Category Archives: Southeast Asia

As the UK Pivots to ASEAN, Indonesia’s President Jokowi Visits London

Indonesia’s President Joko Widodo (Jokowi) has completed his first UK trip as President on an EU tour also taking in Germany, Belgium and the Netherlands. The visit saw several deals signed, including a £4 billion (US$5.75 billion) aerospace deal for Airbus and Rolls Royce to upgrade the fleet of Indonesia’s flagship airline Garuda Indonesia.

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Indonesia is the world’s third largest democracy, and the world’s largest Muslim majority nation. The UK is a significant investor in the country, with UK companies investing in 267 projects in the country in 2015, realizing annual investment of US$503.22 million.

When the UK’s Prime Minister Cameron visited Indonesia in July 2015, four memoranda of understanding (MoUs) were signed relating to aviation, maritime affairs, research and innovation, and terrorism and transnational crime. During that visit, Cameron announced that the two countries would cooperate in constructing a microsatellite as a part of the countries’ bilateral maritime cooperation.

Jokowi represents the 16th largest economy in the world, which is forecast to be the seventh largest by 2030. The archipelago of 250 million residents grows by 4.5 million people each year, equivalent to the entire population of the Republic of Ireland.

Indonesia’s economy is forecast to grow at 5.3% in 2016, just below the average of 5.4% GDP growth over the 2000-2015 period. The economy has recently been hit by the global commodity slump and slowdown in China, which led to 2016 growth being downgraded from 5.5% by the World Bank.

Indonesia’s Maritime Security

Indonesia’s ambassador to the UK Dr Rizal Sukma mentioned in March in an interview with Asia House, that the issue on the top of his agenda as ambassador was to build maritime cooperation.

His Excellency revealed that Indonesia intends “to build ports and increase our capacity in port management. It’s also about ship building, ship repairing, maritime safety, fishing, and security cooperation between the UK and Indonesia such as coastguards and defence cooperation.”

Indonesia and the UK signed an MoU in September 2014 to enhance bilateral cooperation between their navies in information sharing, exercises, education training, logistics support and exchanges of visits.

Maritime cooperation has been at the top of the agenda of late, with several visits to the UK by Indonesia’s Minister of Maritime Affairs and Fisheries Susi Pudjiastuti. Since the Minister assumed office, there has been a mixture of a tough crackdown on foreign fishing in Indonesian waters involving sinking captured vessels, and encouragement of investment in the country’s seafood processing industry.

Opportunities for UK Education

Indonesia represents a large market for British higher educational organisations within Britain, and for British investors in the country’s education sector. According to British Council estimates, Indonesia will have 7.7 million enrolled in tertiary education courses by 2020, over double that of Japan.

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The Council expects Indonesia to be the fourth fastest growing tertiary education market in the world, and to have the world’s fifth largest such markets by 2020. The Council also predicts that the UK will be the world’s second most significant host for international students in 2020.

Companies in the UK education sector would do well by capitalizing on the opportunities in secondary and tertiary education in Indonesia.

UK Exports to Indonesia

UK businesses exporting to Indonesia benefit from the country’s membership of the Association of Southeast Asian Nations (ASEAN), a regional free trade area.

In 2015, some of the fastest growing UK exports to Indonesia were:
–           US$4.08 million in machinery for plants and laboratories excluding heating implements, a 76.29% increase from 2014;
–           US$2.85 million in electric generating sets and rotary converters, a 190.13% increase from 2014; and
–           US$2.86 million in machinery for use in the manufacture of rubber, plastic and other products, a 262.15% increase from 2014.

Indonesia’s domestic consumption is responsible for 55.8% of the country’s GDP, which has helped to protect it from the global economic crisis.

Indonesia’s Improving Infrastructure

President Jokowi was able to put into place much needed energy subsidy reforms in the country, and as such has benefited from the global oil price crash. Reducing subsidies has allowed the government to pursue its infrastructure investment programme, focusing on the ports and roads which connect this archipelago of over 17,000 islands.

Related: Indonesia: World Bank Pledges $10bn for Infrastructure, Poverty Reduction

On his UK visit, he highlighted the openness of the country to large scale foreign investment in infrastructure projects, using the example of a US$5.5 billion Chinese-invested high speed rail link between Jakarta and Bandung.

