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Successfully investing in Vietnam

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​​​​​​​​last updated on 7 June 2024 | 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 fuelled 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 relatively 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. 
   
In addition, many companies recognize that Vietnam and the ASEAN region as a whole represent an interesting sales market .This is primarily due to a total regional population of over 600 million people and a growing middle class that has an increasing disposable income. In order to be competitive here, many companies pursue regionalization strategies, i.e. relocating production, sales or even services to the region in which they want to sell. Due to Vietnam's international network within the EU-VN free trade agreement and also the ASEAN agreements, the country is very well positioned in this context.

  

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 WTO in 2007, Vietnamese markets have been exten¬sively 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 in Vietnam is largely open and liberalized, except for very limited areas subject to foreign investment restrictions, such as financial services, certain aspects of logistics, telecommunications services and applications. Nevertheless, Vietnam's free market economy offers great opportunities for foreign investors, particularly in the areas of mechanical engineering, renewable energy (such as rooftop solar systems in the industrial sector), high-tech and IT, the latter of which is subject to attractive tax breaks. The country's international market, with its rapidly growing middle class and large number of consumers, also offers a good basis for foreign investors.
   
The emphasis on trade-intensive and labour-intensive goods such as textiles and timber remains, but is currently shifting. We are currently observing a development away from shoe and clothing production towards more complex assembly and production of machines and electronic and electrical devices. New technologies are still very little developed in Vietnam and offer good opportunities – a fact recognized by the country's government, which is proactively trying to attract investment in this area.
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Vietnam's safe and stable situation attracted foreign direct investment in 75 countries in 2024. In the first four months of 2024, Singapore was the largest investor, followed by Hong Kong and Japan. During this period, the total volume of investments reached 9.27 billion US dollars, an annual increase of 4.5 percent. 72 percent of the total investment volume went to production and processing operations.
  

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 fully-fledged 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.
German companies also have good business opportunities in the areas of renewable energies, sustainable production or software and automation.

Finally, the shortage of skilled workers that prevails in Germany is also driving many companies to Vietnam not only to carry out suitable outsourcing projects, but also to recruit skilled workers in many areas.
  

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 export-oriented industries and therefore open new and additional opportunities for trade and foreign direct investment.
  
The local financial markets are also showing a positive upward trend, being recently upgraded from the “frontier” to “emerging” classification.

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