Over the last three decades, Vietnam has ventured to enact far-going economic reforms. The huge emphasis on attracting foreign direct investment has paid off, and the influx of capital is by all comparisons impressive.

Johan Alvin

This, together with the fact that the country early on in its economic transformation embraced free trade as a vehicle for economic growth and prosperity, has developed Vietnam into an upcoming manufacturing hub in Southeast Asia.

The many free trade agreements (FTAs) have served to connect the Vietnamese economy to a number of economic areas, not least the ASEAN, South Korea, Russia and the 11 countries party to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

The latest addition to the long list of FTAs, the EU-Vietnam Free Trade Agreement (EVFTA) along with the connected Investment Protection Agreement (IPA) will create an important vehicle, if adequately implemented, for Vietnam to add more value to goods and services produced in the country.

Vietnam’s large number of FTAs also carry a more strategic importance. By balancing its economic relations, Vietnam creates a more robust nation, avoiding becoming too dependent on one trading partner. The EU and Vietnam, two of the strongest proponents of free trade in the world, have thus deepened their relationship. The signing of the EVFTA and IPA sends a signal to the world in favour of free trade and its merits. In a time when free trade is more often questioned, this signal should not be underestimated.

Sweden and Vietnam are two relatively small coastal countries dependent on global trade and international integration. Sweden, just like Vietnam, realised that trade, openness to the rest of the world, and multilateral co-operation are keys to prosperity. Sweden counts on Vietnam as a strong partner against the danger posed to the global economy by protectionist tendencies.

Coming from a nation whose economic prowess by large is dependent upon – and was created by – free trade, I look with concern upon the recent trends questioning the positives of free trade. In Sweden, 1.3 million Swedes go to work every day working in trade-related jobs – this, in a nation of just 10 million inhabitants.

Half of our GDP stems from trade. Around 150 years ago, Sweden was one of the poorest nations in Europe. One fifth of its population emigrated to the United States in the late 1800s due to the dire outlook for prosperity. By embracing free trade, making high-class education available for everyone, and implementing transparency and democracy, our nation has today become one of the richest countries in the world.

Defending the notion that free trade is good does not mean saying it is without flaws. But by signing FTAs with proper clauses safeguarding sustainability, labour issues, and intellectual property, this can be mitigated. The EVFTA is such an example. It is not flawless, but it is a modern and progressive FTA.

CHANGES NEEDED

Beyond the political signal being sent by signing the agreement, there lies great economic potential in the EVFTA and the IPA for both sides. For Vietnam, the potential is huge, the EU being its second-largest export market. Once the agreement has been ratified by the European Parliament, the work to harvest that potential will commence.

Companies from member states of the EU and from Vietnam need to increase understanding of the benefits that lies in the agreement, and subsequently use the provisions for economic gain. The EU Commission and the Vietnamese government are already engaging in capacity development for Vietnamese authorities on how to enact the provisions in the agreements.

Free trade comes with a demand to be flexible to change as a nation. In Sweden, we have had to go through a number of difficult but ultimately necessary changes when previously competitive sectors have run out of steam. Previously we had a big wharf industry as well as textile industry. When conditions for selling these products changed, mainly due to high cost of labour in Sweden, these industries became unviable, and structural changes in our economy became inevitable in order for Sweden to maintain its competitiveness. Hundreds of thousands of job opportunities vanished and new ones had to be created in other sectors. Re-education and education in general were a large part in enabling laid-off workers to find new jobs in often more knowledge-intensive sectors.

Vietnam will be facing similar challenges in the times to come. Some sectors will become less successful and others will grow. Vietnamese companies will need to further their productivity and improve standards to meet the requirements in the FTA. Workers, engineers, and software developers among others will all need to enhance skills and productivity. Cumbersome indeed at first, but it will no doubt be well worth the undertaking as they will become more competitive and help to grow the domestic economy while establishing Vietnam as a middle-income nation.

Vietnamese manufacturers of garments, shoes, and smart clothing will gain more beneficial access to the European market as tariffs are dropped immediately upon ratification. The trade and sustainable development chapter in the EVFTA will spur improved conditions for labour, which, as we have seen in other cases, will lead to increased productivity and, in turn, increased economic gains.