Practical Steps to Investing in Indonesia

President Widodo explained the vision behind the country’s reform process in his address to the 2016 UK-Indonesia Business Forum, explaining that it was defined by the concepts of “openness and competition”.

If you are considering investing in open Indonesia, it pays to have local assistance in the investment process. Most foreign investment is administered by the Investment Coordinating Board (BKPM). Investment processes vary by industry, and separate licenses are issued for investors in banking and finance, insurance, and oil and gas. BKPM is currently pioneering it’s one-stop shop three hour investment license service for special cases, though most should expect the licensing process to take significantly longer.

For a free consultation on investing in Indonesia, get in touch with Charles at: charles@csmall.co.uk

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Business and Security Risks to Operating in Indonesia

Indonesia, a country of over 250 million people, is the largest economy in the Association of Southeast Asian Nations (ASEAN). The archipelago of over 17,000 islands is vast and complex. London is closer to Baghdad than Indonesia’s northwesternmost point near Aceh is from the southeastern tip of its border with Papua New Guinea.

Getting to grips with this culturally and economically diverse country requires in-depth analysis. In this brief report, we cover two key business and security risks to doing business in Indonesia, giving an outlook on how we expect the situation to develop.

Business Risk – Extractive Industries

Businesses in the extractive industries are at risk of the growing tide of “resource nationalism”.

At the start of 2014, Indonesia’s government announced a total ban on exporting mineral ores of bauxite, nickel and tin, and progressive taxes on export of some minerals. The aim was to force exporters to build smelters in the country. However, slow progress has been made towards this.

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In 2015, construction only began on six new smelters, all small in size. This year, only one bauxite smelter, three lead-zinc smelters, and three nickel smelters are scheduled to begin operations.

Some multinationals have resorted to commercial arbitration and negotiations over implementation of the new rules. Freeport-McMoRan Inc. has appealed for leniency from the government before a US$530 million payment must be made for construction of a new copper smelter, in return for the government renewing a permit to export from its Grasberg mine in Papua. Its license expired on 28 January 2016, and the company aims to export 1 million metric tons of concentrates from its mine.

It remains an uncertain time for extractive industries in Indonesia. There has often been a gap between regulatory constraints and implementation in the country, and those involved in extractive industries will benefit from keeping up to date on developments.

Related: Indonesia: World Bank Pledges $10bn for Infrastructure, Poverty Reduction

Security Risk – Islamic State (IS)

Indonesia is at risk to threats from Islamic fundamentalist groups, particularly the Islamic State (IS).

The 14 January 2016 attacks in the heart of Jakarta’s central business district marked the worst attacks in the country since the twin hotel bombings of July 2009. The complex attack claimed by IS began at 10:45 local time when a suicide bomb detonated in the Starbucks of the Cakrawala (Skyline) Building. Two attackers then opened fire into surrounding crowds, killing one Canadian and one Indonesian citizen. Two motorcycle borne suicide attackers then opened fire on a police post and detonated explosives, killing the bomber. Other explosions were heard, and attackers were seen throwing grenades.

Police searches in the vicinity revealed one large and five small unexploded bombs. When the police announced at 14:30 that the attack was over, four attackers and three civilians had been killed, and 19 civilians wounded.

The international nature of the targets – an American-owned café and foreign civilians – illustrate that foreign nationals remain at risk in the country. The targeting of the police checkpoint is also in line with previous attacks on state apparatus.

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Hundreds of Indonesians have travelled to fight with IS in Iraq and Syria, and officials estimate that there are over 1,000 supporters of the group in the country. The police believe the attack was organised by Indonesian citizen Bahrun Naim from the Syrian city Raqqa.

Indonesia has a history of internal conflict between the state and Islamist groups. Since independence in 1945, Islamist insurrections took place in Aceh, Java, and Sulawesi, ending in the 1960s. Regionalist conflicts are also no longer the threat they once were.

The national philosophy of Pancasila espoused by the state embraces five pillars, including monotheism, in order to bring together the diverse archipelago. As such, the country recognises freedom of religion, and is at odds with the ideology of the Islamic State. Unlike in other regions, IS has not taken a permanent geographical foothold in the country.

