Vietnam’s banking sector is confronting multifaceted challenges from global financial upheavals to localised digital and environmental risks, emphasising an urgent recalibration towards robust risk management.

Nguyen Quoc Hung, vice president and secretary-general of the Vietnam Banking Association, stressed the paramount importance of risk management in the banking sector to mitigate latent risks at last week’s ASEAN banking seminar.

“Recent crises, including the collapse of Silicon Valley Bank and Signature in the United States, significant interest rate reductions by Chinese banks due to bad real estate debts, and the shutting down of prominent global investment bank Credit Suisse, have shed light on the weaknesses in banking risk management. This underscores an urgent need to establish and operate more effective risk management systems, including in Vietnam,” Hung said.

In addition, Vietnam’s banks are confronting traditional risks and those stemming from digital transformation, such as cyberattacks, system freezes, and personal data breaches, which could have severe implications for a bank’s financial standing and reputation.

“To cope with new banking operational challenges, local banks have constructed plans on digital transformation risks. Many banks have progressively adopted the international Basel III standards, established a three-tier defence line, and implemented International Financial Reporting Standards to enhance transparency,” Hung added.

According to a 2023 study by Oliver Wyman Risk Management Association, aside from recessionary concerns, the most frequently cited chief risk officer priorities over the next 12 months are all related to non-financial risk, including consumer compliance, cyber risk, fraud and financial crime, and operational resilience.

Each of these has different drivers for appearing in their top five risk priorities. For instance, consumer compliance concerns stem in part from high-profile consumer financial protection bureau enforcement actions and pressure on banks to eliminate unfair practices. Cyber risk, which was also overwhelmingly cited as a top risk facing the bank (80 per cent), has been exacerbated by recent geopolitical events. Concerns around fraud and financial crime tend to increase in a worsening economic environment.

“In particular, nearly 90 per cent of respondents view climate risk as either an emerging risk or a more mature risk that is material, with larger banks more likely to view climate as a risk that has ‘emerged’, rather than one that is still emerging,” the report noted.

Notwithstanding, regulatory bodies have been perceived as somewhat sluggish in addressing these burgeoning risks. They tend to require banks to frame their own risk management blueprints long before providing comprehensive regulatory guidelines.

Supporting this, Carey Hsu, head of Risk Management at Oliver Wyman in the US, cited examples at the event.

“The forest fires in Indonesia resulted in an economic loss of $5.2 billion, while floods in Malaysia led to economic damage and asset depreciation worth $1.4 billion.”

Singapore has further set a precedent in Southeast Asia, committing to phase out petrol-powered vehicles. With a proposed ban on the sale of internal combustion engine vehicles post-2030, the nation saw sales of electric vehicles surge to 8.4 per cent of total car sales in the first half of 2022, a doubling from the previous year’s figure.

Vietnam, on the other hand, is grappling with the potential early closure of its coal-fired power plants with 28GW capacity before 2040, leading to significant compensation for existing stakeholders and investors.

Tom Garside, head of Risk Management at Oliver Wyman in Singapore, highlighted that as global temperatures rise, nations like Vietnam could experience harsher weather events, escalated sea levels, and altered rainfall patterns. Such environmental changes could pose tangible financial risks to bank customers’ assets, eventually materialising as credit and market risks for local banks.

“Policy measures by governments to counteract climate change will inevitably reshape the economies of several sectors, such as palm oil and coal. These alterations will pose revenue and profitability challenges for bank customers, subsequently translating to credit and market risks,” Garside said.

“Increased scrutiny from the global customer and investor community will place ever greater responsibilities on banks to act righteously. Consequently, significant sectoral shifts among clients will alter revenue sources for banks, introducing strategic risks,” he added.

ASEAN Banking Association secretary-general Paul Gwee emphasised that, while Vietnam faces hurdles in its global integration, addressing both the country’s internal and external economic challenges is paramount.

“Banks must diligently assess the risks posed by climate change on their lending portfolios. Neglecting these concerns could escalate into substantial financial and reputational setbacks,” Gwee said. “Banks must proactively anticipate potential challenges, ensuring rapid crisis management, effective recovery from downturns, and efforts to diminish the overarching impacts of risks on the broader financial ecosystem.”

Southeast Asia's $100 billion opportunity for green mobility, clean power

In Southeast Asia, including Vietnam, low-carbon mobility and clean power have the potential to contribute $90 billion to $100 billion in revenues by 2030.
 
According to the new report, "Renewable Energy Manufacturing: Opportunities for Southeast Asia," the region's solar photovoltaic (PV) cells, battery, and electric two-wheeler industries presents an estimated $90 billion to $100 billion revenue opportunity by 2030, with a potential six million renewable energy jobs to be created by 2050.

The report is by Asian Development Bank, Bloomberg Philanthropies, ClimateWorks Foundation, and Sustainable Energy for All, and explores how to support the development of the clean energy manufacturing sector in Southeast Asia and help countries reap its immense economic potential while mitigating the impacts of climate change.

Accordingly, solar PV manufacturing capacity in Southeast Asia is largely concentrated in cells and modules, with the potential to achieve an aspirational capacity of 125–150GW module capacity by 2030.

Southeast Asia is deemed as a solar PV manufacturing hub with 2–3 per cent of the world’s polysilicon and wafer capacity and 9–10 per cent of the world’s cells and modules capacity. Production is concentrated in four countries: Vietnam, Laos, Cambodia, and Thailand.

