AHK World Business Outlook Spring 2023 - Vietnam Focus

Vietnam – An investment spotlight with optimism, resilience and sustainability

Ho Chi Minh City (5th July 2023) – German businesses express more confidence on their business development and have positive expectations on economic growth than they did in the fall of 2022.  A significant majority of 91 percent of German companies intend to continue to invest in or expand their production in Vietnam, while approximately 40 percent of them plan to increase their workforce in the next 12 months.

Here are its key takeaways:

Economic Expectation

Thanks to the implementation of immediate government action plans and the presence of stable macroeconomic conditions, Vietnam has maintained positive economic growth. As a result, German companies operating in Vietnam are more optimistic than they were in the fall 2022, although their short-term expectation remains cautions, due to the geopolitical challenges such as inflation, decoupling and the increasing political influence on supply chains. 88 percent of the survey participants are confident with their business situation in Vietnam (satisfying and good) and nearly half of the German participants in the survey expect the economic growth to remain consistent, while 21 percent of them believe it to be better.

Risks and Challenges

Despite German enterprises show resilience and have high expectations in the Vietnamese market, they still identified several risks and challenges to their business development caused by global economic fluctuations. These risks include low global demand (51 percent), concerns regarding the economic policy framework (46 percent), a shortage of skilled workforce (34 percent), and potential disruptions in the supply chain (28 percent). Added to this are long-term geopolitical challenges, which companies see particularly in inflation/money policy (41 percent), fragmentation of the global economy (41 percent) and increase in political influence on supply chain (40%).

Outlook: Diversifying Manufacturing Supply Chains

Despite the challenges, Vietnam is expected to experience a resurgence in its economic growth in the medium-term. This growth will be fueled by various factors including the Free Trade Agreements (FTAs), notably the EVFTA (EU-Vietnam Free Trade Agreement), the implementation of the China plus One strategy, the global trend of shifting and diversifying manufacturing supply chains towards competitive hubs in Southeast Asia, and the inflow of green investments. 57 percent of German companies in Vietnam prioritize diversifying their supply chains, with Vietnam being their top choice, followed by Malaysia and Thailand.

Recommendation

AHK Vietnam suggests the following focus areas to further strengthen the attractiveness of Vietnam for an accelerated investment environment:  1) Collaborative efforts to address the potential shortage of skilled workforce by equipping them with German-standard skills, capitalizing on Industry 4.0 and digital transformation. 2) To prioritize strengthening local suppliers to maintain its role in the global and German supply chain, while complying with sustainable development regulations such as ESG and German Supply Chain Due Diligent Act. 3) Concretization and implementation of Power Development Plan VIII are recommended to incentivize renewable power production. 4) Simplifying, digitalizing and streamlining administrative procedures to leverage the EU-Viet Nam Free Trade Agreement (EVFTA) and enhance Vietnam's business & investment environment.

About AHK World Business Outlook Survey (AHK WBO)

The AHK World Business Outlook is based on a regular DIHK survey of member companies of the German Chambers of Commerce Abroad, Delegations and Representative Offices (AHKs). In spring 2023, it collected feedback from more than 5,100 German companies, branches and subsidiaries worldwide, as well as companies with close ties to Germany. Thanks to the active participation of German companies in Vietnam and wordwide, AHK WBO is seen by leaders, decision-makers, entrepreneurs , media and business professionals globally and in Vietnam as a barometer of the business confidence among German companies and as a key indicator of German business situation, business expectation as well as economic expectations.

Participants: Participants from Vietnam: 36.4 percent of the responding companies are from the industry and construction sector, 27.3 percent are from the service sector,  18.2 percent are from trading companies and the rest are from other sector. Smaller companies with fewer than 100 employees account for 41 percent of the responses. 36 percent of businesses employ 100 to 1,000 people. Large companies with more than 1,000 employees worldwide account for 23 percent of respondents.

Date: March – April 2023

Delegation of the German Industry and Commerce in Vietnam (AHK Vietnam)

www.vietnam.ahk.de

The German Industry and Commerce in Vietnam is the representative office of the German Federal Ministry of Economy and Climate Change BMWK, with the function of supporting and promoting bilateral economic relations between Germany and Vietnam. Together with the diplomatic missions of the Federal Republic of Germany abroad (the Embassy of Germany and the Consulate), we represent the voice and interest of German businesses to the government, institutions, and departments in Vietnam. Since 1994, the German Industry and Commerce in Vietnam has actively promoted bilateral trade and investment activities between Germany and Vietnam.