Despite this, we believe that it is highly likely that similar attacks will be carried out in Indonesia, and businesses should make contingency plans accordingly. Get in touch for a free consultation by emailing Charles at:
charles@csmall.co.uk

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High-Tech Vietnam: Tax Incentives

Charles Small has worked in Vietnam since 2012, and has managed multiple market research projects for companies considering establishing high-tech projects in the country. For a free consultation, email Charles at: charles@csmall.co.uk


Tax Incentives for High-Tech Investment in Vietnam

When considering a presence on the ground, potential tax liabilities must always be considered. In Vietnam, the government promotes high-tech activities by granting foreign investors tax incentives to operate in the country.

Instead of paying the 20% corporate income tax (CIT) rate, those investing in high-tech operations in Vietnam could benefit from reduced CIT rates of 10% for 15 years, and 17% for a further 10 years. Incomes of certain high-tech enterprises may be exempt from taxation for up to four years, and benefit from a 50% tax reduction for a further nine years.

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High-tech enterprises in Vietnam are defined according to several criteria. They must derive at least 70% of annual revenue from high-tech products, and allocate certain proportions of resources to research and development (R&D).

For enterprises with capital of under VND100 billion (US$4.47 million) to be classified as high-tech, a minimum of 1% of capital should be allocated to R&D, with at least 5% of the workforce involved in R&D educated to bachelor level or higher.

Related: Vietnam’s Cyber Security Framework

For those with capital of VND100 billion or higher seeking high-tech classification, at least 0.5% of capital would need to be allocated to R&D, with at least 2.5% of a minimum of 300 employees involved in R&D educated to bachelors degree or higher.

High-Tech Not All Low-Tax

Not all foreign investors have benefited from the incentives. Microsoft Mobile Vietnam, formerly Nokia Vietnam, recently paid VND191 billion (US$8.53 million) in CIT arrears and late payment fines to the Bac Ninh Department of Taxation for 2013 and 2014.

If the Ministry of Science and Technology had granted the relevant high-tech enterprises certificate, the company would have benefited from the 0% CIT rate for 2013-2016, as well as a 50% reduction in the CIT rate for a further nine years.

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However, after acquiring Nokia’s operations in 2015, Microsoft Mobile Vietnam reportedly only applied for the same incentives granted to projects in industrial parks in the same year. As such, the company only benefits from a 50% CIT reduction for the four years 2015-2018, and is paying arrears for the preceding period.

The issue here appears to be related to the Bac Ninh factory not submitting reports on nine criteria arranged with the Ministry of Planning and Investment, following Microsoft’s acquisition. Criteria were reportedly related to local content in products, and sales to the domestic market.

If you are considering setting up a high-tech enterprise in Vietnam, it pays to know which incentives your business could benefit from. Tax incentives are of course only one part of the picture. Investors in Vietnam also benefit from a computer-literate and low-cost workforce, government sector development programs, and a stable political environment.

For more details on how your business could benefit from establishing or expanding a presence in Vietnam, get in touch for a free consultation by emailing Charles at:
charles@csmall.co.uk

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$15bn for Telecoms Companies in Vietnam

Vietnam’s telecoms sector saw total revenue of an estimated VND340 trillion (US$15.1 billion) in 2015, with total sector profits of VND56 trillion (US$2.5 billion). The sector contributed VND47 trillion (US$2.1 billion) to Vietnam’s state budget. However, overall subscription numbers declined to 122 million, 20 million lower than in 2014.

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Viet Nam Posts and Telecommunications Group (VNPT), owner of VinaPhone, saw expected revenue of VND89 trillion (US$4 billion), a 7.5 increase from 2014. Profit of VNPT’s telecoms and IT sectors increased 21.7 percent from 2014 to reach VND3.1 trillion (US$136 million). By the end of the year, the majority of VNPT’s 33.7 million telephone subscribers were the 29.7 million VinaPhone subscribers, up 3.3 million from 2014.

MobiFone Going Alone

Rival MobiFone acquired 15 million new subscribers, a growth of 54 percent from 2014. Despite the large increase in subscriptions, the firm’s profit increased by only 1.1 percent to VND7.4 trillion (US$329 million).

