The development of Vietnam and potential for EU investors - Business Works

The development of Vietnam and potential for EU investors

Mr An The Dzung, Commercial Counsellor of the Embassy of Vietnam in London, looks at the development of Vietnamís industry and trade after accession to WTO (the World Trade Organization) and the potential for EU investment.

This article is divided into three parts. The first is the development of Vietnamís industry and trade after accession to WTO; the second focuses on Vietnam-UK trade relations; and finally, I will talk about Vietnamís orientation towards trade relations with the UK.

Development of Vietnamís industry and trade

Vietnam eventually became a member of the WTO in January 2007, but industrial output has, for over a decade, matched that of some of the fastest-growing countries and in 2008 was almost 15% higher than that of 2007. The non-public sector increased by 18.8% while the foreigninvested sector increased by 18.6%.

Exports and imports

Balance of payments
Exports are an important driving force for our economic growth and have steadily grown in value over the past few years. In 2008, our exports registered a record amount at US$65.68 billion, 29.07 per cent higher than 2007. We are increasingly striving to add value to our exports and therefore the structure is gradually turning from raw materials (crude oil, coal, rubber, rice) to processed products, together with those incorporating developing technologies.

Our imports have also grown over the past few years. In 2008, our imports were US$80.4 billion and the trade deficit was US$14.5 billion. Imports of inputs for domestic production in late 2008 decreased sharply due to the negative impact of the world economic recession on our investment and production.

Our imports mostly consist of materials, fuels and machines for domestic and export production. Imports surged in 2007 and the first half of 2008 because of higher prices for materials and fuels, increased disbursement of FDI and rising demand in the economy itself for imported materials used in production and exports. The rise of consumer products was mostly due to higher income levels in the population, together with tariff reduction on certain imports.

Vietnamís strategy in the current situation

Ho Chi Minh city
The Global economic slowdown has naturally impacted on the Vietnamese economy and itís likely that we face the most challenging scenario since we embarked on our Reform (Doi moi) process. However, while exports, most of which are sent to ďdeveloped countriesĒ have declined, we are fortunate that domestic demand is holding up well due to a growing middle class and latest projections for 2009 show growth of around 6%. The financial sector remains solid and inflation has been curbed. The stabilization of our macro economy remains challenging, but the goals of ensuring social stability and security, together with continuing the integration of Vietnam into the global economy will be achieved.

Our Government has been implementing many strong and urgent packages to limit the negative impact of the global economic recession, to restore confidence for enterprises and people, and to lessen the trend towards economic recession. The three major packages are:

  • production, business and market promotion;
  • investment and consumption promotion; and
  • flexible monetary policy.

Vietnam - UK co-operation

The UK-Vietnam bilateral relationship has developed greatly since the establishment of full diplomatic relations in 1973. It now encompasses a wide-range of issues, from high-level political contacts, through growing trade and investment links, cooperation against international crime and illegal migration, to a fast growing development assistance programme.

The value of UK investment in Vietnam is approximately US$1.4 billion, making the UK one of the largest EU investors in Vietnam, with around 79 investment licences. UK companies such as BP, Shell, BAT, GlaxoSmithKline, Tate & Lyle, Prudential, HSBC, Standard Chartered Bank, Unilever, ICI and Castrol have made substantial investments in this market and, in many cases, are expanding their operations in Vietnam. Less well-known names such as Finlay Teas, Nam of London (garments), Volex (computer cables) and Harvey Nash (software design) have also invested in Vietnam. Large or small, UK companies are building up a good reputation and are contributing to Vietnamís economic development.

The main sectors for investment include oil & gas, utilities, infrastructure, agricultural processing, food, telecommunications, financial and banking services, etc.

We have seen a substantial increase in bilateral trade between Vietnam and the UK. In the year 2008, UK exports to Vietnam increased by 25% (£167.6 million) and imports from Vietnam continued to rise by 19% (£1026 million).

Top exports from the UK to Vietnam are: power generating machinery, general industrial machinery and equipment, medicinal and pharmaceutical products. Top imports from Vietnam are: footwear, articles of apparel and clothing, furniture, coffee, tea, cocoa, spices and cashew nuts.

Vietnamís relations with the UK

Song Sai Gon
We should consider what effects Vietnamís policy will have in terms of economic relations with the UK. The increasing trade and investment activity between Vietnam and the UK is sound evidence to believe in a bright future for Vietnam Ė UK economic co-operation.

Indeed, there are three main driving forces for UK enterprises to make investments in and do business with Vietnam:

  1. Vietnam has clear comparative advantages in terms of its labour force (with relatively low costs) as well as the availability of diversified mineral resources for processing. In addition, Vietnam has a strategic geographical location in South East Asia. UK investors may find Vietnam a useful window to expand business operations and opportunities in the region;
  2. Vietnam is a safe country and has a stable socio-political situation. Recent developments have highlighted the importance of this and it is increasingly a pre-condition for any investor who is looking for long-term vision and strategy in selecting investment destinations. Vietnam is currently participating in a number of multilateral and regional organisations including WTO, ASEAN and APEC. These also help to generate a more favourable atmosphere for business activities in Vietnam;
  3. The increasing role of the UK in Vietnam has attracted special attention of Vietnamese enterprises for business ventures;
  4. Domestic demand is in part being driven by a combination of itís youthful population and their increasing affluence, The size of the middle class is estimated to be close to 20m, comparable with that of say Australia or the Benelux countries.

Meanwhile, the UK has a number of advantages in co-operation with Vietnam including:

  1. The UK is one of the most powerful economic, financial and technology partners in the world and has a wide range of expertise which can be adapted and incorporated into an industrializing economy like Vietnam;
  2. The UK has strong industries in oil & gas, manufacturing, basic chemicals, software, metallurgy, ship-building and supporting industries. These industries also have a wide business network worldwide and region-wide;
  3. The UKís investment in Vietnam is the largest amongst EU country partners, giving more confidence to UK enterprises in Vietnam.

These individual advantages are the main engine of trade and economic investment co-operation between Vietnam and the UK. They will certainly bring about benefits for both sides.

Believing in the advantages and potential for economic co-operation between Vietnam and the UK, Vietnamís policy is to promote the continued effort to strengthen economic and trade relations with the UK. Vietnam always considers the UK as one of the important partners for Vietnam.

To conclude, I would like to give you massage form Sir Andrew Cahn, Chief Executive of UKTI, ďVietnam is quickly shedding its image as a place people flew over on the way to other Far Eastern economies. It is a fast-growing market that is quickly moving up the value chain.Ē

For more information please contact:
The Commercial Office, Embassy of Vietnam in London:
t: 020 7727 08830
f: 020 7243 0471

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