According to countries’ power development plans, solar installed capacity in the region is expected to grow from 25GW in 2021 to 52GW in 2030, with an average annual capacity addition of about 3GW over the period. While the region’s module supply capacity is expected to grow as well, demand for imports might persist in individual countries with a smaller manufacturing footprint.

There is likely further room to encourage renewables deployment through policy. In the region, only Vietnam scores a ‘high’ on the World Bank’s Regulatory Indicators for Sustainable Energy score for renewable energy, suggesting that solar PV demand could further increase among countries that pursue regulations to promote adoption.

In addition, there is potential for Southeast Asia to develop a regional battery manufacturing value chain, increase national and regional demand, and establish itself as a regional and global export hub, producing 140-180GWh of battery cells by 2030.

In Vietnam, the growth of electric vehicles is the main driver of battery demand due to the high vehicle demand and the potential for vehicle electrification.

Meanwhile, assembly capacity for electric-two wheelers in Southeast Asia is 1.4–1.5 million units per annum, with the potential to reach four million units by 2030. For instance, Vietnam is projected to realise 15 per cent electric-two wheeler penetration by 2030, rising to 100 per cent in the following decade were the country to realise its target of 100 per cent electric-two wheeler sales penetration by 2040.

Vietnam contemplates crude oil supply sources to cover long-term strategies

Oil producers are actively expanding crude oil supply sources domestically and internationally to support the shrinking supply in Vietnam.

Bui Ngoc Duong, general director of Binh Son Refining and Petrochemical JSC (BSR) said refineries and petrochemical companies are increasingly looking for crude oil supply sources outside the country to satisfy the rising domestic demand.

He added that Vietnam’s crude oil production has continuously decreased, making it difficult to supply to the Dung Quat oil refinery. The factory’s demand has increased to 148,000 barrels per day, a figure that is predicted to reach 160,000-165,000 barrels per day in the 2024-2028 period and 171,000 barrels beyond 2028 after BSR completes an expansion.

PetroVietnam Oil Corporation (PVOil), BSR’s largest crude oil supplier, is purchasing the maximum amount of crude oil in Vietnam to supply BSR. The move not only reduces the dependence on imported materials but also eases the impact of input material costs on product prices.

PVOil has supplied 28.3 million barrels of crude oil of all kinds to BSR, equivalent to over 156,000 barrels per day.

Nguyen Duong Quang, director of the Crude Oil Division at PVOil, said, “We have negotiated with oil owners to purchase the maximum amount of in Vietnam for BSR. The company also supports BSR in the negotiation of a long-term purchase agreement to purchase from White Rhino oil field. The company also offers flexible loading and unloading options based on the actual capacity of the Dung Quat refinery.”

BSR will face some challenges for the crude oil supply during the next two years, including changes in export and import as well as other barriers in implementing the crude oil supply contracts.

Lim Meng Tong, a representative of Chevron, said, “Oil companies and traders are dealing with issues in crude oil production due to the fierce competition in international trade and conflicts in some parts of the world.”

Chevron’s crude oil production capacity stands at 1.44 million barrels per day, mainly from the United States, Canada, and some African countries.

According to state-run Vietnam Oil and Gas Group (PetroVietnam), crude oil reserves are depleting rapidly, and the company is studying the development of small and marginal fields that are suitable for Vietnam’s natural resources. The main reason is the reduction of investments in oil exploration. The number of newly-signed oil contracts has decreased significantly from 2015 to 2019, with one new contract each year. In the 2020-2021 period, no new contracts were signed.

Ta Vu Duy Hoa, deputy head of the Economic and Investment Department at PetroVietnam, said, “It is a huge challenge to maintain oil production in 2023 and beyond. The main fields are in the natural decline stage, leading to a decrease in domestic oil production. As of July 26, there were 82.9 million tonnes of crude oil supplied to Dung Quat, but domestic crude oil output only met 60-70 per cent of the plant’s demand.”

According to the International Energy Agency, global oil demand is forecast to rise gradually over the months and rise strongly in the second half of this year, reaching 103.2 million barrels per day and boosted by strong air travel and increased oil use in China. Oil demand in 2023 is higher than that of last year by around two million barrels per day.

Dialogue seeking measures for tourism held in HCMC

A dialogue between the municipal government and businesses on seeking problem-solving measures for tourism was held on August 29 by the HCMC Investment and Trade Promotion Center and the Tourism Department.
 
The talk received many proposals, such as a 50 percent reduction in appraisal fees for the grant of business certificates of domestic travel firms and issuance of tour guide cards, an 80 percent reduction on deposits for travel service businesses, and support policies for tour guides affected by the Covid-19 pandemic.

Speaking at the event, Director of the HCMC Tourism Department Bui Thi Ngoc Hieu said that the proposals will be the basis for research and seeking effective solutions as well as suggesting the ministries and departments to solve the out-of-scope problems.

Mooncake stalls seen in streets as Mid-Autumn Festival 2023 approaching

The Mid-Autumn Festival 2023 is approaching, and stalls displaying moon cakes of all kinds have been seen on many streets in the capital city of Hanoi lately.

Kiosks with a variety of cakes of different brands such as Kinh Do. , Dong Khanh, Huu Nghi, Bibica, Bao Ngoc, Hanoi Confectionery have been set up along streets Lang Ha, Le Van Luong, Ba Trieu, Thanh Nhan, Thuy Khue, Tran Thai Tong in Hanoi.