MobiFone became an independent corporation following restructuring of VNPT in 2014-15 under Prime Minister Dung’s Decision 888/QD-TTg. During the process, VNPT also divested from Bao Minh Insurance Corporation, along with a commercial joint stock bank, four funds, four limited liability companies, and 53 joint stock companies. Three new corporations were established under the state-owned VNPT, being VNPT-Media, VNPT-Net, and VNPT-VinaPhone.

Meanwhile, Viettel Group added six million subscribers to its Viettel network, and Hanoi Telecom’s Vietnammobile reached an estimated 11 million subscriptions.

National Telecommunication Development Plan Until 2020

Vietnam is currently pursuing telecoms sector development under a national development plan. The plan targets mobile phone network coverage for 95% of the country’s population by 2020, and aims for 60% of the population to be internet users by that year.

The plan sets out telecommunications sector restructuring through mergers and acquisitions, aiming to form three to four large groups. State-owned enterprises are the key focus due to perceived inefficiencies in use of infrastructure and resources.

Interested in Vietnam’s burgeoning telecoms market? Get in touch to discuss how our tailored solutions meet your needs by emailing Charles at:
charles@csmall.co.uk

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Vietnam’s Cyber Security Framework

Vietnam’s Law on Network Information Safety, coming into effect on 1 July 2016, provides a framework for cyber security in the country. Stated aims of the legislation include stepping up surveillance and risk prevention, ensuring effective state management, and improving the quality of life of citizens through socioeconomic development. Its eight chapters delineate the rights and responsibilities of relevant agencies, organisations and individuals, and cover technical standards, human resources, and network security, including civil ciphers.

The law encourages state agencies, enterprises and other organisations to outsource to specialist security service providers. While security services are restricted from foreign investment in Vietnam, IT consulting services are permitted.

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Within Vietnam’s developing legal system, the full picture is not always immediately apparent. Vietnam’s Deputy Minister of Information and Communications has requested clarity from the Department of Information Security on the law, and the Department’s Director has announced that finalising two decrees to support implementation of the new law is a priority.

Related: Vietnam IT Workforce Capacity Shortfall by 2020

The Deputy Minister has also warned of threats to Vietnam’s critical infrastructure, at a time when Vietnam gradually move towards the e-governance model. This model is supported by Resolution 36a/NQ-CP, which aims to simplify processes in the provision of online government services, and reduce time and cost of administrative procedures.

Looking for an in-depth report? Get in touch with Charles at:
charles@csmall.co.uk

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Vietnam in 8 Charts

Vietnam GDP Growth

Sources: Asian Development Bank, World Bank

 

Manufacturing PMI

Sources: Caixin, HSBC, JP Morgan, Nikkei, Markit

 

Vietnam Consumer Price Inflation

Sources: Asian Development Bank, World Bank

 

Vietnam Consumer Confidence

Source: ANZ-Roy Morgan

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Vietnam Government Bond Yields

Source: Investing.com (15 Dec 2015)

 

China Vietnam Urban Population

Source: United Nations Department of Economic and Social Affairs

 

Vietnam Agriculture Forestry Fishing

Source: General Statistics Office of Vietnam

 

Vietnam Manufacturing

Source: General Statistics Office of Vietnam

 

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Challenges of Doing Business in Vietnam

In this article, we give an overview of the key challenges Vietnam faces. The article is an extract from our latest publication Vietnam 2016: Frontier in Transition, available to download here.


Vietnam is still far from an easy place to do business, though it is improving. Ranked 90th out of 189 jurisdictions by the World Bank’s Doing Business 2016 report, Vietnam had seen significant improvements in ease of starting a business, access to electricity and paying taxes.

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It is ranked as one of the easiest markets in the world to obtain a construction permit, in 12th place. However, it is one of the most challenging jurisdictions to pay taxes in, with 770 hours of time needed per year to make the 30 annual payments. This is improving, and the government is making an effort to reduce tax and social insurance payment time to the ASEAN average of 171 hours per annum.

Ease of starting a business varies according to lines of business. For an unrestricted business line, it takes around 20 working days to complete the 10 necessary procedures.

Global Headwinds

Vietnam is not immune to global headwinds. It too has been hit by the commodity slump, and China’s managed currency depreciation has led to increased competitiveness across sectors. As global commodity prices remain at lows, deflationary pressures are evident in the low prices of manufacturers’ inputs and outputs.

