Great strides thanks to economic integration

Signing the Bilateral Trade Agreement with the US and the Trans-Pacific Partnership and joining the World Trade Organization were evidences of Vietnam’s deep integration into the global economy.

These milestones have contributed to advancing economic development and helped the country to make significant progress in reforming institutions and improving transparency and competitiveness.

Before 1995, Vietnam was known as a tiny but unyielding country during resistance wars, not a country with economic potential.

However, the introduction of the Vietnam-US Bilateral Trade Agreement in July 2000 was considered as a manifesto to the world that Vietnam not only normalized its relations with the US but also officially opened its economy to the number one power.

For the first time, Vietnam was familiar with such concepts like opening market, investment commitments, national treatment, and non-discrimination rules.

Things changed remarkably after the agreement took effect in 2001. Vietnam’s export revenue reached US$36.3 billion in 2014 compared to just US$1.51 billion in 2001.

Noticeably, Vietnam has enjoyed trade surplus over years with US$2.45 billion in 2002, US$5.93 billion in 2005, US$14.24 billion in 2010, US$30.6 billion in 2014, and around US$39 billion in 2015.

Six years after signing the Vietnam-US Bilateral Trade Agreement, Vietnam became the 150th member of the World Trade Organization.

The event created strong effect in luring foreign investment with the total registered volume soaring from US$10 billion in 2006 to US$21.3 billion in 2007 and US$64 in 2008.

Vietnam’s exports rose 20%/year on average while distribution and retail sale services developed vigorously, evidenced by the appearance of modern supermarkets and trade centers.

The Tran-Pacific Partnership is another milestone as it touches upon new areas like Government procurement, labor, and environment among others.

It is estimated that the agreement would help expand the national GDP by US$23.5 billion by 2020 and US$33.5 billion by 2025. Export value is forecast to increase by US$68 billion by 2025.

There is no doubt that significant advances have been made in reforming institutions, improving competitiveness and business environment over the past years.

A series of important laws like the Law on Enterprises, the Law on Credit Organizations, the Law on Intellectual Property Rights, and especially the Law on Commerce have been revised to further define the right to business freedom.

Under the World Trade Organization rules, all laws and administrative decisions must be made public before the date of effect. Statistics show that Vietnam has amended or issued 86 laws since the country joined the World Trade Organization.

The Trans-Pacific Partnership is a new-generation agreement with higher standards on transparency, anti-corruption, facilitation of corporate performance, which requires huge efforts in order to successfully grasp opportunities generated from the course of international integration.

Kazakhstan ratifies Vietnam-Eurasian Economic Union FTA

The upper chamber of the Kazakhstani parliament has ratified a free trade agreement between the Eurasian Economic Union (EAEU) and Vietnam, according to the Russian news agency TASS on February 11.

The document was signed in Kazakhstan’s Burabay township on May 29, 2015, opening up favourable conditions for mutual trade and investment.

Once the deal takes effect, nearly 90% of goods will enjoy lower tariffs and 60 percent will be entitled to zero tax. It is also the first FTA that the EAEU has signed with a country.

The EAEU includes Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

The Kazakhstani Ministry of National Economy predicted that the country will export more of its foodstuff to Vietnam, including flour, cereals, milk and pork.

Last year, two-way trade between Vietnam and Kazakhstan amounted to US$205 million.

MoIT plans to spend VND90 billion on advertising

The Ministry of Industry and Trade (MoIT) has authorized the expenditure of VND90 billion on advertising and marketing during 2016.

The funds will be allocated to 177 programs on market development, export promotion, organization of fairs and international conferences, dissemination of trade information, consultancy and training.

The programs aim not only to stimulate exports, limit import surplus, but also develop the domestic market and effectively implement the ‘Vietnamese people use Vietnamese products’ campaign.

According to MoIT statistics, last year’s advertising and marketing program supported 8,850 businesses and helped them sign economic deals valued at more than US$886 million.

Vietnam, US relations on path towards greater integration

Vietnam and the US have made great strides in their strategic partnership over recent years and there have been many positive developments that lead to the broader promise of deeper cooperation in trade and investment for years to come.

Party Chief Trong, Minister of Public Security Tran Dai Quang, and Vice-Chair of the National Assembly Nguyen Thi Kim Ngan— have all visited the US within the past year seeking higher levels of cooperation on a number of fronts.

