Siah Hwee Ang: New Zealand should continue to reach out to Vietnam
OPINION: When China started to change its economic focus from manufacturing to services, Vietnam was one of the first countries to benefit from China’s adjustments.
With its lower costs and suitably qualified workers, Vietnam has since become a major manufacturing hub on its own.
The Southeast Asian nation with a population of over 94 million people (the 14th most populous in the world and the second largest in Asean) only joined the World Trade Organisation in 2007.
Since then, the country has been actively searching for its place in Asia and the Asean region.
With growth at just below 7 per cent a year, the country represents a major potential market for many foreign companies. Further, it also remains a lower cost centre for these companies to set up subsidiaries to perform other cost-sensitive activities.
Vietnam’s economic focus
Despite being at the forefront of manufacturing in the last few years, the contribution of the manufacturing industry to the Vietnamese economy still stands at only 38.8 per cent. Agriculture constitutes 17.4 per cent although this is where the bulk of employment resides. Services run at 43.8 per cent.
Both export and import figures have been growing, both over US$150 billion (NZ$208b) in 2015.
Major exports include clothes, shoes, electronics, seafood, crude oil, rice, coffee, wooden products, and machinery. Major export partners include the United States, China, Japan, South Korea and Germany.
Major imports include machinery and equipment, petroleum products, steel products, raw materials for the clothing and shoe industries, electronics, plastics, and automobiles. Major import partners include China, South Korea, Singapore, Japan, Hong Kong, and Thailand.
Investments in Vietnam
As with other larger markets, Vietnam’s business landscape is relatively competitive. More than 54,500 new firms with registered capital of US$19.1b were formed in the first half of 2016. This represents a 20 per cent increase, year on year, in the number of new firms and a 51 per cent increase in registered capital.
At the same time though, there are still lots of opportunities to be seized.
Interestingly, advancement in technologies, intellectual property and an emphasis on quality and branding are starting to stand out as key areas that the Vietnamese government is pushing.
Lenovo, a major technology firm, has positioned Vietnam as its key market in Asean. At least 63 Vietnamese firms are part of Samsung’s supply chain.
According to a report by the Institute of Chartered Accountants in England and Wales , Vietnam will be the bright spot of Asean in the next few years.
The country accounted for 19.1 per cent of the US$227b in total trade between the EU and Asean in 2015. That figure was only 15.8 per cent in 2014.
Registration for investment in Vietnam reached new heights in the first half of this year, hitting US$11.2b, up 105 per cent year on year.
Lots of new incentives are in place and being rolled out for foreign investors in all sectors.
One such example is the foreign ownership cap in the healthcare sector. This has been lifted to 70 per cent in recent times to entice more investment in medical services and medical training facilities.
Other than foreign direct investment, foreign investors are also flooding into Vietnam to invest into Vietnamese firms.
In the year ending July, foreign investors have invested almost US$1.9b to acquire over 50 per cent of charter capital in more than 1700 domestic firms.
A further 1432 Vietnamese companies received US$1.05b worth of foreign capital in the same period, where less than 50 per cent of the business charter capital had been injected.
More Kiwi presence in Vietnam
New Zealand has a good presence in Vietnam over the last few years.
More recently, a Kiwi technology hub was opened in Ho Chi Minh City, the purpose of which is to support New Zealand ICT and hi-tech companies investing and doing business in Vietnam and the wider Asean region.
This is well aligned with the Vietnamese Government’s push to be a more innovation-driven economy.
The opening of the Kiwi tech hub also coincided with the first direct Air New Zealand flight between Auckland and Ho Chi Minh City. So we should expect more activities between the countries.
The Vietnamese Government is also actively calling for more advanced technologies to be deployed in both the services and agriculture sectors.
This represent significant opportunities for New Zealand businesses, as agriculture is our mainstay and services is an area where we need to extend our outreach.
Siah Hwee Ang is the BNZ chair in business in Asia at Victoria University.