Vietnam becoming key target for German supply chains
Vietnam and Germany are doubling down on boosting their bilateral strategic relationship, with a focus on trade, investment, and energy ties which will serve as a key propellant for the Southeast Asian nation to further develop. On June 20 2022, our GBA Chairman Alexander Goetz had an interview with Vietnam Investment Review (VIR) – the press office of the Ministry of Planning and Investment Vietnam to assess the efficiency of the government’s policies and EVFTA for Vietnam’s economic growth. He also pointed out some emerging problems GBA’s members currently facing to and shared his point of views on what Vietnam should do to retain and create a favorable investment for German businesses.
2020 and 2021, the Vietnamese authorities have found the right measures to reopen the country in a safe and controlled way. Our business community wants to express its gratitude for the handling of the pandemic and fully supports the ongoing economic recovery of the country.
We saw a strong bounce back in the Business Climate Index in Q1 and a very optimistic outlook for European companies for the rest of 2022. Several German companies are currently visiting Vietnam to explore investment opportunities and there is a long list of investors who have fixed plans to start or expand their business activities in the upcoming 18 months.
Currently, Vietnam is one of the top three countries in ASEAN for expansion or relocation. More foreign firms have planned to move their supply chains to Vietnam, which is being dubbed as a center for electronics, garments and textiles, and footwear in the region.
Internationally active companies are also diversifying their supply chains and considering Vietnam as a location for investment, with the article quoting Germany Trade & Invest in its analysis.
Vietnam is capable of attracting funding in the high-value production field and developing the digital economy. However, to ensure that the ongoing economic recovery is sustainable and be ready to pick up the incoming flow of investment, it is important that the authorities should focus on enhancing its legal framework, infrastructure, and workforce to make the business environment more favorable.
Simplifying administrative procedures, processing paperwork online, and making investment licensing easier will help Vietnam retain and attract foreign investors in the increasingly competitive global climate.
The country should also upgrade logistics infrastructure to a higher level, expand inter-regional highways, and facilitate goods circulation for businesses while boosting the quality and efficiency of vocational training to meet the demand for skilled workers.
The EU-Vietnam Free Trade Agreement (EVFTA) is considered a new generation bilateral agreement and contains important provisions for intellectual property rights, investment liberalization, and sustainable development. Better protection of foreign direct investment under the EU-Vietnam Investment Protection Agreement will also offer transparent rules and a more predictable framework. The agreement has been designed to strengthen the protection of investments of both parties by ensuring a high level of security and to commit both sides to the principle of non-discrimination and the rejection of any expropriation without prompt and adequate compensation.
Providing better support for smaller businesses is also crucial, along with promoting innovation and adding value. The EVFTA has enabled Vietnam’s economic development to continue to shift away from exporting low-tech manufacturing products and primary goods to more complex high-tech goods like electronics, machinery, vehicles, and medical devices.
The EU’s main exports to Vietnam are high-tech products, including electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products, while Vietnam’s main exports to the EU are telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, seafood, and furniture. The most beneficial sectors are clean energy, cars, machinery, food, agriculture, aquaculture, pharmaceuticals, IT, and transportation and logistics.
Currently, we still get complaints of the German Business Association (GBA) members regarding the ongoing complications with issuance and renewal of work permits.
Foreign experts are essential for foreign direct investment, especially during the implementation phase of new investments, but also for expansion and introduction of new technologies to their manufacturing sites.
Resolution 105 from September 2021 was a first and important step, to ease the overly strict Decree 152. Nevertheless, we recently received several complaints from GBA members that work permit issuance in Ho Chi Minh City and surrounding provinces is still a major problem.
On the one hand, there is a considerable backlog of applications due to the limited workforce during the lockdown. Besides that, there is still missing guidance on the implementation of the relaxed conditions under Resolution 105; especially regarding the definition and the duration of work and training experience.
Besides that, there is a worrisome lack of labor force in the industrial sector. Local workers returning to their hometowns en masse last year have brought additional challenges to businesses. In fact, the demand for qualified labour continues to grow at a rapid pace since businesses are shifting production chains to Vietnam or relocating a portion of their value chains.