Notably, Party Chief Trong’s last year visit was seen by the US congress as a positive move advancing the Trans-Pacific Partnership (TPP), an American-led trade agreement among a dozen Pacific Rim nations that excludes China.

The US congress also agreed during that visit to a new, more integrated approach to relations with Vietnam, one that is plainly more desirous of advancing the Southeast Asian nation’s drive for international economic integration and national defence.

These developments are clearly good omens for future Vietnam, US relations and signify that the overall trajectory is on a path to more prosperous relations and that the two countries agree on the importance of advancing cooperation between them in areas of mutual interest.

Vietnam’s labour and legal reforms in accordance with the TPP can be expected to proceed as planned. Under the deal, Vietnam has five years to allow independent local, factory-level unions to affiliate with each other and/or form sector-specific unions.

Additionally, the agreement provides that Vietnam has an additional two years during which the US can, at its option, assess whether the Southeast Asian nation has complied with the labour requirements of the trade accord.

The TPP stipulates that should the US be less than satisfied after this transition period, it can initiate talks with Vietnam and, in a worst-case scenario, unilaterally suspend tariff phase-outs (for clothing and footwear) that have not yet been given effect.

Vietnam has also agreed to modify its laws to improve worker rights as part of joining the TPP as well as commit to carry out the complicated and difficult task of privatizing state-owned enterprises (SOEs).

Although the TPP does not provide any detailed and specific plan for SOE reform, it falls on the Vietnam government to layout its own roadmap and implement its divesture reform program according to its own timetable.

Along this vein, the Vietnam government in January of 2016 announced plans to divest its ownership stake in a large number of specifically identified SOEs in the textile/garment, telecommunications, and dairy industries.

The Vietnam government’s economic reform agenda remains the same— to achieve an average of 6.5-7% gross domestic product growth per annum and reach a per capita income of US$3,200-3,500 (from the current US$2,170) by the year 2020.

The economy is currently forecast to expand by 6.7-6.8% in 2016, making Vietnam this year— the world’s second-fastest growing economy, trailing India.

Indonesia reviews AD investigation into Vietnam steel

The Indonesian Anti-Dumping Committee (KADI) has announced it will conduct a hearing on the administrative review of the anti-dumping duty (AD) order on cold rolled steel sheets imported from Vietnam, Taiwan, China, the Republic of Korea and Japan.

According to the Vietnam Competition Authority (VCA) under the Ministry of Industry and Trade, the plaintiff is PT Krakatau Steel.

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KADI initiated the AD investigations in early 2011. It decided to impose AD duties in 2013 with tax rates of 12.3% - 27.8% levied on Vietnamese products.

KADI said September 4, 2015 was counted as the starting date for the final review. Relevant sides had to present their opinions and arguments in documents sent to KADI before February 11, 2016.

KADI noted that only registered businesses will be able to take part in the hearing.

Auto market forecast to see another good year

After posting a record growth of 55 percent last year, Vietnam's automobile sales will continue to grow strong this year, albeit at a lower rate, news website VnMedia reported on February 9, citing local businesses.

Executives of major producers and importers such as Ford Vietnam, GM Vietnam and Truong Hai Auto Corporation expected the industry's sales will grow around 30 percent, saying Vietnam's economy will continue to grow strong, boosting the local demand, according to the website.

Yoshihisa Maruta, chairman of Vietnam Automobile Manufacturers' Association, on the other hand, said its members expected a year-on-year rise of 10 percent.

Bui Kim Pha, deputy CEO of Truong Hai Auto Corporation, said in the news website that the auto market is stabilizing, so its growth will not be as high as last year when it saw a six-year high rise in sales to nearly 245,000 units.

A boom in auto imports from ASEAN as an impact of further tax reductions under a regional trade agreement will not happen this year, because the impact has been hampered by a hike in luxury tax, he said.

Under a new rule that took effect on January 1, luxury tax is calculated on an imported car’s retail price, unlike previously when it was calculated on their cost, insurance freight (CIF) price before the addition of duties and markups. The revision has reportedly forced auto importers to increase their prices by 2-13 percent.

Pha said the boom will likely happen in 2018 when automobiles will be imported from ASEAN tax-free.

Early this year Vietnamese government reduced duties on automobiles imported from neighboring countries to 40 percent from 50 percent last year.

Vietnam steps up renovation, integration

Vietnam has developed steadily during 30 years of renewal. Its current phase of development requires stronger reforms for international integration.

