Vietnam sets sights on regional lead

Available data suggests continued recovery of domestic economic activities, with industrial production growing by 8.5 per cent on-year and retail sales by 3.1 per cent on-year, although the effects of the recent surge in COVID-19 infections on labour supply, production, and consumption may not have been fully captured.

While the economy continues to show resilience and is recovering, downside risks have heightened as infections are sweeping the country and the Russia-Ukraine conflict has increased uncertainty about global economic recovery, created new strains on global supply chains, and raised inflationary pressures. Commodity prices have also risen sharply and may rise further in the short term.

Continued administration of the vaccine boosters and renewed health guidance are critical to managing the wave. As growth in the US, EU, and China – Vietnam’s largest export destinations – may be affected, authorities should encourage exporters to seek new markets and innovate into new products through global value chains and existing free trade agreements to strengthen export resilience.

Commodity prices have increased sharply and may increase further in the short term. Keeping track of domestic price developments is therefore warranted. Nevertheless, reducing the environmental protection tax would not be the right policy to provide oil price relief.Source: World Bank

Giorgio Aliberti - Ambassador and Head of the European Union Delegation to Vietnam

Vietnam is expecting a brighter outlook on economic growth. The country and the EU are witnessing their trade and investment ties flourish. The EU-Vietnam Free Trade Agreement (EVFTA) and the Investment Protection Agreement (IPA) are the most ambitious agreements in terms of market access, rules and values ever concluded by the EU with a developing country. The trade and investment agreements will help complement and deepen the partnership between the EU and Vietnam and constitute an important benchmark for EU engagement in the region.

Since August 2020, the EU has for the first time preferential access to a vibrant economy of almost 100 million inhabitants with the fastest-growing middle class in ASEAN and a young and dynamic workforce. As much as 48.5 per cent of the tariff lines or nearly 65 per cent of the EU exports to Vietnam have enjoyed zero tariffs since the trade deal entered into force.

In fact, the EVFTA has put the EU exporters and investors at least on a par with those from other countries and regions which have already concluded FTAs with Vietnam such as ASEAN, Australia, China, India, Japan, South Korea and many more.

For Vietnamese traders, the benefits after one year of implementing the FTA were even higher. Marketwise, EVFTA allows Vietnamese exporters to access more than 450 million European consumers whose disposable incomes top the world. Since the enforcement of the EVFTA, around 85.6 per cent of all tariff lines have been eliminated fully for Vietnamese commodities. This represents 70.3 per cent of Vietnam’s total exports to the EU. Such progressive elimination of import duties explains the 20 per cent year-on-year surge of Vietnam’s exports to the EU.

Marko Walde - Chief representative Delegation of German Industry and Commerce in Vietnam

Vietnam remains an attractive investment destination, including for further relocations out of China, and German businesses are confident about their own business development. They expect a further revival of their own activities despite the cooling economy and are confident about business development in 2022.

Some 55 per cent of German companies in Vietnam expect their own businesses to improve, while 83 per cent of survey participants intend to invest further in their activities in Vietnam and 33 per cent assume an increase in employment in the next 12 months. For the mid-term expectation, we look forward to an increase in investment from Germany into Vietnam based on the constantly improved conditions here.

Many high-valued projects are expected to flow into Vietnam in the long term, including from Germany. German investors would bring their well-known technology in management and training, allowing more value-added production and less waste of material and resources.

Last year, the Asia-Pacific Committee of German Business called for a stronger EU commitment in Asia and insisted on the growing importance of Vietnam as a production location. Vietnam is playing an increasingly remarkable role for German businesses in the region.

Some of the potential benefits of the EVFTA for German companies are not fully realised yet due to the pandemic and various restrictions. However, the legal framework of Vietnam has been changing effectively and positively to meet new requirements of the agreement. Furthermore, many opportunities are gradually opening up when the global economic picture shows many bright spots in 2022 after a period of decline.

