AEC entices German firms

Why are German firms interested in the ASEAN Economic Community?

ASEAN officially launched the ASEAN Economic Community (AEC) at the end of 2015, which will push the region towards full economic integration. The main pillar of the AEC, and the most crucial piece for investors in ASEAN, is the establishment of a single market and production base. The aim is to break down barriers to trade and investment and to free up the movement of skilled workers.

From an economic perspective, resource-rich ASEAN, with its 600 million consumers, is one of the most interesting regions in the world. German companies already recognise the bloc’s importance and are positioning themselves to benefit from ASEAN’s long-term growth potential.

Compared with the European Union, the level of integration in ASEAN is still at an early stage. At the same time, the level of economic development among the 10 member countries varies widely. Nevertheless, the enactment of the AEC will enhance regional integration and strengthen co-operation between its member countries.

Even though the AEC is not an end in itself, it is an important milestone that will catapult the region into the spotlight of the international business community.

What have German firms done to seize upon opportunities brought about by the AEC?

The Network of German Chambers of Commerce and Industry in ASEAN (AHK-ASEAN) was founded in 2012 by the German bilateral chambers abroad (AHK), and was launched in the ASEAN-6 countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand).

The mission of AHK-ASEAN is to strengthen the regional co-operation within ASEAN and to enhance the trade and investment relations between ASEAN and Germany. It shows the commitment of the German government and businesses to support German companies in their efforts to reach out to new markets, while at the same time acknowledging the potential of the ASEAN region.

How important is the Vietnamese market to German firms, in relation to the ASEAN market as a whole?

Vietnam has a rapidly growing market. The results of a survey we performed in 2015 show that some 37 per cent of interviewed German companies have confirmed plans to establish new operations or extend current operations in Vietnam.

As of December 20, 2015, German-registered investment capital in Vietnam totalled $1.48 billion, covering 260 projects. Additionally, some 88 deals, worth $631 million, have been made in the manufacturing and assembly processing sectors, making this a key investment area. The power and utility sector was the second largest, with five deals totalling $386 million, followed by the sales and retail sector with 38 projects of $137 million.

Vietnam is also benefitting the most from rising wages in China, with more and more manufacturers shifting production across the border. In 2014, more than 70 per cent of foreign direct investment into Vietnam was in manufacturing and assembly processing. This includes a lot of low value added textile and materials manufacturing investment from China.

Around 300 German companies are already operating in Vietnam. Siemens, Mercedes, and BMW are among the major German players here. To date, most German companies have entered through 100 per cent foreign-owned companies, with 182 projects worth $880 million, while others have opted for direct acquisition or joint venture to overcome the challenges of entering directly.

The EU-Vietnam Free Trade Agreement (EVFTA) negotiations were concluded recently. How is this FTA important to German investments in Vietnam?

This FTA will eliminate over 99 per cent of tariffs except for a small number of tariff lines, for which the EU and Vietnam agreed on partial liberalisation through zero-duty Tariff Rate Quotas. Vietnam will be the second ASEAN country (after Singapore) that will have an FTA with the EU. The EVFTA will provide significant opportunities for companies on both sides by increasing market access for goods and services, and it will help promote high-quality capital flow from the EU, as the business and investment environment is bound to improve now that commitments have been made.

From our point of view, Vietnam will definitely benefit the most from the AEC, the EVFTA, and the TPP, and is uniquely well-positioned after having recently signed numerous trade agreements.