German Investment in Vietnam

Located close to China and alongside one of the major global trade routes, Vietnam represents an attractive option for German businesses. Securing the 45th position on the Market Potential Index 2018, the country provides vast future market opportunities for German investors. In the World Bank’s Ease of Doing Business Index 2018, the country ranks top in securing credit, construction permits and electricity supply. Vietnam has experienced steady increases in recent years.

German – Vietnamese Relations at a Glance

Germany has extensive economic ties with Vietnam. Exports to Vietnam increased to around US$4.8 billion in 2018. On the other hand, imports from Vietnam to Germany increased to more than US$11.55 billion in 2018. Electronics, shoes and textiles are mainly imported from Vietnam to Germany. Food products play a major role as well.

Apart from major chemical industry corporations such as Bayer, BASF and Beiersdorf, many other German companies have opened offices in Vietnam to benefit from its growing economy. Especially, automotive parts supplying companies such as Bosch and Henkel have opened offices; so has Siemens, the major German electronics manufacturer. Most of the large German logistics companies have offices, which can support further German investments as the country’s logistics infrastructure is quite well-established.

Investment Outlook

Annual growth rates of more than 6 percent in recent years make Vietnam’s economy attractive for further investments. Cheap wages and a good strategic location within ASEAN supports this development. The Medical equipment sector in Vietnam remains highly dependent on imports with around 91 percent of the locally used products coming from other countries. Still, the government aspires to invest in the health sector to increase efficiency. German products, which are known for their high quality, have a good potential to succeed in the Vietnamese market.

The increasing attractiveness of Vietnam for manufactures is somewhat  constrained by the prevalence of vastly outdated machine equipment in several industrial sectors in the country.

The country’s growing economy demands new machines and especially from abroad as the local industry’s production capacity for machines cannot serve the market. At present, China mainly exports machines to Vietnam but the demand for high-tech machines and reliable equipment have increased. German exports can fill the gap. With an increasing energy demand of approximately over 10 percent annually, Vietnam heavily relies on its expansion of a steady energy supply. New power plants as well as renewable energy sources are being sought after, including solar and wind energy.

With the rapid development of the country, the production of waste increases extensively and poses a problem. Modern recycling facilities are being planned in the urban areas. The sector largely depends on foreign investments and technology which further open opportunities for German high-tech recycling companies.

Risk analysis

The relative lack of skilled workers and supporting industries could pose long-term risks to investment in Vietnam. The need for better infrastructure makes the supply-chain and distribution of products more expensive. Further investments are required to close this gaps.

Vietnam’s over-reliance on exports could also pose problems in the long-term. However, in the short-term, Vietnam will continue to attract export-processing industries and manufacturers looking to relocate from China in view of that country’s ongoing trade dispute with the US and rising wages and costs of production.

Source: Asean Briefing