Overview

Vietnam is considered as one of the fastest and relatively stable-growing economies in Asia over the last decade. Although there was a global financial crisis in 2008, this country was seen to have experienced well with some encouraging macro-economic indicators, resulted in 2009 and 2010. The economy has recorded an average GDP growth rate of 7.2 % per annum, ranking top in the Asia-Pacific region. Recent years, Vietnamese Government has made a great effort in boosting international economic integration through participating into many different free trade agreements/communities such as the World Trade Organisation (WTO), the Eurasian Economic Union, the European Union, the ASEAN Economic Community (AEC) and the Trans-Pacific Partnership (TPP). This effort has led to a significant increase in FDI continuously. With a stable political environment, low labour and operating cost, along with promising economic prospects, Vietnam presents a dynamic market to attract an influx of both foreign and private investors to participate in the economy.

Geography

Vietnam is located in the centre of South East Asia and is bordered by China to the north, Laos and Cambodia to the west. The total area of Vietnam is over 331,600 square kilometres and consists of mountains and tropical forests as well as more densely populated plains in both the north and south of the country. Hanoi in the north is the capital of the country and Ho Chi Minh City in the south is the largest commercial city. Da Nang, in central Vietnam, is the third largest city and an important seaport.

Economic Environment

GDP growth was 6.7% in 2015 up from 6% in 2014 and 5.4% in 2013 and is forecast to hit a similar level in 2016. Over the last 20 years, GDP growth has averaged over 7%. As well as enjoying strong export growth, which grew at more than 14% year-on-year in 2014, Vietnam is becoming an increasingly large importer of capital goods necessary to meet its large infrastructure needs, and consumer goods to satisfy its rapidly expanding consumer market. Ranked as the 13th most populous country in the world, with a population of over 90 million people with a median age of 29, Vietnam represents a huge pool of both potential customers and employees for many investors.

Key Sectors and Trading Partners

Vietnam continues to diversify away from agriculture. Among the industrial sectors, services accounts for approximately 50% of GDP followed by manufacturing at 33%. The agricultural sector made up 17% of GDP in 2015. The growth in exports has been driven by the fast growing manufacturing, telecommunications, clothing and apparel sectors with major exports to EU (19%), US (21%), ASEAN (11%), Japan (9%) and China (11%).

Foreign Investment

With improvements in the stability of the exchange rate and reductions in the level of inflation (which fell from a peak of 18% in 2011 to 0.6% in 2015), the macroeconomic environment has
stabilised in recent years. Vietnam remains one of the most attractive locations for foreign investors in South East Asia on account of its low wages, favourable demographics, a growing middle class, political stability and its location. It received $24 bn in foreign direct investment in 2015, a 17% increase on the previous year. In 2015, much of the foreign direct investment into Vietnam came from Korea (29%), Malaysia (10%), Japan (7%) and Taiwan (6%).
Vietnam has entered into or completed the negotiation of a number of Free Trade Agreements (FTAs) including both collective FTAs as a member of ASEAN, and bilateral FTAs (such as FTAs with the EU, Japan, Chile and Eurasian Economic Union). On 4 February 2016, the Trans Pacific Partnership (‘TPP”) Agreement was signed by the foreign ministers of the participating countries and is now under the process of ratification by each country. It is widely considered that Vietnam has much to gain from this agreement, due to its potential for a greater share of the global apparel and footwear market, particularly in the US and Japan. The TPP will allow Vietnam to export apparel to the US at a 0% tariff, making Vietnam’s exports even more competitive.

Legal and Regulatory Regime

Vietnam’s legal powers are centralised in one supreme body, and then delegated to lower bodies. The National Assembly is the only body with the power to amend the Constitution and pass laws. The Vietnamese government has issued various policies to encourage enterprise and foreign investment in recent years. However, certain industries such as financial services, logistics, telecommunications, mining and utilities continue to be subject to restrictions on foreign ownership. Vietnam joined the World Trade Organisation (‘WTO’) in 2007. Under its accession commitments, Vietnam opened up various business sectors to foreign investment, in some cases under a phased approach. These commitments are generally referred to when assessing whether foreign investment in a particular sector is allowed. There is a hierarchy of regulations in Vietnam, with laws being passed by the National Assembly, and their implementing decrees and circulars issued by the government and its ministries, respectively. A plethora of other legal instruments/ guidelines are also issued by various other authorities.

New Law on Investment and Enterprises

In late 2014, the National Assembly passed a new Law on Investment (LOI) and a new Law on Enterprises (LOE), both of which come into effect on 1 July 2015. A series of implementing regulations were issued in late 2015 (including Decree 78/2015/ND-CP guiding enterprise registration, Decree 96/ND-CP guiding the implementation of the LOE, and Decree 118/2015/ND-CP guiding the implementation of the LOI). These two new laws contain major changes to the former laws passed in 2005, and are expected to create more favorable conditions for investors.

Workforce and Cost of Living

The number of people of working age in employment in Vietnam totaled 48 million in 2015 with an official unemployment rate of 2%. Wages and salaries in Vietnam vary widely across occupations and geographic locations. In 2015, the average annual income per person was approximately $2,200. In comparison with other countries in Asia, the cost of living in Vietnam remains relatively low.

Business Etiquette and Culture

Many Vietnamese are more comfortable using their native language rather than English. However, many English speakers can be found in Vietnam, especially in the larger cities. Presenting business cards is an important ritual in the Vietnamese business world. Cards are exchanged at the beginning of a meeting using both hands. Translating written materials into Vietnamese shows respect for Vietnamese colleagues and business partners. Face to face business meetings are important in Vietnam and an appropriate level of respect must be shown according to rank and seniority.