We will likely see a build-up of a garment industry with higher industrial know-how and competence. What will be needed is for regulating authorities and the Vietnamese government to be foresighted and enable these developments by creating as favourable conditions as possible.

The Vietnamese agricultural sector meanwhile will partially face new competition from European actors. The competition will, with proper management over time, lead to increased mechanisation, consolidation of ownership, higher yields, and increased value-adding in the agricultural sector.

To consumers from both sides, the EVFTA and the IPA is good news. It will bring about a better selection of goods and services with overall lower prices, increasing access to qualitative medicines, over time eliminating high import tariffs on cars, and allowing for more companies to compete for government procurement.

For companies gaining tariff-free access to a market of over 500 million Europeans, the benefits are equally big. To reap them, however, they need to improve corporate governance, take better care of the environment, and improve labour conditions. Those companies that will be able to adopt quickly will be highly successful.

BOON FOR BUSINESS

A more transparent and predictable environment for doing business as well as lower administrative burdens will make it possible for small- and medium-sized enterprises (SMEs) to move into the Vietnamese market.

For instance, Sweden, which is one of the most innovative countries in the world, is home to a host of SMEs thriving on innovation. Many of these are keen to internationalise their operations, and several are interestingly eyeing the Vietnamese market. These Swedish innovators have the potential to partner up with growing domestic companies and jointly grow the Vietnamese economy.

The EVFTA and IPA will serve to lower the overall risk and lead to more Swedish and European SMEs, as well as multinationals, partnering with Vietnamese companies – increasing economic growth and creating jobs while improving Vietnamese-made products.

This is very much welcome as we see the need to develop the domestic economy in Vietnam, and in this lies vast potential. In the longer run, we will also see more and more Vietnamese companies mature and invest in the European Union.

A recent study by the Swedish National Board of Trade showed that the average FTA over a 10-year period leads to an increase in bilateral trade of approximately 100 per cent. With a history of bold reforms to enact a market-driven economy and a population of entrepreneurial people, Vietnam stands a good chance to be a leading economy in Southeast Asia if it continues with the same boldness and hard work.

Trade relations between Vietnam and the EU have a bright future indeed – to the benefit of both European and Vietnamese citizens.

The Mekong Delta has so far harvested about two-thirds of its 1.57 million hectares of rice with an average yield of 5.7 tonnes per hectare, up 100 kg compared to last year’s same crop, said Le Thanh Tung, deputy head of the MARD’s Department of Crop Production.

The growth is more than enough to offset the falling output of the last summer-autumn harvest, estimated at around 50,000 tonnes, he added.

The harvest of this season’s entire rice area is expected to be completed in early September and to date, there has been no report on effects of drought or saline intrusion.

Tung noted that the harvest work of the summer-autumn crop is being favoured by low water and rainfall levels which pose no threat of flooding.

As the country struggles to secure orders for the grain in the second half of the year due to a drop in demand from major importers, rice is being sold 200 VND per kg higher than the last winter-spring crop but 1,000 – 1,200 VND per kg lower than the price of the same period last year.

This price gives farmers a profit margin of 30 percent which is still much lower than that of 2018.

To keep this year’s output stable or higher than last year, the Ministry of Agriculture and Rural Development have recommended the Mekong Delta cities and provinces to expand the next autumn-winter crop by 4,000 hectares to about 750,000 hectares.

According to the General Department of Customs, Vietnam’s rice exports reached 2.76 million tonnes in the first five months of this year, down 6.3 percent from a year earlier. The country earned 1.18 billion USD worth of exports in the period, a decline of 20.4 percent over the same period last year.

Vietnamese rice products, the country’s key export item, are shipped to 150 countries and territories, including the Philippines, Malaysia, Indonesia, mainland China, Cuba, Hong Kong, Singapore, Iraq, Ivory Coast, Ghana and Mozambique.

The rise of FDI in Vietnam, driven by new free trade agreements and the US-China trade war, has generated greater demand for production workshops and storehouses in the country, and promises high profits for local industrial park developers.

