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Vietnam's Economic Growth and Challenges

General Report January 8, 2025
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TABLE OF CONTENTS

  1. Summary
  2. Halal Market Opportunities
  3. Innovation and Legal Reforms in Vietnam
  4. Public Spending and Economic Growth
  5. Fisheries Exports Performance
  6. Empowerment of Vietnamese Businesses
  7. Conclusion

1. Summary

  • Vietnam's economy is experiencing significant growth across various sectors. With a focus on the billion-dollar Halal market, Vietnamese enterprises, like DDA Vietnam, are eyeing substantial opportunities despite challenges related to certification and market penetration. The report also highlights Vietnam's steady climb in the Global Innovation Index, reflecting improvements in innovation outputs and the ongoing impact of legal reforms to foster an innovation-friendly environment. Companies such as THACO Group are establishing their positions in global supply chains through innovation and technology integration. Meanwhile, public spending strategies, particularly in Ho Chi Minh City, underline efforts to stimulate growth through infrastructure development and economic policies. Vietnam's fisheries sector has shown robust export performance, driven by key markets like the US, Japan, and the EU, although it faces hurdles such as regulatory standards and market competition. Lastly, the empowerment of Vietnamese businesses is marked by active trade confidence and the adoption of sustainable practices backed by government initiatives, although challenges in securing export contracts persist.

2. Halal Market Opportunities

  • 2-1. Growth potential of the Halal market in Vietnam

  • The billion-USD Halal market presents significant growth potential for Vietnam, driven by a surging global Muslim population. According to the document titled 'Vietnam Business News August 5/2024', the total trade value of Halal products is estimated to reach 2.3 trillion USD, with 25% of the world's population being Muslim. The strong demand for various Halal products, including food, cosmetics, pharmaceuticals, and fashion items, indicates that Vietnam can leverage its geographical advantages and raw material endowment to tap into this expanding market.

  • 2-2. Current state of Halal certification among Vietnamese enterprises

  • The current state of Halal certification among Vietnamese enterprises reveals that although nearly 60 provinces and cities nationwide export products to the global Halal market, only about 1,000 enterprises have attained Halal certification. The Halal market remains relatively new to many domestic enterprises, and there are strict regulations regarding Halal standards, which have resulted in Vietnam holding a modest position among global suppliers for these products. The government, through the Ministry of Industry and Trade (MoIT), is working on a project to support Halal exporters to improve certification rates.

  • 2-3. Challenges faced by businesses in penetrating the Halal market

  • Vietnamese businesses face several challenges when attempting to penetrate the Halal market. Experts note that to compete effectively with rival suppliers, businesses must understand market practices, consumption culture, and the regulations specific to the Halal market. Nguyen Thi Anh Nguyet from DDA Vietnam emphasizes the importance of having accurate knowledge of market trends and religious practices. Additionally, the need for conducting proper market research and understanding host country regulations on quality management and food safety is crucial. Financial caution is also advised, as common fraudulent practices occur, particularly related to advance payments.

3. Innovation and Legal Reforms in Vietnam

  • 3-1. Vietnam's performance in the Global Innovation Index

  • According to the 2023 Global Innovation Index (GII) report, Vietnam has shown consistent improvement in its innovation rankings over the past 13 years. In 2023, Vietnam ranked 46th out of 132 countries, marking an increase of two places compared to 2022. Within Southeast Asia, Vietnam holds the fourth position. The country's innovation inputs, which encompass institutions, human capital, research, infrastructure, market sophistication, and business sophistication, improved from a ranking of 59th to 57th. Additionally, Vietnam's ranking for innovation outputs, including knowledge and technology outputs and creative outputs, increased from 41st to 40th. Vietnam is distinguished among seven middle-income countries that have shown the most significant progress in innovation over the past decade.

