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Vietnam – bridging Southeast Asia and the Middle East
October 28, 2017, 12:29 pm
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Today, Southeast Asia is one of the world’s most fascinating economic regions. The market has more than 630 million inhabitants and a combined GDP of approximately US$2.4 trillion. It comprises ten fast-growing economies of the Association of the Southeast Asian Nation (ASEAN), that range from very advanced and developed, high-income level countries such as Singapore, to the ones that have recently transformed to the market mechanism such as Cambodia, Laos and Vietnam. ASEAN declared the establishment of the economic community in 2015 and currently pursues a number of free trade agreements (FTA) with its major trading partners such as China, Japan, Korea, India, Russia and the United States. This includes efforts to negotiate the Regional Comprehensive Economic Partnership as an alternative for the Trans-Pacific Partnership Agreement (TPP) after the US’s withdrawal. Singapore, Malaysia and Vietnam have signed the TPP.

Twenty two years after joining the ASEAN, Vietnam has successfully shifted its status from a new, less developed member to acquire an increasing influence and stature in the group, both politically and economically. This can be attributed to a proactive international integration strategy that has dramatically expanded Vietnam’s network of economic relations over the past three decades. Home to 92 million people, with GDP of over $200 million, sustained annual economic growth rate of 6-7 percent and GDP per capita of over $2200, Vietnam has now become a bright spot in the Southeast Asian region. For those who are interested in exploring new business opportunities beyond traditional markets, Vietnam definitely can serve as a linchpin to connect the Middle East to Southeast Asia. 

Geo-strategic significance: Vietnam has been gifted a long coast line which lies along one of the world’s most busiest shipping routes in the South China Sea (called East Sea in Vietnam) and which connects Europe, Middle East and South Asia with East Asia and North America.
However, because of its strategic importance, the East Sea is also an area of contest among several countries in the region who claim their territorial sovereignty over swathes of the Sea. For instance, in 1974, China used force to seize the Paracel Islands, one of two major archipelagos in the East Sea, which were under the control the southern regime of Vietnam.

This geographic location not only puts Vietnam at the center of highly contested international trading routes, but also makes it home to significant oil and gas reserves and abundant fish supplies. The country is also well-known for its beautiful beaches that attract every year millions of tourists who come from all over the world.

Together with Cambodia, Laos and Myanmar, Vietnam has actively participated in a dense web of linkages in the Mekong sub-region, including the construction of the economic corridors and ambitious sub-regional development triangle initiatives. These arrangements are essential to support the integration of late-comers to the ASEAN bloc and to narrow their development gap with the rest of the group. The infrastructure improvement, for example, the construction of the sub-regional highways, has tremendously increased the connectivity across the Mekong sub-region. Besides the development organizations such as the Asian Development Bank, China, the US, Japan, Republic of Korea, India and the European Union (EU) have also come up with several initiatives both to assist the Mekong countries and to seek new business opportunities in this emerging market.

As a close neighbor to the southern provinces of China, Vietnam is an ideal place for the multi-transnational companies to implement their China plus One Strategy. This strategy refers to the exit option for the international investors from China because of rising labor cost and prospect of an economic hard landing in that country. By relocating to factories in Vietnam, investors can tap a pool of cheaper labor while remaining connected to the well-developed supporting industries in China and having convenient access to the Chinese market. Samsung, the giant South Korean conglomerate, recently built a mega-factory in Vietnam to export its products to the global market. In addition, Vietnam has significantly improved the business environment and turned on its charm to international investors. As part of this effort, after years of discussions, the Vietnamese government has decided to establish three special economic zones which promise to offer the best global-standard business environment to foreign investors.

Vietnam - A gateway between Middle East and Southeast Asia: As two distant tales across the Indian Ocean, the linkages between Southeast Asia and the Middle East can begin with a story of “food for oil” relations and go further beyond this. The Middle East stands out as the wealthiest energy region with the world’s biggest oil producers and exporters, whilst Southeast Asia is a formidable global manufacturing powerhouse with large oil consumers. Due to vast desert wilderness, the Middle East is the largest food import region in the world. Meanwhile, agricultural products are well-known as the key export commodity of many ASEAN countries. This reflects a complementary trade structure between two regions and similarly between Vietnam and many Middle East countries.

The engagement of Vietnam in linking these two regions lies in its close economic ties with the Middle East, which places Vietnam as a gateway to access Southeast Asia and, to a greater extent, East Asia. The Middle East is not only a promising export market for many Vietnamese products but also currently hosts millions of Vietnamese workers with countries such as Kuwait, Qatar, United Arab Emirates and Saudi Arabia being the most favorite destination. In 2016, trade volume between Vietnam and the Middle East countries soared more than 100 percent to $10.887 billion compared to 2011. The export value was worth of $8.059 billion with major commodities being rice, coffee and pepper.

Apart from agricultural products, Vietnamese export goods to the Middle East in recent years have included leather and footwear, electronic components and devices. As a magnet to foreign investment, Vietnam has begun to lure investors from the Middle East, especially in technology and energy-related projects, such as oil refinery and petrochemical complex. As of August 2017, total registered direct investment from the Middle East reached $816.36 million. At the same time, Vietnamese investment has engaged in projects related to oil and gas exploration and production in the Middle East. Yet, the exchange of trade and investment between Vietnam, as well as other Southeast Asian countries, with the Middle East is still modest compared to its vast potentiality. Despite its serious efforts of economic diversification, Vietnam’s major trading partners are still limited to a few East Asia countries, the US and the EU.

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Vietnam is going to host the 25th APEC Summit in November of this year. Leaders of 21 economies in the Pacific Rim will gather in Da Nang – a scenic coastal city in the central part of Vietnam, to discuss various development issues, ranging from economic liberalization to inclusive and sustainable economic growth. Taking the lead in many discussions of APEC 2017, Vietnam has the opportunity to direct the attention of business community and economic leaders to the Middle East. “Pivoting to Southeast Asia” and using Vietnam as a bridge, should now be a priority for the investors from the Middle East. By doing business with Vietnam, investors will have an open access to a vast market of Southeast Asia and East Asia.

 


 

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