Vietnam – Belgium Relations: Increasing Trade and Opportunities for Investors
Over the past decade, trade and investment relations between Vietnam and Belgium have improved considerably. This has been attributed to Vietnam’s growing economy and the expansion and globalization of some Belgian corporations.
Dezan Shira & Associates’ Head of European Business Development Riccardo Benussi notes, that more Belgian companies are looking to invest in Vietnam, especially with the implementation of the EU-Vietnam free trade agreement (EVFTA) and subsequent reduced tariffs.
As of March 2021, Belgium has 78 investment projects in Vietnam, with a total registered capital of US$1.1 billion, ranking 23rd among 131 countries investing in Vietnam.
On the other hand, Vietnam is Belgium’s 14th largest trade partner, with a trade value reaching approximately US$707.55 million in 2020, up 6.7 percent compared to 2019.
Belgium exports
Due to the impact of the COVID-19 pandemic, since March 2020, Belgium’s exports have experienced a negative growth compared to the same period of 2019. Belgium’s export growth sank from 0.6 percent in 2019 to -8 percent in 2020.
This was the most substantial economic decline of the country since the depression in 2009. However, it is important to note that the decline in 2020 was only half as much as in 2009.
In December 2020, Belgium’s exports growth increased to 2.5 percent, which is a positive sign for the country’s trade landscape since the start of the pandemic. It is expected that though Belgium’s exports and imports encountered severe challenges in 2020, the country will recover soon in the coming months of 2021 and beyond.
Belgium – Vietnam bilateral trade
In 2019, Vietnamese exports to Belgium reached US$2.9 billion, up 8.8 percent from 2018. To this effect, Vietnam imported US$698 million worth of Belgium goods, up 6.5 percent compared to 2018.
In the first seven months of 2020, due to the pandemic, Vietnam recorded an export value worth US$1.4 billion to Belgium, down 17.7 percent year on year. On the other hand, Vietnam imported US$459 million worth of goods from Belgium, up 11.9 percent year on year.
These figures demonstrate that while Vietnamese exports to Belgium experienced a depression, Belgium’s imports to Vietnam still grew, which is a positive signal for the future of bilateral trade between these two countries.
In 2019, within the EU, Belgium was the seventh-largest exporter to Vietnam and the sixth-largest in 2018. Belgium’s top exports to Vietnam in 2020 are chemicals (46.2 percent), and machinery and equipment (13.7 percent). Meanwhile, Vietnam’s top exports to Belgium were textiles, footwear and headgear, and base metals.
Opportunities for investors
Investment in industrial zones
The most substantial Belgium investment in Vietnam is the development and operation of an industrial park cluster known as the Deep C Industrial Zone (initially named the Dinh Vu Industrial Zone – DVIZ).
The DVIZ was founded in 1997 and has played a major role in developing the Haiphong area in the northern part of Vietnam into a dynamic industrial hub over the last 23 years. The Deep C Industrial Zone (DEEP C) now covers 3,400 hectares spanning Haiphong and Quang Ninh province in the center of the region’s manufacturing and infrastructure development, with a location close to the new deep seaport, international airport, and expressway network, up to China (Shenzhen).
Geert Dom, Head of Marketing & Sales for DEEP C Europe and the US, states that DEEP C has attracted over 130 projects with foreign investors of different nationalities such as Belgium, Germany, Japan, South Korea, the US, and Singapore. Looking towards the future, DEEP C is still attracting more Belgian and other investors to do business and establish factories and warehouses in this industrial zone.
Opportunities exist in various industries such as electronics, automotive, logistics, food and feed, chemicals, and renewable energy components. Further, the US-China trade war and the China plus one strategy has also brought advantages for DEEP C as it urges corporations to leave China’s manufacturing industry due to unsustainable tariffs.
Food and beverage
Filippo Bortoletti, Senior Manager for Dezan Shira’s Hanoi office notes that apart from industrial zones, Belgian investors also play a significant role in the Vietnamese food and beverage (F&B) industry. To be more specific, the Belgium investments are focused on the supply chain of the industry, catering ingredients to restaurants, F&B factories, and retail.
