By: Loan Quach
Vietnam has progressed to become the world’s fifth largest exporter of agro-food commodities including aquatic products, rice, coffee, tea, cashews, black pepper, rubber, and cassava according to a World Bank report released in 2016. However, while increasing its stature as a global exporter, the quality of growth in the sector overall remains low. In order to improve it and, in turn, enhance the country’s economic competitive capacity, the Ministry of Agriculture plans to introduce incentives such as tax exemptions or land use fee cuts to attract private investments, especially from overseas investors. At the forefront of this drive are hi-tech agriculture and clean agriculture which will be the two focus fields targeted to start the modernization and diversification of Vietnam’s agriculture sector.
Overcoming current challenges
Given small-scale production, inadequate infrastructure, low productivity, and an ambiguous legal framework, the amount of FDI pouring into the agriculture sector had been relatively low until 2015, when Vietnam started to actively seek foreign investments in an effort to restructure the sector. The first half of 2016 presented a turning point: during this period, the total amount of FDI capital registered and added in the fields of agro-forestry and fishery increased by 86.5 percent while the amount of FDI projects advanced 62.5 percent compared to the same period of the previous year. In particular, the investments totaled US$53 million including eight new projects and other eight ongoing projects supplemented with new capital.
Director of the Institute of Policy and Strategy for Agriculture and Rural Development Nguyen Do Anh Tuan commented: “[Vietnam’s] agricultural exports have unprecedented opportunities as a string of free trade agreements between Vietnam and other countries have been or will soon be signed. Investment in this sector is expected to continue rising in the near future.”
International trading opportunities
Having reached a comprehensive free trade agreement with the European Union, Vietnam is expected to take advantage of tariff reductions and other benefits for its many products and services. The demand for Vietnamese agricultural products like cashews, coffee and fisheries have already been high in the EU market, which is also Vietnam’s second largest export market after the United States. As the EVFTA will come into effect in 2018, it also brings about optimism that improving government security regarding dispute settlements in areas such as intellectual property rights, and legal security and transparency will entail a new wave of investments from Europe to Vietnam. The Southeast Asian country is looking forward to dominating the EU market with its agricultural products.
Choosing a location for investment
In addition, intrigued to situate hi-tech agriculture at the core of the economy, Vietnam has expected to house 200 hi-tech agricultural businesses and 10 hi-tech agricultural zones by 2020. The general plan of agricultural zones is to industrialize the agricultural sector by regionalizing agricultural products. For example, tea production in Thai Nguyen, Lam Dong and also in the Central Highlands while vegetables and flower plantations will be in Lao Cai, Lam Dong, Hanoi and Ho Chi Minh City. Shrimp farmings will be concentrated in the Red River Delta, the Mekong Delta, and north central, south central coast, and south central regions.
That being said, experts suggest other provinces and municipalities in Vietnam follow Quang Ninh Province model, which has fostered public-private partnerships to establish high-tech agricultural zones in Dong Trieu District.
Moreover, this January, Vietnamese Prime Minister Nguyen Xuan Phuc also re-affirmed ‘the answer to agrarian questions in Vietnam’ is hi-tech agriculture and pressed on increasing the value of credit package for hi-tech agriculture from VND 60 trillion to VND100 trillion (US$2.63 billion to US$4.38 billion).
Agriculture’s outlook for 2020
While hi-tech agriculture is at the forefront to industrialize the Vietnamese economy, since 2013 growing public concern over food safety has been paving the way to a field that previously had been unexplored and yet is still under-explored today: organic agriculture. Le Thanh, chairman of Organic Life Co, shared that agribusinesses have to build a whole supply chain from production to retail. Moreover, organic agriculture makes up only 0.2 percent of Vietnam’s agricultural land. However, while the current lack of infrastructures and related services to assist production and distribution of organic products seems a challenge, it also is equivalent to ample opportunities for both public and private sectors to construct and upgrade this particular industry.
With a new draft decree in 2015, the Vietnamese Ministry of Agriculture showed expectation for the export value of farming products within FDI sector to increase from 10 to 15 percent in 2020. It also expects higher FDI inflows will correlate with higher production of quality agri- products. As the Vietnamese economy is getting more liberalized, the Vietnamese agriculture sector is ready to reap opportunities for development.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
An Introduction to Doing Business in Vietnam 2017
An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.
Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.