Doing Business

Vietnam’s exports creates ample investment opportunities

Trường Lăng

June 3, 2022

Doing Business

Vietnam’s exports creates ample investment opportunities

Trường Lăng

June 3, 2022

In recent years, Vietnam’s exports has gained momentum as it became an important exporter in terms of electronics, agriculture and textile. By continually improving the business environment and actively signing bilateral trade agreements with countries throughout the world, Vietnam has emerged as a bright destination for both domestic and foreign enterprises. 

The current situation of Vietnam’s exports

Vietnam’s export volume from 2010-2021

According to Statista and a recent report from the Ministry of Industry and Trade, Vietnam’s total exports have seen a steady rise since 2010. In 2021, despite a slew of difficulties mainly caused by the Covid-19 pandemic, Vietnam’s export turnover of goods hit a new record: Vietnam earned nearly 336.25 billion USD from exports in 2021, up 19% from the previous year. In which, phones had the largest value amongst Vietnam’s major commodities exports, at approximately 57.5 billion U.S. dollars. Meanwhile, electronics goods/computers contributed over 51 billion U.S. dollars to total export earnings.

Macroeconomics advantages

Vietnam is known as one of the fastest-growing economies in the world. GDP growth in Vietnam averaged 6.5% every year since 2000. Becoming the 60th largest economy in the world in 2000, Vietnam rose to the 44th place by 2019. By 2050, Vietnam is projected to be the 20th largest economy in the world.

After the Covid-19 pandemic, many large international firms are looking for ways to diversify their supply chains and reduce their reliance on the Chinese market. Thanks to its success in preventing the pandemic, Vietnam has become one of the most potential candidates to welcome this shifting capital flow. The government’s quick response to COVID-19 has helped Vietnam’s economy remain open. As a result, Vietnam was still able to show some slight growth during that tough period. This has shown that the Vietnam government has the ability to handle crises.

Furthermore, with a population of over 97 million, Vietnam is a promising destination for manufacturers and traders specializing in consumer goods.

Geographic advantages

Vietnam is located at the lifeline of the regional economy where there are strong and dynamic economies, which are the growth engines of the region and the world. As a bridge between the two economic zones of the sea and the mainland of Southeast Asia and Asia, Vietnam has favorable conditions to strengthen connectivity, promote cooperation and development in the region. 

Firstly, with the advantage of “front” overlooking the East Sea, Vietnam plays a key role in economy and provides logistics services for countries inside and outside the region. 

Secondly, Vietnam is located on the Trans-Asian road route in the project to build a highway, connecting the countries of Eurasia region by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) initiated. Vietnam is also located in the main axis of the East-West Economic Corridor connecting the Pacific and Indian Oceans, creating great potential in the socio-economic development of the countries of the Mekong sub-region and the Mekong River Delta area. With that advantage, Vietnam increasingly attracts the attention and investment of many countries inside and outside the region.

Vietnam’s strong industry fully tapped under Free Trade Agreements

RCEP – The Regional Comprehensive Economic Partnership agreement

This agreement came into force from January 1, 2022. It is an agreement between ASEAN member countries and its free trade agreement (FTA) members. Member countries include both such powerhouses as China, Japan, Australia, and smaller markets like Brunei, Cambodia, and Laos. Joining the RCEP will benefit them all by lowering trade barriers and increasing market access for their goods. It will also make international supply chains and regional trade easier.

According to Tim Leelahaphan, an economic expert at Standard Chartered bank, RCEP will create opportunities for Vietnamese businesses to boost exports, participate in new value chains in the region like China, Japan, Korea, and attract more foreign investment. Vietnam will not only gain benefits from tariff reductions but also from other elements such as trade facilitation measures like unified rules of origin. According to rules of origin, businesses can produce their goods while obtaining raw materials from RCEP members, and then sell them to RCEP members at lower tariffs and expenses.

Importantly, this agreement solidifies Vietnam as an Asian manufacturing hub. The RCEP makes Vietnam become more appealing as an investment destination where corporations can place their manufacturing locations then sell their products to other RCEP members with reduced tariffs and costs.