In 2015 Vietnam’s GDP growth was 6.68%, the highest in 15 years. Inflation was controlled, the macro-economy was stable, and the consumer price index fell 0.6%.

Industrial production growth was high, the quality of credit improved, bank interest rates were adjusted, the foreign exchange market was stable, export growth was maintained, and the foreign currency reserve increased significantly.

In 2015 Vietnam made significant progress in its external relations bilaterally and multilaterally. It accelerated international integration while prioritizing national interests to create a favorable environment for national construction and defense.

Vietnam established the ASEAN Community with other ASEAN members, signed an FTA with the Republic of Korea, and completed negotiations on the Trans-pacific Partnership and a free trade agreement with the Eurasian Economic Union.

2016 promises new opportunities and challenges for Vietnam on its path of development and integration.

This year it will continue to boost production, expand its export market, attract more foreign direct investment, and create new jobs. Vietnam’s international integration aims to achieve rapid but sustainable growth.

Directions set by the 12th National Party Congress and the FTAs Vietnam has signed or is negotiating are expected to spur Vietnam’s economic development.

2016 is the first year of Vietnam’s 5-year socio-economic development plan until 2021, which is focused on changing the growth model and joining the global production chain.            

EVFTA heralds higher exports

The EU-Vietnam Free Trade Agreement, which will be signed in the near future, is expected to bring about huge benefits for Vietnam’s private sector.

Expert Tong Thi Minh Phuong, and technical assistant for the European Trade Policy and Investment Support Project, Claudio Dordi, explain the likely impacts of the deal.

The benefits of the EU-Vietnam Free Trade Agreement (EVFTA) will include the progressive elimination of tariffs, as well as the implementation in Vietnam of certain domestic reforms necessary to comply with the required commitments.

The general impact of the EVFTA for Vietnamese businesses, according to an EU-MUTRAP study, is largely positive, gross domestic product (GDP) is expected to increase by 7% to 8% cumulatively up to 2025, exports to the EU will increase by 50%, and imports will rise 43%.

The EU has committed to eliminating its tariffs on all trade with Vietnam over a seven-year period, which will provide more opportunities for traditional Vietnamese exports, such as textiles and garments, footwear and seafood.

All FTAs, however, grant preferential tariffs only to products genuinely originating from members, to avoid assisting products and components manufactured in non-member states.

This may be a challenge for Vietnamese manufacturers, as many Vietnamese exports are produced from imported raw materials, particularly in the local garment sector. Origin rules in the EVFTA require Vietnamese products to be made from originating fabrics, meaning that the garments that are currently produced with imported fabrics will not qualify for preferential treatment.

Another challenge that could affect the ability of Vietnamese producers to increase their exports to the EU is related to their ability to attract the interest of EU consumer. The EU is the second-largest export market for Vietnamese products (after the US), but EU consumers hardly know, for example, that they are wearing Vietnamese-manufactured apparel or footwear.

In fact, some Vietnamese products, especially in the seafood sector, raise concerns among EU consumers, as they are widely considered to be unsafe or produced in an unsustainable manner.

However, improving the quality of the products and their compliance with EU sanitary and technical standards is not sufficient, it is also important to raise awareness among EU consumers about any improvements.

All of these actions require multiple steps to increase the knowledge and capacity of producers to adopt sustainable procedures, improve the quality and safety management in both private and public Vietnamese enterprises, and organize campaigns for the promotion of Vietnamese brands. Moreover, these types of actions also require a substantial change in current patterns of trade in several sectors in Vietnam.

In the food sector, for example, the typical practice of selling raw products to middlemen or directly to importers does not allow any possibilities for quality control or promoting exports through marketing campaigns.

Similarly, in footwear and textiles, current policies in industrial production (or the leasing of factories) completely excludes the possibility of creating Vietnamese brands that might become recognizable to EU consumers.

In these cases, downstream expansions of the value chain are necessary, for example, expansions in food processing, export control, and control of distribution channels would aid Vietnamese exports to Europe. Furthermore, because the amount of imported materials in exported Vietnamese products is relatively high, it would be necessary to improve quality and safety controls of imports, requiring investments in infrastructure to enhance the capacity of relevant public agencies.

The opening of the Vietnamese market to the import of EU products and services, which are often listed among the best in the world in terms of quality and technological value, is a great opportunity to improve the quality of manufactured goods here in Vietnam. This is a win-win solution, as Vietnam has committed to fully liberalize almost all imports of machinery and appliances from the EU over the next five years.

