EU Economic and Commercial Counsellors Yearly Report on Vietnam Ma
y  2001

 
Table of Contents

 

I.    Foreword                                                                                                                  4

II.      Economic relations between the EU and Vietnam - general introduction on the trade and investment environment                                                                   5

A. Recent economic developments                                                                              5

B. Trade                                                                                                                             6

C. Investment and ODA flows                                                                                       8

The 2001-2005 Development Plan and the ten-year strategy (2001- 2010)            8

Enterprise Law                                                                                           8

FDI flows                                                                                                  9

ODA Flows                                                                                                9

Consultative Group                                                                                    10

D. Private Sector Forum                                                                                              11

E. Prospects                                                                                                                   12

F. Economic reform                                                                                                       13

G. EU-Vietnam relations - an overview of recent developments                       14

H. EU-Vietnam - selected basic data                                                                        15

III. Sectoral analysIs                                                                                              23

A. Garments and textiles                                                                                             23

1. Analysis of current status                                                                        23

2. Trends and potential                                                                              26

3. Prospects and Recommendations                                                             26

B. Footwear                                                                                                                    28

1. Analysis and current status                                                                     28

2. Problems encountered                                                                            28

3. Trends and potential                                                                              29

4. Prospects and Recommendations                                                             30

C. Fishery products                                                                                                      31

1.    Resources and Current Trends                                                              31

2.    Inshore                                                                                            31

3.    Offshore                                                                                          32

4. Aquaculture                                                                                         32

5. Seafood processing                                                                               33

6. Prospects and Recommendations                                                             33

D. Agro-industry                                                                                                            34

1. Current situation                                                                                   34

2. Trends and potential                                                                              34

3. Prospects and Recommendations                                                             34

E. Transport                                                                                                                    36

1. Current situation                                                                                   36

2. Prospects and Recommendations                                                             37

F. IT & Telecommunication                                                                                         39

1. Current situation                                                                                   39

2. Prospects and Recommendations                                                             41

G. Pharmaceuticals                                                                                                      45

1. Current status                                                                                      45

2. Trends and potential                                                                              45

3. Prospects and Recommendations                                                             46

H. Alcoholic beverages                                                                                                47

1. Current status                                                                                      47

2. Production and Imports                                                                          47

3. Trends and potential                                                                              47

4. Prospects and Recommendations                                                             48

I. Energy                                                                                                                         49

1. Pre-1975                                                                                             49

2. Soviet Union era                                                                                   49

3. Doi-moi era                                                                                          49

4. Prospects and Recommendations                                                             50

J. MACHINERY AND TOOLS IN OTHER SECTORS                                                 51

1.   Current situation                                                                                 51

2. Prospects and Recommendations                                                             52

K. Financial Services                                                                                                   53

1. Insurance Law                                                                                      53

2. Insurance Sector                                                                                  53

3. Banks                                                                                                 53

4. Stock market                                                                                       54

5. Accountancy                                                                                        54

6. Future Developments                                                                             54

7. Conclusion                                                                                           55


I.        Foreword

 

The report of the EU Economic and Commercial Counsellors in Hanoi follows a sectoral approach in order to highlight the specific European dimension of trade and investment in Vietnam. Also this approach will ensure that no redundancy with other regular reports is to be found. It was also decided not to put too many data/charts into the report. This data is already  commonly available.

In general, the source for data is the General Office of Statistics of Vietnam. Even if this data is not always reliable and has undergone some political adjustments from the government, it was decided to take only one source for better comparability.

Therefore - deliberately - the report does not show the whole picture of the Vietnamese economy but serves as a working paper for European institutions and decision makers as well for European businesses with an interest in the Vietnamese market.

 

The report was prepared by the

 

Embassy of Austria

Embassy of Belgium

Embassy of Denmark

Embassy of Finland

Embassy of France

Embassy of Germany

Embassy of Italy

Embassy of the Netherlands

Embassy of Spain

Embassy of Sweden

Embassy of the United Kingdom and the

Delegation of the European Commission,

 

And finalised in May 2001

 


II.      Economic relations between the EU and Vietnam - general introduction on the trade and investment environment

 

A. Recent economic developments

 

Economic growth picked up in 2000 after the slowdown in 1998 and 1999, preliminary figures indicate a growth rate of 6,7% as compared with 4,8 % in 1999. The growth of industry and construction increased, from 7,7% to 10% and the service sector achieved a substantially higher growth rate than the previous year (5,1% as compared with 2,3%). Agricultural growth however declined from 5,2 to 4,1%. Despite Mekong river floods, Vietnam yielded a record rice harvest but incomes declined due to declining prices at local as well as international markets.

Industrial production increased by 15,8% due to increased growth rates in both the state and the non-state sector.  The growth of the foreign invested sector declined slightly. Growth rates were however still higher in the non-state and foreign invested sectors (around 18%) than in the state sector (12%).

The high rate of export growth continued during 2000 (24%), due to increased oil prices but also because of good results obtained in new markets and  with new products. Total imports grew even faster however as a result of trade liberalisation and the increased cost of refined oil products and the trade deficit increased to around USD 900 million (3% of GDP).

Total investments increased from 26,3 to 27,2% of GDP. Domestic private sector investment went up by 38%. The state sector (including SOE:s) accounted for 62% of total investment , as compared with 38% in 1995. Total FDI increased slightly to around USD 2 billion or 18,6% of total investments.

Budget revenue declined further to around 18% of GDP, compared to 18,7% in 1999. Budget expenditure also continued its declining trend that started in the mid 1990s and was estimated at around 23 % of GDP. The budget deficit was kept within the target of 5% of GDP set by the National Assembly. 

Inflation stayed at below 1% for the second consecutive year (official figure for 2000 was -0,6%). The exchange rate depreciated slightly. Thanks to individual transfers from overseas Vietnamese, ODA and FDI inflows, balance of payments was kept sound. Foreign exchange reserves went up to 14 weeks of import. Around 1,2 million jobs were created and urban unemployment went down slightly, to 6,4 % in July 2000. Nevertheless rural under-employment remained high. Labour exports grew by 38% and 30 000 workers were sent to other countries.

 

During the first quarter of 2001 some positive developments have been achieved. Exports increased by 15,5% with foreign invested companies leading the process.


B. Trade

 

The performance of  Vietnamese trade has been affected by a severe change in the prices of several of its main exports:

 

Main commodities. Average price 1999-2000. Unit: USD/Ton.

Commodity

1999

2000

Rice

227

189

Coffee

1.217

762

Crude Oil

126

226

Imported petroleum products

143

230

 

 

The 24% increase in exports during 2000 is mainly attributed to the increase of crude oil exported (up 4,2% in volume and 62,9% in price), reaching USD 3,5 billion. Should crude have remained stable, the current 24% growth in exports would have hovered around 14%.

Rice exports declined 20% in volume and 35% in value while coffee income declined 7% despite an impressive increase of 40% in volume.

This bad news was partly compensated by the increase in exports of garments and knitwear (to USD 1820 million), footwear (USD 1443 million), seafood (USD 1392 million) and electronic products and computer components (USD 655 million) This growth is particularly important since it shows an evolution from the export of agricultural commodities towards manufactured exports.

During the year, Vietnam’s imports grew by 30% to USD 15.1 billion led mainly by the higher cost of imports of petroleum and oil products, which jumped 60% in price and 12% in volume. Imports of motorcycles and parts (increase of 66% to USD 830 million.) equipment and machinery (+20% to USD 2.463 million.), pharmaceuticals (+15% to USD 306 million.) have also contributed to this increase.

A sizeable part of these imports is for the manufacturing industry to increase its capacity. If that is the case there should be less worries about the accompanying trade deficit as it is comfortably absorbed by the inflow of services, transfers, FDI and ODA. But the decisive factors for the future are if  Vietnam can enhance its competitiveness and join the WTO soon after China does. Otherwise it risks losing international markets to China’s exports, since both countries have similar product lines.

 

Overall, Japan, Taiwan, China, Singapore and Australia are the main suppliers of the country while the EU provides only 7% of the total. Imports from the USA are growing fast and should be expected to reach USD 1.000 of annual sales very soon.

 

It is worth noting here that in spite of the apparent scarcity of financial resources, many Vietnamese companies are refusing buyers’ credit for their industrial projects and other imported equipment. The main reason is that interest rates in Dong (plus the perceived risk of devaluation) are low and more affordable than foreign loans (plus the fee of credit insurance). As a result, the risk ceilings of various European credit insurance agencies are far from being utilised.

 

 

Foreign companies are also taking an increasingly important role in foreign trade. This should increase in the future as restrictions are eased. The following table shows the growing importance of FDI for Vietnam’s foreign trade. Note that if oil import/export are discounted, the percentage would be significantly higher.

 

 

Import and Export by FDI. Percentage over total 1996-2000

 

1996

1997

1998

1999

2000

Exports of goods by FDI, fob

10,83%

19,49%

21,18%

22,42%

23,08%

Imports by FDI, cif

18,33%

30,22%

24,87%

27,64%

28,48%

 

 

 

 


C. Investment and ODA flows

 

The 2001-2005 Development Plan and the ten-year strategy (2001- 2010)

 

The year 2000 has marked the end of the ongoing five-year Plan which has achieved many positive results including a good average growth rate, in spite of the regional crisis, although the realisation of total investments stayed 15% short of the figure initially planned for the economy.