A female employee at a mooncake kiosk on Le Van Luong Street said that at this time, a few customers started to buy the cake. In comparison to other years, fewer customers bought the special cakes.

Similarly, moon cakes are also being displayed a lot in supermarkets, commercial centers, and convenience stores. The number of visitors at these places is more than the street kiosks, especially on weekends.

A representative of WinCommerce General Trading Services Company revealed the company will sell more than 1 million moon cakes to the market this year's Mid-Autumn Festival, with traditional flavors such as red bean and egg salt, lotus seeds, chia seeds, green beans, lotus puree, salted eggs, and mixed ham.

According to General Director of KIDO Group Tran Le Nguyen, this group has brought to the market about 450 tons of cakes. Similarly, Bibica planned to launch 600 tons of mooncakes of all kinds, an increase of 20 percent as last year.

Not only have enterprises making mooncakes for years and corporations and businesses owning chain stores and retail supermarkets have been racing to launch more mooncakes to the market this year but 5-star hotels are also advertising their cakes. According to a representative of Pan Pacific Hanoi Hotel, the hotel will launch a collection of moon cakes called "Kieu Lien Nguyet Lam" to promote the image of Lotus and West Lake - Hanoi.

In the southern market, some famous big hotels The Reverie Saigon and Windsor Plaza also offered discounts of up to 30 percent for the seasonal cakes making the mooncake retail market exciting.

Noticeably, the price of mooncakes this year increased slightly because units simultaneously adjusted their selling prices. An employee of Huu Nghi Mooncake Kios on Ton Duc Thang Street (Dong Da) said that the price this year increased by about VND 2,000 - VND20,000 a cake or the selling price fluctuates from VND 55,000 to VND400,000 a cake; thus, a box of mooncakes fetches VND 280,000 to VND1 million depending on type, weight, quality of raw materials.

Selling prices have gone up slightly by 5-10 percent because the price of input materials this year increased by about 10-20 percent. For instance, flour increased by 33 percent, paper boxes surged by 11 percent.

At the moment, due to economic difficulties, purchasing power is only about 50 percent of previous years. Many business agents believe that after the full moon of July onwards, especially from the beginning of August in the lunar calendar, the trading volume will be active due to the increased demand for buying moon cakes as gifts.

VSSA proposes increasing import quota to curb speculation

The Vietnam Sugarcane and Sugar Association (VSSA) proposed increasing the import quota to curb speculation.

The Vietnam Sugarcane and Sugar Association (VSSA) recommends its members participate in stabilizing the market to protect the interests of businesses and consumers. The association warned its members absolutely not to aid and abet those who conduct a hoard of goods with the aim of pushing prices for substantial profits.

According to the Association, there was a sign that some stores began to conduct good hoarding, resulting in increased prices of sugar. At the same time, recently, the food industry has proposed to expand the sugar import quota to at least 600,000 tons because domestic sugar factories cannot meet the needs of enterprises.

Previously, the association reported about sugar supply and demand in 2023 and the forecast of demand in 2024 to the Ministry of Agriculture and Rural Development proposing to control sugar imports under tariff quotas in 2023. In the 2022-2023 crop year, Vietnam's sugar industry has achieved the dual goal of raising the purchasing price of sugarcane to the same level as other countries in the region, while keeping the sugar price at the same level and lower than that of other neighboring countries including the Philippines, Indonesia and China.

Commenting on importing sugar under tariff quotas in 2023 with a minimum output of 119,000 tons, the Association proposed to the Ministry of Industry and Trade to adjust the regulations on bidding for tariff quotas to ensure that the auction results are delivered following the requirements of the Competition Law and the Bidding Law.

After implementing the auction volume of 119,000 tons of tariff quota, the associations will continue proposing the Ministry of Agriculture and Rural Development and state management agencies to lift tariff quotas in 2023 if the association realizes that sugar prices increase due to lack of supply or the hoard of the commodity.

Minimum level to attract PPP investment proposed at VND5 billion

The HCMC Planning and Investment Department is collecting ideas for the draft Resolution of the HCMC People’s Council on minimum level of PPP investment in the fields of healthcare, education, sports, and culture.

The scale of a minimum investment amount in a Public-Private Partnership (PPP) project in the healthcare, education – training, sports, and culture aspects is one key content in Resolution No.98/2023/ QH 15 about piloting a number of specific mechanisms, policies to develop HCMC.

The draft Resolution submitted to the HCMC People’s Council proposes that in the healthcare field (medical institutes for disease diagnosis and treatment, preventive medicine, medical testing), the investment for a project can be from VND25 billion (US$1.03 million). The education – training field can accept three investment levels of VND5 billion ($206,700), 20 billion ($826,800), or 100 billion ($4.13 million) depending on the building scale. The minimum investment level for the sports and culture fields is VND45 billion ($1.86 million).

These suggestions will be presented to the HCMC People’s Council for consideration and approval in the meeting this September.

At present, the minimum investment amount for a PPP project in the aspects of education – training and healthcare is VND100 billion ($4.13 million). However, the HCMC Planning and Investment admitted that this regulation is rather high and does not include the two fields of sports and culture.

Reality shows that since the effective time of the PPP Investment Law, HCMC has not been able to launch any PPP project in the above fields.

