also benefit from Vietnam being party to the ASEAN treaty framework. 
 
Now, according to the General Statistics Office, Vietnam's gross domestic product (GDP) increased by eight per­cent in 2022. The World Bank forecasts GDP growth of 6.3 percent in 2023 and 6.5 percent in 2024 as in­fla­tion may decline.


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

Since the country's accession to the World Trade Organization in 2007, Vietnamese markets have been exten­sively opened 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 signed 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 and safe 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 (e.g., financial services, certain aspects of logistics, telecommunications and utilities). Ne­vertheless, 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. Currently we are witnessing a development away from shoe and garment production to more complex assembly and production of machines and electronic and electrical equipment. Renewable energies are still very underdeveloped in Vietnam and offer good op­por­tunities – a fact that has been recognized by the country's government, which is proactively trying to attract in­vest­ment in this area.
 
Direct foreign investments were an important driving force and another example of the overall successful man­age­­ment of the pandemic in Vietnam. The Ministry of Planning and Investment announced for the current year 2023, the registered capital from foreign direct investment in Vietnam rose to slightly more than 3.4 billion US dollars in April, the highest monthly increase this year. This brings Vietnamese FDI in 2023 to a total of 8.88 billion US dollars, up 82.1 percent year-on-year.

The safe and stable situation of Vietnam attracted FDI from 106 countries and territories. In the first two months of 2023, Singapore was the largest foreign investor in Vietnam with 978.4 million US dollars, accounting for almost one-third of the total. Taiwan (China) and the Netherlands were second and third with 407.1 million US dollars and 369 million US dollars, respectively. Other major investors were China, the Republic of Korea and Sweden.


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

According to the Delegation of German Industry and Commerce in Vietnam (AHK Vietnam), Germany placed Vietnam one of the most important ASEAN trading partners in the European Union. Counting over 500 German companies in the country, the country represents a total FDI that reached an invested capital of 2.3 billion US dollars by the end of 2021.
 
German companies operating in Vietnam still 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 high influx of FDI projects into Vietnam, in particular from Asian countries, we do witness pressure on real estate pricing, in particular in connection with manufacturing sites, but also increasing labour costs. At the same time companies may consider, depending on operation requirements, a location in a lesser developed area, i.e. outside of the HCMC, Da Nang and Hanoi regions, which still offer good value. Finally, localising sup­pliers in Vietnam may take some time and effort, as the economy is not as developed as – for example – Thai­land or Malaysia, which means that finding suitable suppliers offering the desired quantity, quality and delivery timings may require some preparation.


What opportunities can arise for Vietman in the light of the economic and political challenges ahead?

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 through a variety of free trade agreements, but also a liberal market entry thanks to an ever-reacting economy. Vietnam's independence from local partners further results in a strong investment inflow prone to innovation.
 
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.
 
More recently, the Russia-Ukraine conflict that emerged in February 2022 has undoubtedly sent shockwaves throughout the entire world. It is indeed predicted that the fallout of the conflict will have significant conse­quences in disturbing trade and global supply chains. However, this also may open doors and create oppor­tunities for Vietnam to diversify its trade and cater to new markets. 


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 a 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 country's modern­iza­tion, 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 exportoriented industries and therefore open new and additional opportunities for trade and foreign direct investment.
 
One of the most current and innovative sectors is energy, following the implementation of the ASEAN Plan of Action for Energy Co-operation Phase II, where Southeast Asia countries have committed themselves to meet a target of 23 percent of renewable energy by 2025. It is stating the obvious to say that there is an increasing need for investment in renewable energy capacity and in electricity networks to facilitate the flexibility needed to integrate renewables. 
 
Vietnam is an ideal place to invest in such progressive technologies as there is a current shift to a national implementation of programs rather than an ASEAN-led regional infrastructure through different models for attracting private investment depending on the country (i.e. long-term concession; build own operate and transfer contracts, etc.). Particularly, Vietnam is leading the ASEAN sector in clean energy investment (34 percent of ASEAN investment in 2021) and has plans to install more than 13 GW of new renewable energy from projects (50 GW capacity from wind and solar planned for 2030).

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