The new Plan 2001-2005 starting in January, is looking for investments totalling USD 56 billion to be covered by domestic savings (70%), foreign investments (16%) and ODA (14%). Some of its main targets are: an average annual growth of 7,5% for the GDP and 15% for exports, the creation of 1,3 million jobs per year, the reduction of poverty to 10% of the households, extending the basic education to the whole population and reducing by 50% the share of the primary sector in the total employment.

A draft paper for a ten-year strategy in Socio-economic Development (2001-2010) has also been officially circulated among domestic institutions and the donor community for comments. An assessment published by the Ministry of Planning (MPI) and IMF, as well as the MPI-UNDP report “Choices and Opportunities – Roads Open to Vietnam (Sept. 2000)” put into question the validity of the assumptions upon which the plan stands. Nevertheless the World Bank/ADB/UNDP document “Vietnam Development Report 2001” acknowledges that “The draft Strategy’s goals can certainly be achieved in the next decade, if the needed reforms in economy-wide policies are adopted quickly.”

 

Enterprise Law

The entry into force in January 2000 of the Enterprise Law has been an important contribution to the improvement of the business climate and the domestic investment in Vietnam during the year. The new Enterprise Law has simplified the procedures on opening branches, increasing capital, hiring representatives and changing fields of business as well as doing away with 145 sub-licenses, which greatly complicated administrative procedures. The cost of setting up a company has been reduced to USD 40 and the time needed to set up the company to 17 days.

 

Partly as a consequence of this new framework, over 14.000 new companies were registered during 2000. Even allowing for the fact that a large proportion of these companies are not strictly new - since they were already operating outside the legal framework - the “surface” of these companies is just as important since it will allow for an expanded tax base and the “normalisation” of the business practice.

 

This is one of the clear examples where the local economy has shown its dynamism once it is freed from the numerous artificial constraints, which hamper its development. But these reforms by themselves do not confer any competitive advantage to Vietnam, since they are already available to investors in other countries in the region.

 

The Enterprise law keeps the split in the regulatory framework of foreign invested companies (which operate under a specific law) and local firms, and some domestic entrepreneurs have complained about the advantages granted to its foreign competitors. It is to be excepted that both frameworks will merge soon with a single regulation and conditions for all companies.

 

A major merit of the new Enterprise Law (despite many limitations and contradictions) is that it reassures the business community about the commitment of the Vietnamese Administration to reform and open its economy as it has been doing since the early 1990’s.

 

FDI flows

Effective disbursements of Foreign Investment in Vietnam during the year reached USD 2.2 billion. The table below shows that flows have held up well and that the real situation is not as bad as some gloomy commentators have suggested.

 

EVOLUTION OF FDI

 

Currency: million USD

 

1996

1997

1998

1999

2000

Implemented capital

2,932

3,137

2,364

2,179

2,228

GDP contribution (%)

7,4

9,1

10

11,8

12,7

Jobs (,000 persons)

220

250

270

296

349

(Source: MPI statistics on FDI at December 31, 2000 – VIR 22 Feb. 2001)                          

 

Of the figure of USD 2,228 million about 50% relates to the Nam Con Son project that was licensed in December 2000. The job creation of 349 000 new jobs is an accumulated figure for all of the 1990’s.

 

Coming to new approvals, they have fallen sharply from the levels prior to 1997 (USD 8,6 billion in 1996, against USD 2,4 billion last year). But it is worth noting that, first, over 60% of the “boom year” approvals were simply speculative operations in real estate (and this explains in part the USD 1.6 billion in licences cancelled during the year) while 95% of the approvals of 2000 correspond to industrial activities. And second, nearly all the recent approvals are a small – medium size businesses which are often more focused, reliable and dynamic businesses. There was a large project (Nam Con Son) but the core of the 332 new projects approved are medium manufacturing enterprises with good prospects to consolidate and are more beneficial to the country in terms of job creation and technology transfer.

 

This foreign component of the country’s investment is and will remain a valuable portion (both in quantity and in quality) of the overall investment of the economy. Authorities are well aware of that and the 1996 Law regulating foreign investments was amended this year by Law 18/2000/QH10 and Decree 24-2000-ND-CP to facilitate and open further the regulatory framework.

 

There is a major problem though with FDI in Vietnam which should not be overlooked namely that foreign investors are markedly shifting their commitments in investment from equity to loans as we can see in the following table. Unless this trend is reversed and the capital structure of foreign investments changes to a more healthy pattern, it will entail a complication in terms of the balance of payments in the medium term.

 

 

FDI: Equity and loans 1996-2000. (USD million)

 

1996

1997

1998

1999

2000

Direct Investment in Vietnam, equity and loans, inflows

2.388

2.471

1.836

1.497

1.500

…of which equity

1.243

793

563

710

50

 

 

ODA Flows

As time goes by and the donor community has become better acquainted with the Vietnamese framework, the rate of ODA absorption has steadily improved. This year has marked a record level and ODA disbursements reached USD 1.6 billion.

 

The main contributors are Japan (more than USD 800 million), World Bank, Asian Development Bank, France, Australia, Germany, Sweden and Denmark. The EU as a whole ranks third among the donors with some USD 250 million disbursed annually. During the year ODA continued to move from infrastructure towards poverty alleviation and support of economic reform.

 

The Consultative Group (Hanoi, December 2000) brought about new annual offers  of approximately USD 2.4 billion, thereby confirming the donors commitment to keep supporting Vietnam in its process of development and modernisation.

 

 

Consultative Group

Summary: The 2000  meeting of the CG can be called successful. Donors did plea unanimously for an evolution towards open market-economy and the Vietnamese delegation appeared receptive to this. The government’s plans for poverty eradication, education and public health received praise as well as extensive pledges for support. As for the development of infrastructure the question remains whether Vietnam will be ready to allow sufficient private sector involvement. The government strategy on rural development and environment is the least convincing

The Millennium Consultative Group Meeting (December 14-15, 2000) had been well prepared by the donor community in Vietnam. The message was clear: real dialogue, no pre-fab speeches but short statements that contributed to the discussion.

The pillars of the 2000 CG were laid out in the " Government 10-year socio-economic Strategy for 2001-2010" , the "Five-year plan 2001-2005" and the Joint Report of WB, ADB and UNDP "Vietnam 2010 - Entering the 21st Century. Pillars of Development" (whose "pillars" served as topics for discussion).

Amongst many others, the following topics were discussed:

·         ·         Economic framework for growth and poverty reduction : With an average growth of 7% a year, the Vietnamese economy has doubled between 1990 and 2000. But the growth slowed down in 1998 and has only recently started recovering. The government is well aware that if  Vietnam wishes to reach its goal as set forward in the 10-year socio-economic Strategy, enterprises will have to become more competitive, more FDI will be needed and more needs to be done concerning the social and environmental aspects of growth as the country follows its declared way to a “market economy with socialist orientation”.

·         ·         Human development: The overall comment was the lack of budgetary feasibility of the proposed plans, the lack of concern for HIV-AIDS and the increasing death toll on the roads, caused by an ever-more motorised society.

·         ·         Development in infrastructure: The Vietnamese delegation was well aware of its limitations. Donor complained about the difficult Vietnamese procedures for tenders and the unease of Vietnam to allow the private sector to participate in infrastructure development.

·         ·         Rural development and environment: the government strategy mainly emphasises diversification of agricultural production to higher added value products, better agricultural research, the development of an agro-industry and non-agricultural rural activities. However,  in these areas the strategy is considered weak for being too much a top-down approach.

During this Millennium Consultative Group Meeting Vietnamese authorities received much encouragement and many pledges for support. The donors received from Vietnam commitments to move towards a more market driven and less government controlled economy, reform of financial and trade sectors, improved legal framework for companies and fight against corruption.


D. Private Sector Forum

 

Summary: Among the most important reasons for this year’s success of the PSF: avoiding unnecessary confrontations, delivering concise and constructive presentations (referring to the written material for more details), providing presentational material in Vietnamese and English, respecting the allotted time attributed and, especially, the active participation by the Vietnamese representatives.

The PSF is a regular meeting and dialogue between the Vietnamese government, its high ranking officials (i.e. Prime Minister, Minister of MPI etc.) and the private businesses, represented by their business groups or associations. It is a unique policy dialogue which aims to assist Vietnamese institutions in developing a successful private business environment, in addressing problems and working out solutions based on a long-term and sustainable business view. All issues raised should be of generic interest for all private sector enterprises operating in Vietnam rather than those concerning an individual company. The  Private Sector Forum is considered as a preparatory activity for the Consultative Group Meeting for Vietnam.

The main theme of the Private Sector Forum (13.12.2000) was "Enhancing the Competitiveness of Vietnam's economy". The task of enhancing the competitiveness of Vietnam is particularly imperative in face of sweeping globalisation and intensified competition for export markets, FDI and technology. Discussions at the 3rd Private Sector Forum highlighted a number of selected   topics which are important for the improvement of Vietnam's competitiveness including:

·         ·         Legal reforms and law implementation issues: Participants praised recent positive revisions to the FDI law as a significant step forward by the government in its efforts to improve the overall investment environment in Vietnam. Consistency is needed however in law implementation if the intended benefits by the government are to be realised. It need to be said that some expectations by the PSF are mere ideals (e.g. requesting laws to be clear, concise and intelligible for all) even in more developed countries

·         ·         Domestic SME issues: The enterprise law was welcomed as a big push for local businesses and seen, if implemented consistently and impartially, as improving the business environment greatly. The participants requested government actions to improve SMEs' competitiveness, e.g. rationalisation of dual fees and charges.

