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Vietnam’s Economic Diplomacy and Business Opportunities
October 28, 2017, 12:24 pm

“If the goal of traditional diplomacy is peace, then the goal of economic diplomacy is peace and prosperityË® - Julia Bishop, Australian Minister of Foreign Affairs.

Vietnam seems to be on the right track in the pursuit of prosperity by promoting a creative diplomatic strategy and offering an attractive business environment. 

During the journey from a command economy to a free market system, Vietnam is proving to be the next Asian economic tiger with its amazingly loud roars over the past three decades. Foreigners who only know this country by documentaries, shared memories of the Vietnam War and even those who have set foot on this soil previous to the 1990s would never imagine how rapidly things have changed here. Today, when people talk about Vietnam, it not about the dramatic moments in the country’s tumultuous history and harrowing scenes of extreme poverty, but of a dynamic, fast-growing and fascinating country and people.

Vietnam’s economy has steadily expanded at an annual gross domestic product (GDP) growth rate of 6-7 percent, which continues to attract a rising tide of foreign investment. Such miraculous achievements are fruits of the extensive economic reforms launched in the mid-1980s, known as Doi Moi (Renovation), followed by the ‘opening policy’ after decades of isolation.   

Diversifying External Economic Relations: Three decades after the beginning of Doi Moi, Vietnam currently has the economic ties with more than 200 countries and territories. It also maintains a network of close partnerships with major powers and economies in the world, including all permanent members of the United Nations (UN) Security Council. These ties are structured along different tiers, such as comprehensive strategic partners, strategic partners, and comprehensive partners.

Regional integration occupied an important place at the dawn of the opening policy. In 1995, Vietnam joined the Association of Southeast Asian Nations (ASEAN). Its commitments to implementing ASEAN’s integration projects such as regional free trade area (AFTA) and investment area (AIA) presents a very first step towards Vietnam’s ambitious strategy of diversifying external economic relations. Three years later, Vietnam became a member of the Asia-Pacific Economic Cooperation Forum (APEC). However, what really marked a milestone was Vietnam’s attempts to leave behind the bitter past and normalize diplomatic ties with the United States (US). Closer relationship with the US undoubtedly provided Vietnam with greater confidence to upgrade its international status and open a new chapter for its integration into the global economy.

Holding high the banner of diversification, multi-lateralization and cooperation with all countries, Vietnam has actively built economic relations with a spectrum of partners from emerging to developed economies and from neighbor to countries far-away. In addition, Vietnam has partnered with key international organizations such as the World Bank (WB), International Monetary Fund, Asian Development Bank, the UN development agencies and various regional groups. It also stands out as an active and responsible member of forum-based mechanisms such as the ASEAN-European Union Meeting, APEC and cooperation between ASEAN and its dialogue partners (ASEAN+3 and ASEAN+6).

Emerging as Regional FTA Hub and Magnet for Foreign Investment: For the last decade, Vietnam has been championing efforts aimed at building a new generation of the free trade agreement (FTAs). Vietnam’s FTAs have quantitatively and qualitatively spread and covered a dense web of key trading partners. Expecting to have 16 FTAs by 2020, Vietnam will become a hub that links 59 countries in three continents, including 15 largest economies. These FTAs, with high-standard requirements on the issues such as competition, labor rights and environmental protection, have indicated Vietnam’s ever strong commitment to bolder economic reforms.

The proliferation of FTAs is an impetus for foreign investment inflows into Vietnam. Despite worsening investment environment in the emerging economies recently, Vietnam continues to maintain its position as one of the most appealing destination for foreign investors with the amount of foreign direct investment (FDI) consecutively hitting all-time high. According to the Ministry of Planning and Investment of Vietnam, as of June 2017 the country has received a total ofover $306 billion of registered capital for 23,594 investment projects. In 2016, Vietnam’s volume of trade reached almost $351 billion, equivalent to 1.75 times of its GDP. China, the US, the European Union (EU), Japan and the Republic of Korea are Vietnam’s major trading partners. Half of Vietnam’s export market still rests in Asia, whereas China, the US and EU alone account for more than 80 percent of Vietnam’s import value.

Major institutional and policy reforms over the past few years have significantly contributed to improvement of the business environment in Vietnam. For instance, the amendment of the Law on Investment and the Law on Enterprises in 2015 simplifies the licensing process for foreign investment, which was previously considered a stumbling block. In June 2017, the Vietnamese government launched the Law to Support Small and Medium Enterprises. It already set an objective of having one million enterprises by the year 2020. Vietnam has made a big advance in the World Bank’s Ease of Doing Business, to move up from 90th out of 189 economies in 2016 to 82nd  out of 190 economies in 2017. This jump underlines the first ever determination of Vietnam’s new leadership to build “a transparent and constructive government in service of the business” and reach the average level of ASEAN’s top 4 — Singapore, Thailand, Malaysia and Indonesia — in terms of business environment. Currently high on the government’s agenda is the fight against the corruption and the plan to streamline the cumbersome bureaucratic system.

With Middle East and Africa: Despite its ardent efforts of economic diversification, Vietnam’s investment and trade are still concentrated in a relatively small number of countries. The government has recently sought new market opportunities in the Middle East and Africa but the results have been limited. Geographical distance, cultural difference, payment difficulty and lack of information are among the barriers. 

The effective implementation of the FTAs depends on capacity of the domestic business sector and government agencies at all levels. Vietnamese economy’s competitiveness is seriously constrained by the lack of skilled labor, poor infrastructure and imperfect market institutions. For instance, although the infrastructure system such as roads, highways and airports has been remarkably upgraded and expanded, it is still unable to catch up with the speed of socio-economic development, especially the more rapid urbanization and industrialization process.

The worry about negative impacts of foreign investment projects on sustainable development has been growing recently. In April 2016, a steel corporation was detected to release toxic waste into the sea, severely polluting the marine environment. Fishery and tourist sectors were seriously hit by the incident; local economy and livelihood of the local people were  negatively affected. The scandal revealed a loophole in the policy to attract foreign investment. For years, some foreign investors have made use of Vietnam’s loosening environmental regulations to set up their factories without adequate waste and sewage treatment facilities at the expense of the environment.

Overall, Vietnam is an emerging bright spot in the Southeast Asian region. Its sustained high economic growth, political stability and large population give Vietnam a huge market size, which has however remained relatively untapped by investors and traders from the Middle East. Agriculture, manufacturing, financial services, tourism and real estate are among various sectors that have big development potential and present lucrative investment opportunities in Vietnam.

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