CPTPP – The Comprehensive and Progressive Agreement for Trans-Pacific Partnership

Coming into effect from January 2019, this agreement has passed the first 3 years of implementation. It has helped Vietnam significantly expand exports to other member countries and deeply penetrate the global value chains.

Vietnam has significantly benefited from the CPTPP in terms of manufactured exports. Even during the Covid-19 pandemic, Vietnam managed to increase their worldwide exports by 6%. Vietnam exported agricultural products, machinery – equipment, phones – components, textiles, footwear, seafood… to 10 CPTPP member nations with a value of 46 billion USD and imports from this market 45,4 billion USD. Indeed, the CPTPP was built on a vast network of bilateral and regional trade agreements among members. It is possible to improve trade flows among countries that do not have substantial trade agreement networks, like Vietnam. According to the World Bank, Vietnam will have gained deeper market access to CPTPP members and eliminated tariffs on them by 2030. It is also forecasted that by 2030, Vietnam’s exports to CPTPP countries will increase to 80 billion USD, accounting for about 20% of total export turnover.

EVFTA – The European Union Vietnam Free Trade Agreement

This agreement took effect on August 1, 2020 paving the way for increased trade between the EU and Vietnam. From the business perspective, the EVFTA is one of the best ways to provide enterprises with more diverse market opportunities, allowing them to regain momentum during challenging periods like the pandemic. Specifically, Vietnam businesses were able to access new supply networks to replace existing supply chains that have been damaged or delayed as a result of the pandemic. Furthermore, Vietnamese’ export markets have the potential to develop and diversify while decreasing their reliance on one single market segment.

EVFTA will provide a significant boost to Vietnam’s exports, as well as promote bilateral and Vietnam trade relations in a more comprehensive and deeper way. In the post-pandemic period, commitments to decrease/eliminate tariff barriers on the EU market will be a huge benefit to Vietnamese enterprises. Specifically, the EVFTA and EU demand for annual seafood imports estimated at about US$50 billion have provided Vietnam with major opportunities to increase seafood export turnover. Thanks to EVFTA, Vietnam will become a promising destination for a number of investors from Europe and around the world.

Furthermore, during the Russia-Ukraine conflict, there have been both ups and downs for Vietnamese exporters. There has been a substantial decrease in Vietnam’s exports to Russia. However, several experts stressed that Vietnam businesses should look for opportunities instead of considering it as challenges and difficulties. Because of the EU’s boycott of Russian goods, it can be a golden time for Vietnam to increase export of rice and other agricultural products to the EU market by utilizing the EVFTA..

Openness to foreign investment

Although the foreign trade agreements mainly refer to opening the goods market and lowering tariffs, there are provisions directly related to the opening of the service market, investment, and foreign investor regulations. In the sphere of committed investment, both Vietnam and its FTA partners acknowledge the adoption of key principles such as non-discrimination between local and international investors.

In addition, Vietnam is expanding the number of sectors in which FTA members can invest in. Obligations to expand the investment market, as well as commitments to protect investment will guarantee the interest of investors. In the near future, Vietnam is predicted to attract more and more investment from FTA member nations.  

Commitments in FTAs that Vietnam has signed or is negotiating to expand markets by removing tariff barriers and offering each other preferred rules of origin do not just open up new investment and opportunities for Vietnamese enterprises. It also benefits foreign companies that want to invest and do business in Vietnam. Thanks to these promises, Vietnam export markets are gaining more opportunities and foreign investors are flocking to Vietnam to take advantage of this opportunity.

The Vietnam Government has strengthened the implementation of FTA commitments, and developed new policies with a view to creating a more favorable business environment for domestic and foreign enterprises to flourish.

With insightful knowledge of Vietnam’s export sector and the global market trends, we are confident to provide you with guidance and advice to seize a valuable investment opportunity. Let Viettonkin be your resourceful companion! 

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