·         ·         Infrastructure in Vietnam: Participants shared the view that the private sector should be encouraged to participate in infrastructure development because it would bring in large resources to much needed projects, improve efficiency and stimulate FDI as experienced by Thailand and China.

·         ·         Knowledge and IT: Participants welcomed the government's direction in attempting to embrace IT and knowledge as sources of sustainable growth and competitiveness for Vietnam. To obtain this a liberalisation of the telecommunication-sector was proposed.

 

 

 

 


E. Prospects

 

The targets set for 2001 by the National Assembly are as follows: GDP: 7,5% (including 14% for the industrial sector), export growth 16%, inflation below 5%, budget deficit 6% of GDP, new jobs: 1,4 million.

The situation in the first months of 2001 indicates continued low domestic demand but an increased demand for investments. The  prospects for export growth seem less positive than last year’s. Oil prices are not likely to increase again and prices of coffee and rice are expected to decline.  The expected expansion of exports to the US market will be dampened by the slowdown of the US economy, although the bilateral agreement, when it enters into force, will have a positive effect. Generally, continued liberalisation and the increasing efforts to expand into new markets should have positive effects for many exporting firms.

Increased budget spending, including salary increases, lowered interest rates, easing of credit restrictions and the new law for domestic investments will push aggregate demand higher. As a result, a higher demand for imports might put some pressure on the trade balance. Nevertheless, personal transfers from abroad coupled with increasing tourism incomes allow to forecast an improved balance of payments situation and increase of reserves.

The Government has ambitious investment plans aiming at an investment ratio of above 30% of GDP. Investment in state-owned enterprises is targeted to increase by 23% from last year while private sector investment is expected to increase by 26%. It is argued that efficiency of investment has deteriorated during recent years however and is now substantially lower than in neighbouring countries. The achievement of the targets for investment and growth will be conditional upon increased mobilisation of domestic savings and more efficient allocation of credits, as a result of implementation of financial sector reform.

All in all the prospects for FDI are optimistic and there is potential for some large investments in the pipeline, including several BOT:s once agreements on inputs and prices have been reached. There are indications of a growing pace of profits by the established foreign companies in the country.

ODA disbursement is also expected to increase following the USD 2,4 billion new pledges at the 2000 CG-meeting and the agreements reached with the IMF on a Poverty Reduction and Growth Facility (PRGF) and with the World Bank on a Poverty Reduction Support  Credit (PRSC). But realisation of these trends will be achieved only if the signals from the 9th Party Congress are clear and positive.

As to Vietnam’s external debt situation, it looks sustainable in the medium term given the comfortable level of reserves and the successful restructuring of the Russian debt, which now stands at USD 1,7 billion.

The possible effects on European companies and businesses once the bilateral trade agreement between Vietnam and the United States has been ratified, will need to be taken into account. Some of the effects are referred to in other chapters such as trade, investments and services. Competition will be tougher but opportunities could be greater as sales to the American market will increase the spending power of the Vietnamese.

 


F. Economic reform

 

Several important advances have been achieved in the last 5 years, particularly regarding  simplification of the business registration system and extension of trading rights to all local enterprises. SOE-reform and banking reform has progressed slowly however and the tariff structure remains complex and protects import-substituting industries with high effective tariffs, quantitative restrictions and non-tariff barriers. Exchange rate policy is another area where little progress has been made during the past half decade.

The emphasis on poverty reduction as well as increased attention being paid to creating a ”level playing field” for different sectors in the economy, are welcome steps in Vietnamese reform commitments for the 21st century. The state sector still dominates the economy, but it is unlikely to be an engine of growth for the coming decade. One reason is that the state sector will not be able to generate enough jobs to absorb a significant share of the annual 1,2-1,4 million new entrants into the labour market. At the same time, the dominance of the SOE sector, both economically and politically, has curtailed the growth potential of the private sector.

The positive signs come mainly from private sector reform and the commitment to integration into the world economy. In the first area, the response to the new Enterprise Law is encouraging, although real consequences still remain to be seen. The recent trade reforms, in particular the BTA with the US, reflect a significantly higher degree of commitment to liberalisation than any earlier undertakings in this area.

One key challenge in the coming years will be reform of the financial sector and the restructuring of the State Owned Commercial Banks in particular. Another main area for reform, where progress so far has been slow is reform of the State-Owned Enterprise (SOE) sector, including privatisation, equitisation as well as closing down unprofitable enterprises. Other key challenges are public administration reform, fiscal reform, combating corruption and improvements of governance and transparency.

These issues have been brought up in the discussions with the IMF on a Poverty Reduction and Growth Facility (PRGF) and a Poverty Reduction Support Credit (PRSC) with the World Bank on which agreements have been reached at the beginning of 2001, allowing for USD 800 million over the coming three years. These, as well as the many reform decisions taken during 2000, are very positive signs. The decisive factor is of course implementation which at the end of the day depends on the political system. The country leaders (and the preliminary documents for the coming Congress of the Party) state that the country’s modernisation will continue under a socialist economy. Market mechanisms will operate, but the state sector will retain a leading role for the coming years, especially in several key industrial areas. The signals from the 9th Party Congress are expected to be positive allowing the liberalisation process to continue.

 


G. EU-Vietnam relations - an overview of recent developments

 

EU-Vietnam relations are very positive and the Commission is aiming to improve them further.  With the signature of the Textile Agreement in 1993 and the Trade and Co-operation agreement in July 1995, the European Union has unilaterally provided market access to Vietnamese exporters.

During 2000, the Commission has substantially increased the number of Vietnamese fishing companies which can export to Europe directly and it has also increased market quotas of textiles. Furthermore the Commission has extended the agreement until the end of 2002 and implemented a double-checking of footwear exports to ensure that Vietnamese producers benefit from the General System of Preferences.

As mentioned earlier, the EU is actively promoting bilateral relations. Proof of this will be the visits of RELEX Commissioner Mr. Patten and the Directors of Trade (Mr. Carl) and RELEX (Mr. Legras.)

However as with any bilateral relationship, there is room for improvement. Market access, equal pricing or property rights are some of the issues we are actively negotiating with the Vietnamese authorities. Effects on European businesses in Vietnam after the bilateral trade agreement with the United States has been ratified will furthermore need to be analysed.

A joint commission meeting will be held in June 2001 in Hanoi.

 

 

 

 

 


H. EU-Vietnam - selected basic data

 

The EU is a major trade partner with Vietnam, and was also the first large partner to enter into a formal trade agreement. Vietnam continues to be one of Europe’s suppliers of choice for garments and footwear, which together account for about 60% of Vietnam’s exports to the EU. It is expected that Vietnamese exports to Europe will reach this year Euros 4 billion for the first time.

EU exports to Vietnam, which peaked in 1996, have stagnated around the same level of 1997 (Euros 1.1 billion). As a result of this stall the trade deficit could reach this year Euros 3 billion as shown in the table below.

 

 

Source: Eurostat. Projection for year 2000 based on first 3 Qtrs.

 

This trend seems difficult to stop unless Vietnam agrees to better market access to European Countries. On its side, the EU has recently agreed to immediate “all but arms” market access to the 48 least developed countries (duty-free, quota-free.) The only phase-ins being bananas (duty-free by 2006) and sugar and rice (2009.) We should expect this trend to continue in the future and maybe to be extended to Vietnam one day.

 

 


EU EXPORTS 1995-2000* Ranking by Products. (€ ‘000s)

 

#

HS

1995

%

 

HS

1996

%

 

HS

1997

%

 

HS

1998

%

 

HS

1999

%

 

HS

2000 (P)

%

1

84

175.288,71

23,37%

 

84

345.146,39

26,62%

 

84

274.629,82

23,71%

 

84

286.641,02

26,98%

 

84

331.448,33

31,51%

 

84

271.572

24,36%

2

85

119.622,28

15,95%

 

88

287.424,40

22,17%

 

85

171.788,49

14,83%

 

85

197.741,50

18,61%

 

85

162.341,84

15,44%

 

85

166.608

14,94%

3

30

88.913,32

11,85%

 

85

144.397,33

11,14%

 

30

132.373,91

11,43%

 

30

109.166,21

10,28%

 

30

100.958,74

9,60%

 

30

118.334

10,61%

4

11

37.092,97

4,95%

 

30

102.412,04

7,90%

 

88

126.488,60

10,92%

 

90

36.773,11

3,46%

 

38

35.654,77

3,39%

 

71

43.333

3,89%

5

88

34.537,53

4,60%

 

11

35.850,19

2,77%

 

87

33.316,48

2,88%

 

38

30.549,86

2,88%

 

90

30.002,51

2,85%

 

90

41.010

3,68%

6

90

29.358,18

3,91%

 

90

33.123,26

2,55%

 

11

32.774,42

2,83%

 

87

29.894,44

2,81%

 

71

27.661,51

2,63%

 

39

33.825

3,03%

7

87

21.026,11

2,80%

 

71

27.156,99

2,09%

 

71

30.906,01

2,67%

 

