EVFTA helps diversify supply chains

VEN) – Despite various challenges, Vietnam’s economy is expected to recover in the medium term, with its growth expected to be partially driven by free trade agreements (FTAs), especially the EU-Vietnam Free Trade Agreement (EVFTA).
Textile is among industries benefiting from the EU market’s advantages
Textile is among industries benefiting from the EU market’s advantages

The European Chamber of Commerce (EuroCham) in Vietnam on July 10 announced its Business Confidence Index (BCI) for Vietnam in the second quarter of 2023, showing a nine-percent increase in the number of business leaders who positively assess their business prospects for the third quarter of 2023 compared to their assessment for the second quarter.

The survey reveals that over half of the businesses surveyed have benefited from the EU-Vietnam Free Trade Agreement (EVFTA). Among these beneficiaries, 35 percent of business leaders have reported gains from tariff reductions. Despite these gains, businesses continue to face challenges in fully capitalizing on the agreement, with administrative procedures and a lack of understanding remaining the main barriers to the full capitalization. The statistics show that enterprises from the 27 EU countries exported goods worth US$15.42 billion to Vietnam in 2022, down 8.7 percent compared to 2021.

Announced on July 6, 2023, the AHK World Business Outlook Spring 2023, based on a regular DIHK survey of member companies of the German Chambers of Commerce Abroad, Delegations and Representative Offices (AHKs), shows that German businesses express more confidence on their business development and have positive expectations on economic growth than they did in the previous survey period. 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.

The survey shows that 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. Eighty-eight 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.

Despite German enterprises showing resilience and having high expectations in the Vietnamese market, they still identified several risks and challenges to their business development caused by global economic fluctuations.

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) priority to 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; and 4) simplifying, digitizing and streamlining administrative procedures to leverage the EVFTA and enhance Vietnam’s business and investment environment.

Ha Huong

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