Despite the 15.8 percent rental rate hike in the second quarter of this year, the Vietnamese industrial park market still has high demand thanks to the strong growth of foreign manufacturers.

According to reports from the Ministry of Planning and Investment, in the first six months of 2019, industrial parks and economic zones across the country have attracted about 340 FDI projects with a total newly registered capital of about US$8.7 billion.

Up to now, the total number of FDI projects invested in Vietnam has reached about 8,900 with a total registered capital of US$186 billion.

Vietnam’s industrial parks cover a total natural land area of approximately 95,500 ha, of which industrial land reaches about 65,600 ha, accounting for about 68.7 percent. In addition to 251 industrial parks in operation, 75 remaining ones are in the stage of compensation, site clearance and construction with a total area of about 29,300 ha.

As a result, higher foreign investment means better opportunities for local industrial zone developers. Business performance and shares at industrial zone developers such as Kinh Bac City Development Holding Corp (KBC), Nam Tan Uyen Joint Stock Corporation (NTC) and Investment and Industrial Development Corporation (BCM) have increased sharply year to date.

KBC’s H1 2019 financial statement reflected the positive prospect of the firm’s real estate business segment. The company’s revenue and after-tax profit reached VND1.57 trillion (US$66.8 million) and VND511 billion, up 56 percent and 76 percent year-on-year, respectively. Of the total, land rental revenue accounted for nearly VND1.4 trillion, accounting for 87 percent.

In the stock market, KBC shares are also being traded positively at around VND15,000 apiece. Its trading volume at 10 sessions averaged at over 3.1 million shares. Recently, Ho Chi Minh City Securities Corporation (HSC) also recommended buy for KBC shares.

The same move was seen with NTC, which gained nearly VND100,000 per share to VND193,500 in the past three months. The rise was given by the firm’s positive business performance results in the first half of this year. NTC’s after-tax profit in H1 2019 rose by 48.76 percent year-on-year to VND130.5 billion.

Meanwhile, BCM also announced revenue of VND3.38 trillion and after-tax profit of VND1.32 trillion in H1 2019, up 12 percent and 34.4 percent year-on-year, respectively.

Favorable conditions support

 According to Stephen Wyatt, general director of property consultancy company Jones Lang Lasalle (JLL) Vietnam, the US-China trade war is not the only cause for the strong development of Vietnam’s industrial sector.

In fact, he said, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) agreements showed that Vietnam always strives for international integration, bringing many opportunities and motivation for the country to improve its business environment.

Vietnam is one of the most attractive destinations for the industrial sector in Southeast Asia and JLL expects that the trend will continue in the second half of 2019 and interest from foreign investors in Vietnam will remain strong.

Experts forecast that high growth prospects of industrial zone developers and their shares will continue next years.

Analysts from BIDV Securities Company (BSC) said that Vietnam’s industrial parks will continue to benefit from the trade war and the EVFTA. Along with that, the land rental rates will increase by 7-15 percent yearly on average, which will continually bring big cash flows for industrial zone developers in the coming time.

A report released late this week by the Ministry of Industry and Trade said online sales of counterfeit goods remained a problem despite 35,900 fake and illegal products being removed from e-commerce websites as of last year.

Over 3,000 seller accounts have been blocked for selling these items, it added.

“The sale of fake, illegally imported and banned items is widespread on e-commerce websites and social networks such as Facebook and YouTube. This is causing distrust among consumers,” Tran Huu Linh, deputy head of the Vietnam Directorate of Market Surveillance, said at a Friday meeting.

Sellers usually advertise fake products with images of real products and offer lower prices, Linh said, adding that this particularly happens with cosmetics and functional foods.

Sellers have one trading address but keep their goods at multiple locations, making it harder for authorities to examine them, he added.

“Some trading locations are in apartment buildings, which require search warrants, delaying the investigation.”

Online transactions usually do not have bills, therefore investigating the source of the counterfeit foods is a challenge, he added.

