Economy & Trade
By: Maxfield Brown
Following the withdrawal of the United States from the Tran-Pacific Partnership (TPP), the spotlight has shifted quickly to the future of foreign investment in members such as Vietnam – the party once projected to be the agreement’s greatest beneficiary. While TPP’s failure has and will continue to put a damper on investment and trade between Vietnam and members of the partnership, this does little to change Vietnam’s competitive advantage and may actually help the country over the long term.
Environment tax on fuel causes concern for businesses
The Ministry of Finance (MoF) has proposed to impose an environmental protection tax on fuel. The draft law would see almost tripling of the tax.
The ministry has proposed:
- Tax of US$0.17-0.35 (VND 4,000-8,000) per liter of gasoline, compared to the current US$0.04-0.17 (VND 1,000-4,000).
- Tax of US$0.13-0.26 (VND 3,000-6,000) per liter of jet fuel.
- Tax of US$0.06-0.35 (VND 1,500-4,000) per liter of diesel.
- Tax of US$0.13-0.08 (VND 3000-2,000) per liter of kerosene.
- Tax of US$0.04-0.17 (VND 900-4,000) per kg of heavy fuel oil.
- Tax of US$0.04-0.17 (VND 900-4,000) per kg of lubricant.
While the tax rates are tentative, the specific rates will be decided by the National Assembly. The Vietnam Chamber of Commerce and Industry (VCCI) has argued that the proposed tax rates would hurt businesses and the economy as fuel is important for transport, agriculture and seafood sectors. Sources say that fuel makes up around 25-45 percent of costs in vehicles and around 39.5 percent in airlines. The Ministry of Justice also asked the MoF to consider the proposal as it would directly affect businesses. This was followed up by the Ministry of Foreign Affairs asking if the proposed changes were necessary.
Online shopping to witness a surge
Vietnam’s rising internet population is predicted to boost online shopping in the near future, according to a new KPMG report. Currently 18 percent of consumers purchase goods from online retailers such as Amazon, Lazada, and Nhommua, with 10 percent preferring to buy from a retail shop’s website. Only three percent of buyers prefer a manufacturer or brand’s website. As per the report, the top reason for consumers to shop online is the convenience of shopping, followed closely by the ability to compare prices and availability of better deals. While considering a purchase, 9.9 percent of buyers refer to online reviews and feedback.
The report also highlights the significance of offline channels, with 11.5 percent of buyers seeking recommendations from friends and family before making a purchase, while online channels such as social media, online shops, and online reviews were preferred by 8.3 percent, 8.2 percent, and eight percent of buyers, respectively. In light of this, the report stresses the importance of companies providing privacy protection and better online security to gain consumer’s trust. In fact, one of the report’s findings indicates that 26.5 percent of buyers regard consumer information protection of utmost importance. To increase product awareness, sellers are also recommended to focus on social media channels and providing online reviews for their products. The research sample consisted of buyers aged 15 to 70 years, having made at least one purchase in the last 12 months, and within the top 65 percent of income earners in the country.
Antibiotics import norms to be tightened
The Ministry of Agriculture and Rural Development recently issued regulations to tighten import of antibiotics to prevent their use in the breeding of sea animals. However, a list of 57 government approved antibiotic substances can be imported to produce veterinary medicines, which are certified or legally permitted in Vietnam. Importers applying for licenses are required to furnish details of previous shipments and cannot sell to veterinary medicine dealers, breeders, and farmers, but only to licensed veterinary medicine manufacturers.
The stricter food safety norms come after Vietnamese seafood exports (heading mostly for Japan and EU) were returned last year due to chemical contamination and high antibiotic residue levels. To control the overuse of certain antibiotics, Vietnam’s Veterinary Department has ceased issuing import licenses, imposing a temporary suspension of operations for six firms involved in antibiotics trading.
Unemployment rate steady but graduates maintain difficulties
Vietnam’s unemployment rate reached 2.3 percent in 2016; however, numbers for people holding bachelor’s or master’s degrees are less positive. The Ministry of Labor, Invalids and Social Affairs said in a report that it was looking to develop the labor market. Approximately 1.6 million Vietnamese were hired in 2016, a year-on-year increase of one percent. Of those, 126,000 went abroad as guest workers, up 9.6 percent compared to 2015. The unemployment rate in urban areas stood higher than the one in rural areas, as 3.18 percent of urban citizens were without a job, compared to 1.86 percent of rural citizens.
There is a shortage in the creation of jobs. In the third quarter of 2016, there were 202,000 college or higher graduates that were unemployed. The government also indicated that it wants to develop stricter laws for Vietnamese employees working overseas.
By Mike Vinkenborg
2016 has been a successful year for Vietnam, continuing its emergence as both a leading ASEAN economy and a global player. Falling commodity and energy prices and severe water shortages early in the year caused Vietnam’s failure to reach its goal of 6.7 percent GDP growth, but with a year-on-year growth of 6.2 percent the country still managed to outpace most of its neighbors.