11

27.342,30

2,57%

 

39

23.750,77

2,26%

 

38

30.439

2,73%

8

73

20.684,70

2,76%

 

87

25.572,39

1,97%

 

90

30.120,95

2,60%

 

73

27.021,26

2,54%

 

11

20.680,93

1,97%

 

73

27.051

2,43%

9

71

18.371,68

2,45%

 

73

23.031,18

1,78%

 

73

20.586,37

1,78%

 

71

22.669,63

2,13%

 

32

18.841,61

1,79%

 

4

26.376

2,37%

10

29

14.764,43

1,97%

 

39

18.201,32

1,40%

 

48

19.843,31

1,71%

 

39

19.299,10

1,82%

 

29

17.217,41

1,64%

 

32

23.761

2,13%

11

48

13.406,77

1,79%

 

29

15.297,54

1,18%

 

38

18.755,98

1,62%

 

29

16.592,45

1,56%

 

73

17.181,98

1,63%

 

72

20.546

1,84%

12

39

13.116,09

1,75%

 

38

14.963,49

1,15%

 

56

16.978,55

1,47%

 

48

14.852,89

1,40%

 

48

16.960,16

1,61%

 

11

19.772

1,77%

13

33

12.657,94

1,69%

 

48

14.883,30

1,15%

 

33

16.790,98

1,45%

 

88

14.604,37

1,37%

 

72

13.716,43

1,30%

 

87

19.535

1,75%

14

38

12.630,43

1,68%

 

72

14.529,08

1,12%

 

39

16.751,97

1,45%

 

56

14.576,90

1,37%

 

87

12.968,71

1,23%

 

29

19.307

1,73%

15

04

10.616,21

1,42%

 

56

13.556,25

1,05%

 

29

12.469,41

1,08%

 

32

13.498,32

1,27%

 

33

11.810,80

1,12%

 

48

15.606

1,40%

16

52

9.468,00

1,26%

 

33

11.469,16

0,88%

 

32

11.275,56

0,97%

 

33

13.446,66

1,27%

 

04

11.398,13

1,08%

 

41

14.428

1,29%

Source: Eurostat. * Projection for year 2000 based on first 3 Qtrs.

 


Description of main Chapters

HS

DESCRIPTION

HS

DESCRIPTION

84

NUCLEAR REACTORS, BOILERS, MACHINERY AND MECHANICA

71

NATURAL OR CULTURED PEARLS, PRECIOUS OR SEMI-PRECI

85

ELECTRICAL MACHINERY AND EQUIPMENT AND PARTS THERE

73

ARTICLES OF IRON OR STEEL

30

PHARMACEUTICAL PRODUCTS

38

MISCELLANEOUS CHEMICAL PRODUCTS

11

PRODUCTS OF THE MILLING INDUSTRY; MALT; STARCHES;

39

PLASTICS AND PLASTIC PRODUCTS

88

AIRCRAFT, SPACECRAFT, AND PARTS THEREOF

32

TANNING OR DYEING EXTRACTS; TANNINS AND THEIR DERI

90

OPTICAL, PHOTOGRAPHIC, CINEMATOGRAPHIC, MEASURING,

29

ORGANIC CHEMICALS

48

PAPER AND PAPERBOARD; ARTICLES OF PAPER PULP, PAPE

72

IRON AND STEEL

 

 

 


 

EU IMPORTS 1995-2000* Ranking by Products. (€ ‘000s)

 

#

HS

1995

%

 

HS

1996

%

 

HS

1997

%

 

HS

1998

%

 

HS

1999

%

 

HS

2000 (P)

%

1

64

373.692,44

32,48%

 

64

544.294,83

37,92%

 

64

874.444,38

38,93%

 

64

966.688,40

37,00%

 

64

1.283.023,23

40,66%

 

64

1.784.202,99

43,24%

2

62

240.263,65

20,88%

 

62

297.713,49

20,74%

 

62

412.285,98

18,35%

 

62

444.368,21

17,01%

 

62

491.074,68

15,56%

 

62

626.120,24

15,17%

3

09

203.714,89

17,70%

 

09

139.804,71

9,74%

 

09

247.853,99

11,03%

 

09

332.886,75

12,74%

 

09

344.217,08

10,91%

 

9

332.556,41

8,06%

4

42

70.371,04

6,12%

 

42

91.932,40

6,40%

 

42

140.513,64

6,26%

 

42

146.807,22

5,62%

 

42

167.444,89

5,31%

 

94

230.718,04

5,59%

5

61

31.153,59

2,71%

 

61

56.409,88

3,93%

 

94

82.729,38

3,68%

 

94

97.915,81

3,75%

 

94

139.832,89

4,43%

 

42

187.406,87

4,54%

6

69

26.268,96

2,28%

 

94

47.565,57

3,31%

 

61

70.719,54

3,15%

 

03

86.026,38

3,29%

 

61

85.544,97

2,71%

 

69

127.898,21

3,10%

7

03

23.604,92

2,05%

 

69

28.758,53

2,00%

 

03

57.128,92

2,54%

 

61

72.298,90

2,77%

 

69

76.164,08

2,41%

 

61

113.531,69

2,75%

8

94

21.514,50

1,87%

 

71

23.823,64

1,66%

 

95

43.100,72

1,92%

 

95

56.513,92

2,16%

 

03

73.302,66

2,32%

 

85

83.882,23

2,03%

9

71

19.532,88

1,70%

 

95

22.741,81

1,58%

 

69

40.159,74

1,79%

 

69

50.237,48

1,92%

 

85

63.500,51

2,01%

 

3

78.093,17

1,89%

10

27

17.390,91

1,51%

 

03

22.121,97

1,54%

 

71

30.744,01

1,37%

 

85

45.310,88

1,73%

 

95

57.655,56

1,83%

 

71

66.735,09

1,62%

11

40

16.471,42

1,43%

 

40

16.882,25

1,18%

 

40

26.283,87

1,17%

 

71

30.531,36

1,17%

 

71

41.850,13

1,33%

 

95

55.222,61

1,34%

12

95

15.895,37

1,38%

 

27

13.047,85

0,91%

 

85

23.795,46

1,06%

 

63

26.403,58

1,01%

 

63

37.625,70

1,19%

 

87

50.402,36

1,22%

13

63

10.305,82

0,90%

 

44

12.556,29

0,87%

 

39

18.664,24

0,83%

 

40

24.856,16

0,95%

 

87

33.132,77

1,05%

 

63

43.790,36

1,06%

14

44

10.122,32

0,88%

 

63

11.349,64

0,79%

 

63

18.129,22

0,81%

 

87

19.352,51

0,74%

 

27

25.127,75

0,80%

 

40

33.795,97

0,82%

15

16

7.428,17

0,65%

 

46

9.330,27

0,65%

 

27

15.533,47

0,69%

 

39

18.427,19

0,71%

 

40

23.637,87

0,75%

 

27

32.143,41

0,78%

16

46

6.575,50

0,57%

 

85

9.134,95

0,64%

 

44

12.739,44

0,57%

 

27

17.386,33

0,67%

 

39

21.993,22

0,70%

 

8

25.407,32

0,62%

Source: Eurostat. * Projection for year 2000 based on first 3 Qtrs.

 


Description of main Chapters

HS

DESCRIPTION

HS

DESCRIPTION

62

ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, NOT

94

FURNITURE; MEDICAL AND SURGICAL FURNITURE; BEDDING

64

FOOTWEAR, GAITERS AND THE LIKE; PARTS OF SUCH ARTI

61

ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, KNIT

09

COFFEE, TEA, MATE AND SPICES

69

CERAMIC PRODUCTS

42

ARTICLES OF LEATHER; SADDLERY AND HARNESS; TRAVEL

03

FISH AND CRUSTACEANS, MOLLUSCS AND OTHER AQUATIC I

85

ELECTRICAL MACHINERY AND EQUIPMENT AND PARTS THERE

95

TOYS, GAMES AND SPORTS REQUISITES; PARTS AND ACCES

71

NATURAL OR CULTURED PEARLS, PRECIOUS OR SEMI-PRECI

63

OTHER MADE UP TEXTILE ARTICLES; SETS; WORN CLOTHING

 

 

 


 

EU EXPORTS BY MEMBER STATE 1995-2000* Ranking (€ ‘000s)

 

 

1995

%

#

 

1996

%

#

 

1997

%

#

 

1998

%

#

 

1999

%

#

 

2000 (P)

%

#

France

259.335,10

34,57%

1

 

591.490,62

45,62%

1

 

387.133,23

33,43%

1

 

285.618,10

26,88%

2

 

308.229,46

29,31%

1

 

275.546,69

24,72%

1

Belg.-Luxbg

41.377,85

5,52%

5

 

73.993,97

5,71%

4

 

52.338,01

4,52%

7

 

49.633,07

4,67%

6

 

 

 

 

 

 

 

 

Netherlands

35.224,00

4,70%

6

 

44.598,74

3,44%

7

 

75.847,30

6,55%

5

 

31.704,57

2,88%

8

 

33.633,85

3,20%

8

 

52.759,25

4,73%

6

Fr Germany

181.383,85

24,18%

2

 

269.179,12

20,76%

2

 

255.117,78

22,03%

2

 

319.636,48

29,87%

1

 

242.525,22

23,06%

2

 

