Vietnam eyes international trade boost

Text size +-
Recommend

Vietnam could emerge as the single-biggest winner from the recently signed Trans-Pacific Partnership (TPP) trade agreement, according to ratings agency Fitch, with the potential for a significant increase in investment inflows and export opportunities.

Signed on October 5 and expected to come into force at the end of 2017, the TPP will bring Vietnam, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and the US together into the world’s largest trade bloc, creating a market of 800m people that accounts for 40% of global output.

“Of the 12 countries that are party to the TPP, models suggest that Vietnam would see the biggest benefits in terms of economic impact,” Fitch said in a statement issued in mid-October. “The free trade elements of the TPP will lower tariff barriers, giving Vietnam greater access to large consumer markets in the US, Japan, Canada and Australia.”

The other members of the TPP accounted for nearly 40% of Vietnam’s exports and 23% of its imports last year, according to local media reports, with a study by the US-based East-West Centre estimating that the lowering of trade barriers could see the country’s outward trade volumes increase by up to 37% over a 10-year period, while also reducing the cost of imports.

Eyeing Europe

Vietnam is also eyeing trade opportunities further afield, with an in-principle agreement made with the EU in early August to establish a free trade agreement (FTA) that would remove almost all tariffs on goods traded between the two markets.

According to the European Commission, this marks one of the most symmetrical trade arrangements to date between the EU and a developing country and is expected to give Vietnam an edge over other ASEAN member nations, particularly in terms of manufactured or processed goods, which account for the majority of Vietnam’s exports to Europe.

Bilateral trade in goods reached €28.2bn last year, with €22.1bn worth of Vietnamese exports, according to the European Commission.

While a date has yet to be given for finalising the terms of the FTA or a timeframe for implementation, EU officials say they hope to have the technical details of the agreement in place by the end of the year.  

Foreign investment potential

Industry is already attracting the bulk of incoming investment in Vietnam, with the processing and manufacturing sectors accounting for $12.4bn in registered foreign capital in the first 10 months of 2015, equivalent to 64.7% of total registered capital, according to the Ministry of Planning and Investment. Foreign investment was up 40.8% year-on-year over the period.

This substantial growth is likely in part due to the government’s announcement in June that the foreign investment caps for a wide range of industries will be raised from 49% to 100%, while privatisation efforts are expected to further stoke investor interest.

In mid-October the State Capital Investment Corporation (SCIC) unveiled plans to privatise 10 state-owned enterprises in a move expected to generate around $4bn. While a timetable for the divestments has yet to be announced, targeted companies include FPT Telecom, local plastics producer Binh Minh Plastics and Vinamilk, the country’s largest dairy producer.

Although Lai Van Dao, general director of the SCIC, told local media in early November that the initial public offering was expected to include around 10% of Vinamilk’s shares, the company has signalled a broader openness to foreign investment. Speaking to local media in August, Mai Kieu Lien, the company’s CEO, said she “did not see any problems if foreign investors hold 100% of Vinamilk’s stake”.

Targeting skills upgrades

While Vietnam’s financial sector is upbeat about the forthcoming TPP, many in the manufacturing industry will likely need to raise their standards in order to fully benefit from the new trade regime, according to Trinh Thanh Can, CEO of ACB Securities.

“The TPP will surely attract more foreign direct investment to Vietnam and create jobs, but less formal, medium-sized companies will have no choice but to make improvements,” he told OBG.

With the newly negotiated trade deals granting Vietnamese goods access to more markets around the world, competition from other lower-income countries in the region – notably Myanmar, Bangladesh and Cambodia – could increase pressure on Vietnam to increase the skills base of its workforce.

A shortage of qualified labour remains a problem for many sectors, Nguyen Hoang Ngan, general director of Binh Minh Plastics, told OBG.

“Labour is still a central issue in Vietnam,” he said. “The country needs to develop a proper training centre in order to bridge the current skills gap.”

While the EU expects investments and trade with Vietnam to rise as a result of its FTA, the bloc’s ambassador to the country also sees the narrow skills base as an impediment to expansion.

“Joint partnership investors are having difficulties finding the right labour,” Bruno Angelet, the EU’s ambassador to Vietnam, told OBG. “Vietnam needs an upskilling of labour, and education and vocational training are the key to achieving this.”

With the added incentive of expanded markets opening for the manufacturing and processing sectors, the drive to upskill is likely to be given even greater impetus.

Though many firms will need to retool and boost their performance to compete on the international stage, as one of the least developed countries in the TPP, Vietnam stands to benefit the most, Trinh added.

Oxford Business Group is now on Instagram. Follow us here for news and stunning imagery from the more than 30 markets we cover.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Vietnam

How is Covid-19 changing South-east Asia’s super apps?

After enjoying years of exponential growth, South-east Asia’s super apps have been forced to reassess their business models as a result of Covid-19, with many refocusing their priorities as they...

In Industry

New park in Sharjah to increase opportunities in food processing

New projects and investments related to food processing are strengthening Sharjah’s manufacturing sector and lending themselves to attempts to improve food security across the UAE.

Latest

Terawan Agus Putranto, Minister of Health in Indonesia

In what ways have mobile applications helped to limit community transmission of Covid-19 in Indonesia?