Alain Cany - Chairman European Chamber of Commerce

The Vietnamese government’s ambitious and accelerated vaccine rollout, combined with the tireless and heroic work of our frontline healthcare professionals, has enabled a gradual re-opening of the country. Business leaders have signalled a vote of confidence in Vietnam’s trade and investment environment, with EuroCham’s Business Climate Index, our regular barometer of European business leaders, increasing by 42 points to 61 in January.

Meanwhile, the EVFTA will eventually phase out almost 99 per cent of tariff lines. Even during an unpredictable global pandemic, the agreement has delivered on its promises. Last year saw a 14.8 per cent increase in trade between the EU and Vietnam, reaching about $63.6 billion.

Now that the pandemic has been brought back under control, with the EVFTA in force, and with the EVIPA soon to follow, Vietnam has the chance to attract a new wave of foreign direct investment from European investors looking for a prosperous, safe, and competitive investment destination. Therefore, we applaud the government’s efforts in issuing, revising, and simplifying several regulations to align with EVFTA provisions.

We were also delighted with the decision to reduce the mandatory quarantine period to three days as well as with the removal of approval procedures for foreigners with residence cards, visas, and valid visa exemption certificates. This is appreciated by Vietnam’s foreign business community.

A return to pre-pandemic visa regulations is essential to bringing investment to Vietnam and for guaranteeing that the thousands of international enterprises already in the country can continue to contribute to Vietnam’s economic growth.

Raymond Mallon - Senior economist

Some of the biggest risks to the Vietnamese economy are global. These include the ongoing pandemic, a slower than expected global economic recovery, rising inflationary and interest rate pressures, likely tightening of fiscal policy in major markets, and uncertainty about the Chinese economy. Other critical factors that are negatively impacting the global outlook include the impacts of – and tepid global response to – climate change, growing protectionism, and possible instability in some major markets.

But there are also domestic risks that could especially impact the most vulnerable groups. Firstly, there is the real risk of another major wave of COVID-19 slowing the revival of domestic travel and services and potentially slowing economic recovery.

Environmental risks are growing and are an increasing concern for Vietnamese society and businesses. Environmental deterioration will undermine efforts to promote sustainable development, improve health and the quality of life, and attract and retain the best national and international expertise in Vietnam.

It will be important to continue to monitor and provide appropriate support to those most adversely impacted by the pandemic, climate change impacts, and ongoing economic restructuring. Increasing the low wages paid to public sector health and education workers could further stimulate expenditure throughout the country and help encourage employment in these key services.

There is also a need for a renewed focus on building market institutions and an effective and predictable policy and regulatory environment that encourages fair, equitable, and sustainable development.

Finally, it will be important to contain inflationary pressures. Maintaining macroeconomic stability will be challenging given the need for deficit spending to ameliorate the negative pandemic impacts, expected increase in international inflationary pressures, and ongoing supply chain constraints.

Jacques Morisset - Lead economist and programme leader for Vietnam World Bank

I believe that Vietnam can grow again as an Asian tiger, and it started to grow again at the end of 2021. I think the government can do more and the National Assembly session to discuss this programme is a good signal. The government is aware of the situation and ready to do more.

At the same time, I believe that Vietnam had great potential before the pandemic occurred, and I would argue that maybe the crisis can help to accelerate some of the reforms that Vietnam needs to become a higher-income nation by 2045.

The country should further boost the development of a digital economy during the economic crisis, which would be a good signal for the future. In addition, we also see some reforms and changes in the thinking about public investment management, the economy, and the response to climate change. The commitments by Prime Minister Pham Minh Chinh at the COP26 climate summit is an indication that Vietnam is likely to move faster on this important issue.

Vietnam’s goal of 6-6.5 per cent in economic growth will be feasible. You can project that Vietnam is going back to the growth trajectory of the time before the health crisis appeared, but this assumes that the world and Vietnam will not suffer any more from a big crisis.

I hope that the government will stimulate the economy via spending and tax policies. If conditions materialised, I believe that there will be no reason why Vietnam will not be able to grow strongly again as it did previously, and even grow higher, because it can catch time to resume the high economic growth in the time before the pandemic occurred.