VIETNAM

Vietnam is one of the few communist countries. A “socialist-oriented market economy” determines the country’s economic status, the communist party vigorously enforces its claim to total power, and the country is subject to fierce criticism in reports on human rights. At the same time, more than three decades of economic growth and political stability have led to Vietnam establishing itself as an influential player in Southeast Asia. 

An early and vigorous response to the Covid crisis was initially able to limit the dangers to health andthe resulting socioeconomic costs relatively well, until the emergence of the Delta andOmicron variants of the virus produced much more dynamic infection rates. After initial problems in vaccine procurement, the country has managed by now to achieve a high vaccination rate of the population and has regained control over infections – thanks also to international vaccine diplomacy. Abandoning its “zero Covid“ policy in March 2022 has enabled the country to open up and to allow everyday life to return almost to normal. 

Internationally, the country is working toward stronger integration, including economic integration. In 2020, Vietnam assumed the ASEAN chairmanship for one year and occupied a seat as a non-permanent member of the UN Security Council until the end of 2021.

Besides Singapore, Vietnam is the only country in Southeast Asia that is a member of all relevant multilateral and bilateral free trade agreements, including the EU-Vietnam Free Trade Agreement (EVFTA), which came into force in 2020. Under the EVFTA, customs duties are largely eliminated, Vietnamese products are adapted to EU standards, and government tendering processes along with the service sector continue to open up. With the entry into force of the RCEP in January 2022, Vietnam became part of the world’s largest free trade area. 

Germany and Vietnam have maintained a strategic partnership since 2011. Germany is Vietnam’s largest trading partner within the EU, and within ASEAN, Vietnam is Germany’s second largest trading partner. Many German companies are already represented in Vietnam. Close ties were established during the Cold War. The more than 120,000 people of Vietnamese descent living in Germany along with those who have returned to Vietnam represent an important resource for bilateral relations. Germany enjoys an excellent reputation in Vietnam, the level of which is unique in the region. 

Vietnam ranks in the middle of the 2019 Global Competitive Report’s innovation section (ranked 67of 141). Especially research and development as well as international and multi-stakeholder cooperation are areas that need to be developed. At the same time, the government is trying to push ahead with the expansion of a digital infrastructure and Industry 4.0.

Despite the Covid crisis, Vietnam’s leadership and institutions, such as the Vietnamese Chamber of Industry and Commerce, have an interest in a stronger commitment of Germany and German companies. However, the kidnapping of a Vietnamese citizen from Berlin to Hanoi in 2017 had a severe impact on bilateral relations. Normal relations did not resume again until 2019. One reason that the Vietnamese were willing to make concessions was probably that economic relations would have suffered if tensions had continued for a longer period.

As an emerging regional middle-sized power, Vietnam has an interest in diversifying economic relations and, specifically, in expanding bilateral relationships, for example with Germany. This also applies in the context of the economic dependence on China, the all-powerful northern neighbour that is behaving increasingly aggressively. Multilateral action is a strategic approach for Vietnam, in order to compensate for weaknesses in bilateral relations with China.

German companies and products have a good reputation in Vietnam. There is a willingness to reform and open up markets as long as the political power system is not called into question. Robust economic development is one of the strongest arguments for legitimising the authoritarian structures. To this end, Vietnam is creating attractive conditions for manufacturing, encouraging direct foreign investment and advertising the relatively low level of wages.

German investors already have a footprint in Vietnam in areas such as technological and medical products, industrial warehouses, the automotive industry and logistics. . German direct investment is increasing, but it remains low in comparison to other countries, especially South Korea and Japan. There is a clear trend towards diversifying production capacities and supply chains by establishing new business locations in Vietnam in addition to China (“China + 1“). Foreign trade is generally on the rise. The EU is Vietnam’s second most important export market (with the US being the first, and China the third): the most important export goods are electronics, textiles, clothing as well as shoes. The value of exports to Germany amounts to over 7 billion euros (estimate for 2021), with vehicles and machinery accounting for almost 60 percent of that export volume. German imports to Vietnam are worth 10,7 billion euros (estimate for 2021). The Vietnamese company Vinfast has launched its first cars in cooperation with BMW and has announced to build a plant for producing electric vehicles in Germany. 

Various institutions support business ventures in Vietnam. These include the Delegation of German Industry and Commerce in Vietnam, Germany Trade & Invest and the European Chamber of Commerce in Vietnam. The “Deutsche Haus“ in Ho Chi Minh City epitomises the German footprint in Vietnam, and there is an International German School and the Vietnamese-German University. The sectors most affected by the Covid crisis include tourism and transport, along with the production of electronics and agricultural products.

The EVFTA in particular offers great opportunities for the EU, Germany and Vietnam. There are also other factors that have the potential for a positive effect on the trading relationship. Even though productivity is rising more slowly than the cost of wages, the level of wages in Vietnam is still relatively low. The young urban population, which is moving into the middle class as its purchasing power increases, is consumption-oriented. Education is generally highly valued in Vietnam. Privatisations of (partly) state-owned companies can also offer opportunities for German investors. The government and the party agree that they must continue developing the value chain further. Ideally, this will lead to improvements in research and development as well as in services. Looking ahead to the post-Covid period, increased efforts focusing on foreign investment and new export markets should be prioritised.

High-level political trips to Vietnam that support German economic policy, thereby benefiting German economic interests, promise high potential. Political contacts can provide important incentives, opening doors for German business. Potential problems can be addressed at political level. Moreover, Germany’s good reputation in Vietnam and the close relations established through migration represent a solid basis for expanding trade relations.

Workers’ and trade union rights as well as quality and environmental standards were included in the EVFTA, which should now be followed-up by the implementation of the agreement. 

Basically, both countries share an interest in fair and open world trade. Membership in international and also regional institutions can be used as platforms for a dialogue, in order to promote multilateralism and global rules-based economic relationships.

Vietnam faces a number of economic policy challenges. Germany can make additional important contributions to help Vietnam meet these challenges in the form of technical, financial and political cooperation. The integration of young university graduates into the job market is difficult, and at the same time there is a shortage of skilled workers in non-academic jobs. The consequences of climate change are having a particularly severe impact on Vietnam. Pollution has reached alarming proportions. This jeopardises sustainable economic development, which means that Germany should continue its commitment to green energy, for example.

More legal security and transparency are required as far as the regulatory environment for investment and trade is concerned. German politicians should keep an eye on this. Vietnam’s scores in the Corruption Perception Index (87th out of 180), in the Ease of Doing Business Index (70th out of 190) or the Global Competitiveness Report(67th out of 141) leave room for improvement.

Peter Girke headed the KAS Office in Vietnam from April 2016 to July 2021.

Last update: April 26nd, 2022 (Florian Feyerabend)