EVFTA to trigger investment flows

12-Feb-2019 Intellasia | VN Economic Times | 6:00 AM Print This Post

Vietnam has become one of the key growth markets for Bosch in Southeast Asia over its ten years in the country and Guru Mallikarjuna, Managing director of Bosch Vietnam, believes the EU-Vietnam Free Trade Agreement (EVFTA) will present significant advantages and benefits to both European and Vietnamese enterprises, workers, and consumers once it takes effect in the near future.

Positive prospects

The trade agreement is expected to eliminate virtually all tariffs on goods traded between the two sides, Mallikarjuna added. Thus, imports of components and machinery from the EU and exports of Bosch Vietnam’s products to EU countries will be easier and less costly. Smart agriculture projects will also be at a significant advantage, as the EU demands products of high quality that meet strict safety standards.

Vietnam is one of the fastest-growing economies in Southeast Asia, with a vibrant market of more than 95 million consumers, an emerging middle class, and young, dynamic workforce.

The European Trade Policy and Investment Support Project has predicted that, over the implementation period to 2025, Vietnam’s economic growth will be around 7 to 8 per cent higher than it would have been without the EVFTA. “Thus, the country’s potential is substantial,” Mallikarjuna said.

Operating in the four fields of research and development (R&D), manufacturing, sales, and services, Bosch is one of 300 German investors in Vietnam. Marko Walde, Chief Representative at German Industry and Commerce Vietnam, firmly believes there will soon be greater engagement from German companies in Vietnam.

The latter’s geographical position, close to global supply chains, coupled with a fast-growing consumer market, competitive labour market, and broader global integration adds to its appeal as an attractive destination for German companies.

More German companies do indeed intend to invest in Vietnam and those here already plan to engage more employees, according to the Business Confidence Index (BCI) for German enterprises in Vietnam, released in November.

All essential indicators, such as the positive business situation, solid business outlook in the next 12 months, and a bright macroeconomic outlook for the next year confirm the positive expectations.

“Essential free trade agreementsthe EU-Vietnam FTA and the CPTPPwill give an additional boost to Vietnam’s economic development in the medium term,” Walde believes.

Many German investors have adopted or are considering adopting a “China Plus One” strategy, under which they diversify existing operations out of China to avoid rising labour costs.

Vietnam is also a shelter from increasing tariffs resulting from the ongoing trade tensions between Washington and Beijing, and greater numbers of small and medium-sized enterprises (SMEs) from Germany are now focusing more on Vietnam, according to Walde.

From a broader perspective, members of the European Chamber of Commerce in Vietnam (EuroCham) continue to exhibit confidence in Vietnam’s trade and investment environment, with a score of 84 points in the Business Climate Index (BCI) for the second quarter of 2018, up six points from the first quarter.

Members reported an optimistic outlook on various issues, from their own investment and profit projections to workforce levels and Vietnam’s macroeconomic prospects.

As at November 20, the EU had 1,722 valid projects in Vietnam with total registered capital of $19.39 billion, according to the Ministry of Planning and Investment.

The Netherland leads the way, with $8.3 billion in 318 projects, followed by France with $3.6 billion in 534 projects, Luxembourg with $2.3 billion in 47 projects, and Germany with $1.9 billion in 314 projects.

This makes the EU the sixth-largest source of foreign investment in Vietnam, after South Korea, Japan, Singapore, Taiwan (China), and the British Virgin Islands.

Benefits to come

Many EU enterprises, such as Nedspice Processing, ABB, and Ericsson, have been present in the country for a long time and have high expectations of the EVFTA.

“The agreement motivates us to increasingly invest in innovative initiatives in Vietnam, focused on collaboration in 5G and the Internet of Things (IoT) with the government and operators,” said Denis Brunetti, President of Ericsson Vietnam, Myanmar, Laos and Cambodia.

“We are endeavoring to support Vietnam’s Industry 4.0 agenda and the government’s recently-announced National Innovation Network Programme, particularly as it relates to increased technology transfer and innovation capacity.”

