Vietnam powers up longest cross-sea electricity cable

The $16-million project will shine light on 8,000 island residents.

Vietnam’s state-owned Southern Power Corporation on Saturday fired up a 110 kV transmission line to supply electricity to Lai Son Island off the southern province of Kien Giang, Vietnamplus reported.

With a total length of 43.9 km, including 24.5 km running above the sea and 19.4 km onland, it is the longest in the country.

Work on the $16-million project began in September last year, and it will supply electricity to about 8,000 residents on the island.

The Southern Power Corporation plans to build more transmission lines to connect other islands in Kien Giang to the national grid.

Kien Giang, located in the southwest of the country, is also home to Phu Quoc Island, a popular destination for local and foreign tourists in Vietnam.

Vietnam to pull in more investment next year: CEO survey

Half of respondents plan to expand in the country over the next 12 months even though confidence in the Asia-Pacific region has taken a hit.

Just 28 percent of CEOs in the region are “very confident” in revenue growth in 2016, according to the Asia-Pacific Economic Cooperation (APEC) CEO Outlook survey conducted by PricewaterhouseCoopers.

Vietnam, however, remains an attractive option, together with China and Indonesia.

Over the next 12 months, more than half of the respondents believe that investment in Vietnam will increase thanks to its population of over 90 million and its rapid growth of income per capita. Responses came from 800 CEOs operating in the 21 economies of the APEC region.

For many CEOs, free trade agreements will support small and medium-sized enterprises and provide a path to growth for the region.

“The best thing you can do for SMEs is to remove trade restrictions. The more we can trade, the more companies benefit,” said Mike Smith, CEO of Australia and New Zealand Banking Group Limited.

However, some have warned that lowering barriers to trade and foreign investment may do more harm than good to SMEs, arguing that free trade may intensify the competition between SMEs and global firms.

In Vietnam, 97 percent of the companies are SMEs, so with the door opened under free trade agreements, they have to compete with foreign companies, said Hoang Van Dung, chairman of Vietnam APEC Business Advisory Council, calling this “the biggest challenge.”

Vietnam says economy will still thrive even if TPP tanks

Vietnam says economy will still thrive even if TPP tanks
A man works at a yarn weaving plant in Ha Nam Province, outside Hanoi, Vietnam. Vietnam’s manufacturing and exports-led economy is widely regarded as the biggest potential beneficiary of the TPP, but the deal now looks on the rocks following the presidential election win of Republican Donald Trump. Photo by Reuters/Kham/File Photo

‘It’s still very early to predict the future of TPP.’

Vietnam will stay competitive and its economy will still thrive if the Trans-Pacific Partnership (TPP) deal collapses, its trade minister said, as doubts hang over the future of a pact that was core to the Obama administration’s “pivot” to Asia.

Vietnam’s manufacturing and exports-led economy is widely regarded as the biggest potential beneficiary of the TPP, but the deal now looks on the rocks following the presidential election win of Republican Donald Trump, who during campaigning took a protectionist stance on a deal he called a disaster and killer blow for American jobs.

“It’s still very early to predict the future of TPP,” Trade Minister Tran Tuan Anh was quoted saying by the government news website on Friday, “but regardless, we are always ready for integration, not just because of TPP, but because it is a requirement and also a motivation of development,”.

“If TPP is implemented smoothly, our economic opportunities and competitive sectors like textiles, seafood and shoes will definitely benefit … but if not we still have world markets; these sectors will still be competitive,” Tuan Anh said.

Vietnam has been Southeast Asia’s free-trade trailblazer, pursuing tariff-slashing deals with its biggest markets and sources of investment, including South Korea and the European Union, as well as existing agreements via the Association of Southeast Asian Nations, such as an ASEAN-China FTA.

If passed, the TPP, dubbed a mega-regional accord, would cover 40 percent of the global economy and create a trade zone worth about $28 trillion among 12 countries that include the U.S., Japan, Australia, Canada, Malaysia and Mexico.

The deal looked set to sail through legislatures when it was concluded last year, but the run-up to the U.S. presidential election put ratification on ice in Washington and prompted other countries to put their legislative approvals on hold too.