The opening of procurement to the government and government agencies after a transitory period will allow EU suppliers to compete on an even playing field with Vietnamese companies in providing goods and services to the public sector.

Identifying the most profitable sectors for EU Investors

EU duties will be eliminated over a seven-year period. This is a far-reaching, fully symmetrical tariff elimination that has never before been achieved with a developing country. However, the agreement provides adequate transition periods that give Vietnam the time to adapt. Here are a few concrete examples:

-Almost all EU exports of machinery and appliances will be fully liberalized at entry into force, with any remaining items liberalized after five years.

-Motorcycles with engines larger than 150cc will be liberalized after seven years, and cars after 10 years, except those with large engines (>3000cc for petrol, >2500cc for diesel), which will be liberalized one year earlier.

-Car parts will be duty free after seven years. Roughly half of EU pharmaceutical exports will be duty free at entry into force, with the remainder becoming duty free after seven years.

-All EU textile fabric exports will be liberalized at entry into force.

-Close to 70% of EU chemical exports will be duty free at entry into force, and the rest after three, five, and seven years.

-Vietnam will also open its market for most EU food products, both primary and processed, allowing the EU’s high-quality exports to reach its growing middle class consumers. Wines and spirits will be liberalized after seven years. Frozen pork meat will also be duty free after seven years, beef after three years, dairy products after a maximum of five years, and prepared food after a maximum of seven years. Chicken will be fully liberalized after ten years.

Vietnam has committed to substantially improving access for EU companies to reach a broad range of service sectors, including business services, environmental services, postal and courier services, banking, insurance, and maritime transport.

Vietnam will liberalize 65% of import duties on EU exports to Vietnam at entry into force, with the remainder of duties gradually being eliminated over a ten-year period.

The EU-MUTRAP impact assessment study estimates that Vietnam is projected to grow significantly as a result of inflows of capital and ongoing productivity improvements. The FTA is estimated to generate an additional 7-8% of GDP above the trend growth rate through 2025 (cumulatively). Depending on different potential scenarios, Vietnam’s exports to the EU are estimated to increase from 50 to 93% over the next five years, while EU exports to Vietnam are expected to hover around 43%.

However, it should be noted that as many tariff reductions will likely be implemented in 2025, a further boost to economic growth is expected in the five years after 2020.

The sectors expected to benefit the most from the EVFTA are textiles, clothing, and footwear (TFC), and food products. TFC comprises 30% of Vietnam’s merchandise exports, but 50% of Vietnam’s exports to the EU. The export products expected to benefit the most from the EVFTA are shrimp and catfish, Vietnam has a virtual monopoly on exports of catfish, accounting for 99% of world trade.

Vietnamese TFC exports to the EU are expected to more than double in 2020 following the FTA. The increase of exports to the EU may be in part of redirection of exports to other countries, as the FTA will make it more convenient to export to the EU first. In fact, the outputs of all sectors will likely increase (for example, leather exports will go up 35% and garments will go up 25%).

However, in order for Vietnam to gain more from signing the agreement, it is necessary for local companies to study EU regulations, comply with new foreign rules, improve the quality of goods and services, and expand the ends of their value chains.

Local ‘gray matter’ plays important role in Samsung’s success in Vietnam: exec

Samsung has developed strongly in Vietnam over the last few years and the local source of ‘gray matter,’ or talented personnel, is playing a significant role in its success, an executive of the Vietnamese arm of the Korean electronics giant has said.

The giant smartphone maker has experienced growth superior to all other foreign-invested enterprises in the Southeast Asian country, Nguyen Van Dao, deputy general director of Samsung Vina, told Tuoi Tre (Youth) newspaper in an interview.

The South Korean conglomerate currently operates two major hi-tech production complexes in northern Vietnam, one each in Bac Ninh Province and Thai Nguyen Province.

There are other multibillion-dollar operations across the country, as the total investment Samsung has made in Vietnam is estimated at about US$11.2 billion.

Last year Samsung posted US$32 billion in export revenue from its Vietnamese operations, beating all other foreign businesses in the country.

“Vietnamese ‘gray matter’ has made a considerable contribution to these impressive business results,” Dao said.

The Samsung Vina executive admitted that he does not have enough data to compare the skills of the Vietnamese workforce with those of other countries where Samsung also has operations.