243.632,24

21,85%

2

Italy

78.573,80

10,48%

3

 

123.793,59

9,55%

3

 

105.990,27

9,15%

4

 

98.977,19

9,24%

4

 

106.612,10

10,14%

4

 

176.819,27

15,86%

3

Utd. Kingdom

69.953,08

9,33%

4

 

57.498,41

4,43%

5

 

110.922,65

9,58%

3

 

101.006,58

9,50%

3

 

121.036,03

11,51%

3

 

120.761,71

10,83%

4

Ireland

5.479,69

0,73%

12

 

5.807,96

0,45%

12

 

7.850,34

0,68%

12

 

9.003,66

0,85%

12

 

7.321,66

0,70%

12

 

14.767,93

1,32%

12

Denmark

26.327,95

3,51%

7

 

36.382,47

2,81%

8

 

30.093,08

2,60%

9

 

39.788,88

3,46%

7

 

26.370,37

2,51%

10

 

27.372,48

2,46%

9

Greece

1.028,98

0,14%

13

 

123,43

0,01%

14

 

661,26

0,06%

14

 

764,79

0,07%

14

 

434,38

0,04%

15

 

309,55

0,03%

15

Portugal

624,51

0,08%

14

 

1.201,95

0,09%

13

 

1.851,48

0,16%

13

 

3.093,64

0,29%

13

 

4.485,58

0,43%

13

 

2.245,87

0,20%

13

Spain

8.248,91

1,10%

11

 

12.848,75

0,99%

10

 

35.414,58

3,06%

8

 

24.601,52

2,32%

10

 

39.506,72

3,76%

7

 

52.370,69

4,70%

7

Belgium

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61.480,66

5,85%

5

 

67.390,44

6,04%

5

Luxembourg

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.319,17

0,13%

14

 

614,13

0,06%

14

Sweden

24.314,96

3,24%

8

 

48.459,40

3,74%

6

 

59.143,06

5,11%

6

 

51.535,09

4,58%

5

 

33.527,34

3,19%

9

 

44.743,99

4,01%

8

Finland

8.814,11

1,18%

10

 

11.548,10

0,89%

11

 

10.963,08

0,95%

11

 

16.908,57

1,59%

11

 

20.937,41

1,99%

11

 

15.322,17

1,37%

11

Austria

9.395,46

1,25%

9

 

19.564,13

1,51%

9

 

24.814,22

2,14%

10

 

30.157,82

2,56%

9

 

44.339,80

4,22%

6

 

20.225,65

1,81%

10

+EUR15

750.082,25

100,00%

 

 

1.296.490,64

100,00%

 

 

1.158.140,34

100,00%

 

 

1.062.429,96

100,00%

 

 

1.051.759,75

100,00%

 

 

1.114.882,07

100,00%

 

Source: Eurostat. * Projection for year 2000 based on first 3 Qtrs.

 

 

 

 

 

 

 


 

EU IMPORTS BY MEMBER STATE 1995-2000* Ranking (€ ‘000s)

 

 

1995

%

#

 

1996

%

#

 

1997

%

#

 

1998

%

#

 

1999

%

#

 

2000 (P)

%

#

France

216.002,33

18,77%

2

 

248.407,20

17,31%

2

 

333.605,10

14,85%

2

 

373.039,62

14,28%

3

 

449.744,10

14,25%

3

 

569.271,45

13,80%

3

Belg.-Luxbg

76.974,45

6,69%

6

 

107.958,50

7,52%

6

 

215.429,37

9,59%

4

 

273.470,74

10,47%

4

 

 

 

 

 

 

 

 

Netherlands

91.219,72

7,93%

4

 

117.801,04

8,21%

5

 

198.005,88

8,81%

6

 

254.567,01

9,74%

5

 

300.196,61

9,51%

5

 

423.625,67

10,27%

4

Fr Germany

422.515,47

36,72%

1

 

461.740,63

32,17%

1

 

664.126,45

29,57%

1

 

737.279,33

28,22%

1

 

881.866,23

27,95%

1

 

1.143.949,08

27,73%

1

Italy

84.243,43

7,32%

5

 

122.035,00

8,50%

4

 

208.606,97

9,29%

5

 

245.650,64

9,40%

6

 

258.193,10

8,18%

6

 

360.270,56

8,73%

6

Utd. Kingdom

139.888,12

12,16%

3

 

213.191,14

14,85%

3

 

326.450,24

14,53%

3

 

396.625,59

14,97%

2

 

509.638,67

16,15%

2

 

670.633,27

16,25%

2

Ireland

3.098,64

0,27%

14

 

3.672,30

0,26%

14

 

5.683,23

0,25%

14

 

7.588,61

0,29%

14

 

12.868,87

0,41%

13

 

19.901,29

0,48%

13

Denmark

15.289,25

1,33%

10

 

20.237,70

1,41%

10

 

40.534,48

1,80%

9

 

42.269,61

1,62%

9

 

54.223,58

1,72%

9

 

84.134,84

2,04%

9

Greece

3.711,93

0,32%

13

 

8.695,64

0,61%

12

 

15.655,65

0,70%

12

 

16.613,49

0,64%

12

 

18.706,18

0,59%

12

 

30.259,60

0,73%

11

Portugal

6.360,96

0,55%

11

 

6.788,22

0,47%

13

 

11.420,71

0,51%

13

 

12.936,25

0,50%

13

 

10.607,57

0,34%

14

 

15.470,93

0,37%

14

Spain

54.932,26

4,77%

7

 

66.058,57

4,60%

7

 

132.574,06

5,90%

7

 

156.732,87

6,00%

7

 

175.376,01

5,56%

7

 

238.491,96

5,78%

7

Belgium

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

367.125,43

11,64%

4

 

400.169,64

9,70%

5

Luxembourg

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.311,95

0,07%

15

 

3.529,47

0,09%

15

Sweden

15.913,95

1,38%

9

 

29.156,85

2,03%

8

 

51.668,95

2,30%

8

 

55.097,88

2,11%

8

 

63.341,57

2,01%

8

 

92.809,95

2,25%

8

Finland

4.279,14

0,37%

12

 

9.029,42

0,63%

11

 

16.526,51

0,74%

11

 

18.127,05

0,69%

11

 

21.113,13

0,67%

11

 

29.200,83

0,71%

12

Austria

16.209,98

1,41%

8

 

20.610,34

1,44%

9

 

26.029,91

1,16%

10

 

22.568,84

0,85%

10

 

29.808,15

0,94%

10

 

44.310,25

1,07%

10

+EUR15

1.150.639,63

100,00%

 

 

1.435.382,55

100,00%

 

 

2.246.317,51

100,00%

 

 

2.612.567,53

100,00%

 

 

3.155.121,15

100,00%

 

 

4.126.028,79

100,00%

 

Source: Eurostat. * Projection for year 2000 based on first 3 Qtrs.

 

 

 


H2) EU FDI in Vietnam 2000

 

When taken as a whole, the EU is the second largest investor in the country only after Singapore.

 

FDI as of 31/12/2000

 

12 Main Investors

 

Capital (USDm)

% of TOTAL

1

Singapore

 

6.744,93

18,53

2

EU

 

5.105,64

14,02

3

Taiwan

 

4.971,53

13,66

4

Japan

 

3.884,11

10,67

5

South Korea

 

3.149,66

8,65

6

Hong Kong

 

2.689,28

7,39

7

B. V. Islands

 

1.765,33

4,85

8

Russia

 

1.607,62

4,42

9

Thailand

 

1.093,50

3,00

10

Malaysia

 

1.011,59

2,78

11

US

 

900,73

2,47

12

Australia

 

745,96

2,05

 

TOTAL

 

 

92,49

 

 

EU Member State

 

Projects

Capital (USDm)

6

France

 

108

1.829,04

9

Netherlands

 

40

1.178,96

10

UK

 

33

1.162,09

17

Germany

 

32

359,65

18

Sweden

 

8

354,07

26

Denmark

 

6

105,59

27

Belgium

 

12

46,80

31

Italy

 

8

36,10

34

Luxembourg

 

10

27,99

48

Austria

 

5

5,35

 

TOTAL

 

262

5.105,64

 

 


III. Sectoral analysIs

 

A. Garments and textiles

 

1. Analysis of current status

The Vietnamese textile and garment industry employs roughly 15% of Vietnam’s industrial labour force and represents about 15% of Vietnam’s export turnover. In 2000, the total turnover of the industry was about USD 1.90 billion, representing a 15% increase over 1999.

The industry is made up of about 600 companies, mostly in the state-owned sector. Of these, 100 are large and medium-sized companies (i.e. Vinatex which accounts for 30% of all produced garments and textiles in Vietnam).

Within the industry, the needle knitting branch is developing rapidly to meet domestic and foreign demand. Most investment in the needle knitting branch in non-state enterprises is intended to satisfy the local and East European markets, while investment in state-owned enterprises at central and local level is mostly aimed at the markets in the EU, Japan and, since the signing of the US- Vietnam Bilateral Trade Agreement in mid 2000 also the USA. Many textile and garment industries are now investing also in shuttle knitting technology which has a large scope for development. The thread-spinning branch of the industry is also being developed by state-owned enterprises and a small number of foreign invested enterprises.