The Obama administration saw TPP as a means of keeping China’s economic power in check. China is not among the members and has proposed its own parallel deal, the Regional Comprehensive Economic Partnership (RCEP), of which Vietnam will be a part.

Vietnam has been receiving record foreign investment and expansion by firms into the country, often as a cheaper alternative to China, buoyed by the prospect of a cost-cutting TPP.

Vietnam’s public debt growing three times faster than GDP

Vietnam’s public debt growing three times faster than GDP
Vietnam’s debt has been growing three times faster than GDP, according to the National Assembly’s Finance and Budget Commission. Photo by VGP
The country is digging itself into an ever-increasing hole.

Vietnam’s national debt had reached more than VND2,600 trillion ($116 billion) as of the end of 2015, equal to 62.2 percent of gross domestic product (GDP), said the country’s Finance and Budget Commission in a report on the country’s debts and obligations for 2016-2020.

The report said Vietnam’s debt remained below the ceiling of 65 percent of GDP set by parliament, but debt has been growing three times faster than GDP.

All public debt indicators, such as public debt to GDP, public debt to government revenue, debt service to GDP and debt service to government revenue, are at risk of either approaching or exceeding the safety limit, the commission said. Taking debt service to government revenue as an example, the ratio last year hit 27.4 percent last year, far beyond the limit of 25 percent.

The country is also seeking new loans to repay debts and service obligations. The Vietnamese government reportedly used 14.2 percent of total outstanding loans to pay back debts in 2014, according to the Finance Ministry. The World Bank estimated the figure may have jumped to 16 percent last year.

The parliamentary commission also emphasized that debt-ridden state-owned enterprises need special attention. Data shows that more than 100 major state-owned enterprises had borrowed a combined VND1,500 trillion ($67 billion) by the end of last year, with a large part coming from foreign creditors. These SOEs borrowed $15.6 billion from overseas, of which more than 60 percent was either official development assistance loans at low interest rates or loans guaranteed by the government.

The report raised concerns about the fact that when a state-owned enterprise can’t find its own way to repay its debts, the government must step in and assume the responsibility.

For instance, after state-owned shipbuilder Vinashin defaulted on a $600 million loan, the Ministry of Finance finally had to step in by offering to guarantee a bond issuance to a group of more than 20 creditors, mostly commercial banks, with Credit Suisse as the mandated lead arranger.

The World Bank forecasts that Vietnam’s public debt will climb to 63.8 percent of GDP this year and 64.4 percent next year.

The growing debt will impose a steadily increasing burden on the economy, and make it ever harder to cut the budget deficit, which hit 6.1 percent of GDP last year.

Vietnam among top places for business expansion in Southeast Asia: survey

Vietnam among top places for business expansion in Southeast Asia: survey
Laborers work at TAL Apparel Vietnam Garments factory in Vinh Phuc Province, north of Hanoi, Vietnam October 20, 2016. Photo by Reuters/Kham

With competitive labor cost, the country only comes after Singapore in terms of attractiveness.

In the Southeast Asia region, Singapore tops the list of most favorable expansion destinations for Asian companies, with 32 percent of respondents saying they will invest more, followed by Vietnam, according to a recent survey by United Overseas Bank.

Approximately one in four companies will consider Vietnam because of the country’s stable political setting as well as the favorable economic conditions of low inflation and accommodative monetary policy.

Vietnam’s young and active workforce adds value to its attractiveness as an expansion destination. When it comes to labor cost, no country in the region except Myanmar can beat Vietnam.

Vietnam has become a magnet for investment even for investors from Southeast Asia. Malaysian, Thai and Singaporean companies are the keenest on Vietnam, with 38 percent, 35 percent and 29 percent respectively planning to pour more money in the next three to five years.

In the first nine months, the country has attracted $16.43 billion foreign investment, latest data from the government shows.

Compared to the year 2014, when the Asian Enterprise Reports was first released, there are mismatches in where companies originally planned to expand to and where they actually have operations now. According to the survey, fewer firms are operating in Vietnam than anticipated in 2014. Meanwhile, in Malaysia and Singapore, the number of running enterprises has exceeded the expectations.

