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Vietnam’s Automobile Industry and Opportunities for EU Investors

Vietnam’s automobile industry has grown significantly in recent years. The average growth rate of domestically assembled vehicles was approximately 10 percent per year in the 2015-2018 period. With major manufacturers such as Toyota, Honda, Ford, Nissan, and Kia in the Vietnamese market, the number of spare parts suppliers have also invested in the industry giving the sector a much-needed boost.

The motorbike is ubiquitous to Vietnam, but with the country’s fast-growing middle class, car ownership is steadily rising. This growth, however, is likely to be stunted in the short term due to the COVID-19 pandemic but expected to resume in the long run as Vietnam reopens its economy.

Vietnam’s Industrial Policy and Strategy Institute predicts 750,000 to 800,000 vehicles will be sold annually by 2025 up from 288,683 in 2018.

The automotive industry is a major contributor to the GDP of many countries in the world:

Auto industry GDP

As displayed above, with such a high share in Vietnam’s GDP, the automotive industry has always received special attention from the government. There are currently many large automotive assembly and production projects in Vietnam with the aim of not only meeting domestic demand but also tapping into the regional market.

Local conglomerate Vingroup officially inaugurated its Vinfast factory on June 14, 2019, making it the first domestic automobile factory in Vietnam. The factory is not only state-of-the-art but also in line with Industry 4.0 standards.

However, the Vietnamese automotive industry faces stiff competition. Part of the reason for this is the zero-tariff policy between ASEAN countries that Vietnam is part of. Thus imports are cheaper than domestically produced vehicles.

Although Vietnam is one of the four largest automobile manufacturers in Southeast Asia, it has one of the lowest average localization rate in this region (only around 10-15 percent, and is still far behind Thailand, Indonesia and Malaysia).

In addition, the local automobile industry has not been able to invest in core and high technology products such as engine production and transmission systems. Localized parts are mostly of low technology products such as tires, seats, mirrors, glasses, cable harnesses, batteries, and plastic products.

About 80-90 percent of the main raw materials used to manufacture components are still imported. As a result, companies are required to import approximately US$2 billion to US$3.5 billion in components and parts for vehicle manufacturing, assembly, and repair each year.

For this reason, domestic automobile production costs are 10-20 percent higher than in other countries in Southeast Asia. As a result, the cost of cars produced domestically are at a disadvantage compared to completely build units (CBUs) that are imported.

Increasing car ownership

Vietnam imported more than 109,000 CBUs in the first nine months of 2019 with a turnover of US$2.4 billion as per official statistics. Compared to the same period in 2018, imported cars increased by 267 percent in volume and 257 percent in value.

Cars with less than nine seats led imports – with about 75,848 vehicles valued at US$1.5 billion. This shows the increasing purchasing power and the changing demands of customers. In addition, the vehicles imported from the EU mainly come from Germany. As per the General Department of Vietnam Customs in 2018, 1,197 imported cars from Germany were registered in Vietnam. Germany’s ZF Friedrichshafen inaugurated its first plant producing chassis modules for cars in Haiphong in November 2019.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

COVID-19 in Vietnam: Travel Updates and Restrictions

In light of the recent COVID-19 outbreak, Vietnam has imposed several travel restrictions on those entering the country. As of May 19, Vietnam had confirmed 324 cases of COVID-19, though 263 of the patients had recovered.

Those planning to travel to Vietnam should be aware of the latest restrictions currently in place:

