Trade relations between UAE and Vietnam could open up vast new opportunities
Vietnam is the world's second fastest-growing economy after China, and a tiger-economy-in-waiting.
During the last 30 years Vietnam has worked hard to overcome the aftermath of war, the loss of financial support from the former Soviet Union, and the inflexibilities of being a centrally planned economy.
Today GDP has been growing at a yearly average of 7.5%. In 2001, Vietnamese authorities reaffirmed their commitment to economic liberalization and international integration through membership in the ASEAN Free Trade Area (AFTA) and entry into the US-Vietnam Bilateral Trade Agreement. As a result, Vietnam's exports surged and in 2004 rose to nearly $25 billion, 12% up over the previous year.
Despite its fast-track economic growth, the economy corruption and inefficient state-owned firms absorb half of all investments, thus dissuading foreign investors.
This year, however, Vietnam joined the WTO and it is expected that membership will help its liberalization and transformation from a closed to open market.
FDI
FDI is a priority, as domestic capital raising possibilities are limited. The US guarantees the ownership of the invested capital and other rights of the foreign investors, and extend to the latter favorable conditions.
FDI is permitted through the following forms:
Business cooperation Contract
Joint venture
100% foreign-owned enterprises
Other forms, such as: Export Processing Zone, Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO), and Build-Transfer (BT)
Ho Chi Minh City is the most important economic centre and home to some 300,000 businesses.
The city has 15 industrial parks (IP) and export-processing zones (EPZ), in addition to the Quang Trung Software Park and the Sai Gon Hi-tech Park (SHTP). Intel has invested $1 billion in a factory there. There are 171 medium and large scale markets, tens of supermarket chains, dozens of luxury shopping malls and many modern fashion or beauty centres. Malls and shopping plazas are developing across the city which hosts 50 banks and about 20 insurance companies. The first Stock Exchange of Vietnam opened in 2001.
In 2006, there were 833 new projects with a collective capital value of more than $10 billion registered. The total capital invested in 2006 was $60.5 billion.
From 2003-2005 Vietnam ranked 53rd worldwide out of 132 countries on UNCTAD's Inward FDI Performance Index compared to the UAE at 15th.
Similarly, for the same period, Vietnam ranks 111th on the Outward Performance Indicator Index# compared to the UAE in 23rd place and well above China and India in terms of inward FDI.
FDI inward potential is much therefore more promising in Vietnam than in China and India.
Value of imports 2000-2005
In terms of total imports for 2000-2005, the top ten importers were China, Singapore, Taiwan, Japan, South Korea, Thailand, Malaysia and Hong Kong. Switzerland and the US were the only non-Asian countries.
The UAE ranked 35 with only 0.2% of total imports.
Considering, however, that Singapore is a major market of UAE's petroleum exports, the importance of UAE in the import market of Vietnam is more significant than direct trade statistics show. In addition, aluminum and metal products are a requirement of the growing industrial sector of Vietnam.
The country, then, is a potential market for Dubai's metal and metal product industries.
Vietnam's exports 2000-2005
On the other hand, Vietnam's major export markets are not in Asia. UAE ranked 24 from 2000-2005. Nonetheless, its share of total exports to Vietnam increased from only 0.2% in 2000 to 0.4% in 2005, with the total value of exports to the UAE increasing correspondingly from $24 million to $122 million.
Vietnam's agricultural sector is very strong, making it a potential source for the UAE's agricultural produce requirements.
Dubai has also been a major port for the trans-shipment of goods from Asia to Europe and Africa and vice-versa. With the UK being one of major export markets of Vietnam, and Africa being a large market of agricultural produce and products of Vietnam's light industries, the UAE could effectively serve as trans-shipment port for Vietnam's goods destined for Europe and Africa.
UAE trade with Vietnam
UAE has established itself as the region's trading hub for non-oil products. Growth of UAE's non-oil trade with the world had been stable from 2000-2005, posting increasing annual growth of 14% in 2001, peaking at 37% in 2004, before slackening at 25% in 2005.
UAE's trade pattern with Vietnam had undergone very significant changes during the same period. From a 19% decline in total trade in 2001, the value rebounded by 24% in 2002 and by another 20% in 2003. In 2004, the value nearly doubled the previous year's record, increasing by 92%; before slowing 48%. In terms of value, total trade increased four-fold from $37 million in 2000 to $127 million in 2005.
While imports more than doubled during the six-year period, exports growth have been phenomenal, increasing from less than $1 million in 2000 to $48.2 million in 2005. Highest growth, (316%), was between 2003-2004, when export value jumped from $6 million to $25 million.
Compared to the UAE's imports from Vietnam, its export products were very limited. Exports of Oil seed, and industrial or medicinal plants and fodder accounted for more than half - 57% - its non-oil exports to Vietnam, while exports of plastics and articles contributed 29%; thus, all other export products accounted for only 14%.
Future Trade Prospects
Vietnam is currently a major supplier of agricultural produce to its neighboring Asian nations. This is a strength the UAE can explore, both in terms of direct trade or FDI on food processing and manufacturing.
Vietnam: UAE's export market
Vietnam is vigorously pursuing industrialization strategies, which implies expanding requirement for fuel and industrial raw materials and inputs.
The UAE's metal and metal product industries are strong, so it can either establish trade routes along these products or directly invest in similar industries taking advantage of Vietnam's large and skilled labor force.
Joining the WTO means radical changes for Vietnam's ad sector
WTO membership means that Vietnam must open its market to other members and this, in turn, could bring radical changes to the country's ad sector according to VietNamNet Bridge.
Of the more than $1 billion of annual revenues from advertising in Vietnam, local firms account for approximately 10-20%. More than 80% belongs to several big foreign advertising groups," said Do Kim Dung, vice chairman of the HCM City Association of Advertising, and general director of the An Tiem Advertising Company.
According to Tran Minh Chinh, vice head of the Grassroots Culture and Information Agency, the ad industry has been developing for 16 years in Vietnam but the legal framework is incomplete.
Vietnam hosts more 30 representative offices of the world's ad agencies.
Last year the ad industry earned nearly $375 million, forecast to grow to $937.5 million. There are nearly 6,000 advertising firms in Vietnam. Ad revenues to larger broadcasters are more than $62.5 million a year with nearly $6.25 million for smaller stations.
Ad sector needs planning - According to the Vietnam Advertising Association, advertising management at grassroots level is still very poor while the Association's legal framework hasn't with the development of advertising, so policymakers needed to learn more about the nature of advertising and professionalism.
Advertisers, meanwhile, should coordinate to create a big voice for the local advertising sector. It will still be a long time until Vietnam has an ad sector that matches the development of the country.
© Gulf Marketing Review 2007
