Vietnam – Investment opportunities for German firms in high-tech manufacturing fields 

Vietnam is on the up and up and will be a magnet for FDI

 Vietnam’s economy in 2015 bounced back and exceeded expectations with the GDP growth rate reaching an estimated 6.7%- the highest rate in five years. The number also surpassed the Government’s target GDP growth rate of 6.2%. The average GDP per capita also rose by US$57 from last year, reaching about US$2,109 per person.  Inflation this year, on the other hand, stayed far below the red line of 5% as issued by the National Assembly. It merely reached 0.6%, marking it as the lowest inflation rate in a decade.

Together with macroeconomic stability and controlled inflation, the Government of Vietnam is fiercely improving the business and investment environment and making great attempts to achieve key economic indicators of top regional countries, including reforms in administrative procedures; enhancement of governmental offices’ transparency and accountability; substantial reduction of tariff barriers and offering of tax incentives. By end of 2015, the total time for tax compliance by tax payers is reduced by 420 hours, meeting the target set by Resolution No. 19 and bringing Vietnam closer to ASEAN 6’s average tax compliance of 122 hours.

In addition, Vietnam has concluded the Trans-Pacific Partnership (“TPP”) and the EU- Vietnam Free Trade Agreement (“EVFTA”). Meanwhile, the ASEAN Economic Community (“AEC”), which Vietnam became a full member in 1995, has been established since the end of 2015. Vietnam is among the only 4 countries that are both members of the TPP and the AEC, meaning Vietnam will benefit from these amazing markets, bringing it to be a future production hub in the region.

Human resource is another advantage of Vietnam. It has the fastest growing middleclass in Asia according to Boston Consulting Group. Many under-30s have been selected by Forbes in 2016 as those having great influence in their working area. This group of young but talented people provides huge potential for investment, innovation and development.

Considering the above, confidence in Vietnam’s economy has reached high, and predictions for the near future remain positive. The Vietnamese economy is considered to be in a festive mode.

German investors – Come now or it will be too late!

Germany has 1307 out of 2700 of the world’s hidden champions, which are ranked number 1, 2 or 3 in the global market, or number 1 on its continent. They are backbone of the economy and especially strong in the manufacturing sector, like electrical engineering and industrial products. They also enjoy strong positions in foreign markets. These companies should pay particular attention to Vietnam’s market.

The global automotive supplier industry, and especially the after-market industry is one of the options. The reasons are obvious: important trade pacts and the thriving domestic automobile market, which is expected to rise from 300,000 to 1.5 million sold cars by 2025, fortify Vietnam’s investment attractiveness. Young and ambitious generation enjoys the modern lifestyle, and according to a recent report by Euromonitor, young consumers increasingly seek products that express their individuality, including their individual mobility by owning a car. Demand for automobiles is at no other time set to surge like this moment.

These facts are very well-known to the Vietnamese Government. In July, a special Council of the National Assembly for supporting industry demonstrated the importance of its development by inviting around 150 decision-makers of Vietnam’s respective sector to discuss the problems of the past and give their opinion to improve in the future. Frank Schoeninger, founder of SOPEC LLC was invited as the only foreigner to share his expertise and opinion at the event.

Conclusion

 The upcoming free trade agreements (EVFTA, TPP, etc.) give Vietnam unique advantages in South East Asia, but also impose high pressure on the economy. In other words, this is a once-in-a-lifetime chance for Vietnam’s political and economic leaders to fix the issues of the supporting industry. Consequently, the Vietnamese Government is highly welcoming foreign investors, who leverage new technology. Foreign SMEs and multinationals that enter Vietnam therefore experience a “red carpet” treatment and receive attractive incentive programs. For example, within a special industrial cluster, investors will receive inducement on Corporate Income Tax (CIT average of 4.3% on a 5-10 year project) and benefits on Personal Income Tax for employees. Together with further development strategies in other important areas such as logistics by building new deep sea harbors or facilitating the cross border road traffic, Vietnam is going to be the new production hub in Asia for the machinery and especially automotive tier two manufacturing industry where several German and European automotive companies already experienced their own success story.

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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com; if you have any questions on the above or should you request our assistance. Mr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.