BUY VIETNAM THIS MONTH

HEADLINES

High Level Management Delegations from Copenhagen Infrastructure Partners (CIP) and Vestas met up with Vice Minister of MOIT, H.E. Mr. Dang Hoang An

Offshore wind development in Vietnam was on high agenda in the meeting among H.E.Mr. Kim Højlund Christensen (Danish Ambassador to Vietnam), management of CIP and Vestas and Vice Minister An this week. The potentials for offshore wind sector is commonly acknowledged by both Danish and Vietnamese sides and could be a solution to realize Vietnam’s commitment to achieve the net zero target by 2050. The two world leading companies in this field recommended a clear route to market, coupled with Vietnamese government support, would be needed to kick-start the sector. Both CIP and Vestas are committed to the Vietnamese market and look forward to having close dialogue with MOIT and other relevant Ministries on developing this promising sector.

The LEGO Group announces plans to build new factory in Vietnam to support long-term growth

The LEGO Group will invest more than US $1 billion in the 44-hectare site in the Binh Duong Province around 50km from Ho Chi Minh City and create up to 4,000 jobs over the next 15 years.

Construction is set to begin in the second half of 2022 and production is due to start during 2024.

The new factory will be the LEGO Group’s sixth manufacturing site and second in Asia. It is being built to support additional long-term growth in the region so the company can continue to deliver play experiences to many more children in the years to come. The LEGO Group has achieved annual double digit growth in the region since 2019.

The new site expands the LEGO Group’s global supply chain network which locates factories close to its major markets. This provides the flexibility to respond quickly to shifts in local consumer demand, shortens the supply chain, and reduces the environmental impact of shipping long distances.

The new factory will feature solar panels on its roof and VSIP will build a nearby solar project on behalf of the LEGO Group. Combined, these solar parks will produce enough renewable energy to match 100% of the factory’s annual energy requirements. It will be constructed with an aim to meet a minimum standard of LEED Gold, which covers all areas of sustainability including energy, water, and waste. The factory will be designed to accommodate electric vehicles and be outfitted with energy efficient production equipment.

The LEGO Group together with VSIP will plant 50,000 trees in Vietnam to compensate for vegetation removed during construction.

The new factory will meet the LEGO Group’s extraordinarily high quality and safety standards. Skilled local employees will be trained to operate the same high-tech production equipment used in every LEGO factory around the world. This will make sure that each brick is made to the accuracy of 1/10th of a hair’s width so that it fits perfectly with bricks and products made over the past 60 years.

FROM THE BEGINNING OF THIS YEAR

Sweden exports to Vietnam

Sweden imports from Vietnam

Denmark exports to Vietnam

Denmark imports from Vietnam

Norway exports to Vietnam

Norway imports from Vietnam

EVFTA

Q&A: Pharmaceuticals in EVFTA: How Foreign Investors Can Qualify for Preferential Tariffs

Vietnam is an attractive market for pharmaceuticals. It is estimated that the country imports around 60 percent of total demand for this product. The development of this sector is forecast to attract US$100 million of investment throughout the industry and increase the pharmaceutical market value by up to US$27.6 billion, according to accounting firm KPMG.

With the EU-Vietnam FTA (EVFTA) in effect, the pharmaceutical market is expected to open even further to EU businesses bring in new investment inflow for the foreseeable future.

To learn more about the benefits of the EVFTA on the pharmaceutical industry, our Business Intelligence Assistant Manager – German Desk, Do Thanh Huyen, conducted a webinar on how investors can qualify for preferential tariffs for the pharmaceutical industry. During this webinar, Huyen discussed Vietnam’s pharmaceutical industry potential, including emerging opportunities and challenges, and finally ideal market entry options for foreign investors.

We highlight some insights below:

Why should investors be optimistic about Vietnam’s pharmaceutical industry?

Vietnam is currently undergoing economic and demographic transformations that provide great potential for its healthcare and pharmaceutical industry. The COVID-19 outbreak certainly dampened economic activity in Vietnam, but it is unlikely to reverse ongoing socioeconomic changes. Rather, health stands firmly as the top priority and concern for both the Vietnamese people and the government as demonstrated in the country’s efforts to control COVID-19.

Vietnam’s pharmaceutical industry is the second-biggest product imported from the EU into Vietnam – and contributes to people’s health and socioeconomic status. Vietnam spends 7 percent of its GDP on health with the average person spending approximately US$69 on pharmaceutical products.

Vietnam pharmaceutical industry still depends on importing raw materials and remains a net importer of pharmaceutical products representing significant opportunities for investors.