Asia’s rising importance continues unabated in the global economy. The region’s share of global economy has jumped from 18 percent in 1980 to 31 percent in 2015, and is forecast to reach 45 percent by 2030.

A total of 2,500 business leaders and key financial decision makers of Asian enterprises based in six regional countries and territories — China, Hong Kong, Indonesia, Malaysia, Singapore and Thailand — participated in the survey.

Free trade deal to boost EU-Vietnam trade by 50 pct

Vietnam’s garment and textile exports to the EU will be freed from tariffs when a free trade deal takes effect, possibly in late 2017. Photo by Reuters

European firms are upbeat about a deal that will cut thousands of tariffs from late 2017.

A free trade agreement signed between the European Union and Vietnam in August last year is expected to boost trade value between the markets by up to 50 percent by clearing thousands of tariffs.

The trade pact is expected to cut 4,959 tariff lines, or 52 percent of the total between the markets, to zero when the agreement takes effect at the end of 2017, and another 144 tariff lines by the end of 2018, insiders said at a conference on Thursday.

Products to benefit from the tax break include materials used for garments, textiles and shoes, and Vietnam’s major exports such as seafood and agriculture produce.

Michael Behrens, chairman of the European Chamber of Commerce in Vietnam (EuroCham), which represents around 900 European businesses, said the trade deal is expected to enhance investments that can create millions of new jobs in Vietnam.

He said the trade deal will help increase trade value between the countries by 50 percent in just a few years. Annual trade between Vietnam and the EU is currently worth around $31 billion.

EuroCham is going to open an office, in the central city of Da Nang, after the two in Hanoi and Ho Chi Minh, to facilitate the increasing interest of European firms in Vietnam.

A recent survey by the organization showed high confidence among European firms about their business prospects in Vietnam, with more than 70 percent of respondents describing their business situation at present as well as the next quarter as “excellent” or “good”.

Behrens said European businesses in Vietnam are upbeat about the market, and they are looking forward to the free trade deal, which is expected to take effect in late 2017.

He believed that Brexit will not delay the implementation of the trade deal, but said that any delays will affect the companies’ enthusiasm and lower investments.

The EU is a major investor in Vietnam with more than 1,800 projects effective as of the end of April this year, mostly in industry and construction. Their registered capital totals over $23.16 billion.

In modern Vietnam, a high-tech economy is a future far awayLaborers work to make Zara jackets at a garment factory in Bac Giang province, near Hanoi October 21, 2015. Photo by Reuters/Kham

In modern Vietnam, a high-tech economy is a future far away
Laborers work to make Zara jackets at a garment factory in Bac Giang province, near Hanoi October 21, 2015. Photo by Reuters/Kham

Decades-old technologies are widely used across most sectors, keeping the country from becoming more competitive in the global market.

Vietnam’s backwardness in technology is dragging down its economic growth.

As the country is trying to leave its mark in the global economy, it has no other option but to move up the value chain and away from the traditional low-wage, low-tech model.

There has been some success. Statistics show that high-tech products contributed 28.7 percent in the country’s gross domestic product in 2013, up from 19.1 percent in 2012 and 11.7 percent in 2011. The goal is to bring this ratio to 45 percent by 2020.

The government seems to be fully aware of the importance of technology in manufacturing. It has been pushing for the adoption of modern machinery and production methods in both labor-intensive industries that make garments, shoes or furniture, and capital- and technology-intensive sectors such as automobile and electronics.

Over the past five years, the Vietnamese government has invested about VND10 trillion ($450 million) in technology and science. And since 2001, it has consistently set aside about 2 percent of the annual state budget, or 0.5 percent of the GDP, to introduce scientific and technological advances to various industries.

Despite all these efforts, Vietnam is still 50 to 100 years behind the most modern countries in the world in terms of technology, according to the Ministry of Science and Technology. Compared to the world’s average level, its technology is between two and three generations, or 20 years to 30 years, behind.

The country’s support industries, which urgently need technological advances to boost productivity, remain weak, said Pham Tuan Anh, deputy head of Heavy Industries Department under the Ministry of Industry and Trade.