Vietnam’s vegetable exports reach record high

Over eight months, Vietnam’s exports of fruits and vegetables reached approximately US$3.5 billion, marking an almost 56% increase compared to the corresponding period in 2022 and establishing a record high.

The country’s export value of fruits and vegetables during the period has surged past the entirety of last year's figures, as indicated by preliminary customs data.

This achievement has been primarily driven by the substantial contributions of durian and dragon fruit. Notably, durian exports alone accounted for 30% of the total turnover over the eight months. Forecasts suggest that durian's momentum will likely propel vegetable and fruit exports to surpass this year's targets of $5 billion.

Dang Phuc Nguyen, General Secretary of the Vietnam Fruit and Vegetables Association (VinaFruit), attributed the positive export performance of these commodities to heightened demand from the Chinese market.

Moreover, the repercussions of droughts and floods in various countries prompted an increased import of Vietnamese fruits and vegetables.

Anticipating September, when supplies from Southeast Asian nations become scarcer, the price of Vietnamese durian is expected to continue its ascent. The projection for durian exports throughout the entire year stands at around $1.5 billion.

In the immediate future, Vietnam's jackfruit is poised for a significant surge in the Chinese market, driven by heightened demand in that country. In particular, China is moving towards allowing the official export of Vietnamese fresh coconuts. Approval of this move would lead to remarkable advancements in coconut exports, particularly following recent US permission for Vietnam to export fresh coconuts.

Within the context of the Dong Dang - Lang Son economic zone, the management board highlights China's consistent quality requirements for Vietnamese agricultural exports, particularly in terms of pest control for fruits.

China maintains a stringent regime of 100% inspection for agricultural products and fruits imported from Vietnam. Should any pests be detected, China responds with severity, potentially resulting in the entire shipment being sent back. As a result, authorities advise businesses to exercise vigilance and strict quality control to avoid compromising their reputation within a market of billions.

As per the records from the Import-Export Department under the Ministry of Industry and Trade, China stands as the primary destination for the import of Vietnamese fruits and vegetables. Over 7 months, the export value of these products to China amounted to $2 billion, reflecting a remarkable surge of over 128% in comparison to the corresponding period in 2022.

The US follows as the second largest export market, with exports of fruits and vegetables reaching slightly over $140 million, albeit marking a decrease of more than 11% in contrast to the same timeframe last year. The South Korean market witnessed an increase to $125 million, up by 13%, while Japan recorded an export value of $105.6 million, marking a growth of 5.5% compared to previous statistics.

Vietnam's LNG power projects face contractual hurdles and rising import costs

Vietnam's ambitious journey into liquefied natural gas (LNG) power projects is facing stumbling blocks, as protracted contract negotiations threaten the progress of key initiatives.

Nguyen Duy Giang, deputy director general of PV Power, a prominent power company in Vietnam, highlighted the challenges surrounding the Nhon Trach 3&4 LNG power projects.

"The most challenging aspect at present is the protracted power purchase agreement (PPA) negotiations between PV Power and the Vietnam Electricity (EVN)," Giang said.

According to Giang, while PPA discussions have spanned two years, an official agreement remains elusive. The sticking point seems to be the commitment to annual electricity volume from EVN's end.

"PV Power proposed a guaranteed annual electricity output of 90 per cent for a 15-year term, coinciding with the project's debt repayment duration. However, the purchasing party deemed this proposal unprecedented and seeks additional opinions from higher authorities. We have encountered numerous complications and require governmental support to overcome them," he said.

Another pressing concern is the pricing and guarantee of annual power outputs, along with the high cost of imported LNG. These concerns echo the sentiments of Thai Thanh Phong, deputy director of Dong Nai Department of Industry and Trade, who emphasised the importance of harmonising power rates and adjusting to the fluctuating costs of LNG.

Phong said, “The Nhon Trach 3&4 LNG power plants are progressing on schedule, with commercial operations of unit 1 anticipated in 2024 and in 2025 for the subsequent units. However, the project still faces challenges relating to LNG imports, gas pricing policies, and storage, which complicate contract finalisation. Furthermore, EVN has not yet agreed on electricity purchasing prices with the project owner.”

Investors in LNG power projects are finding their biggest hurdles to be the negotiations on electricity prices and annual power offtake commitments.

Giang added, “Nhon Trach 3&4 are Vietnam's inaugural LNG power projects, and no precedent exists for volume-guaranteed contracts for such undertakings. Hence, PV Power permits LNG projects to transfer gas prices to electricity costs, pledging a long-term annual electricity volume to ensure efficient capital mobilisation.”

He noted that if firms lack government backing and electricity guarantees, executing projects on schedule becomes implausible. If this issue remains unresolved, other LNG projects might also become unfeasible.

LNG-based electricity projects are pivotal to Vietnam's pledge of net-zero emissions by 2050, as committed by the Prime Minister Pham Minh Chinh at COP26.

According to EVN, there has been a sharp decline in the Southeast's gas supply from PetroVietnam and PV Gas since 2020, owing to declining gas field outputs.

Meanwhile, PV Gas also revealed that by 2024, the natural gas supply in the southeastern region is expected to only meet around 33 per cent of the fuel requirements for power plants.

Consequently, PV Gas has proposed LNG as a supplementary or replacement fuel.

In light of dwindling domestic natural gas supplies, EVN asserts that there is a pressing need to consider supplementing existing power plants with imported LNG.

