It has been nearly three years since Vietnam and the European Union signed the EVFTA. In this article, we highlight the developments the EVFTA has bought to Europe – and vice versa.
Considering geopolitical uncertainty, increasingly over the past couple of years, the Western world has been actively complementing or even replacing its Asian manufacturing in countries such as China or Taiwan. Vietnam has been a beneficiary of this trend; it is one of Southeast Asia’s fastest-growing economies, with a powerful manufacturing edge, favorable corporate taxation, numerous treaties, and special economic zones (SEZs). It is also driven by Vietnam’s energy transition efforts.
This brief analysis sets out developments over the past two years in both strategy development as well as specific cross-border investments between several EU countries and Vietnam. It is not designed to be comprehensive, but rather to highlight these shifting flows, key investments, and the direction taken over the past two years by EU countries.
Since the EU-Vietnam Free Trade Agreement (EVFTA) came into effect in August 2020, trade and investment from Europe has boomed. EU trade with Vietnam surged by 14.8 percent in 2021 to US$63.6 billion led by investments in renewable energy by several EU countries, in addition to other strategic areas of the growing economy in Vietnam.
Bilateral trade US$640 million in 2021; US$100 million Portugal into Vietnam (54/210); US$540 Vietnam into Portugal (47/147). In January 2023, the Prime Minister suggested that Vietnam and Portugal raise Bilateral Trade to US$1 billion in the near future.
On the occasion, he suggested Portugal soon approve the EU-Vietnam Investment Protection Agreement (EVIPA) to facilitate a fair and win-win investment relationship between the two nations, urge the European Commission’s early removal of yellow card warning on Vietnam’s aquatic products to meet the interests of Portuguese and EU consumers as well as ensure livelihoods for hundreds of thousands of workers in the Vietnamese aquaculture industry.
In June 2021, EDP Renováveis, the renewable energy company of the EDP group, signed a contract with Trina Solar, one of the world’s leading manufacturers of photo-voltaic and intelligent energy solutions, to acquire a 28 MWac (35 MWdc) photo-voltaic solar energy project, totaling €30.3 million. The Trung Son photo-voltaic solar energy project, located in Khanh Hoa Province, Vietnam, has been in operation since December 2020 and has a Power Purchase Agreement (CAE) signed with Vietnam Electricity (EVN), at a tariff of 20-year acquisition (FiT).
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The EU-Vietnam Free Trade Agreement and the dynamics within Asian markets, especially with the growing influence of China and other Asian economic powerhouses, e.g., South Korea, Taiwan, and Japan, have fuelled stronger investments of the EU into Vietnam. While existing and more established investors showed their stronger footholds with the new wave, green energy, and a few manufacturing sectors were the focus of the new wave of EU investments in Vietnam. This marks a new trend of securing safe and sustainable energy resources for the fast-growing economy of Vietnam while ensuring mutual global commitments to the UN’s sustainable development goals, which all involved parties have signed up for.
It is encouraging to witness the new wave of EU investments in Vietnam that continue to push the country to diversify and upgrade systems including industry standards, legal frameworks, workforce, and labor upscaling. Included in the 2022-2023 wave are imports across numerous EU countries designed to rapidly increase Vietnam’s wind and hydrogen power, partnerships with leading innovation hubs in the Netherlands and Belgium, and steps taken to replicate Luxembourg’s EU green finance leadership in Asia. EU investors will not only enjoy the benefits of the local market of 100 million population but also the markets that Vietnam has access to including US, ASEAN, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and others via its FTAs and other economic alliances.
On a final note, investment flows from Vietnam to EU countries have been limited to date. However, this may change in the future years when Vietnamese service sectors such as ICT services and agricultural processing companies penetrate EU markets in their global outreach and diversification strategies.
The future holds lots of positives for EU-Vietnam trade and investment prospects. Within the next five to 10 years, when the committed investments are realized and yield profits for investors and their Vietnamese counterparts, it may then be another wave of large investment from the EU. However, other investors including those from Asian powerhouses and the US are not just watching. EU investors may want to leverage their momentum to retain their influential roles in Vietnam in the coming years.
Source: CCIPV / Vietnam Briefing