In terms of supply of raw materials, Vietnam begun growing cotton in several provinces, including Dong Nai, Ba Ria – Vung Tau and Dac Lac. The government is committed to increase the production of cotton from 7.000 t in 2000 (which represents only 10% of the material needed) to about 90.000 t in 2010 (then about 70% of the material needed).

Vietnam still does not have any synthetic silk or thread manufacturing companies. It hopes to change that when the petrol refinery in Dung Quat is finished.

Exports of textiles and garments represent over 21% of total Vietnamese exports to the EU at a value of  USD 609 million in 2000. They represent about 40% of all textile and garments exports of Vietnam.


Some facts and figures (1/2001 General Department of Customs)

 

a.

 

EU-Exports to Vietnam

2000/in 1,000 USD

 

EU-Imports from Vietnam

 

Country

garments and textiles

total

garments and textiles

total

 

 

 

 

 

Austria

999,2

31704

6094,3

23620

Belgium

864,3

83803

24674,2

311630

Denmark

237,8

28064

10115,7

58214

Finland

256,6

14049

3298,2

22365

France

13591,4

328967

81212,1

379748

Germany

22358,8

303029

257825,3

730083

Holland

1295,3

86026

50128,2

390240

Italy

10499,4

164128

2493,6

12115

Ireland

164,1

8996

44248,2

218000

Portugal

0

0

2016

8870

Spain

1473,4

59373

46027,1

137198

Sweden

1037,5

44021

12767,6

55060

United Kingdom

6310,8

150458

68197,1

479277

 

 

 

 

 

total

59088,6

1302618

609097,6

2826420

 


b.

 

percentage of the garments and textile sector of bilateral trade volumes

Austria

12,82

Belgium

6,46

Denmark

12,00

Finland

9,76

France

13,38

Germany

27,12

Holland

10,80

Italy

7,37

Ireland

19,57

Portugal

22,73

Spain

24,16

Sweden

13,93

United Kingdom

11,83

 

 

average

14,76

 

c.

 

percentage of the textile and garments

sector in Vietnam exports to EU

 

21,55

 

 

Exports of Vietnamese garments to the EU typically follow a “triangle” manufacturing arrangement whereby EU importers place orders with East Asian intermediaries which, in turn, provide raw materials, machinery and management to Vietnamese companies. These companies send specialists to Vietnam to monitor all stages of production, especially the finishing stages, such as quality control and packaging. In many cases, joint ventures are created with the Asian partners. The foreign partner typically provides both the machinery and the inputs for production destined for EU markets. It was found that nearly 70% of Vietnamese companies obtained all the fabrics and accessories from East Asian companies, since domestic fabrics are too poor in quality for sophisticated markets or are not available locally.. The task of Vietnamese companies is therefore to assemble foreign-supplied raw materials and apply clothing patterns to fabrics, then cutting and assembling the pattern pieces into clothes. After the quality-control process the final products are packaged and shipped to buyers and middlemen. In this triangular operation, the Vietnamese producers receive very little of the value added (i.e.: men’s shirt 10 - 15%) since most of it goes to wages and very little to domestic producers’ profits.

The constantly growing trade in textile and garments between the European Union and Vietnam is regulated by the 1992 Textile Agreement which, among other provisions, sets the number and level of quotas. This agreement was re-negotiated in 1997 and 2000, with a substantial increase (1997: +31%, 2000: +26) in the allocation of quotas to Vietnam and a reduction in the number of product categories subject to quotas. The current agreement will be in force until the end of the year 2002. Most quotas are distributed on a yearly basis by the Ministry of Trade. 18 items are now free to export but need licensing. Quota fees were reduced in 2000. Under a scheme introduced at the beginning of 1999, 15% of quotas are auctioned off to garment manufacturers.

A “double-checking” system applies to the categories of garments under quota and 22 other categories covered by the Agreement. The system requires export and import licences to be issued and a system allowing for the notification of the delivery of export licences by the Ministry of Trade to the Commission through an electronic link (Système Intégré de Gestion de Licenses – SIGL).

 

2. Trends and potential

Given the current trend of shifting labour in the world, with the textile and garment industry being concentrated in South-east Asia, Vietnam’s industry has very good opportunities for further development. Vietnam has in fact already been expanding its exports into non-quota markets, of which Japan is by far the biggest. With the signing of the US – Vietnam bilateral trade agreement, there is a great potential for further expansion.

It is fair to say that Vietnam’s eventual accession to the WTO will give a major boost to its textile and garment industry. With the termination of the Agreement on Textiles and Clothing (ATC) on January 1, 2005, all quotas will be eliminated. Even if Vietnam joins before then, there will also be a substantial expansion, as other WTO partners are bound by the schedule of liberalisation which gradually brings textile products under the provisions of the GATT.

There is also room for Vietnam to increase the quality and not only the quantity of its garment exports. Vietnam could make improvements in the quality of garment exports by temporarily importing high quality fabrics from the EU, assembling them into top-end garments in Vietnam, and then re-exporting them to the EU. This has happened for example in China where famous European brands are currently being assembled and re-exported to the European market. There are currently incentives for this type of trade since the provisions on “Outward Processing Traffic” in the Textile Agreement grant Vietnam additional quotas. However, these are not being fully exploited, possibly because of the lack of links between European and Vietnamese producers.

 

3. Prospects and Recommendations

The Vietnamese textile and garment industry has been plagued by poor investment and planning. Vietnamese companies need to pay more attention to pattern making, fashion-design and market research. The industry needs to create more backward linkages and invest in the production of raw materials. The textile industry should also develop the large domestic market and compete more effectively against cheap imports, many of which are smuggled, mainly from China

Competition from neighbouring countries is also becoming more intense. Indonesian and Bangladeshi textile firms, for example, have labour costs which are only 50 – 70% of those of Vietnamese companies. Wages came down also in China, Thailand and South Korea as a result of the Asian financial crisis. Output in several major companies has dropped since customers have transferred orders to companies in countries with cheaper work forces. Companies have had to reduce prices by 20 - 30% to stay competitive.

The textiles sector has also been affected by several instances of fraud. Some exporters have forged certificates of origin and export licences, thus allowing them to export to the EU without having obtained quotas.

 

In conclusion, the following recommendations are suggested:

see Vietnam as a potential market for textile and garment machinery.

see Vietnam as a market for agricultural consultancy (i.e. cotton production)

see Vietnam as a developing market for high quality garment and textile accessories

Establish more direct links with European importers and producers.

make more use of Outward Processing Traffic.

support the modernisation of production techniques and improvement of quality.

support the process of improving the management and increasing transparency in allocating textile quotas

support the increase of use of auctioning when allocating quotas.

 

 


B. Footwear

 

1. Analysis and current status

 

The footwear industry in Vietnam has been developing very fast over the last ten years and it is today one of the Nation’s main foreign currency earners.

 

In the 80s the sector achieved a significant growth, although the quality and differentiation of the products were not particularly strong. Trade was carried out mainly with the former Soviet Union as well as with other COMECON countries. After the collapse of the Soviet bloc, the Vietnamese footwear industry suffered a severe crisis due to the disappearance of traditional importers from East Europe. With the implementation of the reform policy and a subsequent increasing influx of Foreign Direct Investment, the sector started to recover and found new markets. Between 1989 and 1997 Vietnam –along with other developing countries- benefited from the shift of footwear production from developed and newly industrialized countries to low labor cost areas, and the Vietnamese footwear industry registered a sharp growth.

Despite the Asian crisis which hit Vietnam at a later stage, the sector achieved important performances and registered a steady growth.

 

In the year 2000 turnover was  USD 1,468 billion[1][1], a 9.9.% increase with respect to the ’99 figures, cementing the footwear industry’s position as Vietnam’s third largest  currency earner. The total number of employees is 500,000.

 

The European Union has become the most valuable market for Vietnamese footwear. According to the Vietnamese Leather and Footwear Association (LEFASO), exports to EU accounted for approximately USD 1.1 billion, a steady figure compared with the year 1999. The value of footwear exported to EU countries edged up to 80% of the whole export value, against 20% going to other markets like Japan and USA. Among the EU member countries, United Kingdom, Germany, Belgium, France and Netherlands are the main importers of Vietnamese footwear. Vietnam is EU’s second largest supplier of shoes (20% of the overall EU import), far below China which provides almost 80% of the EU imports. This relatively important performance is partially explained by the EU General System of Preferential (GSP) Tariff rates which had been granted to Vietnam and has given the Vietnamese footwear industry a comparative advantage over neighbor competitors that do not enjoy similar favorable conditions. Between 1998 and 1999 the European Commission’s anti-fraud services (UCLAF) had undertaken several mission to Vietnam aimed at investigating instances of fraudulent exports of Vietnamese footwear to EU. It was suspected that a share of Chinese products were illegally exported to EU by using counterfeited Certificates of Origin (C/O form A) for Vietnam footwear exports in order to enjoy the GSP system. The European Commission decided to introduce an automatic double-checking system for Vietnamese footwear, similar to the one already in use for garment exports. It is now required that export and import certificates are jointly issued by the Vietnamese Ministry of Trade and by the European Commission. The EU-VN Agreement has been in force since January 2000. To date, it has been effective. As a matter of fact no further instances of fraud have been recorded.

 

 

2. Problems encountered

The Vietnamese footwear industry is relatively young. Practically it has been fully operating under market conditions only since 1993. Therefore it still has many weak points, which result from the lack of experience and poor technical skills of its local management.