Enterprises in these industries currently account for only 0.03 percent of the country’s total number of businesses. The lack of local suppliers has forced Vietnam to import nearly 90 percent of raw materials, spare parts and components.

Domestic companies in support industries can only meet about 10 percent of the demand, Anh added.

Data show the ratio of locally sourced components in automobile manufacturing is ranging from 20 percent to 30 percent. For textiles and garments as well as footwear, it is around 10 percent.

Local garment companies have to import more than 65 percent of raw materials, including fabrics and other accessories from overseas, especially from China, which owns the bulk of the world’s polyester production and is one of the top producers of cotton, said Le Quoc, a senior advisor to the Vietnam Textile and Garment Association.

Support industries are currently controlled by foreign-invested companies, mainly from Japan, South Korea and Taiwan.

Official figures show about 80 percent of parts suppliers in Vietnam, including electronic and other metal parts, are foreign companies.

The Vietnamese government has worked on a plan to change this.

The goal is that in the next four years local support industries will have 1,000 suppliers that can meet 45 percent of the manufacturing sector’s demand. By 2030, there will be 2,000 suppliers that meet 70 percent of the demand.

In its drive for modernization, the country is also forecast to import machinery and equipment worth $250 billion between 2011 and 2025.

Vietnam PM lowers 2016’s growth target

Vietnam PM lowers 2016's growth target
Workers assemble shoes in a shoe factory near Hanoi. Vietnam is seeking to expand its manufacturing sector as a high tech supplier. Photo by Reuters/Kham

The new target is 6.2-6.5 percent, down from the initial 6.7 percent, after weak growth in agriculture and mining dragged down the economy in Q3.

The Vietnamese Prime Minister Nguyen Xuan Phuc has officially admitted that Vietnam will probably miss its economic growth target of 6.7 percent this year.

The annual forecast has been lowered to between 6.2 percent and 6.5 percent, he said during a two-day cabinet meeting which ended on Tuesday .

The economy would need to expand 7.1-7.3 percent in the final quarter to achieve the new full-year goal, Phuc said at the meeting.

“The target is high and challenging but it is not unattainable,” he said.

Phuc took office in April when the country was struggling with the worst drought in almost a century. Then came the mass fish deaths along the central coast. Adverse weather conditions, along with the environmental disaster, have put the brakes on an economy that grew 6.68 percent in 2015.

Economic growth was 5.92 percent in the January-September period, much lower than the 6.53 percent rate seen a year ago, according to official statistics.

Weak growth in agriculture and mining dragged down the economy in the third quarter, according the statistics office.

The mining sector continued its losing stretch, contracting 6.8 percent in the quarter compared to a year ago, due to low global commodity prices, government data show.

“GDP growth in 2016 will be lower than the target but how much lower will very much depend on the mining sector,” said Ha Quang Tuyen, head of the General Statistics Offfice’s National Accounts Department.

Economists predicted that there is still a chance for the economy to pick up its speed in the final quarter, fuelled by more foreign direct investment and an agricultural recovery.

The Southeast Asian country has received an estimated $11 billion in foreign direct investment inflows in the first nine months of the year, up 12.4 percent from the same period last year, government data show.

Agricultural production which experienced a negative growth of 0.18 percent in the first six months of the year has shown signs of recovery in the third quarter, edging up 0.65 percent.

Meanwhile, the manufacturing sector continued to grow at a decent pace as theNikkei Vietnam Manufacturing Purchasing Managers’ Index, or PMI, rose to a 16-month high of 52.9 in September, higher than the ASEAN’s average of 50.5.

“With growth solid across the third quarter as a whole, the manufacturing sector looks set to help drive GDP growth in 2016,” said Andrew Harker from IHS Markit, which conducted the survey.

“All the government ministries and local authorities need to redouble their efforts to clear hurdles to business and manufacturing,” Prime Minister Phuc said.

“Determination only will not be enough, we must come up with workable solutions to achieve the full-year target of 6.3-6.5 percent,” he emphasized.