  • Vietnam has suspended the entry of all foreigners from March 22 until further notice to limit the spread of COVID-19. The measure will not apply to diplomats, officials, foreign investors, experts, and skilled workers as per Prime Minister Nguyen Xuan Phuc.
  • Vietnam’s Immigration Department on May 18 announced automatic visa extensions until June 30 for foreigners that entered the country on visa waiver programmes, e-visas, or tourist visas since March 1.
  • Foreigners that entered the country before March 1 including those with temporary residence permits will also be entitled to extensions till June 30 but must present proof of documents such as health declarations and official documents from embassies. For assistance, applicants can all the immigration helpline at 0243.9387320.
  • Travelers that are still in Vietnam can call the Tourist Helpline at +84378173371 for guidance on visas, accommodation, hospitals, embassy, or consulate details. The helpline is available from Monday to Friday from 9:00 a.m. to 5:30 p.m. local time.
  • Vietnam lifted social isolation measures on April 23 with most businesses resuming operations. Nevertheless, measures such as wearing face masks and observing strict hygiene standards remain in place.
  • As of 12:00 pm on March 15, Vietnam suspended all visas and will deny entry to travelers from the UK and the 26 Schengen countries; this includes travelers that have visited or transited through these countries in the past 14 days. This will be effective for 30 days.
  • In addition, Vietnam has suspended visa on arrival for all foreign nationals except for those on official or diplomatic trips. Those who currently hold visas to enter Vietnam will need to undergo screenings and may be quarantined when entering the country.
  • From March 7, all travelers coming to Vietnam will be required to submit a health declaration upon arrival. Passengers can fill out this declaration at the airport or submit it online via this link (picture below).
  • Those that are assessed to have symptoms of the epidemic will be transferred to designated health facilities for isolation.
  • There is a temporary ban on travelers with travel history to mainland China, except for those on official or diplomatic missions.
  • We have also heard of travelers in more remote border crossings into Vietnam being denied entry if they possess any China visa history in their passport. If travel is required, we recommend using the main border entry-exit points.
  • Do not travel if you are sick; those that travel while sick, risk being quarantined, and undergo tests.
  • Visa-free travel has been suspended for South Korean and Italian nationals as well as ethnic Vietnamese from these countries. In addition, travelers arriving from or those that have transited through Daegu and Gyeongsangbuk in South Korea in the past 14 days will be denied entry.
  • In addition, visa-free travel has also been suspended for eight countries: Denmark, Finland, France, Germany, Norway, Spain, Sweden, and the UK from March 9.
  • Travelers from China that are permitted to enter Vietnam, as well as those from South Korea, Iran, and Italy, are required to undergo a 14-day quarantine upon entry.
  • Flights and passenger trains, as well as various border crossings to mainland China, remain suspended.
  • All Vietnam carriers have suspended flights to South Korea, while other foreign airlines have reduced the number of flights significantly between Vietnam and South Korea.
  • Flights to Hong Kong, Taiwan, and Macao remain operational though they are operating with reduced capacity.
  • Additional restrictions are possible for travelers when they return to their country of origin, including entry restrictions and quarantine.

The Vietnamese government officially declared COVID-19 as an epidemic on February 1, with authorities taking swift and strict measures to contain the virus.

These include measures such as the suspension of schools, the cancelation of festivals, and tourist activities nationwide. In addition, bars, clubs, and movie theatres have also been closed in Hanoi and Ho Chi Minh City until March 31.

In addition, several Vietnamese businesses, residential complexes, and restaurants have installed their own preventative measures to keep customers safe.

Due to the epidemic, travelers should monitor restrictions and comply with advisories issued by the local and national authorities.

The Vietnamese Ministry of Health is updating about the epidemic here, while the Tourism Ministry has also listed travel updates here.

In addition, basic precautions one can take to reduce their risk to the coronavirus as advised by the World Health Organization (WHO) are:

  • Wash hands with soap and water or an alcohol-based hand rub;
  • Cover nose and mouth with tissues or inside of elbow when coughing or sneezing;
  • Avoid close contact with anyone with cold or flu-like symptoms;
  • Thoroughly cook meat and eggs; and
  • Avoid unprotected contact with live wild or farm animals.

This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

Vietnam Issues Investment Incentives for SMEs

As the outbreak of COVID-19 hampers business activity, Vietnam introduced Decree No. 37/2020/ND-CP (Decree 37) on March 30 to update the list of sectors and industries access to investment incentives under Decree 118/2015/ND-CP. The move underlines the government’s efforts to support businesses and particularly small and medium-sized enterprises (SMEs) affected by COVID-19.

Decree 37 will take effect on May 15.

The regulation expands the list of business lines eligible for investment incentives. This includes four types of SME business lines which are:

  • Small and mediums sized enterprises (SMEs) supply chains;
  • Business incubators for SMEs,
  • Technical support facilities for SMEs; and
  • Co-working spaces of SMEs.

The aforementioned businesses will now be eligible for import duty exemptions on fixed assets as well as other exemptions based on location.

SMEs continue to play a major role in Vietnam, accounting for 98 percent of all enterprises, 40 percent of GDP, and 50 percent of employment or 1.2 million jobs. As per the Ministry of Finance, Vietnam has more than 600,000 firms, with nearly 500,000 private and 96 percent being small and micro-enterprises.

However, SMEs continue to face problems such as access to finance, market access, and competition with foreign firms. We highlight three issues faced by SMEs below.

Access to finance

Credit access is a major concern for the Vietnamese SMEs. Banks providing commercial loans prefer to allocate their resources to larger firms rather than SMEs. According to banks, higher default risks, lack of financial transparency, and lack of assets for a mortgage are the major factors for not providing loans to SMEs. SMEs have to increase transparency and introduce newer production technologies, to reduce risks and increase efficiency to increase their chances of acquiring commercial loans.

Global supply chains

A study by the International Finance Corporation shows that only 21 percent of Vietnamese SMEs are linked with global supply chains, much lower than 30 percent and 46 percent in Thailand and Malaysia respectively. Integrating further with global supply chains in terms of procurement, operations, and sales will allow firms to manage competition, reduce risks, and reduce production costs, which currently is 20 percent higher than those of neighboring countries, such as Thailand and China.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.