Manufacturing PMI

Sources: Caixin, HSBC, JP Morgan, Nikkei, Markit

In the past decade, Vietnam has been subject to two shocks; the global financial crisis beginning in 2007, and a domestic crisis spurred on by its repercussions. Inflation had been hit by rising global food and commodity prices, domestic education, transport and hosing prices, service sector growth and expansion in the money supply, which went hand in hand with credit growth.

Vietnam Consumer Price Inflation

Sources: Asian Development Bank, World Bank

Vietnam is confident in its future. When the twelve months following November 2015, 56 percent of respondents to the ANZ-Roy Morgan Vietnam Consumer Confidence Index survey expect their families to be ‘better off’ financially, and only three percent ‘worse off’, the lowest figure on record.

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A sturdy 55 percent of respondents expected Vietnam as a whole to have ‘good times’ financially, with only nine percent expecting ‘bad times’. We expect this optimism to be tested over the coming year, as the commodity slump and rebalancing Chinese economies play their part in stilting emerging market growth.

Vietnam Consumer Confidence

Source: ANZ-Roy Morgan

Vietnam’s sovereign debt is rated BB- by Standard & Poor’s, B1 by Moody’s, and BB- by Fitch. Its outlook is stable across the board. It is still a frontier market with a way to go before it can be upgraded to MSCI’s emerging market status.

The Dong is now permitted to trade up to three percent above or below the official reference rate, but facing pressure from the devaluing Chinese Yuan and looming Fed rate hike. The State Bank of Vietnam devalued the Dong beyond the pledged limit of two percent in 2015, and we expect further managed devaluation in 2016.

Vietnam Government Bond Yields

Source: Investing.com (15 Dec 2015)

Vietnam’s Developing Legal System

The pace of change in the country creates a need for laws and regulations to be updated regularly in order for the legal system to adapt. However, there are still problems of implementation.

Investors can be left in unfortunate circumstances when insufficient guidance is released with new legislation. When the 2014 Investment Law came into effect in mid-2015, investors had trouble establishing a company for months, and some aspects of the law are still unclear.

In the World Justice Project’s 2015 Rule of Law Index, Vietnam was ranked 64th out of 102 jurisdictions for its legal system, 11th out of the 25 lower-middle income jurisdictions surveyed.

Vietnam was ranked above other lower-middle income jurisdictions and the regional average for its independent auditing, absence of crime, and lack of discrimination in its civil and criminal justice systems. It ranked above its lower-middle income peers in effective regulatory enforcement, but the Index ranked it below its peers for alleged corruption in the judiciary. Foreign investors should bear in mind anti-bribery compliance obligations in home jurisdictions.

Snapshot - Vietnam 2016 Report

This article is an extract from our latest publication “Vietnam 2016: Frontier in Transition”. Download a free copy by filling in your details below:


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Multilateral Vietnam: ASEAN, AEC, APEC, RCEP, and TPP

In this article, we give an overview of the key regional trade organisations which Vietnam is a member of, and strategic benefits. The article is an extract from our latest publication Vietnam 2016: Frontier in Transition, available to download here.


Association of Southeast Asian Nations (ASEAN)

The Association of Southeast Asian Nations (ASEAN) is a regional bloc representing the over 600 million citizens of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. In 2014, the group’s combined GDP was $2.57 trillion, giving it an economy around the size of the United Kingdom.

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Through its ASEAN membership, Vietnam has free trade agreements (FTAs) with Australia and New Zealand, China, India, Japan and South Korea. The country also has bilateral FTAs with China, Eurasian Economic Union, the European Union, Japan, and South Korea.
The aim of ASEAN is to integrate its ten member countries facilitate trade in goods and services, eliminate tariffs, harmonise capital markets, and ease mobility of skilled labour.
The head of ASEAN in 2016 is Vietnam’s neighbour, Laos.

ASEAN Economic Community (AEC)

The ASEAN Economic Community (AEC) came into effect in 2015, integrating Cambodia, Laos, Myanmar and Vietnam (CLMV) further with the rest of ASEAN.

