German investors optimistic about Vietnam's outlook

According to AHK World Business Outlook - Spring 2023, 91 per cent of German companies intend to continue to either invest in or expand their production in Vietnam, with approximately 40 per cent of them planning to increase their workforce over the next 12 months.

Thanks to the implementation of government action plans and the presence of stable macroeconomic conditions, Vietnam has maintained positive economic growth. As a result, German companies operating in Vietnam are more optimistic than they were in the Autumn of 2022, even though their short-term expectations remain cautions due to the current global challenges.

88 per cent of the surveyed participants are confident in their business situation in Vietnam, nearly half of those from Germany expect economic growth to remain consistent, and 21 per cent of them believe it will improve further.

Despite German enterprises showing resilience and having high expectations for the Vietnamese market, they still identified several risks to their business development caused by global economic fluctuations.

These include low global demand (51 per cent), concerns about the economic policy framework (46 per cent), a shortage of skilled personnel (34 per cent), and potential disruptions in the supply chain (28 per cent).

Added to this are long-term geopolitical challenges, which companies see particularly as inflation and monetary policy (41 per cent), fragmentation of the global economy (41 per cent), and increasing political influence on the supply chain (40 per cent).

Despite the challenges, Vietnam is expected to experience a resurgence in its economic growth in the medium term. This will be fuelled by various factors, including free trade agreements, most notably the EU-Vietnam Free Trade Agreement (EVFTA), the implementation of the China+1 strategy, the global trend of shifting and diversifying manufacturing supply chains towards competitive hubs in Southeast Asia, and the inflow of green investments.

57 per cent of German companies in Vietnam prioritise diversifying their supply chains, with the nation being their top choice – followed by Malaysia and Thailand.

The Delegation of German Industry and Commerce in Vietnam suggests the following focus areas to further strengthen the attractiveness of investment in Vietnam.

First, there should be collaborative efforts to address the potential shortage of skilled staff by equipping them with German-standard skills, capitalising on Industry 4.0 and the digital transformation.

Secondly, Vietnam should prioritise strengthening its local suppliers to maintain its role in the supply chain, while also complying with sustainable development regulations and the German Supply Chain Due Diligence Act.

In addition, the concretisation and implementation of the Power Development Plan VIII is recommended to incentivise renewable energy production.

Finally, the country should simplify, digitalise, and streamline its administrative procedures to leverage the EVFTA and enhance its business and investment environment.

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