Vietnam’s economic success: A possible paradise for foreign investors
In Ha Noi, Viet Nam’s capital, you can feel boundless energy everywhere. People whiz by on scooters, buy and sell everything from phones to food in the countless small shops, and run to and fro to get to school or work. Viet Nam is young, growing, and anything feels possible.
It wasn’t always thus. A mere 30 years ago, the country was one of the poorest in the world.
Today, Viet Nam is one of the stars of the emerging markets universe. Its economic growth of 6-7% rivals China, and it exports are worth as much as the total value of its GDP.
Like the economy, the population of Vietnam is also constantly growing, as a result of which we can say that the market and consumption are expanding sharply thanks to domestic demand. The population is also becoming increasingly attracted to foreign products, especially from western countries. The government, in the face of this growth and the new needs of the country, has launched programs to encourage foreign investments. Growing incomes and falling inflation is another factor of notable importance. The country also enjoys significant natural resources and agricultural products.
Vietnam has been one of the ASEAN member countries since 1955: since 2015, trade has been free between member countries, namely: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Burma and Cambodia. In addition, Vietnam has free trade agreements with: China, Japan, Korea, India, Australia and New Zealand.
Analyzing the Vietnamese economy – sector by sector – we can see how homogeneous the growth of the state is. As regards the construction sector, following economic growth, Vietnam plans to develop and modernize its infrastructures (especially railways and ports). The tangible problem, however, results in the lack of financial resources to carry out this development: the government is therefore trying to facilitate the procedures for attracting foreign investments (example is Decree No. 15/2015 / ND-CP of 15 February 2015). The real estate sector, too, following the 2011 bubble, is recovering significantly, reaching a 20% growth in loans in 2015 compared to the previous year.
A sector in continuous expansion is the furniture sector, which for years has been the most relevant in the Vietnamese economy, a sector that has allowed Vietnam to become one of the largest exporters of wooden furniture in Asia. Vietnam has a shortage of raw materials, which therefore need to be imported from foreign countries. However, the limited skills in design and planning make the added value of woodworking relatively low, a factor partly covered by the low labor cost.
Vietnamese textile products are also characterized by low added value, as the raw materials used are of low quality. However, some companies have recently been investing in higher quality products, purchasing raw materials from the European market. An investment in this sector could be of considerable interest, as the population is starting to appreciate and be attracted to international brands, especially as regards design and fashion trends. The sector accounts for 10% of GDP with around 2.5 million people employed and 6,000 companies.
The footwear sector is one of the leading sectors of the Vietnamese economy. It is recognized worldwide, ranking second in terms of turnover worldwide and fourth in terms of production. The industry is mainly located in the south, in the cities of Ho Chi Minh City, Dong Nai and Binh Duong. The industry presents several possibilities for foreign investors.
The education is another investment sector of considerable interest, which following Decree No. 73/2012 / ND-CP presents more investment opportunities.
The import-export regulations are described in the Import and Export Duties Law (IEDL 45/2005 / QH11), which specifies the application of three different tariffs for imported goods: an ordinary, a preferential and a special preferential one. Rates are applied to all goods from foreign countries. Regarding exports, duties are applied only on mineral resources, forestry and metal scrap.
Obviously, Vietnam has become an inviting country for many entrepreneurs who plan to invest in the area. In this regard, The Enterprise Law contains the reference regulations at company level.
Naturally, there are risks related to any investments. In May 2017, Fitch rated Vietnam with a BB- rating, despite being a non-worrying value (especially considering the emerging economy status), Vietnam in the near future will have to be able to carry out the reforms necessary for continuous development (for example infrastructure) to maintain economic growth, reforms that require a considerable economic effort. The PCV Congress (January 2016) ended with the clear affirmation of the conservative line. Internal stability is thus rewarded and a relative relaxation with China is encouraged, but positive developments in terms of repression of dissent and violation of human rights seem excluded.
Obviously, there are many benefits of investing in Vietnam: political stability; economic growth that will reach 6.5%; internal consumption growth thanks to the young population; drop in inflation; privatization projects and openness to foreign investment; Low cost labor and widely available labor; wide availability of agricultural products and natural resources; significant potential in the tourism sector.
By: Domenico Greco