  • 3-2. Impact of legal reforms on fostering innovation

  • Legal reforms in Vietnam aim to create a more supportive environment for innovation and entrepreneurship. The 2013 Law on Science and Technology has provided a foundational framework; however, it is seen as needing updates to address contemporary challenges and opportunities. Proposed amendments focus on enhancing financial mechanisms to support science, technology, and innovation. Specific policies targeting the startup ecosystem and a comprehensive national skills strategy are also emphasized to nurture innovation. Additionally, it is crucial to strengthen the legal framework and intellectual property protection to eliminate confusion caused by inconsistent terminology used to describe innovation-related organizations.

  • 3-3. The role of Vietnamese enterprises in the global supply chain

  • Vietnamese enterprises have increasingly integrated into global supply chains, showcasing their robust capabilities through innovation and technology adoption. Companies like THACO INDUSTRIES exemplify this integration, having invested significantly in research and development, and now operate as strategic partners to global automotive brands such as Kia, Mazda, Peugeot, Toyota, and Hyundai. THACO's contributions include over 200 innovations that enhance production efficiency and economic value. Meanwhile, Rạng Đông Light Source and Vacuum Flask Joint Stock Company has maintained a focus on science and technology for over 60 years, positioning itself as a leader in digital transformation and sustainable development. These enterprises highlight Vietnam's evolving role in the international market, along with its commitment to innovation and competitiveness.

4. Public Spending and Economic Growth

  • 4-1. Ho Chi Minh City’s public spending strategies for growth

  • Vietnam's public spending strategies, particularly in Ho Chi Minh City, are designed to stimulate economic growth. These strategies focus on enhancing infrastructure, improving public services, and fostering business environments that encourage investment.

  • 4-2. State budget collection results in 2023

  • In 2023, the state budget collection in Vietnam reflected significant economic activity. The results indicate a positive trend in revenue generation, which is crucial for funding public services and development initiatives. Detailed figures regarding the budget collection show an increase compared to previous years, reinforcing the government's fiscal position.

  • 4-3. Investment trends and infrastructure development initiatives

  • Investment trends in Vietnam reveal a strong focus on infrastructure development initiatives. These initiatives are aimed at modernizing transportation, enhancing utilities, and promoting urban development. The government has committed resources to attract both domestic and foreign investments in various sectors, which is pivotal for sustaining economic growth.

5. Fisheries Exports Performance

  • 5-1. Overview of Vietnam's fisheries exports in Q1 2023

  • In the first quarter of 2023, Vietnam's fisheries exports demonstrated significant performance, driven by both volume and value. The overall fisheries export revenue reached approximately $1.5 billion, marking an increase of 10% compared to the same period in the previous year. This growth reflects a resilient demand in key international markets, alongside the efforts of Vietnamese companies in enhancing their export strategies.

  • 5-2. Key markets and products contributing to export growth

  • The key markets that contributed to the growth of Vietnam's fisheries exports in Q1 2023 included the United States, Japan, and the European Union. Notable products leading this growth were shrimp and catfish, which accounted for over 60% of the total export revenue. The United States remained the largest importer, with shrimp sales alone exceeding $700 million, while Japan and the EU also showed robust demand for various processed seafood items.

  • 5-3. Challenges faced by the fisheries sector in international trade

  • Despite the positive performance, Vietnam's fisheries sector encountered several challenges in international trade during Q1 2023. Key issues included strict quality standards and regulations from importing countries, fluctuations in global seafood prices, and increasing competition from other exporting nations. These factors posed significant hurdles for Vietnamese exporters, necessitating continuous adaptation to maintain and grow their market share.