“Samsung’s decision to invest heavily in Vietnam indicates how important the human resource issue is to the company,” he said.

In 2009, Samsung put its Samsung Electronics Vietnam production complex (SEV) in Bac Ninh into operation, and inaugurated the Thai Nguyen facility only a short time thereafter, which Dao said “illustrates what the Vietnamese business environment is like.”

“What’s most important is the skill, diligence and intelligence of Vietnamese employees,” he added.

Dao asserted that the Vietnamese managers, engineers and officials have indeed contributed greatly to the production and R&D activities, as well as the success of all projects Samsung has in the country.

“For instance, the Vietnamese managerial officials, trained by Samsung, have helped improve production capacity and ensure product quality,” Dao said.

“These officials have also helped the Thai Nguyen complex enter the production phase early and become effective after the first one.”

The R&D center in Hanoi, in the meantime, also plays a role in Samsung’s global value chain, he underlined.

“The center is where some 1,450 Vietnamese engineers are working around the clock to support and develop apps and software for Samsung mobile devices, including the latest and most modern products such as the Galaxy Note tablets,” he said.

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Dao said Vietnamese engineers are proud of their considerable contribution to Samsung’s hi-end handsets that are being distributed globally.

“Vietnamese engineers have long participated in several production phases of mobile devices, such as designing several features of the S-Pen of the Galaxy Note series,” he added.

Dao said while Samsung Electronics has invested US$11.2 billion in Vietnam, other units of the Samsung Group are also eying investment in different sectors in the country.

“But the detailed investment plans are up to each Samsung business unit and I cannot comment further.”

Asked to comment on Vietnam’s effort to simplify investment paperwork, Dao said the Vietnamese business environment has greatly changed, particularly in terms of legal frameworks, compared to that in the 1990s, when the country began calling for foreign investment.

“There are also many changes made since 2008, when Samsung started negotiating for the Bac Ninh SEV project, which proves that the government did listen to foreign investors and businesses to resolve their problems,” he said.

In 2014 Samsung announced that Vietnam will become the global production base for mobile phones and mobile products, and that the South Korean firm will continue cementing its foothold in the country into the future, according to Dao.

“Samsung Electronics Ho Chi Minh City [SEHC] is slated for opening in the second quarter of this year, which again indicates that Vietnam is an important part of Samsung’s global electronics production chain,” he said.

M&A continues to dominate real estate market

The recovery of the property market along with many open policies and incentives have created favourable conditions for real estate corporations with strong financial resources.

Novaland, for example, a well-known investor, has been involved in many merger & acquisition (M&A) deals in the real estate market in recent years. - File Photo

Novaland, for example, a well-known investor, has been involved in many merger & acquisition (M&A) deals in the real estate market in recent years.

Within only three years, the corporation bought 25 projects, most of which were mid-tier and luxury apartments with prices ranging from VND28 million – 50 million (US$1,300 – 2,300) per square metre.

The projects prime locations have allowed Novaland to sell their products quickly.

Like Novaland, other groups like FLC, Vingroup, Him Lam, Dat Xanh and Hung Thinh Corporation have been involved in M&A deals.

FLC has a development strategy under which it directly invests in projects and also buys projects that have already been implemented.

Since 2013, FLC has spent hundreds of billion dong (tens of millions of US dollars) to buy projects in Ha Noi.

Meanwhile, after spending over VND10 trillion ($450 million) for M&A deals in 2014, Vingroup continued to look for projects in prime locations in big cities like Ha Noi, HCM City and Da Nang..

Besides big corporations, the market has also seen the recovery of many real estate companies thanks to their restructuring, especially for M&A purchases.

VID emerged as a new name in the real estate market by buying many projects.

Foreign investors have also been involved in M&A deals, as the Creed Group spent $200 million for stocks of An Gia Investment.

Warburg Pincus poured more than $100 million into Vingroups Vincom Retail and increased its investment up to $300 million in order to develop the biggest trade centre and shopping mall in Viet Nam.

The 2014-2015 period was considered a breakthrough for M&A activity in the real estate market.

The real estate market had been frozen for years, and as a result, many investors faced a financial crisis and had to sell many of their products.

This allowed corporations with strong financial resources to take advantage of the market, spend less money and earn high profits.

Despite this, many property projects still face financial difficulties.