Vietnam’s economy moderated in the first half, expanding only 5.5 percent, down from 6.3 percent growth in the same period last year.

The Asian Development Bank last week adjusted down its growth forecast to 6 percent for the year.

Vietnam chases after manufacturing giants

China might lead the way, but Vietnam has big ambitions.

Manufacturing has seen rapid evolvement across the world in recent years, and earnings from the sector are encouraging nations to focus on developing technology-intensive infrastructure and education, Deloitte said in its Global Manufacturing Competitiveness Index 2016 (GMCI).

The top manufacturing hubs on this year’s index belonged to China, the U.S., Japan and Germany. “Asian tiger” China has secured the top place since 2010. However, moving to 2016 and looking forward to the end of this decade, advanced manufacturing driven by a focus on innovation and advanced technology has become a new trend, hence, shaping a new battleground for global competitiveness. This competitiveness is likely to heat up toward 2020 when the U.S. is expected to pass China to become the world’s favorite manufacturing destination.

Manufacturing hubs can mostly be found in Europe, North America and Asia Pacific.

The world also witnessed a rise of the Asian “Mighty 5” (MITI-V), namely Malaysia, India, Thailand, Indonesia and Vietnam, battling to be the next Asian manufacturing hub after China. Those countries are among the top 20 most competitive on the index. The MITI-V have emerged as low-cost global manufacturing destinations.

Vietnam ranked 18th on the index this year, the same as three years ago when the last survey was conducted, but is projected to climb six places to 12th by the end of this decade.

Considering the current climate of sluggish economic growth, containing costs to boost profits remains a critical imperative for manufacturers. Vietnam has become a magnet for manufacturers due to its comparatively low labor costs, and has long been seen as an alternative to China when it comes to low-cost manufacturing. A young labor force is another factor that makes Vietnam outshine its competitors. Over the last ten years, Vietnam has raised its overall productivity, prompting manufacturers to invest in billion-dollar manufacturing complexes across the country.

When it comes to manufacturing exports as a percentage of total merchandise exports, Vietnam stands slightly below Thailand but exceeds Malaysia, Indonesia and India.

Manufacturing executives cited talent as the most important driver of a country’s ability to compete on the global stage, said the survey. However, the lack of talent working in the manufacturing sector is Vietnam’s long-term issue. Often, Vietnamese labor is hired especially for the final assembling of products to be exported, said Pietro Masina, Associate Professor of Economics at the University of Naples “L’Orientale”, Italy, in an interview with VnExpress International. The country needs to enhance the quality of its human resources.

*Index methodology: The survey was conducted on 560 respondents from all over the world; respondents are mostly CEOs, CFOs/COOs and members of managing boards. Manufacturing executives were asked to rate the overall manufacturing competitiveness of 40 countries, today and in five years. The selection of the countries was based on the conclusions of a sampling of executives as well as subject matter specialists from Deloitte.

Ho Chi Minh City’s economic growth to slow this year

Ho Chi Minh City's economic growth to slow this year
Ho Chi Minh City is planning a more service-based economy in the next five years. Photo by AFP

With a projected 8 percent GDP increase, the southern business hub will still outperform most of the country.

The economy of Ho Chi Minh City is well on track to expand 7.6 percent in the first nine months and 8 percent by the end of the year, officials have said.

That would be the lowest annual growth rate in the last 6 years, when Ho Chi Minh City’s GDP growth rate ranged from 9.2 percent in 2012 to 11.8 percent in 2010. Last year the rate was 9.85.

Vietnam’s economy as a whole is estimated to grow 6 percent this year, down from 6.68 percent in 2015. It is cooling down due to a decline in agriculture, as a historic drought has hurt rice and coffee production.

Ho Chi Minh City is shifting its economic focus to the service sector, which is expected to contribute 60 percent to the GDP by 2020.

Nearly 26,000 new companies with a total capital of more than VND212 trillion ($9.5 billion) were launched in the first nine months, accounting for a third of all new entries nationwide.

The city since 2014 has also carried out an ambitious plan to reduce the number of state-owned companies sharply from more than 100 to only seven by the end of 2018. It has succesfully privatized, shut down and merged around 40.