Vietnam: A country for investors | News | DW | 19.11.2014
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Vietnam: A country for investors

Ho Chi Minh City is set to host the 14th Asia-Pacific Conference of German Business (APK). DW takes a look at the economic situation of the host country and the business opportunities it presents.

Some 300 German companies are estimated to already have a presence on the Vietnamese market, including big names like Adidas, BMW and the knife maker Zwilling.

While Japan and South Korea are the top sources of foreign investment in Vietnam, Germany is currently the 22nd biggest foreign investor in the Southeast Asian nation.

"Vietnam would like to see more economic engagement with Germany, as the European country has good reputation as an investor," said Thomas Hundt of Germany Trade & Invest (GTAI), an economic development agency.

The 14th Asia-Pacific conference, set to begin on November 20, is an opportunity for Vietnam to showcase itself to the world. The conference is held every two years at different locations by the Asia-Pacific Committee of German Business (APA), the German Chambers of Commerce AHK and the country's economy ministry.

Production at an Adidas plant in Vietnam's Ho Chi Minh City

Production at an Adidas plant in Vietnam's Ho Chi Minh City

The event this year is being organized in Ho Chi Minh City. Germany's vice-chancellor and economy minister Sigmar Gabriel will also attend the conference.

Growing domestic market

An example of a successful commercial engagement in Vietnam is that of the German sportswear manufacturer Adidas. The company has been sourcing products from Vietnamese suppliers for many years, Adidas' Simone Lendzian told DW, adding that the country is seen as a good production base.

Vietnam, along with China and Indonesia, is one of the three major supplier countries for Adidas worldwide, Lendzian noted.

"Furthermore, the importance of Vietnam as a consumer market is growing. The country's young population has a strong interest in international brands. We are seeing a high level of awareness about our brand and growing popularity for it, thus leading to increased demand for our products," said Lendzian.

With a population of about 90 million and the average income steadily rising, the domestic consumer market has become attractive. Since 2009, Vietnam has been a middle-income country, according to World Bank criteria.

Vietnam's economy grew by 5.4 percent in 2013 and foreign direct investment contributed to almost 20 percent of the country's economic output. Foreign investors positively assess the investment climate in Vietnam, particularly due to the political and macroeconomic stability, a highly-motivated and well-trained workforce and the nation's proximity to China, reads a recent World Bank report on the competitiveness of the country.

However, management and professional training for workers need to be improved in order to attract more foreign investors, the report states.

"A lack of skilled workers is one weak point in the economy," GTAI's Hundt stressed.

This shortcoming has so far been outweighed by the country's low labor costs, which have given Vietnam a decisive advantage, he explained.

"Unskilled workers earn about two-thirds less than in China," Hundt said. "That's the reason behind the current wave of factory relocations from China to Vietnam."

As before, labor-intensive manufacturing offers the country greater opportunities. But the industrial landscape is changing gradually.

"While it started with the textile industry in the 1990s, the country's production is now gradually moving into other technological areas and into the making of products such as washing machines, electronics and smart phones," Hundt said.

Reforms and opening necessary

High-quality foreign investment will depend on the ability of the Vietnamese government to create a level-playing field for all market participants, according to the World Bank. State-owned enterprises have so far been preferred in allocating credit and other resources, distorting competition.

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The state-owned companies account for at least a third of the country's gross domestic product, recent studies conclude. Nevertheless, they are known to be inefficient as they are only partially subjected to free market rules and are protected by the government in case of difficulties. Reforms are either delayed or not implemented.

But by the end of 2014, Hanoi wants to pass two new laws aimed at opening state-owned enterprises to market competition, at least partially. The government hopes to attract private investors with this move.

The state-owned airline, Vietnam Airlines, for instance, recently took the first step in this direction by offering 3.5 percent of the firm's total shares on the stock exchange in Ho Chi Minh City on Nov. 14. The state, however, still owns a 75 percent stake in the airline.

Cooperation with Germany

A construction site in the central Vietnamese province of Ha Tinh

Samsung is investing billions of dollars in the central Vietnamese province of Ha Tinh

In its efforts to reform the economy, Vietnamese government works closely with Germany. Since both countries signed a strategic partnership agreement in 2011, Berlin has held a rule of law dialogue with Hanoi. But there are significant bureaucratic hurdles between the two countries.

"The Vietnamese government always has an open ear when companies or organizations, such as the European or American Chambers of Commerce, present the problems they are facing," said Hundt.

Nevertheless, thorough preparation and professional advice for all businessmen who want to be active in Vietnam is essential, Hundt argues.

"Whoever wants to invest in Vietnam or conduct commercial transactions must be well prepared," he said. "And good legal advice must also be taken in advance."