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 coronavirus crisis has so far managed to limit the dangers to health and the economy.

Internationally, the country is working toward stronger integration, including economic integration. In January 2020, Vietnam assumed the ASEAN chairmanship and a seat as a non-permanent member of the UN Security Council. Vietnam is part of various multilateral and bilateral free trade agreements, including the EU-Vietnam Free Trade Agreement (EVFTA). Under the EVFTA, customs duties are largely eliminated, Vietnamese products are adapted to EU standards, and government tendering processes along with the service sector are further opened up.

Germany and Vietnam maintain a strategic partnership since 2011. Germany is Vietnam’s largest trading partner within the EU. Many German companies are already represented in Vietnam. Close ties were established during the Cold War. The more than 150,000 people from a Vietnamese migrant background living in Germany along with those who have returned to Vietnam represent an important resource for the bilateral relations. Measures to send Vietnamese workers to Germany are currently being undertaken, particularly in the care sector.

Vietnam ranks in the middle of the 2019 Global Competitive Index’s innovation section (ranked 76 of 141). Particularly the fields of research and development along with international and multi-stakeholder cooperation are capable of development. At the same time, the government is trying to push ahead with the expansion of a digital infrastructure and Industry 4.0.

Despite the coronavirus crisis, Vietnam’s leadership and institutions, such as the Vietnamese Chamber of Commerce and Industry, have an interest in the greater involvement 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 suffer if tensions continued for a longer period.

As an emerging regional medium-sized power, Vietnam has an interest in diversifying economic relations and specifically in expanding bilateral relationships, for example with Germany. That also applies in relation to the economic dependence on China, their overpowering and increasingly aggressively behaving northern neighbour. 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 the 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 production conditions, encouraging direct foreign investment and advertising the relatively low level of wages.

German investors are already present in Vietnam in areas such as technological and medical products, industrial warehouses, the automotive industry and logistics. The Vietnamese company Vinfast has launched its first cars in collaboration with BMW. German direct investment is increasing, but it remains low in comparison to other countries, especially South Korea and Japan. Foreign trade is generally on the rise. The EU is Vietnam’s second most important export market (with the USA 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 4 billion euros (2018), with vehicles and machinery accounting for almost 60 percent of that export volume. German imports to Vietnam are worth almost 10 billion euros (2018). This makes Germany 44th among Vietnamese trading partners for exports and 25th for imports.

Various institutions are associated with 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. German institutions are epitomised by the Deutsches Haus in Ho Chi Minh City, and there is the International German School and the Vietnamese-German University. The sectors most affected by the coronavirus 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 to positively affect 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 spending capacity 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-coronavirus period, increased efforts focusing on foreign investment and new export markets should come to the fore.

Owing to the easing of tensions in the bilateral relationship, high-level political exchanges will be able to take place again once the corona crisis situation allows it. The potential of travel as an accompanying economic policy measure is high for German economic interests. Policy can provide an important impetus for opening doors to German companies and also address potential problems at the political level. Moreover, Germany’s good reputation in Vietnam and the close relations established through migration represent a solid basis for expanding trade relations.

The EVFTA included workers’ and trade union rights as well as quality and environmental standards, which should now be followed-up with the implementation of the agreement. Basically, both countries share an interest in fair and open world trade. Simultaneous responsibility on the UN Security Council and in other forums (including regional ones) can be used to promote multilateralism and global rights-based economic relationships.

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

More legal certainty and transparency are required in the area of regulatory requirements for investment and trade. This should also be followed up on by German politicians. The values in the Corruption Perception Index (117th out of 180), in the Ease of Doing Business Index (70th out of 190) or the Competitiveness Index (67th out of 141) leave room for improvement.

Peter Girke heads the KAS Office in Vietnam.