President of the Italian Chamber of Commerce in Vietnam (ICHAM), Michele D’Ercole, introduced Vietnam to Italian entrepreneurs at a workshop in Rome last November and said his home country is very much interested in the EVFTA. Once taking effect, Italian enterprises will have a number of opportunities to cooperate with Vietnam in fields where they hold strengths.

According to EuroCham, greater access to the Vietnamese market for European companies is good news for both sides. Firstly, European companies will benefit from Vietnam’s commitments to open up access to a number of service industries, including telecommunications, which will be liberalised over a transition period of five years.

In particular, Vietnam has committed to increase the foreign equity cap in non-facilities-based virtual private network services from 70 to 75 per cent and in facilities-based value-added services from 50 to 65 per cent, thus allowing majority ownership and management.

Meanwhile, the foreign equity cap will rise from 65 to 75 per cent in non-facilities-based internet access and from 50 to 65 per cent in facilities-based internet access. For non-facilities-based value added services, the foreign equity cap will be abolished altogether, meaning that, for the first time, EU companies can own up to 100 per cent without the need to form a joint venture.

“This presents clear advantages for European companies,” said Brunetti. “It will allow European enterprises to grow their investment footprint in Vietnam and ride the next wave of internet-enabled economic growth as Vietnam embraces Industry 4.0. Meanwhile, Vietnam’s telecommunications sector will benefit from Europe’s world-leading expertise, knowledge transfer, and new technologies. This is a true ‘win-win’ for both sides.”

According to Walde, European and German trade will benefit in multiple ways. The FTA will bring with it customs facilitation, exchange of information on customs requirements, and investment in the modernisation and simplification of customs procedures that will provide greater transparency.

All of these factors reflect the fact that the agreement will create new market access opportunities across a range of sectors, covering goods, services, and investment.

Moreover, EU companies can enjoy the investment protection that accompanies trade facilitation and greater levels of investment arriving. Local production will be improved, in regard to variety and quality.

EU investors will bring their modern technology in management and training, allowing more value-added production and less waste of materials and resources. They will also create jobs, which in turn will drive consumer spending in Vietnam, Walde said. As a comprehensive agreement of high quality, he added, the FTA will create a win-win situation for German and Vietnamese companies.

Matters to consider

Regulations and policies have become significantly simpler and conducive to increased investment and ease of doing business. Since Ericsson established a presence in Vietnam in 1993, the company has experienced an amazing journey alongside the Vietnamese people.

“It has been an extremely positive trajectory, a truly phenomenal story of socioeconomic development fueled by increased access to mobile communications and the internet,” Brunetti said.

Bosch has also seen positive developments over the past few years, which are visible in many key economic indicators. Recent decisiveness at the top level regarding the need for innovation also shows Vietnam’s preparedness for the future, and Bosch, as a pioneer in innovation, is eager to be part of such initiatives.

“We expect that more reforms would help the country further leverage the opportunities from Industry 4.0 and become a regional hub for investment, R&D, and manufacturing,” Mallikarjuna said.

Walde sees opportunities from the EU-Vietnam FTA and the CPTPP for Vietnam to modernise its labour law, penal law, anti-corruption law, and intellectual property rights policy, to bring them to international standard.

In return, this will help create a stable economic policy framework and protect foreign investment. An immediate priority is the adoption of concrete policies that increase FDI links and spillovers and improves local support industries with targeted supplier development programmes.

Other recommendations, he added, include creating and implementing an integrated national skills development plan to accelerate Vietnam’s transition from low to skilled labour, where practice-oriented training programmes should be the focus.

EuroCham members also said that Vietnam’s reform efforts will offer opportunities for the country to integrate deeper into the global economy, according to the EVFTA Report 2018 released by EuroCham last October. The report showed that an overwhelming 93 per cent of enterprises believe that the EVFTA should be implemented in 2019 or as soon as possible thereafter.



Category: Economy, Vietnam

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