What are some drivers for growth?

Vietnam has a fast-growing middle class and an aging population. It is expected that by 2038, 20 percent of Vietnamese people will be over 60 years old. As people get older, rising health concerns become a factor increasing the need for medical care and pharmaceutical products.

Besides, domestic firms mainly produce simple medications and generic drugs. Domestic firms also lack research capability as well as the capability to invest in new compounds. Partnership with foreign firms will further help in attracting high-tech manufacturing and producing specialized medicines and products for the local population as well as export markets.

What are Vietnam’s main import and export markets?

Vietnam’s largest pharmaceutical import markets are the EU, India, the US, and South Korea while export markets are the ASEAN region, Japan, Cyprus and the US.

It is important to note that most EU investors source raw materials in the EU, ship it to Vietnam and manufacture or process the product before re-importing back to the EU.

What are some emerging opportunities due to the tariff reduction implemented by the EVFTA?

About 71 percent of import tariffs have been eliminated after the EVFTA came into force. In addition, emerging opportunities from non-tariff barriers include improvement in intellectual property rights and direct pharmaceutical imports – so EU investors are now allowed to establish a company to import pharmaceutical products and sell to local distributors or wholesalers. EU investors are also allowed to build warehouses and carry out clinical research and trials.

As per the EVFTA, Vietnam will also align with international standards on pharmaceuticals which means that products already certified in the EU will not require additional testing and certification in Vietnam, thus reducing time and costs in the Vietnamese market.

Finally, Vietnam has committed to open pharmaceutical-related bidding packages in a number of central and local state agencies including: Vietnam’s social insurance program, the Ministry of Health, the Hanoi and Ho Chi Minh City Department of Health, and 33 other hospitals.

While this is good news, are there still any barriers?

Foreign-invested companies are still prohibited from distributing drugs in Vietnam and are only permitted to conduct wholesale and retail activity with non-pharmaceutical supplements in the form of tablets, capsules, and powder.

In marketing terms, for the promotion of drugs, FIEs cannot promote drugs used for human treatment, except for promotion among drug traders or distributors. The promotion to end-users or health professionals is strictly prohibited.

In addition, prescription drugs cannot be advertised but can be introduced to healthcare professionals via drug introducers, drug information materials, and seminars.

What are some market entry strategies?

There are three recommended market entry strategies. The first one is to invest in Vietnam as a form of drug importer, the second is to operate a manufacturing company through an M&A and lastly, the third is participate in pharmaceutical-related bidding packages of certain central and local state agencies.

Investors are advised to set up a trading company to benefit from preferential treatment which is a low-cost option. A trading company allows a company to source in Vietnam and resell in Vietnam and maintain quality control.

In order to establish a trading company, investors are required to obtain an import license along with other certifications, obtain proof of origin for EU pharmaceutical products, and export to Vietnam. Investors will also need to apply for a certificate of satisfaction of conditions (CSC) and certificate of goods storage practice (GSP) for importing into Vietnam.

EU exporters are required to use the Registered Exporter System (REX) to show proof of origin of a product. The REX system is a statement of origin document made by exporters registered in the REX system by competent authorities.

We think an M&A is one of the best options to enter the Vietnamese market. An M&A is less time consuming and helps the investor gain the local partners’ assets, suppliers, distributors, and so on. However, the investor may not fully be able to control decision making.

OTHER NEWS

First Steering Committee Meeting of the Energy Partnership Programme between Vietnam and Denmark 2020-2025

On Tuesday, April 19th 2022, the Ambassador of Denmark to Vietnam Mr. Kim Højlund Christensen and Vice Minister of Industry and Trade, Mr, Dang Hoang An, attended the first Steering Committee Meeting of the Energy Partnership Programme between Vietnam and Denmark 2020-2025.

At the meeting, two sides discussed many cooperation activities for the coming period with the goal of green transition and sustainable development of Vietnam’s energy sector. The Ministry of Industry and Trade also took the opportunity of this event to award the memorial medal “For the development of the Industry and Trade sector of Vietnam” to the Ambassador for his contributions during his tenure in Vietnam.

Việt Nam business costs among the lowest in region: study

Việt Nam has among the lowest costs of doing business in its neighbourhood, with only Cambodia and Myanmar being cheaper, business transformation consultancy TMX has said in a report.

‘The Great Supply Chain Migration – Breaking down the Cost of Doing Business in Asia’ says Việt Nam has average operating costs of US$79,280-209,087 a month.