This is particularly true for the build-operate-transfer (BOT) Phu My 2.2 and Phu My 3 thermal power plants.

After their handover to Vietnamese authorities in 2024 for Phu My 3 and 2025 for Phu My 2.2, they will solely rely on imported LNG for fuel. The shift is attributed to the cessation of domestic natural gas commitments for both plants, as contracts related to the BOT project conclude and domestic suppliers allocate their gas to other long-term consumer contracts.

However, incorporating imported LNG poses challenges.

An energy consultant revealed, "The cost of bringing LNG to Vietnam currently stands between $10-12 per million BTUs. When considering storage, regasification, and transport expenses, the price at the gateway to the Phu My power plants will reach $12-14 per million BTUs, a staggering 50 per cent higher than existing domestic gas prices."

This elevation in cost will inevitably boost the power generation expenses of these plants, leading to increased electricity purchasing costs for EVN and potential repercussions for the economy.

Given the recent global market fluctuations and volatile fuel prices, EVN urges scrutiny of the commitments regarding fuel offtake guarantees. These need to be aptly synchronised with the operational capacities of power plants at different stages to minimise contractual risks.

Moreover, EVN suggests recalibrations if PV Gas, which operates existing gas pipelines, takes charge.

EVN highlighted, "The transportation tariffs for previously operational pipelines, which have recovered their investment costs, should be reevaluated. Redundant charges while integrating LNG sources should also be avoided," adding that these changes should be reported to the Ministry of Industry and Trade for approval as per the Pricing Law.

Signs of M&A flourish in healthcare arena

While mergers and acquisitions in Vietnam’s healthcare sector show some signs of flourishing, the sector needs more drivers to grow.

Ha Tay Pharmaceutical Company (Hataphar) in mid-August approved the plan to issue 8.4 million shares for individual offering to Tokyo-headquartered Aska Pharmaceutical Co., Ltd. The transaction is expected to be completed in the next few months, with proceeds of $7.62 million.

In 2020, Aska acquired 24.9 per cent of Hataphar. With the new move, the Japanese firm will increase its stake to 32.56 per cent. In recent months, the healthcare market has witnessed other merger and acquisition (M&A) deals. In early August, South Korea’s Dongwha Pharm acquired 51 per cent of Trung Son Pharma for $30 million. The acquisition, slated for completion in late October, aligns with the South Korean company’s ambitions to expand into the Southeast Asian pharmaceutical and beauty market.

Trung Son Pharma, founded in 1997, manages more than 140 pharmacy chain stores in Southern Vietnam and reported approximately $569.62 million in revenue last year. It has grown 46 per cent on average annually since 2019.

In July, SGX Mainboard-listed healthcare group Thomson Medical Group announced plans to acquire FV Hospital. Kiat Lim, executive vice chairman of Thomson Medical, said that Vietnam was a long-term strategy for the group, and it hoped to continue to invest holistically in the market beyond capital investment.

“We’re excited about the upcoming new wing of FV Hospital, which will expand our specialist centres in cancer treatment, gastroenterology, cardiology, and fertility medicine – to name a few. And we hope to continue to invest in FV Hospital so that we continue our leadership in delivering excellent, cutting-edge care,” Truong Thanh Son, founder of Trung Son Pharma, told VIR.

According to the latest update to PwC’s Global M&A Trends in Health, pharmaceuticals, life sciences, and healthcare services continue to attract substantial investor interest, and it expects this to continue during the latter half of 2023.

“Large-cap pharma companies continue to pursue investments in midsized biotech companies to bridge pipeline gaps, while portfolio reviews and divestitures of non-core assets remain top of mind. Private equity firms are eager to deploy their dry powder by acquiring innovative healthcare assets,” the report stated.

Experts attributed the market’s attraction to a rising middle class, acceleration of digital transformation, rising healthcare demands, an ageing population, and challenges in the public hospital system.

Nguyen Thu Cuc, chairman of the board at Thu Cuc Medical & Beauty JSC, said, “The potential for private healthcare development in Vietnam is huge. With 100 million people, rising incomes and intellectuals, and growing demand for high-quality and well-served medical services, it is certainly an inevitable trend.”

Many M&A transactions in the healthcare market have been reported in recent year, with some showing signs of success. Since taking over Pymepharco in 2020, Stada Service Holdings B.V has opened new directions for comprehensive and sustainable development. Pymepharco, as an official member of Stada Group, is mainly involved in manufacturing and trading of prescription drugs and functional products.

In February, an agreement between Gigamed and Pymepharco-Stada marked a significant expansion in the latter in terms of go-to-market approach, coverage, and customer value management. Gigamed now provides logistics services and sales force platform in the retail market including independent pharmacies, pharmacy chains, and other healthcare providers.

“The partnership with Gigamed will help Stada seize new opportunities, accelerate growth, and expand its consumer healthcare business in the Vietnamese retail market,” said Christos Gallis, vice chairman of Stada Group and CEO of Pymepharco-Stada.

At Traphaco, with Daewoong being a strategic shareholder since 2018, the company has changed its business strategy towards focusing on technology transfer and an international market approach. Traphaco general director Tran Tuc Ma said, “The presence of the South Korean shareholder has brought about plenty of changes. The first and most considerable change was in the vision and strategy towards shifting to a more focused direction on new drugs.”

