Doing Business

Russia-Ukraine Conflict: Advices for Russian Investment Deal in Vietnam

Trường Lăng

June 1, 2022

Doing Business

Russia-Ukraine Conflict: Advices for Russian Investment Deal in Vietnam

Trường Lăng

June 1, 2022

At the end of 2021, Vietnam and Russia had plans to further amplify their trade and investment cooperation ties, with the Vietnam-Eurasian Economic Union Free Trade Agreement functioning as a major driver. However, the recent Russia-Ukraine conflict has caused market jitters, commodity price increases, and exacerbated supply chain disruptions. It is also believed that the conflict will hurt several Russian investment projects in Vietnam, but the economic impact will be minor. Moreover, the situation presents new opportunities for Russian investors to grasp in several non-traditional sectors.

Russian investment in Vietnam

Thanks to their long-standing relationship of over 70 years and high political trust between the two countries, Russia and Vietnam possess a lot of motivation to develop their economic ties. During the Vietnam-Russia business summit held on December 1 2021, State President Nguyen Xuan Phuc stressed that Vietnam and Russia should aim for a 15 to 20-fold increase in bilateral trade turnover from the current US$5 billion, and a triple increase in investment capital in the coming years.

Given Vietnam’s status as among the top 20 best investment destinations globally, the investment capital from Russia to Vietnam remains below expectations compared to the potential of both countries. According to figures from the Vietnamese Ministry of Planning and Investment, at the end of 2021, Russia had 149 valid investment projects in Vietnam, valued at $953.7 million. Russian projects were implemented in the sectors of oil and gas, manufacturing, mineral exploitation, transport, telecommunications, and fishing.

Energy

Regarding investments in Vietnam, Russia focuses mainly on the energy sector. In particular, oil and gas exploration and production is an important factor in investment cooperation between Vietnam and Russia. Among investment projects, the Russian-Vietnamese enterprise Vietsovpetro is the 8th largest company in Vietnam and produces one-third of the country’s oil.

Currently, a number of projects invested by Russia are being delayed due to embargoes. One of those projects is the Long Phu 1 Thermal Power Project (total capacity of 1,200MW) invested by Power Machines (Russia), the Quang Tri gas power project (340MW) invested by Gazprom (Russia) and Vinh Phong offshore wind power project (capacity of 1,000MW) with a combined investment between the joint venture Zarubezhneft JSC (Russia) and DEME Concessions (Belgium). 

According to VnDirect’s assessment, the power and oil and gas projects that Russia invests in Vietnam are small in scale, are at the stage of exploration and search and have not yet been deployed. Therefore, the delay does not affect the size of the industry much. 

However, the decline of domestically exploited crude oil in recent years, according to data from the Ministry of Industry and Trade, shows that the future is not very bright for the energy sector. Domestic petroleum production currently meets about 70% of domestic petroleum demand, which is around 18 million tons per year. The increased demand for crude oil as well as the difficulty in finding new oil fields are also clear signs indicating a gradual shift in investment should be made by foreign investors in Vietnam.

Tourism

Vietnam is quickly becoming a popular tourist destination for Russians. Over 512,000 Russian visitors visited Vietnam in 2017, a 30 percent rise year on year. In 2018, around 600,000 Russians visited Vietnam, placing it sixth among all nations in terms of visitor numbers.

Among the most popular destinations is the coastal city of Nha Trang, which was once home to Russia’s largest naval facility outside of its borders. With 75 percent of its visitors coming from China or Russia, some shops have Russian sign boards, tour guides, and drivers, and even Vietnamese people understand Russian to accommodate the growing number of Russian guests.

According to  Assoc. Prof. Dr. Nguyen Thuong Lang, instability due to the Russia-Ukraine conflict can also attract Russian or Ukrainian tourists to Vietnam to take refuge, increasing revenue for the tourism and service industry.

Agriculture

Agriculture has become one of the new investment cooperation trends between Vietnam and Russia, besides the traditional fields. According to the Russian Export Center in Vietnam, a rising number of Russian agricultural products are entering the Vietnamese domestic market.

Some of the most popular Russian items in Vietnam are sunflower oil, pine nuts, walnuts, and cereals. Russia was the top wheat exporter to Vietnam, and Vietnam was the fourth largest importer of Russian wheat, purchasing over 1.7 million tons in the first four months of 2018.

Some Vietnamese firms anticipate that investment projects will be implemented precisely so that agricultural products resulting from collaboration and investment between Vietnamese and Russian businesses can reach the global market, especially the member countries of the Vietnam-Eurasian Economic Union (EAEU) Free Trade Agreement.

New directions associated with science and technology in investment in Vietnam

In 2020, amid Covid-19, Vietnam and Russia hosted a Vietnam-Russia Senior Working Group on Prioritized Investment Projects to discuss the implementation of joint investment projects in the priority list, including the construction of a center for nuclear science and technology in Vietnam, the establishment of auto manufacturing joint ventures, and Russian firms’ participation in e-government development in the country. In addition, the Working Group also touched upon cooperation prospects in new fields and the possibility of carrying out approved projects.

The Russian side put forward ideas related to projects in waste treatment, digital technology, pharmaceutical chemistry, public security, electrical energy, and power lines.

Because of commitments and responsibilities to society, workers, environmental protection, and so on, investment projects in Vietnam are prioritized in the fields of energy, industry, hi-tech farming, and finance-banking.

Conclusion

In the coming years, Vietnam will continue to be a promising investment magnet, and “innovation” will be the phrase that any foreign investor must remember in order to have a successful business endeavor in the country. With the severe economic setbacks from the Russia-Ukraine conflict, this is the moment for Russian investors to stay up with investment trends in Vietnam while also taking advantage of the two countries’ close relationship and cooperation agreements. Contact Viettonkin right away to keep informed and prepared for one of Vietnam’s most exciting times.

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