"In HCM City right now, there are 40 -50 projects under construction but up to 700 others are at a standstill. Therefore, in the time ahead, M&A will be the most important strategy," Nguyen Van Duc, deputy general director of Dat Lanh Real Estate Company, was quoted as saying in the Thoi bao Kinh te Sai Gin (Si Gin Times) newspaper.

"This year will be a boom time for M&A and more foreign investors coming to the field as Viet Nam is considered a promising market," Stephen Wyatt, general director of JLL Viet Nam, said.

Vietnam, US relations on path towards greater integration

Vietnam and the US have made great strides in their strategic partnership over recent years and there have been many positive developments that lead to the broader promise of deeper cooperation in trade and investment for years to come.

Party Chief Trong, Minister of Public Security Tran Dai Quang, and Vice-Chair of the National Assembly Nguyen Thi Kim Ngan— have all visited the US within the past year seeking higher levels of cooperation on a number of fronts.

Notably, Party Chief Trong’s last year visit was seen by the US congress as a positive move advancing the Trans-Pacific Partnership (TPP), an American-led trade agreement among a dozen Pacific Rim nations that excludes China.

The US congress also agreed during that visit to a new, more integrated approach to relations with Vietnam, one that is plainly more desirous of advancing the Southeast Asian nation’s drive for international economic integration and national defence.

These developments are clearly good omens for future Vietnam, US relations and signify that the overall trajectory is on a path to more prosperous relations and that the two countries agree on the importance of advancing cooperation between them in areas of mutual interest.

Vietnam’s labour and legal reforms in accordance with the TPP can be expected to proceed as planned. Under the deal, Vietnam has five years to allow independent local, factory-level unions to affiliate with each other and/or form sector-specific unions.

Additionally, the agreement provides that Vietnam has an additional two years during which the US can, at its option, assess whether the Southeast Asian nation has complied with the labour requirements of the trade accord.

The TPP stipulates that should the US be less than satisfied after this transition period, it can initiate talks with Vietnam and, in a worst-case scenario, unilaterally suspend tariff phase-outs (for clothing and footwear) that have not yet been given effect.

Vietnam has also agreed to modify its laws to improve worker rights as part of joining the TPP as well as commit to carry out the complicated and difficult task of privatizing state-owned enterprises (SOEs).

Although the TPP does not provide any detailed and specific plan for SOE reform, it falls on the Vietnam government to layout its own roadmap and implement its divesture reform program according to its own timetable.

Along this vein, the Vietnam government in January of 2016 announced plans to divest its ownership stake in a large number of specifically identified SOEs in the textile/garment, telecommunications, and dairy industries.

The Vietnam government’s economic reform agenda remains the same— to achieve an average of 6.5-7% gross domestic product growth per annum and reach a per capita income of US$3,200-3,500 (from the current US$2,170) by the year 2020.

The economy is currently forecast to expand by 6.7-6.8% in 2016, making Vietnam this year— the world’s second-fastest growing economy, trailing India.

Traditional post-Tet price rises still plague shoppers

The prices of vegetables and live seafood at many markets has doubled or tripled in the immediate period following the lunar new year holiday.

Some supermarkets have already opened and have stable prices but their vegetables are far and few. Employees at Hanoi's Fivimart said they were unable to restock lettuce or coriander.

Meanwhile, lettuce at Kim Lien Market is being sold for VND100,000 (USD4.70) a kilo compared to VND30,000 normally. Tomatoes now cost VND60,000 per kilo while the price before Tet was VND40,000.

At Thanh Cong A Market, prices for live seafood also increased. A kilo of carp increased from VND40,000 to VND130,000.

According to the traders, the severe cold before Tet reduced supply. "There were already signs of price increases since before Tet. It's really difficult to find stocks, and for some transport costs have increased, despite falling petrol prices, this means prices must go up," Hue, a trader at Thanh Cong A Market said.

Positive forecasts for Vietnamese economy

Vietnam is forecast to continue maintaining high economic growth in 2016, according to some international organisations.

Standard Chartered’s Global Research report recently released said that Vietnam would become the second fastest-growing economy in Asia in 2016, behind only to India.

The bank’s economists are upbeat about the economic outlook for the country, with strong FDI expected to continue this year.

Vietnam’s economy is forecast to expand 6.7% this year, the same pace as in 2015, according to business newswire Bloomberg’s surveys.