Despite signs of flourishing, experts said that the market needs more drivers to facilitate M&A deals in the months to come, with legal reform and market openness being among the key areas.

According to the PwC report, regulatory scrutiny has already caused delays in larger deals announced in the first half of 2023, prompting dealmakers to approach prospective transformative deals with caution.

Ngo Thanh Hai, lawyer at LNT & Partners, said, “High interest rates, challenging economic conditions, and a persistent gap between buyer and seller price expectations hampered some dealmaking. These issues are important drivers for dealmakers to make decisions,” he noted.

Hai said the Ministry of Health is amending some decrees, circulars, and laws to facilitate businesses and investors in this area. “However, it will take months or even years for them to be effective. Moreover, businesses are concerned about cumbersome administrative procedures and inconsistent legal performance. They are still barriers for them,” Hai said.

Semiconductor groups go all-out with local investment

Vietnam’s semiconductor potential is being bolstered by the development of manufacturing complexes and related capabilities.
 
Do Van Su, deputy director of the Foreign Investment Agency under the Ministry of Planning and Investment, revealed that in a recent meeting upon their survey in Vietnam, the US Semiconductor Industry Association recognises Vietnam as the future’s semiconductor powerhouse.

“With its unparalleled strength as a manufacturing hub, producing sophisticated smartphones and electronic components, Vietnam stands poised to lead. US investors see more than just potential here. They see a thriving future,” Su said at last week’s VIR conference on grasping opportunities from new capital inflows.

Due to surging foreign interest in Vietnam’s semiconductor sector, the potential for the country’s industrial parks is immense, he added.

US President Joe Biden on August 9 issued an executive order, restricting domestic corporations from investing in key tech sectors in China, requiring them to report any new investments there. Following this, the European Commission and the United Kingdom are considering similar restrictions. This intensifies US-China trade tensions, potentially impacting global investments.

The prevailing question, however, is whether this presents an opportunity for Vietnam. “Decent prospects are possible, particularly if American and European businesses consider relocating their investments and production from China to third countries, including Vietnam,” said Prof. Nguyen Mai, chairman of the Association of Foreign-Invested Enterprises.

A raft of movement has taken place in the last few months alone. In mid-July, solar power titan Runergy announced $293 million investment into a silicon and semiconductor manufacturing facility in Nghe An Economic Zone.

The new facility’s capacity, projected to yield an annual output of over 14,600 tonnes of silicon and almost one billion semiconductors, marks a significant step forward in Vietnam’s tech landscape.

A few weeks previously, South Korean component maker LG Innotek confirmed a $1 billion investment to build a manufacturing facility for advanced smartphone camera modules and other optical products in northern Haiphong city.

Meanwhile, South Korea’s Amkor also announced plans for a $1.6 billion semiconductor plant in the northern province of Bac Ninh. The plant, which is slated to be Amkor’s largest facility worldwide, is scheduled for trial production by the end of October.

German global semiconductor solutions provider Infineon Technologies AG has also unveiled plans to expand its operations in Vietnam. By the end of 2023, Infineon expects to have assembled a team of around 25 technical experts within the chip development division.

In May, South Korean chip equipment giant Hanmi Semiconductor Company announced the introduction of its local arm, Hanmi Vietnam, confessing its confidence in Vietnam as a burgeoning production hub for global semiconductor behemoths.

More recently, Chinese tech company Victory Giant in August selected VSIP Bac Ninh industrial zone as the location for a $400 million project that anticipates annual production value of approximately $1 billion when operational.

Earlier in the same month, Prime Minister Pham Minh Chinh tasked some relevant ministries to develop a plan to train between 30,000 and 50,000 engineers and 100 experts in digital transformation and manufacturing semiconductors.

Among its advantages, Vietnam boasts significant reserves of rare earth materials (approximately 22 million tonnes), ranking second globally behind only China, according to the Ministry of Natural Resources and Environment.

Do Cao Bao, a board member of FPT Group, highlighted that despite possessing vast reserves, Vietnam only exported 4,300 tonnes of rare earths in 2022, valued at around $200 million. Thus, collaborations with foreign investors, such as those from South Korea, could unlock massive opportunities for Vietnam.

“Vietnam is swiftly becoming the world’s new rare earth supply hub. The intended establishment of the Vietnam-South Korea supply centre for rare earths and core minerals aims to reduce western countries’ and South Korea’s reliance on China for global rare earth supplies,” Bao said.

Exploiting these rare earths presents a golden opportunity for Vietnam to attract further foreign investments, especially from the US and Europe, in high-tech and the semiconductor industry. Nevertheless, as Prof. Mai asserted, the real challenge is how prepared and responsive Vietnam will be.

“Without policies that align with global norms and are competitive internationally regarding the implementation of the global minimum tax, Vietnam will struggle to engage in investments in high-tech sectors and large-scale projects,” Mai said.

Notable businesses ramp up dedication to greener causes

Practising business initiatives to create a greener supply chain and protect the environment is becoming an optimal solution for enterprises in support of their sustainable development goals.

Nguyen Quang Vinh, vice president of the Vietnam Chamber of Commerce and Industry, said at last week’s Sustainable Business Forum in Hanoi that the circular economy was emerging as a typical trend in global sustainable business when opening up market opportunities to $4.5 trillion annually, according to research from Accenture Strategy.