The AEC Blueprint 2025 lays out the strategy over the coming decade. It sets targets of an integrated and competitive economy, enhanced connectivity and sectoral cooperation, and of a global ASEAN resilient against global economic shocks. The group is committed to promote micro, small and medium enterprises (MSMEs) in economic integration.
The AEC aims to facilitate seamless movement of capital, goods, services, and skilled labour within ASEAN. This is carried out by tariff reductions in accordance with the ASEAN Trade in Goods Agreement (ATIGA). The group has committed to refining ATIGA as the region takes part in other FTAs, including the ASEAN +1 bilateral agreements and Regional Comprehensive Economic Partnership (RCEP) negotiations.

Key aspects of ATIGA are simplification and enhanced implementation of rules of origin requirements, and supporting the ASEAN Single Window in expediting cargo clearance. A similar agreement on services is also progressing.

Asia Pacific Economic Cooperation (APEC)

APEC is a regional forum for 21 member economies situated in the Pacific Rim. Vietnam’s APEC partners include economic giants China, Japan, Russia and the USA, as well as member economies Hong Kong and Taiwan.

Central to APEC is the aim of easing crossborder trade by lowering transaction costs. The organisation claims to have reduced these by $58.7 billion so far.

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The organisation’s agenda also focuses on non-tariff barriers to trade, including promoting easier access to construction and other permits.

Like ASEAN, APEC also promotes the Single Window system, with a goal of bringing all members on board by 2020. The system can reduce customs waiting times at the borders from a matter of days to a matter of hours.

APEC also works together to promote supply chain efficiency, environmental and other issues. The APEC Business Travel Card provides pre-approved holders with business visa clearance and fast-track lanes in international airports.

The APEC Business Advisory Council, comprised of three private sector delegates from each member state, makes annual recommendations to APEC leaders.
2016 is scheduled to see publication of a long-term roadmap towards an APEC regional free trade area. In the short-term, the forum serves a purpose of bringing together economies excluded by other regional trade blocs.

APEC will be hosted by Peru in 2016, and Vietnam in 2017. Evidence of APEC drawing member economies closer together is clear; when the Peruvian Embassy opened its doors in Vietnam in 2015, the first Ambassador expressed a desire for closer cooperation in upcoming APEC fora.

Regional Comprehensive Economic Partnership (RCEP)

The RCEP initiative was announced in 2011 during the 19th East Asia Summit, and formal negotiations began in 2013. It is an ASEAN-led process which has evolved out of initial investigations into feasibility of free trade area encompassing ASEAN, China, Japan and South Korea, and expanded to include Australia, India, and New Zealand.

RCEP is expected to expand trade in goods and services, investment facilitation and technical cooperation, intellectual property rights and dispute settlement mechanisms.
Key for Vietnam and other CLMV countries, priority in early tariff elimination on goods will be given to the least developed ASEAN member states.

RCEP has the potential to create a single integrated market comprising of over three billion people, with a combined GDP of around a third of global GDP.

It recognises the centrality of ASEAN, aspiring to improve over the bilateral ASEAN +1 FTAs. It will not displace other bilateral and multilateral FTAs, rather to broaden and deepen existing arrangements.

The RCEP agreement is scheduled to be finalised in 2016.

Trans-Pacific Partnership (TPP)

The 12 parties to the Trans-Pacific Partnership (TPP) concluded the agreement in 2015, integrating Asia-Pacific and American markets which generate 40 percent of global GDP. Seven of the members are also participating in RCEP negotiations.

The agreement prohibits the parties from increasing any existing customs duty, or adopting a new duty, and lays out a schedule to eliminate tariffs.

The agreement focuses on rules of origin, textiles and apparel, customs administration and trade facilitationg, trade remedies, sanitary and photosanitary measures, technical barriers to trade, investment, cross-border trade in services, financial services, and business visas.

A wide range of tariffs on Vietnam’s agricultural products have been eliminated immediately. However, it will take over a decade for tariffs to be eliminated goods including wine, diesel, aviation and other fuel, and for many inputs into automobile and aircraft manufacturing and maintenance.

Vietnam will benefit from drastic reductions on textile input tariffs, but the yarn forward rule means that from the yarn stage, a garment must be made in a TPP country in order to benefit from tariff exemptions. As Vietnam imports around 49 percent of its yarn from China, many of its textiles products will not benefit from eased market access under the TPP. Time will tell if this incentive to source from within TPP countries will cause a shift in supply chains.