For 2017, the government has set Vietnam’s GDP growth target at 6.7 percent, while growth levels for the following years are expected to reach levels of at least seven percent. For a large part, this growth will be fueled by increased trade. Last year, Vietnam signed a free trade agreement with the European Union (EVFTA), eliminating trade tariffs by 2018, among other provisions. While the presidency of Trump resulted in a setback due to US’ abolition of the Transpacific Partnership (TPP) agreement, Vietnam continues to diversify its economic partners, such as through increased ASEAN integration, the proposed Regional Comprehensive Economic Partnership (RCEP, covering 3.4 billion people and which may emerge as the alternative to the TPP), and the EVFTA.
Foreign firms join e-commerce bandwagon
Japanese retail company Aeon entered Vietnam’s e-commerce market through its website on January 1st. The website named AeonEshop.com is designed as a business-to-consumer (B2C) platform with most of the products imported from Japan. The company started operations in Ho Chi Minh City and will later expand throughout the rest of country. An English version of the site is expected along with a mobile app version by mid-2017. Apart from its home country Japan, Aeon also has a presence in Malaysia.
Additionally, Lotte also recently launched its e-commerce website in Vietnam and plans to invest US$25 million per year; by 2020, it targets a 20 percent market share in the country. Similarly, Thai based Central Group has taken over e-commerce site Zalora, while Chinese based Alibaba has entered the market by taking a controlling stake in online retailer Lazada Group for US$1 billion. While several foreign retailers still operate through traditional brick and mortar stores, Vietnamese consumers increasingly prefer to shop at grocery stores to make orders and have it delivered to their homes, as this helps in saving time and eliminates the necessity to carry large packages themselves. Analysts have stated that businesses will have to pursue an omnichannel retailing experience, which combines online shopping with traditional stores.
Can Tho Officials Award Contract for US$47 million Waste plant
Can Tho city officials have granted China Everbright International Limited, a Hong Kong based environmental services firm, the rights to build a US$47 million waste-to-energy plant. The solid waste disposal plant is being designed to process 400 tons of daily household waste and generate electricity for the national grid. The company would implement its in-house technology including a grate furnace system, gas emission treatment system and leachate treatment system. The construction of the 53 hectare plant in Truong Xuan commune (to be located in Thoi Lai District) will commence from February 2017 with operations starting from February 2018. This is the first project in Vietnam funded by China Everbright International.
Vo Thanh Thong, Chairman of the Municipal People’s Committee stated that the company was selected from seven other investors after a visit by the city’s delegation of their Chinese projects. According to Chen Xiao Ping, Director General of China Everbright International, the company currently has 68 waste-to-energy plants with a capacity of 55,000 tons garbage per day and is committed to making this an environmentally friendly project following Vietnam’s environmental standards.
By: Harry Handley
In May 2015, Vietnam became the first nation to sign a free trade agreement (FTA) with the Russian-led Eurasian Economic Union (EEU) – which also includes Armenia, Belarus, Kazakhstan and Kyrgyzstan. Over a year after it was signed, the FTA finally came into force on October 6th, 2016. Previous Russia Briefing and Vietnam Briefing articles have discussed the background of the deal; now, it is important to assess the impact the FTA is having and will have in future.
Which goods does the FTA cover?
At its core, the Vietnam – EEU FTA will reduce tariffs on 90 percent of goods, with the tariff on 56 percent of goods already having been removed completely as soon as the agreement came into effect. Remaining tariffs will be reduced gradually over a number of years. The table below highlights the reductions in a number of key export categories for Vietnamese companies. All changes are effective immediately unless otherwise stated.
Steel industry to continue on its growth trajectory
The Vietnam Steel Association (VSA) announced that the steel industry is projected to grow at a rate of 10-12 percent in 2017. The association stated that steel consumption depends on the country’s GDP; with a GDP growth rate of 6.2 percent this year and the operation of 10 steel projects next year the industry is likely to further expand. However, the local industry faces competition from Chinese steel imports, which are cheaper. The industry also faces strict technical standards for exporting steel. To counter Chinese imports, the VSA has asked the government to impose anti-dumping measures.
The VSA has sent amendments to Vietnam’s Ministry of Industry and Trade (MoIT), which has made a draft plan of the steel sector until 2025 and extendable to 2035. The VSA has proposed a slew of measures, including less government intervention in the industry. The issuance of investment certificates, it said, should also be done with the relevant ministries rather than just the MoIT. In addition, it noted that the draft is not complete as it does not have a development plan for hot rolled and high quality steel, as these are 100 percent imported. Reports say that Vietnam will need to spend approximately US$15 billion a year to import steel.