Vietnam, UK Look to Strengthen Economic Ties, Potential Trade Deal
- Following the ratification of the EVFTA, the UK and Vietnam are working on a bilateral free trade agreement to further strengthen trade and economic growth between both countries.
- The UK would also like to join the CPTPP, which Vietnam has supported but is dependant on the remaining signatories.
- The bilateral pact is expected to be finalized by the end of 2020 expanding on further trade between the UK and Vietnam.
Following the ratification of the EU – Vietnam Free Trade Agreement (EVFTA), the UK and Vietnam remain keen to further strengthen ties and expand on their bilateral relationship. Most recently, UK Foreign Secretary Dominic Raab visited Hanoi on September 29-30 and discussed Vietnam UK relations with Pham Binh Minh, Vietnam’s Minister of Foreign Affairs.
Gunning for a trade deal
Both the UK and Vietnam will be hoping to finalize a bilateral trade deal. While the UK will enjoy preferential deals under the EVFTA until December 31, 2020, Vietnam has stated that it will apply the EVFTA deal to the UK until a bilateral pact is ready. UK’s ambassador to Vietnam recently said that he expects a trade deal to be ready by the end of the year.
After the meeting, Vietnam pledged to support the UK’s joining of the Comprehensive and Trans-Pacific Partnership (CPTPP). The CPTPP consists of 11 countries and would require the approval of all member states to allow the UK to join the trade pact. Still, this is a significant win for the UK and its allies such as Australia, Canada, and New Zealand are also signatories boosting its chances to join the FTA.
Apart from the CPTPP, the UK and Vietnam are also looking to form their own bilateral agreement. For Vietnam, this would be a win-win situation, as finalizing both trade pacts would help it the export-driven country to catch up on its growth targets due to the COVID-19 pandemic.
Vietnam is the second-largest Southeast Asian exporter to the UK after Thailand with bilateral trade between the two countries equaling US$6.7 billion in 2019. Main exports to the UK included mobile phones, garment and textiles, and seafood. The UK is also looking to Vietnam for goods and services such as education, renewable energy, technology, infrastructure, and healthcare. In fact, it is the largest foreign investor in Vietnam’s education sector.
To explore the UK Vietnam relationship further we look at some of the industries that present opportunities for UK businesses in Vietnam
As mentioned earlier, the UK is one of the largest foreign investors in the education industry in Vietnam. In addition, education remains a national priority for the Vietnamese government. Vietnam’s local rising middle class prefers private education over public school systems due to the better quality of services and has thus translated into a market for private institutions and vocations schools and services. There continues to be demand for quality English language training centers as well as higher education and teacher training. In addition, technical and vocational training is the center of the government’s development plans particularly as jobs evolve in light of digital developments such as Industry 4.0.
Vietnam’s recent boom in solar energy development presents further opportunities for UK businesses. Vietnam’s energy consumption is further expected to grow as it recovers from the pandemic induced downturn. Vietnam continues to rely on coal as it is cheap but technological progress and environmental concerns make renewables more attractive. Most recently, the government reiterated its stance of having renewable energy contribute to 20 percent of its total energy supply by 2030. There is a demand for technology, equipment, and training in the renewable energy sector, which the UK has expertise in.
As a fast-growing economy, Vietnam’s list of infrastructure projects continues to grow. With 50 percent of Vietnam’s population expected to be living in cities by 2030, authorities in Hanoi and Ho Chi Minh City are pushing with building metro rail systems exceeding US$22 billion in hopes of easing traffic congestion and improving air quality. The government also continues to work on several expressways and has roped in several private investors for development and funding.
The Long Thanh airport, which will replace the present overburdened Tan Son Nhat International airport in Ho Chi Minh City is expected to be completed by 2025. Vietnam spends a significant amount of its GDP on infrastructure, which is one of the highest in Southeast Asia. The railways and aviation sectors particularly are significant opportunities for UK businesses that have products and services that can cater to the Vietnamese market.
Greater demand for healthcare services combined with strained government public resources provide growing opportunities in Vietnam’s healthcare industry. Vietnam is currently undergoing economic that demographic transformations that will provide great potential in the industry. Healthcare spending is expected to reach US$23 billion in 2022 at a compound annual growth of 10.7 percent as per Fitch Solutions. Vietnam has a fast-growing middle class and aging population and rapid economic development has boosted demand for higher quality and specialized healthcare services.
Vietnam’s Ministry of Health (MoH) has forecast that the country’s medical equipment market will grow at a rate of 18 to 20 percent from 2016 to 2020. Most medical equipment, however, needs to be imported. Public hospitals also lack sufficient equipment for surgery and intensive care units. As local production cannot meet demand, the Vietnamese government encourages the import of medical equipment and this is another area ripe for UK investors.
Following an economic partnership agreement with Japan, the UK will be keen to wrap up an agreement with Vietnam soon. The UK and Vietnam upgraded their ties to a Strategic Partnership in 2010 with trade on an upward trajectory since then.
While a trade deal will benefit both countries, UK investors should become familiar with Vietnam’s current legal and tax environment. Investors that target sectors that align with Vietnam’s developments goals are likely to find success in long-term investment projects.