Earlier, the World Bank predicted that Vietnam’s economy would accelerate from 6.5% this year to 6.6% in 2016 in an updated report released in late December 2015.

The Taking Stock report says Vietnam’s strengthened economic growth is underpinned by a continuing recovery in domestic demand, particularly private consumption and investment growth, and strong export-oriented manufacturing.

HSBC said that Vietnam's GDP would grow 6.7% in 2016.

Meanwhile, ANZ forecast that Vietnam’s economic growth would reach 6.9% this year before slowing to 6.5% in 2017.

The Vietnamese government has set a GDP growth target of 6.7% in 2016.

Vietnam’s pharmaceutical industry: a lesson from Golden Star balm

It is interesting to see that Golden Star balm (Cao Sao Vang), a product usually associated with the pre-Doi Moi period, has become a smash hit in nearly 20 countries around the world.

This Vietnamese-made ointment has a special history and can provide a useful example for the pharmaceutical industry and other businesses in Vietnam.

‘Out of stock’ and similar phrases are the messages usually displayed on famous online retailers such as eBay and Amazon, as well as online pharmaceutical shops in many countries such as the UK, the US and Australia when users search for Golden Star balm.

Research and production of this product began post-1954. This small balm tin became indispensable for many Vietnamese people and one of Vietnam’s key exports to the former Soviet Union and many countries in Eastern Europe. But after the Eastern bloc collapsed, Golden Star balm also virtually disappeared, even in the domestic market.

But since 2013, this Vietnamese-made cream has been selling like hot cakes in many countries at a price of around VND40,000 a tin, excluding shipping fees.

The story of Golden Star balm is nothing particular as more and more companies are exporting products made of natural ingredients employing traditional Vietnamese medicine methods.

The journey of the Golden Star balm tin reminds us of how Thomas Friedman got his inspiration to write about globalisation in his 1999 book ‘The Lexus and the Olive Tree’. He once heard a Japanese girl who arrived in Los Angeles, look around and said to her mother: ''Look, mom, they have McDonald's here too.'' The famous American journalist and columnist was startled and began to look for the most satisfying answer possible for what is the position of each individual and country in a globalised world.

The Golden Star balm maker saw success returning to the market because they had promoted their product in a way that retained the Vietnamese identity, while still meeting the demand of the widely varied world consumption. But it’s not all success and there is still room for improvement. Foreign consumers were very interested in the portable size of the balm tin and its attractive label but on the contrary found it very difficult to open it. This led to a bigger story. If domestic enterprises want to compete globally, they have to put more efforts into product design, in addition to quality.

Can Vietnam’s pharmaceutical industry, which experts say will be significantly affected in a negative way by trade agreements, find its own path and pull through like how the Golden Star balm tin positioned itself? And can Vietnam fare well in a niche market and become a producer and exporter of macrobiotic and functional food made of natural ingredients? This can only happen when the entire policy system takes action.

Vietnam adopted the Law on Pharmacy in 2005 but after ten years, it is no exaggeration to compare the pharmaceutical industry to a man limping on crutches. When debating amendments to the Law on Pharmacy, many National Assembly deputies expressed the need to change the mechanism to remove the obstacles to development.

Vietnam has up to 180 pharmaceutical plants, of which more than two thirds meet global manufacturing practices but only run at half of their capacity. Medicinal herbs are also diverse and plentiful but Vietnam has yet to be able to answer the questions of which segment of pharmaceutical products to focus on and which type of medicinal herbs to prioritise. It is not feasible to employ a strategy known as “jackfruit” under which all sectors are priority sectors, much the same as all the prickles on the jackfruit’s skin. It is also not sensible to imitate what other countries are doing. A new law is being drawn up and whether Vietnam’s pharmaceutical industry will be make or break remains a question.

VN’s 30-year renovation under review

After 30 years of renovation, Viet Nam has attained important achievements in national industrialization and modernization, said Vuong Dinh Hue, Head of the Party Central Committee's Commission for Economic Affairs.

According to Mr. Hue, from underdeveloped agriculture-based economy with over 90% of the population living on farming production, Viet Nam built material facilities and socio-economic infrastructure soundly serving the industrialization and modernization cause and created a favorable environment for social development from 1985-2015.

Initial growth from width to depth

In economic growth, Viet Nam escaped from the low-income group to become a lower middle-income country. In 2011-13, growth model firstly transformed from width to depth, focusing on growth quality.  

