Vietnam, Germany Fostering Economic Ties

Federal Republic of Germany (FRG): Your business partner

FRG is one of the largest economies in the world with a GDP of €2,108 billion in 2002 (source: German Industry and Commerce - GIC). Furthermore, their total production and service value is the biggest among the top 8 developed nations (G8). The development and stability of the German economy is closely linked with global economic development and the application of international human resources.

One of the strengths of the German economy is its strong competitiveness and influence on the world economy. Germany is the second largest world exporter after the United States. According to GIC statistics, the export value of Germany in 2002 was €27 billion, comprising 10 per cent of all world export and over 20 per cent of G7. Major German enterprises can have a strong impact on the regional and world economy such as Thyssen Krupp, Siemens, Mercedes-Benz, etc.

With its economic strength, the German market also offers big business opportunities for foreign investors and trade partners. The foundation of such cooperation is due to the quality of the workforce as well as the impact of industrial production. Germany has a modern transaction floor and an excellent infrastructure together with a comprehensive legal system that can satisfy investors. Germany also has a large import market.

Germany-Vietnam economic and investment cooperation

With a developed economy, Germany has become an important trade partner in the world economy and Vietnam is no exception. There is great potential for economic cooperation between Germany and Vietnam. Historically, the former German Democratic Republic and Vietnam had friendly relations and this relationship is developing again with the Federal Republic of Germany. Furthermore, thousands of Vietnamese students have studied or are studying in Germany. Many who have studied in Germany hold important posts in the Vietnamese government and companies. They act as a bridge linking the two nations and economies. As mentioned earlier, Germany is also a major import market for consumer goods such as garments, footwear and aqua-products, while Vietnam imports high technology equipment, infrastructure and production equipment.

In recent years, commercial exchanges between the two countries have continued to increase. German commercial companies and producers have increased their presence in Vietnam through representative offices and investment. FRG is the largest trading partner of Vietnam in Europe and also the largest import market for Vietnamese products. According to the German Federal Statistics Office, commercial exchange between FRG and Vietnam in 2002 was worth €1.7 billion in which FRG import value was €1.17 billion and export value €0.53 billion.

German investment in Vietnam however, falls short of existing potential. Until October 2003, German FDI in Vietnam was US$242,87 million (source: GIC), ranking 20^th among 63 countries investing in Vietnam. So far, only over 60 companies from a total of 950,000 German companies are operating in Vietnam in the forms of joint ventures, wholly foreign-invested firms or on a barter basis. All of them are small and medium sized companies with investment capital less than US$10 million, and some even less than one million US dollars.

Reasons and solutions for investment

One of the reasons that Vietnam does not attract German investors is that close to FRG there are several developing nations with similar investment environments to that of Vietnam, namely Poland, the Czech Republic and even Russia. These countries not only have similar cultural identities to FRG but also policies which are more “open” than those of Vietnam. This is a reason why German investors have concentrated more on their regional markets than those which are half a world away with an unfamiliar cultural environment.

Beside these reasons, there are other reasons related to business practice in Vietnam such as an incomplete and unclear legal system, low standards of management and international trade of Vietnamese businesses as Vietnam started its market economy only 20 years ago, as well as complicated administrative formalities inconceivable to most German investors who are used to acting upon the law.

Understanding these existing constraints, together with improvements in administrative formalities and the investment environment in recent years, Vietnam and FRG have signed a series of agreements for trade improvement such as the double taxation treaty and the bilateral investment protection agreement. The FRG government also has several programmes assisting Vietnam in administrative reform and advancing the market economy. However, to make the Vietnamese investment environment really attractive to German investors, it remains a long process requiring continued efforts from both sides.

• Le Ha