The TPP also aims to eliminate favouritism of governments for their own companies, attempting to ensure that SOE’s decisions are made on the basis of commercial considerations, and that SOEs will not be granted sovereign immunity.

Pending ratification, we expect the TPP to be implemented by 2017.

Snapshot - Vietnam 2016 Report

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Vietnam’s Political System: A Snapshot

This snapshot is an extract from our latest publication Vietnam 2016: Frontier in Transition, available to download here.


The entrenched political system in Vietnam is one of the most stable in the Association of Southeast Asian Nations (ASEAN). Here, disruptive demonstrations are a rarity. The Socialist Republic of Vietnam is, unsurprisingly, a one party state. The Communist Party has ruled the country for the past four decades, and the north for much of the past seven.
However, one party rule does not mean one policy. Like its neighbour to the north China, Vietnam embarked on a wide ranging economic reform programme after experiencing the failures of a centrally-planned economy. Overall, the reforms have been a success.

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Teething pains upon introduction of the reform programme were nothing like the Big Bang policies which so devastated the former USSR. Vietnam saw what happened to its old allies when market forces were let loose on an unprepared economy, and has chosen a more gradual approach.

Barely a decade after the fall of Saigon, Vietnam’s leaders had the foresight to embark on a programme of reforms, the “Doi Moi”, in 1986. Following degradation of national infrastructure and livelihoods in the mid-20th Century, Vietnam then faced the ravages of a statist command economy. Famine and food shortages were the new enemy. The way out was clear – open up, loosen internal restrictions on trade, and attract foreign investment to make the transition from an economy balanced between the industrial north and an agrarian south, to an urbanised global manufacturing and services hub.

The 2016 National Party Congress will see the selection of party and government leaders. When the new wave of leaders take the reins, there may be a change in the pace of reforms, but not direction.

Vietnam GDP Growth

Sources: Asian Development Bank, World Bank

Snapshot - Vietnam 2016 Report

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A New Urban Vietnam

This article is an extract from our latest publication Vietnam 2016: Frontier in Transition, available to download here.


When China embarked on its ambitious reform programme in 1978, its urban population as a percentage of overall population soon grew above that of its southern neighbour. Following initiation of Vietnam’s Doi Moi in 1986, a similar trend emerged.

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China Vietnam Urban Population

Source: United Nations Department of Economic and Social Affairs

While it is expected that Vietnam will not be a majority urbanised economy until the 2040s, population growth led by migration will be felt heavily in the country’s economic hubs. When the Asian Development Bank carried out a study of the demand for mass rapid transit in Ho Chi Minh City and the adjoining Long An, Dong Nai, and Binh Duong provinces, it projected that the population would grow from nine million in 2007 to over 13.8 million by 2025, of whom 10 million will live in Ho Chi Minh City.

Agriculture to Manufacturing

This wave of urbanisation is going hand-in-hand with a reduction in the proportion of the population working in agriculture. As migrants move from rural areas to the cities, they are leaving behind low value-added jobs in agriculture and boosting the economy through engaging in Vietnam’s new drivers of growth.

Vietnam Agriculture Forestry Fishing

Source: General Statistics Office of Vietnam

Vietnam Manufacturing

Source: General Statistics Office of Vietnam

Manufacturing now employs 14 percent of Vietnam’s workforce, and manufactured products lead the way in exports. Vietnam’s top exports for the first 11 months of 2015 were telephones, mobile phones and parts, textiles and garments, and computers, electrical products and parts. From January to November 2015, Vietnam’s total exports reached over $148 billion in value.

Vietnam’s Multiple Minimum Wages

Minimum wages in Vietnam are low, and determined according to location in four zones. In Zone 1, which includes urban centres Hanoi and Ho Chi Minh City, monthly minimum wages are set at VND3.5 million ($155). The outskirts of these cities and others make up Zone 2, where minimums are set at VND2.75 million ($122). Monthly minimum wages in Zones 3 and 4 are set at VND2.4 million ($106) and VND2.15 million ($95) respectively.

Snapshot - Vietnam 2016 Report

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