The efficiency of investment capital was improved. The Incremental Capital-Output Ratio (ICOR) dropped from 6.96% in 2006-10 to 6.5% in 2011-15. The density of the processing industry in industrial production value was on the rise. The contribution of mineral exploitation industry shrunk.

Thanks to great endeavors to improve the market environment, Viet Nam attracted more and more investment capital. Total social investment and the proportion of investment to GDP increased constantly. Economic structure transformed in a modern manner with higher rates of services and industry; economic components developed with different types of ownership; labor structure shifted positively; structure of exports was improved towards higher industrial products and less agricultural and raw materials.

In the country, all market factors and market types took shape, operated properly and were connected with their regional and international peers. Goods and service markets developed. Financial and monetary markets grew strongly; stock market was established and contributed to investment diversification; insurance market served stabilization of production and people’s life; real estate market expanded; and labor market provided abundant labor supply from 50.51 million at the end of 2010 to 53.8 million in 2014.

In recent three decades, the domestic economy slowly moved into depth. Shortcomings emerged such as inefficient legal system, mechanisms, and policies; inadequate law enforcement; slow economic restructuring; lack ofadequate respect for business liberation rights and unfair and unhealthy competition among different economic components; weak business management; and non-compliance of market mechanisms as seen in some prices of essential products and services. In addition, some SOEs had yet played a leading role in the economy and operated inefficiently, incurring heavy losses. Small-sized private enterprises were populous and FDI enterprises failed to accomplish the goal of transferring high-tech, source technology and modern management.  

The macro-economy remained unsustainable and heavily relied on external single markets.  

According to Mr. Hue, in the coming time, Viet Nam has to deal with the two biggest issues, including (i) perfecting the socialist-oriented market economy; proactive and positive stepping up international integration; speeding up industrialization and modernization and developing a knowledge-based economy; protecting natural resources and environment; responding to climate change for fast and sustainable growth; (ii) implementing growth model reform; economic restructuring; focusing on the three strategic breakthroughs; early clearing bottlenecks in economic institutions, human resources, and infrastructure.  

To fulfill the aforesaid orientations, Mr. Hue proposed some solutions.

Firstly, regarding growth model, it is necessary to focus on the growth modal which relies on labor productivity, quality, and competitiveness.

Secondly, economic restructuring should be accelerated in combination with growth modal renovation towards higher quality, efficiency, and competitiveness.  

Thirdly, regional economy should be restructured.

Fourthly, marine economy should be developed to strengthen national economic potentials and sovereignty, focusing on petrol industry, offshore fishing, fishery logistics, maritime economy, island tourism.

Fifthly, international integration should be promoted while independent and self-reliant economy should be built. FTAs, especially the Trans-Pacific Partnership Agreement (TPP), should be fully utilized./.

European investors optimistic about VN’s business environment

The European Union (EU) became the 3rd largest investor in Viet Nam in 2015, featured with increasing number of newly-founded enterprises, Chairwoman of the European Chamber of Commerce in Viet Nam Nicola Connolly said at an interview with a reporter of the VGP.

According to the Chairwoman, the number of EuroCham members rose remarkably in 2015 from 780 to 850 last year, which demonstrated their interest in the Vietnamese market.

Ms. Nicola Connolly expressed her belief that the signing of the EU-Viet Nam Free Trade Agreement (EVFTA), the Trans-Pacific Partnership (TPP), and the establishment of the ASEAN Economic Community (AEC) would open up new opportunities and economic prospects for Viet Nam in the years to come.

According to a recent business survey, the European business community was upbeat about business outlooks in 2016. Especially, many small and medium-sized European enterprises are interested in investment opportunities in Viet Nam.

She noted that the EVFTA will allow EU exporters to access to different areas including service sector like business service, environment service, post and express, banking, insurance, maritime transport, food, beverage, fertilizers, plastics, building material, ceramics.  

The Vietnamese Government has made numerous efforts to facilitate operation of the European businesses, highlighted Ms. Nicola Connolly.

She also praised the introduction of fresh laws including the revised Laws on Investment, Enterprises, Real Estate Business, and Housing.

However, the Chairwomen also expressed concerns over some problems like the violations of the intellectual property rights and training of skilled workers that Viet Nam needs to address.

Mr. Nicola Connolly suggested the Vietnamese Government pay attention to the issues named in the 2016 White Book which is expected to make public next month./.

VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VET/VIR