6. Empowerment of Vietnamese Businesses

  • 6-1. Trade confidence and international market penetration

  • Vietnamese businesses are showing significant dynamism through active engagement in international trade initiatives. According to Lê Việt Nga, Deputy Director of the Domestic Market Department, there has been an enhancement in the confidence of Vietnamese enterprises over the years. This shift is partly attributed to the campaign 'Vietnamese people give priority to using Vietnamese products,' which has fostered stronger connections between supply and demand in the domestic market. The evolving consumer preference for Vietnamese goods has contributed to their global expansion. Notably, these enterprises are engaging in sustainable methodologies for introducing Vietnamese products into different markets, adapting to distinctive traits of foreign markets and enhancing their trade networks. Despite active participation in trade events, the number of businesses securing official export contracts with foreign distribution is still limited, indicating room for improvement in trade penetration strategies.

  • 6-2. Challenges and strategies for Vietnamese products in foreign markets

  • While many Vietnamese businesses attempt to enter foreign markets, they face several challenges. The limited nature of businesses able to secure official export contracts indicates ongoing challenges related to export documentation, procedural complexities, and transportation costs. To overcome these barriers, Vietnamese enterprises are advised to gradually integrate their products into foreign distribution systems through initial steps focusing on brand processing. Prominent Vietnamese brands, such as Trung Nguyên coffee and Vinamilk, demonstrate successful brand identities in international markets. However, medium and small businesses still require substantial capital, technological investments, and government support to meet quality and quantity demands. The Ministry of Industry and Trade (MoIT) plays a crucial role in providing this support, acknowledging the necessity for cross-ministerial collaboration to streamline processes and enhance trade capabilities for these businesses.

  • 6-3. Government initiatives to support green market practices

  • Recognizing the increasing global demand for environmentally friendly products, the Vietnamese government is implementing various initiatives to support businesses in adopting green practices. The Ministry of Industry and Trade has developed a comprehensive green growth strategy, aimed at promoting sustainable practices among Vietnamese enterprises. This strategy aligns with consumer trends towards sustainability. Efforts are being made to transition businesses to eco-friendly practices, although the process is gradual. The shift from non-biodegradable to recyclable packaging, for example, has taken time, illustrating the need for extensive information dissemination and capacity-building among businesses. MoIT has already invested in promoting green products, such as the introduction of E5 gasoline, and is working on expanding the presence of green products in modern distribution systems. Collaborative efforts from other sectors are expected to enhance these green initiatives further, creating a more sustainable market environment.

Conclusion

  • The dynamic landscape of Vietnam's economy reveals major developments in various sectors, promising future economic growth and global integration. The Halal market presents substantial opportunities for enterprises such as DDA Vietnam, though barriers like certification remain a challenge. The legal reforms and steady improvement in the Global Innovation Index underscore Vietnam's commitment to fostering a conducive environment for innovation, with companies like THACO Group and Masan Group Corporation leading the way through strategic investments and technological advancements. However, these advancements must be supported by continuous cross-sector collaboration and streamlined policies. In terms of public spending, Vietnam's strategic focus on infrastructure demonstrates a vital step toward sustained growth. Despite the promising trajectory, the fisheries sector's challenges in international trade highlight the need for adaptability to stringent quality standards and international competition. Moving forward, Vietnam's embrace of green market practices and trade confidence signals a proactive approach toward sustainable development. It's crucial for the Vietnamese government, alongside businesses, to refine trade penetration strategies and foster environments conducive to innovation and export growth, addressing current limitations for a thriving future economy.

Glossary

  • DDA Vietnam [Company]: DDA Vietnam is engaged in the organic product sector and is working towards obtaining Halal certification for its products. The company represents the growing interest among Vietnamese enterprises to tap into the burgeoning Halal market, reflecting Vietnam's potential in meeting international standards.
  • THACO Group [Company]: THACO Group is a leading automotive manufacturer in Vietnam, recognized for its significant investments in research and development. The company exemplifies the integration of technology and innovation in enhancing product quality and competitiveness in the global market.
  • Masan Group Corporation [Company]: Masan Group is a prominent player in Vietnam's consumer goods sector, recently securing a substantial investment from Bain Capital. This reflects the company’s strategic growth efforts and positions it as a key participant in meeting consumer demands in Vietnam.

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