 

Raw material for the manufacturing process is mainly imported from foreign countries and most of the Vietnamese companies have neither bargaining capability nor technical expertise for establishing sound business relations with their suppliers.

 

Moreover the Vietnamese footwear industry suffers from a lack of experience in marketing.

 

For this reason it has still been occupied largely with sub-contracting mostly from Taiwanese and Korean trading companies along with the contribution of local foreign investors. As a result, 80% of domestic shoe manufacturing companies devote their entire production to sub-contracts. The finished goods are then exported to the international market under the management of Taiwanese and Korean contractors.

 

Vietnam proved itself as one of the most attractive countries for the production of low-value added shoes. On the other side a large portion of its export performance resulted as a mere assembling activity of imported components (i.e. upper, soles etc.). Therefore low value is domestically added to products and the domestic industry’s profit share of the overall shoe export turnover is only around 30%.

 

Despite the importance of the European market for exports, the sector also suffers from the absence of European FDI flows (apart from a German project which was recently licensed).

 

It is apparent that Vietnamese export revenue in this field, although quantitatively remarkable, will not bring sustainable development of its industry unless changes of course are envisaged in the near future. The accession of China to the WTO makes  Chinese exports, including footwear, much more competitive. The Vietnamese sector will undoubtedly lose its current advantages.

 

On the European side, an increasing concern is given to the slow but inexorable loss of competitiveness of European shoe makers towards low cost areas, producers who benefit from GSP rates. This process must be controlled (and not passively witnessed) by European companies whose entrepreneurial expertise and know how remains of utmost importance for the new orientation of Vietnamese footwear industry.

 

 

3. Trends and potential

 

The recent signature (July 2000) of the Vietnamese-US bilateral agreement on goods, services and investment (BTA) brought a lot of expectations among the Vietnamese shoe makers. Once the agreement is ratified by the two countries’ parliaments (most likely in the course of the year 2001), Vietnam will benefit from a dramatic drop of American custom duties’ tariff for a large number of exported goods, including footwear. As far as the shoe industry is concerned the tariff already levied on the main products will be lowered from an average of 35% down to nearly 5.1%. This will certainly result in a immediate strong increase of Vietnamese footwear exports to US. In the year 2000, US only imported footwear products for USD 87 million, a small amount (with respect to the potential size of the American market) which is likely to double or even triple in the current year 2001. Moreover the foreseeable Vietnamese accession to the World Trade Organization will enhance the complete liberalization of all many more markets and will lead to the definitive (although phased out) elimination of remaining quota and non-tariff barriers for the export of Vietnamese shoe products

.

The 10 year strategy drawn by the Vietnamese Government for 2001-2010 is very ambitious and aims at expanding footwear production and upgrading equipment through heavy investments totaling USD 380 million for the first 5 years and an additional USD 500 million for the following 5 years.

 

For the upcoming ten years LEFASO expects an incremental average annual growth of footwear export turnover so as to achieve USD 7 to 10 billion in the year 2010, i.e. 2% of the world market.

 

This will probably lead to a concentration of a considerable share of the national production among fewer competitive and technologically advanced companies. At the same time environmental issues will gain more and more ground, since most of the current highly polluting manufacturing activities (such as tanning processes) are undertaken in the urban areas and the subsequent concern of the civil society is rising. Last but not least, much focus will be given to working conditions, whose improvement is one of the priorities of the Vietnamese Government.

 

 

4. Prospects and Recommendations

 

European enterprises have a clear interest in helping the establishment of a sound and self-sustaining footwear industry in Vietnam. Europe should primarily encourage investment in machinery of European origin. The development of a local production of soles, upper materials, tanned leather and accessories, while creating new opportunities and higher revenues for Vietnamese enterprises, will give them better conditions for complying with European Union rules on locally manufactured components. European shoe makers should also provide assistance to Vietnamese enterprises, with special focus on the private sector, aimed at strengthening management capabilities, marketing knowledge and information on fashion trends. This could pave the way for an increasingly important participation of European footwear industry) of which most are SMEs) in the direct management of Vietnamese companies.

 

A closer co-operation between Vietnamese and European enterprises in the footwear sector could lead to a significant reduction of Korean and Taiwanese trading companies’ influence over the international shoes market. It also may promote an increasingly important role of the European tanning industry, footwear accessories components and raw material producers in the Vietnamese market.

 

In this endeavor, apart from bilateral aid, the financial schemes provided by the European Commission for supporting the implementation of technical assistance projects in favor of Vietnamese companies or business Associations (i.e. Asiainvest) might be extremely helpful.

 

One of these projects focuses on marketing and design  and is being carried out jointly by the Italian Tanning Association and by LEFASO.

 

Another relevant ongoing initiative is the one financed through the British co-operation (DFID) for the enhancement of working conditions (especially woman) in the footwear sector.

 

 


C. Fishery products

 

The fishery sector continues to be one of the front-line economic sectors of the developing Vietnamese economy.  As the fifth largest export earner, employing over 3.3 million people, the Vietnamese fishery sector constitutes a prominent part of the economy and thus commands sustained government attention and investment.

Four sub-sectors within the fishery sector are worth taking note of, inshore fishing, offshore fishing, the aquaculture industry, and the seafood processing industry. Each of these sub sectors have reached varying stages of development, with a variety of problems as well as very promising long term potential, for both foreign and domestic investors.

Fish exports continue to rise as demand in the USA and EU as well as the recovering Asian markets increase. However investment in the fishery sector is still lagging behind and problems of unsustainable over fishing and environmental problems are becoming apparent. As such the sector is experiencing a dichotomy between unyielding potential in some areas and unsustainable growth and environmental problems in others. Both of which offer opportunities for EU know-how and high technology products.

 

 

1.       1.       Resources and Current Trends

 

Vietnam has 3260 km of coastline with over 3000 islands and a wealth of inland lakes and interior waterways. This combined gives the country one million square km of exclusive economic sea zone and 1,4 mil hectares of interior fishing water, resulting in very favourable conditions for the country's fishery sector.

Out of 1260 marine fish species, Vietnam's water contains approximately 100 commercially viable marine fish species of which 1.3 million tons of the approximately 3.5 million tons are considered renewable.

The country has experienced almost exponential growth in total output production especially in the last 10 years. This seems poised to continue as under-utilised sub-sectors such as aquaculture and offshore fishery, start to contribute to the total output.  Likewise the export value of the fishery has seen even more extreme upward trends. The latest figures show an increase of the export value up by 35% to $1.3 billion in 2000 and total output production up by 20% to 1,827,310 tons.

This overall expansion is seen, not only because of increased investment in added value fish processing and increased primary production, but also due to the increasingly open Western market and favourable government policy. In 2000 several companies moved to improve their quality and efficiency in order to receive the lucrative and highly coveted EU and the USA fish export licenses. According to the latest figures about 40 out of 250 companies have met these tough international standards, the majority of which were reached on the backbone of imported western processing technology and know-how backed by international donor funding.

The latest progress and increased output has however in some areas come at the expense of increased overfishing and environmental problems. This has stemmed government concern and has seen increased initiatives for improved environmental standards and more co-ordinated and sustainable fishing practices. This is proving to be a highly developing market for EU know how and technology within conservation and waste treatment, especially due to the increased focus given by international donor organisations.

 

2.       2.       Inshore

 

In shore fishing, which is distinguished as fishing at a depth of less than 20 m, is Vietnam’s traditional form of fishing and has seen explosive growth over the last 20 years. The majority of the country's fishing fleet, which consists of small to medium sized boats, are occupied in this form of fishing and have in the past been the primary source of the country's fish production and exports.

However, the last few years have seen a vast depletion of the fish stock with outputs from some rivers falling by as much as 50-80% and inshore fish reserves, near the seabed, reduced by 30-60%. This reduction has been mainly due to uncontrolled fishing often with the use of indiscriminate and unsustainable fishing methods, of which dynamite fishing is an illustrative example.

The government is aware of the over fishing problem and has embarked on a program to shift focus from inshore to offshore fishing by increasing incentives, such as loans and grants, to enable fishermen to shift their production away from inshore fishing. However preliminary data shows lacklustre progress for this initiative.

 

 

3.       3.       Offshore

 

Offshore fishing is still in its infancy in Vietnam, presently only about 8% of the fishing fleet have the capacity to reach offshore fishing grounds. As a result offshore fishing is still a relatively untapped resource in Vietnam.

The industry severely lacks investment for new and larger boats, but also for improved infrastructure i.e. harbours and handling equipment. A Ministry of Fisheries survey found that only 32 of the existing 142 landing sites could service the much bigger offshore fishing boats. This in turn has created a system, in which offshore catch is transferred to smaller boats that haul the fish to shore, which increases the risk of contamination and often degrades the quality of the fish, below EU accepted quality standards. The poor handling of fish has also resulted in an estimated 25-30% of the harvested fish being discarded due to poor quality.

The government has been very keen to support investment and the move into offshore fishery, especially due to the perceived export potential of offshore fish but also to assist in recuperating inshore stocks. Danida has recently completed an overall assessment of this sub-sector and have found inconclusive results regarding the cost effectiveness of large-scale investments in offshore fishery. Equally earlier test data from a Danida chartered deep-sea trawler found reasonable catch-per-unit effort results, but of mainly low value species.