With an average growth rate of 7 percent and being one of the fastest-growing sectors in Vietnam, the F&B industry is a promising contender for Belgian investors to further invest and expand their businesses in this sector.
Manufacturing and processing
The Vietnamese manufacturing and processing industry also proves to be a prospective investment sector for Belgium corporations. Over the years, most of the investments that Belgian investors have made in Vietnam are in seaports, infrastructure, real estate, manufacturing, and power generation.
To be more specific, manufacturing sectors such as automotive components, electronic supply chain, and garments finishing are attractive investment opportunities for foreign investors.
Pharmaceutical industry
Pharmaceuticals is also a significant sector for foreign investment in Vietnam as noted by Riccardo. Vietnam’s largest pharmaceutical import markets are the EU, India, the US, and South Korea, while Vietnam’s export markets are the ASEAN region, Japan, Cyprus, and the US. Most EU investors source raw pharmaceutical materials from the EU, ship them to Vietnam, manufacture and process the products in Vietnam before they reimport the products back to the EU.
Thanks to the EVFTA, about 71 percent of import tariffs have been eliminated. Moreover, non-tariff barriers also brought opportunities in improving intellectual property rights and direct pharmaceutical imports. This means that Belgian investors can establish an entity to import pharmaceutical products and sell to local distributors or wholesalers. In addition, Belgian investors are also eligible to build warehouses and perform clinical research and trials.
However, it is important to note that foreign-invested entities are still prohibited from directly distributing drugs in Vietnam. They are only permitted to sell to wholesalers and retailers non-pharmaceutical supplements in the form of tablets, capsules, and powder.
When exporting to Vietnam, EU companies must use the Registered Exporter System (REX) to prove the origin of their products. The REX system is a system of certification of origin of a product made by exporters and registered by competent authorities.
Renewable energy
Another sector that Belgium investments focus on when investing in Vietnam is green production and renewable energy.
Vietnam did not take renewable energy into consideration until 2017. However, after only two years in 2019 Vietnam surpassed Malaysia and Thailand, having the largest installed capacity of solar panels in Southeast Asia. This proves that foreign technologies and investments are being encouraged in Vietnam, and the country possesses all the advantages to develop strongly and rapidly in this sector.
To elaborate, the policy on feed-in tariff (FiT – the tariff against which renewable energy is remunerated when being injected in the grid) played a major role in Vietnam’s success in renewable energy. The FiT policy guarantees an above-market price for foreign producers, hence encouraging foreign investments into the country. FiT attracts foreign investors because it helps alleviate risks in renewable energy production for investors during their long-term contracts with companies in Vietnam.
In 2020, the Vietnamese government announced that the country will aim at doubling its power generation capacity over the next decade. As a result, the FiT policy was revised, and it is expected to raise the proportion of renewable energy production in Vietnam to 20 percent so as to reduce reliance on coal for electricity production.
Hence, Vietnam is an attractive investment destination for green energy production projects, and it is predicted that many foreign investors, especially those from EU, will continue to establish and expand their businesses in this sector in Vietnam.
Market entry
In Riccardo’s experience, in the past, most Belgian investors would be cautious at first, setting up a trading company to explore Vietnam’s economic and potential trade landscape. Now it has become almost a given. Some Belgian investors will set up a service entity with Vietnamese staff, and the entity is entirely funded and managed from Belgium.
There are several options for market entry in Vietnam. In our experience, the representative office (RO) or foreign-invested enterprise (FIE) are two of the most popular market entry options for foreign investors.
A representative office is a low-cost approach for foreign corporations looking to gain a thorough understanding and insight into the Vietnamese market. This approach will ease the market entry process for investors, as well as offering foreign companies a larger presence within the country later on.
Key takeaways
Vietnam has been experiencing exponential economic growth during the past decade, signing several free trade agreements to promote trade in the region. The increase in bilateral trade between Belgium and Vietnam, as well as the increasing FDI from Belgium, demonstrate bright prospects for the two countries’ relations. The long-term presence and successful investment of Belgian companies in Vietnam offer a good indication and reference for business opportunities in the country.