“Businesses need to seize opportunities and align long-term growth processes with the sustainable benefits of the community, environment, and society,” Vinh said. “The success of an enterprise is now not only reflected in financial numbers but also in its ability to adapt, withstand and recover from unprecedented challenges.”

Building a green supply chain and developing business models towards the goal of reducing carbon is becoming a key pillar for businesses. Nguyen Thi Ngoc Hue, director of Communications and External Relations at AEON Vietnam, said the business had implemented a number of initiatives to support customers and employees to raise awareness and establish sustainable consumption habits.

For just over a year, an environmental bag rental service has been deployed throughout the AEON supermarket system, contributing to reducing the consumption of plastic bags at the brand’s supermarkets and department stores.

“There are about 2,000 customers who refuse to use plastic bags every day when shopping, and the number of environmental bag rentals has reached about 20,000 per day,” Hue said.

AEON Vietnam has converted packaging and plastic bags at supermarkets into environmentally friendly materials, and 98 per cent of shopping bags at AEON locations are now biodegradable.

“AEON accepts an increase in costs in the short term to spread a green lifestyle to customers, but the long-term value we receive is the love for the brand and the trust from customers and partners,” Hue said.

Nestlé is also a brand that is running initiatives that focus on green and ethical activities, such as helping Vietnamese children stay active, using digital technology to help farmers manage their farms better, utilising the circular economy in coffee processing, and promoting women’s empowerment and income generation.

“Creating value for society is Nestlé’s driving force in Vietnam,” said Binu Jacob, chairman and CEO of Nestlé Vietnam and co-chair of Vietnam Business Council for Sustainable Development. “For decades, businesses have focused on total shareholder return. However, for sustainable and long-term development, businesses not only create value for shareholders, but also need to create total societal impact,” he added.

The NESCAFÉ Plan sustainable coffee farming programme, launched by Nestlé in the Central Highlands provinces 12 years ago, has led to 22,000 farmer households gaining access to and practising sustainable coffee production. The initiative has also contributed to reducing 20 per cent less pesticides and 40 per cent water savings, helping farmers to increase their income by up to 100 per cent by applying reasonable intercropping models.

Climate change is threatening coffee production as suitable land for coffee cultivation shrinks, and bean quality and yields decline, according to a report by HSBC in August.

In the report, as many as 125 million people depend on coffee production for their livelihood, but rising temperatures and a changing climate have put plantations under threat. “Global demand for coffee is likely to triple its production by 2050. In our view, improving the sustainability of this vast industry will be key to limiting its social and environmental impacts across the entire value chain,” the report said.

Utilising waste is another green practice that more and more businesses are embracing.

“Optimising resources in agricultural farming, using renewable energy will help businesses save millions of US dollars per year, increasing revenue and profit, and enhancing brand value when going to the international market,” said Nguyen Trung Anh, director of research and development of The PAN Group.

The company’s shrimp processing industry deals with about 7,500 tons of shrimp heads and shells, according to Trung Anh. Instead of having to spend a lot of money to treat this waste, the group has partnered with a shrimp shell processing company to collect an additional $600,000 per year from processing shrimp shell by-products.

“This is one of the recycling production models that helps businesses both save production costs, maximise profits, and more importantly, help businesses move towards realising a sustainable development model,” Anh said.

CBAM warrants steel exporter reaction

Steel exporters will need a robust response following the European Union’s new carbon border tax, which will be valid from October.

The European Commission adopted the Carbon Border Adjustment Mechanism (CBAM) on August 17 after two years of negotiations. The new regulatory framework will have far-reaching consequences for non-EU producers and importers, notably in the iron, steel, aluminium, cement, fertilisers, and hydrogen sectors, which are particularly sensitive to carbon leakage.

Under the new rules, companies will face penalties of up to $55 per tonne of carbon emissions if they fail to comply with reporting requirements from October. From 2026, the tax will apply to items made of high-carbon materials.

The first 18 months will allow EU member states time to implement new policies to enforce CBAM requirements. Variation will be permitted throughout the trial period, but a unified EU norm will take effect in 2025.

South Korean steel enterprise Posco believes that becoming carbon-neutral will not be easy. In fact, if carbon emissions are not reduced, it will be difficult to achieve competitiveness due to the increase in product prices due to tariffs.

At a conference on the issue in Hanoi in July, a representative of Posco Group said, “I went to Europe five times last year to talk about this issue. The EU also said that there are still some issues related to the mechanism. However, they are still resolute with the roadmap.”

Steel enterprises, including those from Vietnam, must comply with the reporting regime. “This will be a trade barrier for the steel industry, requiring businesses to have a common voice to go further and respond to the mechanism,” he added.

Dinh Quoc Thai, general secretary of the Vietnam Steel Association (VSA), said that if steel enterprises do not respond well to the CBAM, the volume of exports to the EU and the two-way trade in steel with the EU will be affected.

“What is the most dangerous is losing more other markets when these countries are also considering applying similar regulations to the CBAM. The need to comply with it cannot be delayed, and steel exporters to Europe must master it in order to properly apply it and not be violated,” he warned.

In the first six months of this year, Vietnam’s trade surplus of goods to the EU was estimated at $14.5 billion, down 9.8 per cent over the same period last year.

However, among them, steel export reached 1.36 million tonnes with export turnover reaching about $1 billion, an increase of 1.5 times compared to the same period in 2022 and a slight decrease in export value, according to the VSA.