The government is still adamant about its support to offshore fishing.  In 1998 the government introduced a preferential loans scheme to enable upgrades to the fishing fleet. But only 400 of the targeted 750 loans have been utilised by fishermen and productivity gains have yet to materialise, despite these efforts. The government has however rekindled its efforts to increase investment and has introduced new initiatives, with increased focus on disbursements of loans, as well as an extra USD 28.7 million in loan capital in 1999. It has also introduced a priority three year start up tax reduction for all companies (including foreign-invested business) that are engaged in offshore production.

 

 

4. Aquaculture

 

With the country's wealth of inland lakes and waters ways Vietnam is an ideal location for the lucrative aquaculture industry. Already Vietnam has 630,000 ha dedicated to aquaculture, producing mainly shrimp, but also lobster, finfish, mullusc, mud crab and seaweed as well as a smaller niche production of oyster. Notably Vietnam is home to 1.7 million ha of water considered favourable for aquaculture, a testament of the further potential aquaculture has for the fisheries sector.

Latest data shows that aquaculture with its overall annual production of 3.5 million tons, contributes an estimated 35% of the fisheries production and over 50 % (USD 500 mill.) of the sectors export in 1999. However despite the impressive figures, aquaculture effectiveness per/ha still lags behind other countries in the region and thus has ample potential for increased productivity.

The government has yet to whole-heartedly address the waste production of aquaculture industry. Chances are that the increasing waste production will not be ignored and a need for more suitable methods and increased technology soon will be in demand as will companies who specialise in the production and installation of such technology.

The government clearly favours aquaculture production with plans to rapidly increase production over the next few years. Apart from meeting many developmental goals, such as improved food security, the industry also offers quick returns on investment (especially compared to offshore fishing). More tangible initiatives include USD 60 million credit fund for financing of marine production expansion, an extension of existing fishing farms by 3,700ha and 68 new aquacultural intensive farming projects now under construction with a budget of USD 2.8 million.

 

 

5. Seafood processing

 

Seafood processing has a long history in Vietnam, especially within the traditional products such as fish sauce production and dried fish and more recently frozen fish items. The country has ca. 250 plants of which the majority are located in the south and owned by the state or local government. Only 40 of these have been approved for export to the EU, one of the industry's central challenges in order to increase its exports. Especially cold storage and other technology inputs are needed to succeed in this task, which has in the past seen several successful international companies entrance into Vietnam.

The industry is divided into semi-processed and value added products of which almost all (94%) is exported. Value added products, that constitute only 20% of total production, is the most lucrative form of processing both in terms of job creation, but also overall profitability. Presently only sashimi grade cuttlefish as well as cooked and peeled shrimp are value added products. Semi-processed, essentially raw materials that are processed and sent on to be further processed and packaged, are not as lucrative, although they may have the potential for upgrading into full fledged value added productions in the future. Although the industry has upgraded over the last couple of years there is still a large demand for new technology and equipment as well as strengthened management.

The seafood processing industry is a main source of pollution in some rivers. A Ministry of Fisheries survey found that only 10% of existing processing plants had sewage treatment plants. The problem is that more pressing as it is exasperated by an apparently lack of knowledge concerning waste water and a clear disincentive for companies to invest in waste treatment as no direct returns can be had for such an investment.

The government is however very aware of the magnitude of the problem and the potential environmental damage continuous untreated wastewater dumping will have. It has therefore issued a plan to spend USD 200-300 million over the next five years to upgrade its processing equipment in 70% of the nation's processing plants. Although disbursements have been slow, international donor support is providing further support and funds for tackling this problem. It is thus expected that the industry potential will not be stunted and will continue its prosperous growth in the future.

 

6. Prospects and Recommendations

 

The Vietnamese seafood industry seems set to continue its fast development. However recent price decreases for the main export commodity - shrimps - by 20 % indicate that Vietnam will have to diversify its production in the future. Furthermore, in order to ensure an environmentally sustainable fishery sector Vietnam will need to increase its know-how and  processing equipment considerably.

 


D. Agro-industry

 

1. Current situation

 

Vietnam is above all an agricultural society. 75% of the population are farmers, responsible for a about a quarter of Vietnam’s GDP. In the past ten years during which Vietnam has undergone fundamental economic changes, Vietnam’s agriculture has changed likewise. At the beginning of the economic reform process Vietnam was struggling to feed its own population. Two years after the start of the reforms, Vietnam developed from a major importer of rice into the second biggest exporter of rice world -wide. Agricultural products now represent about a quarter of Vietnam’s total exports. Nevertheless, growth of the agricultural output over the last decade did not match overall growth in services and industry, thereby increasing the differences between Vietnam’s rural areas and the urban centres of Ho Chi Minh City and Hanoi. During the last ten years only some 5% of foreign direct investment went to agriculture. The percentage of rural unemployment is estimated at three times the unemployment figure in the cities.  Not surprisingly, Vietnam has made the intensification, development and diversification of agriculture into a government priority, next to stimulating off-farm employment. 1999 was the first year in which growth in the agricultural sector matched growth in the industrial sector and even outstripped the growth in the services sector. In 2000 the growth rate is estimated at approximately  the same level (some 4.8%).

Vietnamese agriculture can be divided into three main sectors: food crops, industrial crops and animal husbandry. The first sector, which includes rice production, represents nearly two – thirds of all agricultural production. The other two sectors share the remaining third. As in 1999 in 2000 rice is still the single biggest agricultural export product of Vietnam, albeit that export of rice decreased considerably in terms of tonnage as well as in price per ton. (from 4.505 million tons in 1999 to 3.5 million tons in 2000). Within the animal husbandry or livestock – sector, pork meat is the main product. Livestock production in Vietnam, however, remains highly underdeveloped and is mainly based on traditional household farms operating on a very small scale. Cotton, coffee, sugarcane, and rubber represent the main industrial crops. One of the main problems Vietnam’s agricultural production faces is its highly inadequate capacity for food processing. It is estimated that up to nearly 20% of all agricultural production is lost because of this lack of modern food – processing technology and equipment as well as the underdeveloped distribution network.

 

 

2. Trends and potential

 

Next to further diversification of its agricultural output, Vietnam will (have to) continue to invest in improving its processing techniques, its post - harvest conservation and its agricultural infrastructure. Companies from different EU countries have the expertise and equipment to be part of this development.

Substantial investments in the whole chain of processing, quality improvement, post –harvest conservation, and distribution will be made in the coming decades. Following the Vietnamese wish (and indeed necessity, if Vietnam wants to keep expanding its export) to diversify its agricultural output, possibilities for foreign companies, depending on the specific sector, in different niche markets, such as in the vegetables and flower sectors, exist.

Likewise the expected development of animal husbandry and the production of dairy products, hold many possibilities for foreign companies. The current productivity of livestock is very low. This has partly to do with the genetic quality of the animals. Import of high – quality livestock or sperm is a necessary step for further development of this sector. Another part of raising the productivity is improving animal feed supply. The demand for modern animal feed machinery is high.

 

 

 

3. Prospects and Recommendations

 

On the very short term a problem that could develop in 2001 is the BSE-situation in Europe, and on lesser scale as well the developing foot and mouth – situation. Although Vietnam did not react so far to the latest developments, it’s not unlikely that it will react strongly later this year by closing the border for all cow related products from the EU. It is of  the utmost importance to start explaining to the Vietnam authorities the safety measures already in place in the EU, before Vietnam takes any action that unnecessarily could harm EU exports.

Notwithstanding Vietnam’s huge agricultural potential, it is clear that Vietnam still has a long way to go. The agricultural output in comparison to the number of people involved is extremely low. Vietnam’s agricultural sector mainly consists of millions of small scale family – run businesses, which cannot afford the cost of modern processing techniques and modern post – harvest conservation. Given the history of forced collective farming in Vietnam, and its disastrous results, Vietnamese farmers are unlikely to be interested in setting up collective centres in the field of milk processing, slaughterhouses, etc., which in some European countries was the first step in modernising its agriculture. Financing the necessary investments in agriculture, therefore, remains a big, if not the biggest, obstacle. Moreover, the more financially strong players in the field of agriculture, are mainly state owned enterprises. Especially, their near to monopoly status in the wholesale of agricultural products, harms development. Another major obstacle to further development is the absence of an adequate distribution chain. Even when, for example, a modern slaughterhouse has been set up, the further chain of transportation, refrigeration, and, eventually, export still is missing. Therefore, it is clear that major opportunities exist for European companies in assisting Vietnam in establishing chains of agricultural production, ranging from initial production, processing, transport, and exporting.

Added to the list of obstacles, but also an opportunity for relevant European companies and consultancies, is the virtually non-existent system of quality control, especially of importance given the huge use of pesticides and fertilisers. In the field of livestock the near absence of centrally controlled veterinary standards will have to be overcome if Vietnam is to be an exporter of meat products. European companies and consultancies could assist (in terms of advice, but also exporting the relevant products) Vietnam in overcoming these obstacles, opening up until now closed markets for some of Vietnam’s export potential.

In general, EU companies should be aware of the huge potential of the agriculture sector, and should approach the market accordingly. If, however, Vietnam really wants to attract more foreign investment in agriculture (which it needs), it has to continue the economic reform process in general, thereby restoring the confidence of foreign investors.


E. Transport

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