Its average warehouse rental is the fourth lowest at $5/sq.m/month behind only after Thailand, Myanmar and Cambodia.

This trend is expected to continue since the country is seeing a lot of warehouse construction.

In the report, experts also assess Việt Nam as having the “highest potential” in the region due to the Government’s strong commitment to reducing tariffs and tax regulations, and the country’s free trade agreements designed to support investors.

The country has a sizeable and affordable labour pool, and is the fourth most affordable labour market in the region with an average cost of $108,196 a month. Only Cambodia, Myanmar and the Philippines are cheaper.

But Việt Nam has a skilled and educated workforce, which is expected to improve further in the coming years as the Government continues to push for vocational education.

A series of existing and proposed industrial parks also makes Việt Nam a promising market for future relocation of foreign enterprises, according to experts.  

Manufacturing and processing continue to be its key FDI magnets, accounting for almost 60 per cent of the investment in 2020.

Consequently, the Government is building industrial parks (Ips). As of May 2021 the country had 394 Ips with a total area of 121,900 hectares.

In 2021 HCM City allocated more than 300ha of land for tech Ips.

They are oriented to serve the needs of igitizatio industries, thereby shortening the relocation process when foreign investors decide to come to Việt Nam.

High adoption of automation, Digitization

TMX’s recent annual supply chain report, ‘Building Back Better from the Pandemic: A Look into Supply Chains in the New Normal’ said 60 per cent of Việt Nam’s top business decision-makers are confident that there will be more application of digital tools and technologies in future, and 58 per cent agree on immediately adopting the latest digital solutions in their businesses.

These figures already reflect in the actual situation as even small and medium-sized enterprises are taking steps to invest in cloud technology (18 per cent), cyber-security (12.7 per cent) and upgrades to software and hardware for digital transformation (10.7 per cent), it said.

In general, the market is already taking major steps towards automation, it said.

Andrew Maher, head of TMX Vietnam, said: “As Việt Nam moves to adapting to the ‘new normal’ of business and bouncing back from the pandemic, we see a ripe opportunity for the market to really own the China+1 strategy owing to its strategic location, highly competent workforce, and reception to automation.”

FDI in Vietnam rises to 5-year high in Q1

Disbursement of foreign direct investment (FDI) projects in Vietnam totaled US$4.42 billion in the first three months of this year, the highest figure for a first quarter in the past five years and representing an increase of 7.8% year-on-year, a report of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment has shown.

Meanwhile, FDI commitments in the January – March period fell nearly 12.1% year-on-year to $8.91 billion.

Year to March 20, a total of 322 new projects have been approved with combined registered capital of $3.21 billion, up 37.6% in the number of projects but down 55.5% in capital year-on-year, while 228 existing projects have been injected an additional $4.06 billion, up 93.3% in the capital.

Investors have poured money into 18 out of 21 fields and sectors, in which manufacturing and processing led the pack with investment capital of over $5 billion, accounting for 59.5% of total registered capital. Real estate came second with $2.7 billion, or 30.3%, followed by science and technology with $200.4 million, and electricity production and supply with $194.6 million.

The report added that out of 65 countries and territories investing in Vietnam in the first three months of 2022, Singapore took the lead with $2.29 billion, or 25.7% of the total, South Korea came in second with $1.61 billion, and Denmark in third with the Lego manufacturing project in Binh Duong Province with investment capital of $1.3 billion.

South Korean investors topped the list with the highest number of new projects and those being injected additional capital, making up 18.1% and 34.6%, respectively.

Among 44 cities/provinces receiving investment capital from abroad during the three months, Binh Duong claimed the top spot with nearly $2.32 billion, or 26% of the total, followed by Bac Ninh with $1.42 billion, and Thai Nguyen with $934 million.

The manufacturing project from Denmark-based LEGO was the largest during the period with an investment capital of $1.32 billion in Binh Duong province.

However, investors are still favoring major cities with adequate infrastructure systems, such as Hanoi and Ho Chi Minh City, noted the FIA, referring to Ho Chi Minh City taking the lead in terms of fresh projects with 39.4% of the total, and Hanoi (13.2%).

Besides the $1.32-billion LEGO plant project, some other big-ticket ones in January-March include an additional capital of $941 million into the construction of urban and services infrastructure at the Vietnam-Singapore Industrial Park (VSIP) in Bac Ninh; the pumping of $920 million into the Samsung Electromechanics Vietnam in Thai Nguyen by Samsung Vietnam; and over $306 million into the plant to produce electronic and network products from Hong Kong investors in Bac Ninh.