The CBAM will also be a burden for Vietnamese steelmakers when exporting to the EU due to a lack of domestic carbon pricing, and also for steel producers to accelerate the decarbonisation of their operations.

Vietnam plans to pilot a carbon trade exchange by 2025, which will be officially operating by 2028.

“In 2028, the official carbon credit exchange will be organised to operate, regulating activities to connect and exchange domestic carbon credits with the regional and global carbon markets. This will be a test for Vietnamese businesses in reducing greenhouse gas emissions,” said Pham Van Tan, deputy director of the Department of Climate Change under the Ministry of Natural Resources and Environment.

According to the roadmap, enterprises in the list of large emitters are also required to develop emission reduction plans from 2026 onwards. During the pilot phase, major emitters such as steel, thermal power, solid waste management, and cement production will be tasked with inventorying emissions according to the list promulgated by the prime minister.

Green transition placing pressure on labour market

Vietnam has a mountain to climb to create enough qualified workers for new roles in the country’s green energy transition.
Despite a clearer direction since net-zero vows were made in 2021, Vietnam will continue to face challenges stemming from human resources that do not meet the requirements of such a transition.

“At this moment, the demand for green skills is outpacing its availability. Around 60 per cent of young people may lack the necessary skills to thrive in the green economy by 2030,” United Nations Resident Coordinator in Vietnam, Pauline Tamesis, told a green skills education workshop earlier in August.

Nguyen Ngoc Duyen, a national skills development project coordinator at the International Labour Organization, said that the share of job postings requiring a worker to have at least one green skill jumped 22 per cent from 2022 to 2023. In addition to areas including renewable energy, environmental protection, logistics, and green jobs are also present in all traditional industries.

“A green job is not only a production process that meets environmental protection standards. It is also a satisfactory job when employees have good income and higher working productivity, as defined by the ILO,” she said.

The ILO estimates that there will be about 7 million jobs lost and 25 million new ones created from the green transition globally by 2030. Asia-Pacific is the region that stands to benefits the most.

The transformation of the employment system has posed the challenge of developing skills to meet new job requirements, especially training for workers in occupations that are at risk of disappearing due to the green transition.

“Around 14 million new jobs will be created if regional countries continue to invest in the environment, and Vietnam is no exception,” Duyen shared. “Changing job opportunities require young workers to prepare basic knowledge and learn skills involving efficient use of resources, engineering, operation, supervision, and soft skills. These are the necessary preparations to meet the new requirements of the economy.”

The results conducted by the World Bank in collaboration with the General Statistics Office show that green jobs account for nearly 4 per cent of total jobs in Vietnam and are present in nearly 40 occupations. However, 90 other occupations that currently hold more than 40 per cent of total employment have great potential to become green occupations in the future.

“Each sector has green jobs, even though they do not directly provide environmental goods and services. For example, environmental engineers and conservationists are green careers in the mining industry, while agriculture has the highest concentration of potential green jobs,” cited Abla Safir, senior economist at the World Bank.

According to the World Bank, Vietnam’s green employment rate is equivalent to that of the United States, Indonesia, and Cambodia. This rate will also increase as investment trends for the environment and sustainable development are top priorities in many countries, leading to an increase in the demand for labour in respective fields.

According to Deloitte’s 2023 CxO Sustainable Development Report, three-quarters of businesses globally have increased their investment in sustainability over the last year. Studies reveal that about 70 per cent of employees feel that a sustainability initiative makes an employer more appealing.

“Recruitment adverts mentioning businesses’ environmental, social, and governance efforts often draw in a larger number of candidates, especially young ones,” Nguyen Thanh Huong, country human resources manager at Manpower Group Vietnam shared.

ManpowerGroup is currently assisting many businesses to find candidates for hundreds of green job positions, including full-time work and labour outsourcing. The company says manufacturing, energy, agriculture, and technology industries have the highest demand for green personnel.

Agricultural enterprise GREENFEED Vietnam has also complained about the lack of qualified workers.

Chief people officer Nguyen Tam Trang said, “The company seeks as many as 2,000 employees in addition to the 4,000 currently working at member companies of the group. However, it is not always possible to recruit enough personnel to meet such needs.”

To be proactive in human resources for greening, the company has cooperated with more than 40 universities and colleges to implement programmes to award scholarships, sponsor scientific research activities, and create internship opportunities for more than 400 interns each year. The enterprise also organises factory tours, soft skills training, and sharing sessions between its leaders and students.

As of the first quarter of 2023, nearly one-fifth of graduates from the Grow Talents joint training programme, launched by the company in 2020, have become full-time employees at the group’s business units.

“We also implemented an in-house training system to develop global competencies for all positions. Last year, the group conducted over 86,000 hours of employee training,” Trang said.

Le Thi Nhu Hang, business manager at Navigos Search for South Vietnam, said that the demand for human resources in agriculture, forestry, and fisheries is increasing, and most enterprises said that there is a serious shortage of highly qualified people.

She advised that businesses need to have good remuneration policies for employees in terms of income, working environment, and a transparent promotion roadmap to attract stronger workers.

“Agricultural enterprises also need to focus on recruiting highly qualified, professional, and passionate personnel and understanding the nature of the industry to build resources for modern and sustainable development,” she added.

Source: VNA/SGT/VNS/VOV/Dtinews/SGGP/VGP/Hanoitimes