Economic Opportunities and Challenges for 2016

2015 is the final year of the five-year socioeconomic development plan (2010-2015) and is the year that Vietnam's economy witnessed many historic opportunities, including the conclusion of Trans-Pacific Partnership (TPP) and the formation of the ASEAN Economic Community (AEC).

 

Garment and textile, FDI and real estate are clearly the biggest beneficiaries of historic trade agreement like TPP and AEC. According to the Ministry of Industry and Trade, the garment and textile sector was the biggest concern in TPP negotiations as all 12 member countries agreed to write a separate chapter for this sector - a key drive of economic development of some TPP member countries. Tariffs on this commodity will also be removed immediately after it takes effect.

 

According to the World Bank (WB), textile production output may increase by 21 per cent and export growth to the US market may reach a record of 90 per cent in 2020. The overall export growth of this sector may stand at 41 per cent to add another US$11.5 billion to garment and textile export value by 2015. Meanwhile, Ms Dang Phuong Dung, Vice President and Secretary General of the Vietnam Textile and Apparel Association (Vitas), said the garment and textile industry is having a lot of advantages to meet requirements on rules of origin. Today, Vietnam’s yarn industry has developed enough to meet domestic demand. This sector’s contribution to the economy is also considerable. The textile sector drew US$4.18 billion of foreign direct investment (FDI) as of mid-2015, accounting for 76.2 per cent of total investment capital in this sector. Local firms have also shifted input import orders to TPP member nations from China and Taiwan. Besides, many garment and textile companies also receive more orders from foreign customers to export to TPP countries.

 

FDI value is also likely to jump high in 2016. Biggest investors will be still familiar names such as Japan, South Korea and the United States. According to experts, the value and quality of FDI in Vietnam in 2016 will soar. Vietnam - Korea Free Trade Agreement (FTA), the Trans-Pacific Partnership (TPP) and ASEAN Economic Community (AEC) are major drives for the strong FDI growth. In November 2015, South Korean investors pledged to invest over US$6.39 billion in Vietnam, bringing its investment capital in Vietnam to over US$44 billion, ranking first among foreign investors in the Southeast Asian nation. According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, all South Korean companies in Fortune 500 List have projects or business operations in Vietnam, particularly Samsung, LG, GS, POSCO, Hyundai, KEPCO.

 

Japan is definitely the second biggest investor in Vietnam with over US$1.723 billion pledged in the first 11 months, bringing its cumulative investment capital in Vietnam to approximately US$39.5 billion. According to the Foreign Investment Agency, Japan now has 4.7 million small and medium-sized businesses, accounting for 99.7 per cent of business entities in Japan. They tend to seek offshore investment opportunities while Vietnam is in need of modern technologies from them. Thus, this will be a closer bridge to bring Vietnamese and Japanese businesses together.

 

The US is expected to become the biggest investor in Vietnam in the coming time because of its potential and strengths. FDI flow from the largest economy in the world into Vietnam in 2016 is estimated to surge as US big companies are seeing that Vietnam is an attractive market.

 

Agriculture is one of the hardest hit industries by the process of globalisation.

 

The agricultural sector is also dragged by internal inherent weaknesses like inhomogeneous development. Many wonder whether the husbandry sector will survive or disappear when tariffs concerning this sector will be scrapped. With TPP, tax-free US meat imported into Vietnam will be 15-20 per cent cheaper than domestic products.

According to the Vietnam National Animal Husbandry Association, fowl meat, port and beef now respectively account for 31-32 per cent, 62 per cent, and 6 per cent of Vietnam’s meat consumption structure.

 

According to experts, the weakest point of Vietnamese livestock industry is high cost. This was resulted from costs spent on a lot of intermediary stages. Currently, livestock production has not been arranged into a value chain and the production process was fragmented and segmented into many stages. Each stage takes a net margin of 18 - 20 per cent, thus pushing up production costs.

 

The case of husbandry sector is a clear and valuable lesson for other economic sectors of Vietnam like the stock market, real estate and energy. When competitive pressures are knocking on the front door, you will lose ground if you cannot find a way-out.