Dang Hoang Hai, head of the Vietnam e-Commerce and Digital Economy Agency (iDEA), said that fraudsters use multiple tricks to avoid being discovered, for example listing the product as “N.I.K.E” instead of “Nike.”

Some have servers placed in another country and website domains bought through a foreign service without any real address and phone numbers to contact in Vietnam, Hai said.

The technical capability and skills of officers in the agency have not caught up with fast-developing technologies to identify fraudsters, he added.

Minister of Industry and Trade Tran Tuan Anh proposed making changes in the law that will require online channels to manage their products and prevent counterfeiting.

Buying via online shopping channels and social networks has become increasing popular in Vietnam in recent years. Online sales in Vietnam last year rose by 30 percent over 2017 to top $8 billion, accounting for 5 percent of retail sales, according to the trade ministry.

Nguyen Hoai Nam, Deputy General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), said the move would allow firms to directly export their goods.

Most of the Mekong Delta’s export turnover is made up of rice and processed seafood products. Every year, the region’s transportation demand for export goods is about 17-18 million tonnes. However, 70 percent of export products have to be transferred to major ports in HCM City and Cai Mep port (Ba Ria – Vung Tau province), increasing transportation by 10-40 percent depending on the route.

This situation leads to frequent overloads on the connecting routes from HCM City to Mekong Delta provinces. In addition, transport service quality is poor, costs are high and there is a lack of links between different modes of transport.

As one of the largest frozen shrimp exporters in the world, Minh Phu Seafood Joint Stock Company annually exports about 6,700-7,000 shrimp containers with a turnover of 750 – 850 million USD.

Chu Van An, Deputy General Director of Minh Phu Seafood, said if there was a more suitable logistics service, goods could be exported directly from the Mekong Delta and businesses could save 30-40 percent of their costs, which would increase the competitiveness of agricultural products.

Focused investment in regional transport infrastructure would help tackle the problem, with waterways investment the best option due to the area’s terrain.

A representative of Ca Mau province’s Transport Department urged prioritising investment in inland waterways that are connected with road traffic to enhance transport capacity throughout the region, and to exploit the waterway system linking HCM City with other provinces and cities in the region.

The Ministry of Transport said that it will study and implement a dredging project and renovate Khai Doc Phu Hien canal connecting the Tien and Hau rivers to shorten the transport distance between Can Tho port and the seaport in the southeast.

The ministry also plans to upgrade inland waterway routes such as HCM City to Kien Luong and HCM City to Ca Mau. It will also focus on improving the transportation infrastructure system, reducing congestion on main waterways and cutting the cost of transporting goods from manufacturers to consumers, Minister of Transport Nguyen Van The said.

According to Nam, there is a lack of seaports in the delta, especially deep-water ports capable of handling export container ships.

Meanwhile, goods being stuck at ports and overloads at some key ports in the southeast region occur regularly, allowing shipping enterprises to increase service charges and wasting businesses’ warehouse costs and time.

An Giang province is a big exporter and processor of seafood, but difficulties in transport infrastructure have affected the development of enterprises.

As a unit specialising in raising and processing tra fish and basa fish for export, Nguyen Anh Thu, Deputy General Director of An My Fish Joint Stock Company, said the province’s transport system lacks synchronisation. This has caused  difficulties and increased costs for businesses as goods cannot be transported by container trucks but must be carried by small trucks.

It is forecast that the transportation demand for the region’s rice by 2020 will be about 10.2 million tonnes and aquaculture output will be about 2.42 million tonnes.

This shows the logistics market of the Mekong Delta has potential to develop and attract investors, according to Nguyen Minh Toai, Director of Can Tho city’s Department of Industry and Trade.

He said developing logistics services and building a regional level logistics centre was an urgent need.

To meet demand for import and export of regional goods, the Ministry of Transport asks the Prime Minister for approval to adjust planning for Soc Trang and Tran De seaports to seek investment and form a gateway seaport to receive vessels of up to 100,000 tonnes.

Besides, the ministry proposed the Government and the National Assembly approve the allocation of capital to upgrade the second phase of Cho Gao canal and complete investment procedures for the southern region waterways and transport logistics corridor project with loans from the World Bank.