Vietnam – Germany Trade: How to Leverage the EVFTA

Posted by Written by Do Thanh Huyen Reading Time: 5 minutes

Inaugural meeting of the Vietnamese-German Joint Economic Committee

On January 12, the Vietnamese German Joint Economic Committee (JEC) was officially launched in Hanoi and Berlin. Due to the COVID-19 pandemic, the meeting took place virtually, with the participation of many officials and representatives from the Vietnamese and German government and businesses. The Vietnamese Minister of Industry and Trade, Mr. Tran Tuan Anh, and the German Minister of Economic Affairs and Energy, Mr. Peter Altmaier jointly chaired the inaugural meeting.

Vietnamese German Joint Economic Committee

Overview

The JEC was established in order to identify possible fields for more intensive cooperation and to remove obstacles for companies in the market of the respective host country. This commission is part of the Strategic Action Plan 2020/2021 to further develop the strategic partnership between Germany and Vietnam. In addition to dealing with the COVID-19 pandemic, the first session focused on trade and industry, manufacturing, energy, as well as vocational training.

Altmaier acknowledged Vietnam’s successful control of the global pandemic as well as the floods that hit the Central Region of Vietnam in 2020. Further, he emphasized the close and strong partnership between Vietnam and Germany. The EU-Vietnam free trade agreement (EVFTA), which came into force in August 2020 has already provided an important milestone for intensifying trade relations. In the current pandemic-induced crisis, the exchange between the two countries will be more important than ever, as only open markets and free trade will help the economics overcome crisis and recover quickly.

Minister Tran Tuan Anh said that Vietnam always attaches immense importance to the strategic partnership with Germany, and always wants to promote further economic, trade, and industrial cooperation between the two countries. He promised to create the best conditions for foreign-invested enterprises in manufacturing and trading activities in Vietnam, particularly for German enterprises, as these are important contributing factors for the economic development of the country.

Fields of focus

Trade and industry

Currently, Germany is Vietnam’s largest EU trading partner, with bilateral trade in goods having quadrupled in the last 10 years. There are more than 350 German companies present in the Vietnam market as of the end of 2020, of which 60 enterprises have established their manufacturing facilities in the country.

According to Vietnam Customs, by the end of November 2020, the total trade turnover between the two countries reached US$9.08 billion, of which, Vietnam’s export turnover reached US$6.05 billion, up 0.5 percent over the same period in 2019. This is an encouraging number in the context of a sharp decline in import demand globally caused by the pandemic.

Further, by the end of November 2020, Germany had 378 FDI projects with a total registered capital of more than US$2.2 billion, ranking 17th among 139 countries and territories investing in Vietnam. Invested projects have focused on manufacturing, processing, technical services, information and communication, banking, and insurance. Some German multinational corporations have already invested in Vietnam such as Daimler-Chrysler, B. Braun, Messer, Siemens, Schaeffler, and Bosch.

Manufacturing

The automobile industry is currently Vietnam’s top priority and is also one of Germany’s strengths. Vietnam’s automobile industry in 2020 has strongly developed despite being affected by the pandemic. Domestic automobile production has grown by more than 5.3 percent compared to 2019 and is expected to grow by 20-30 percent annually.

Major German car manufacturers such as BMW, Mercedes-Benz, and Volkswagen have benefitted from significant opportunities with preferential terms in the EVFTA agreement to penetrate deeply into the Vietnam market. At the same time, Vietnam has also witnessed the rapid growth of domestic automobile manufacturers such as Vinfast, Truong Hai, and Thanh Cong.

Vietnamese enterprises have the opportunity to increase the localization rate through participating in the production chain of components and spare parts of major German industrial groups. This will help in contributing to promoting the development of supporting industries and creating a sustainable foundation for the Vietnam industry.

One issue of concern with the manufacturing industry in Vietnam today is the costs of logistics. These costs are currently high, at more than 20 percent, even higher than both Thailand and China. This is a limitation to the commercial activities as well as the competitiveness of products and services provided by Vietnamese companies as well as of foreign enterprises operating in Vietnam.

The Vietnamese government is giving priority to logistics system development projects in Vietnam, to serve not only commercial activities but also important industrial production activities, such as in chemicals, pharmaceuticals, automobiles, and petrochemicals.

Energy

Vietnam’s economic development has led to an increase in energy demand. The Vietnamese government predicts that demand for electricity in the coming years will increase by more than 10 percent annually. Energy is receiving a lot of attention from German businesses, especially renewable and clean energy, including wind, solar, and gas power.

Gas power is being planned by the Vietnamese government at major industrial centers, such as the gas-fired power center in Ninh Thuan province, with the participation of Siemens. This is expected to be the first model to develop clean energy centers in Vietnam using imported liquefied gas, allowing Vietnam to not only develop sustainable energy infrastructure but also ensure environmental protection. Vietnam plans to develop a series of large gas power centers in Ba Ria Vung Tau, Long An, and Bac Lieu provinces.

In terms of solar and wind power, Vietnam aims that the installed wind power capacity will reach about 2,000 megawatts by 2025 and about 6,000 megawatts by 2030. Solar power capacity is expected to reach about 4,000 megawatts by 2025 and 12,000 megawatts by 2030. Vietnam has significant potential with more than 3,000 km of coastline, especially in the central and southwest regions that have favorable conditions for wind power development, such as Binh Dinh, Binh Thuan, and Ninh Thuan provinces. German businesses are welcome to study the possibilities for wind power park construction in Binh Dinh province, with special support and special incentives from the Vietnamese government.

Vietnam wishes to cooperate more deeply with German partners, not only in the development of traditional energy, renewable energy but also biomass energy, electricity storage, and transmission. This will help ensure energy security as well as balanced, appropriate, economical, and efficient use of energy sources, contributing to sustainable economic development in Vietnam.

Vocational training

In order to ensure sustainable socio-economic growth and increase Vietnam’s competitiveness in the region and the world, Vietnam urgently needs a highly skilled workforce. However, only a small part of the workforce possesses a formal labor quality level. It is estimated that about 1.4 million students graduate in Vietnam every year. Only about half will go on to apprentice at universities and colleges, and only a quarter will graduate from formal vocational training.

Therefore, improving vocational training is recognized by Vietnam as one of the keys elements in the country’s development strategies. Vietnam currently is paying special attention to training human resources for sectors such as mechanical engineering, lathe, assembly mechanics, electronics wastewater treatment, and renewable energy.

Germany has been actively assisting a number of vocational training schools in Vietnam by renovating modern equipment, providing expert support and support programs to improve the training quality in accordance with vocational training standards in Germany. It’s also worth mentioning the connection between private enterprises and vocational training institutions. An example of this is the training of the skilled occupation industry mechanics between Bosch Vietnam Co., Ltd. and LILAMA2 Technical & Technology College in Dong Nai.


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Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Hanoi and Ho Chi Minh City. Readers may write to vietnam@dezshira.com for more support on doing business in Vietnam.

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