German Firms in Vietnam Optimistic about Future Prospects

9:56:50 AM | 1/26/2022

German business representatives say they are optimistic about growth opportunities in Vietnam despite COVID-19 impacts, especially after the EU-Vietnam Free Trade Agreement (EVFTA) has taken effect. They expect a further revival of their own activities despite the cooling economy.  “German businesses still place trust and confidence in Vietnam in economic recovery and investment prospects,” confirmed Mr. Marko Walde, Chief Representative, Delegation of German Industry and Commerce in Vietnam (AHK Vietnam), in an interview with Vietnam Business Forum. Thu Ha reports.

How do you assess the impact of the COVID-19 pandemic on German businesses in Vietnam?

The appearance of a COVID-19 can be seen as the most unprecedented experience in the early 21st century, transforming our normal life with not only a shock on human health but also on every aspect worldwide. Vietnam has also experienced the most challenging time as the economy and trade activities have been dramatically affected since the fourth outbreak of COVID-19 in May 2021. Local and foreign firms on a large scale in Vietnam witnessed serious impacts of the pandemic on business operations, including supply chain bottlenecks, lockdowns, major factory shutdowns and especially the mobility restriction between cities and provinces. One of the main difficulties that German firms are facing even now is labor shortages. A huge number of skilled foreign experts are located in their home countries and unable to return to Vietnam because of strict measures for bringing foreign experts into Vietnam and the shortage of international flights.  

Furthermore, many investors from Germany must postpone their investment plans or stop plant construction due to the COVID-19 situation of Vietnam in 2021, including the travel restrictions and the vaccination tempo. According to our survey in October 2021– AHK World Business Outlook, 90% of surveyed German companies intend to find new or additional suppliers in the region as one of the suitable measures. The COVID-19 brings forth the need of a resilient supply chain and to seek innovative approaches for supply chain recovery.

The challenges for German companies in Vietnam are more numerous than in 2020 after the start of the COVID-19 pandemic. Most recently, the economic recovery has lost pace: Only 33% of German companies surveyed in Vietnam still expect the economy in Vietnam to develop better over the next twelve months. Those expectations are more subdued than they were in spring 2021.

How can Vietnam improve administrative reform efforts and the business environment, and what are opportunities for economic recovery?

Vietnam’s COVID-19 strategy has now been shifted to safe and flexible adaptation to the pandemic situation. Hence, the Vietnamese government should prioritize strengthening the foundation for businesses to thrive post-COVID-19, beside other supporting programs such as financial aid and stimulus packages for affected enterprises. The COVID-19 pandemic has highlighted several key vulnerabilities of the societies and economic system in Vietnam. Resolving these challenges requires designing more applicable health and economic policies that prevent public transmission in business activities as well as increasing the resilience to violent exogenous shocks. Moreover, all administrative reform efforts should base on the business perspective on the purpose of being effective and harmonized with the mutual/dual goals, of preventing the COVID-19 pandemic and promoting socio-economic development.

The Vietnamese government should support the local supply chains in making them more reliable, resilient and competitive. It is crucial to prioritize infrastructure development to mitigate problems and support the modernization of Vietnam’s logistics industry and the improvement of local suppliers in Vietnam. In addition to continuing to lower fees, taxes and provide preferential loans for businesses, the Government may take drastic steps in improving the business environment and grasping opportunities from the digital economy and investing in the infrastructure to boost growth in the future.

The Vietnamese government should implement tax incentive policies to attract small and medium-sized companies, promote economic development, and ensure development among regions. As a country of a young growing labor force, Vietnam must take this advantage and invest heavily in education and training in order to build a workforce with multiple skills and to upskill the existing labor force for the modern high-tech manufacturing industry. In addition, it should further liberalize its trade policies in order to benefit from international relations. At the same, the Government must bring in policies that would curtail the environmental pollution and over-exploitation of resources by FDI projects.

A new structure for Vietnam’s energy sources with an increased proportion of clean energy must be implemented. The Vietnamese government should create a more favorable environment and incentives for firms to use renewable sources, including natural hydro endowments, and solar and wind power. Most importantly, Green Energy will be one of the crucial factors affecting the investment decisions of German and international investors in the future. 

What are the investment prospects and outlooks of German enterprises in Vietnam?

Despite several impacts of the COVID-19 pandemic, German businesses still place trust and confidence in Vietnam’s's economic recovery and investment prospects. In terms of their own businesses, companies in Vietnam are proving resilientt. They expect a further revival of their own activities despite the cooling economy. They are confident about business development in the coming twelve months. Around 55% of German companies in Vietnam expect their own businesses to improve in the coming months. 83% of survey participants intend to invest further in their activities in Vietnam and 33% assume an increase in employment in the upcoming 12 months.  

Thanks to the EU-Vietnam agreement, European and German companies can enjoy the protection of investments with trade facilitation when investing in Vietnam. The EVFTA, with its liberalization of customs duties and the strengthening of trade and business relations, offers numerous opportunities for EU and German companies. Therefore, more moreforeign entrepreneurs consider extending their manufacturinging to Vietnam according to the “China plus One” strategy. The EVFTA provides German firms greater access to Southeast Asiaand brings more opportunities for partnership and cooperation in this emerging market. 

Based on the improved conditions and favorable environment in Vietnam, we expect that German investors will increase investments and there will be many FDI flows for high-valued projects into Vietnam. With the EVFTA, Vietnam will benefit a lot from well-known German technology in management and training, more value-added production and less waste of material and resources.

By Vietnam Business Forum