DOING BUSINESS IN VIETNAM 2021

VIETNAM CHAMBER OF COMMERCE AND INDUSTRY HO CHI MINH CITY BRANCH GIANG DIEN INDUSTRIAL PARK READY FOR NEW INVESTMENT WAVE DOING BUSINESS IN VIETNAM A guide to investment and trade in Vietnam 2021

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Content 12-24 25-71 CHAPTER I CHAPTER II VIETNAM AT A GLANCE BUSINESS LANDCAPE - VIETNAM COUNTRY AND POOPLE 27. Looking back on the last year 2020 12. Geography, Review of the most notable landscape and climate events in recent times 2020 - 2021, eventful lanmark years 14. Vietnam - The Country and the people Macroeconomic indicators - highlights hard hit by 22. Vietnam political coronavirus structure 40. Looking forward Long term perspective Immediate perspective Growth Drivers Beyond 2021 10 resasons to invest in Vietnam in the new period 48. Review of Typical sector: Logistics industry The role and significance of the logistics industry for the overall growth of the economy Vietnam’s Logistics Performance Index (LPI) - an Outsider’s view Investment in infrastructure The development status of Vietnam’s logistics industry - the insider view Impacts of FTAs on logistics development & Market access Foreign Direct Investment (FDI) in the logistics sector Market developmment trends & Government’s conducive regulatory policies E-logistics

Disclaimer All materials presented in this report, unless specifically indicated otherwise, are under copyright and proprietary to VCCI-HCMC. Information contained herein, including projections, have been obtained from materials and sources reliable at the date of publication. While VCCI-HCMC is confident in the accuracy of the information set forth, VCCI-HCMC does not always verify the sources and therefore, make no guarantee, warranty, or representation concerning it or them. Readers are solely responsible for assessing the relevance, accuracy, completeness and currency of the information within this publication. This report is written exclusively for VCCI-HCMC partners and professionals for information purposes only. It is not to be used or considered as an offer or the solicitation of an offer to sell, buy, or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, its content, or any copy of it, may be altered in any way, transmitted, copied or distributed to any other party without prior written permission of VCCI-HCMC. VCCI-HCMC will not be liable for any loss, damage, cost or expense incurred by any party using or relying on information in this publication. Third Edition of the Guidebook “Doing business in Compilers of chapter IV: Vietnam 2021” published by: Mr. Phan Vu Hoang Tax and Legal Partner of Deloitte Vietnam Vietnam Chamber of Commerce and Industry, Mr. Tran Van Tho HCMC Branch (VCCI-HCM) Tax and Legal Director of Deloitte Vietnam 171 Vo Thi Sau, Ward 7, District 3, HCMC, Vietnam Tel: +84-28 3932 6598 - Fax: +84-28 3932 5472 Proofreader: Email: [email protected] Do Thanh Huong Client and Market Senior of Deloitte Vietnam Editor-in-chief: Mr. Nguyen Thanh Binh Director, Business Information Centre, VCCI-HCM Printed 1,000 copies, size 21 x 29,5 cm, Email: [email protected]; Printed at SP Co., Ltd - 59/9K12 Pham Van Chieu St., [email protected] Ward 14, Go Vap District, HCMC - Printing completed and copyright deposited in quarter 4, 2021 Compiler of chapters I, II and III: Mr. Nguyen Thanh Binh, Director of Business THE BOOKS NOT FOR SALE Information Center of VCCI-HCMC Principal Designer: MZ Media Affiliate Partner MZ Media Co., Ltd

97-109 CHAPTER IV BUSINESS GUIDE 73-95 98. Introduction to new 111-148 investment law and law CHAPTER III on enterprise 2020 CHAPTER V HO CHI MINH CITY (negative list) BUSINESS & INVESTMENT - A LAND THAT BIRDS WILL ENVIRONMENT COME TO BUILD THEIR NEST 99. Investment Screening and Licensing Authority 114. Why Do Vietnam’s Industrial 74. Ho Chi Minh City Parks Attract Attention? in a Nutshell 100. Company Incorporation Process 116. Dak Nong Attracts 75. What Makes Ho Chi Minh Investment in Mining, City Unique? 101. Investment Incentives Agriculture and Tourism The City of Pioneers The cosmopolitan city 102. Taxation Regime 120. Da Nang - An Ideal The vibrant City Investment Destination Growth 104. Profit Remittance/ Repatriation 0f Contributed 122. List of Projects Calling for 87. Looking Forward Capital and Loans Investment Development orientation Fine-tuning 104. Labor Regulations Vision & Goals 10 Reasons to Invest in 105. Market access Restriction Ho Chi Minh City Related to WTO Commitment and Free Trade Agreement 106. Foreign Investment Ownership Cap 106. Reference Cost of Living, Utilities Charges, Minimum Wage Rates

Foreword Mr. VO TAN THANH The 2021 edition of “A Guide to Investment and Vice President of Vietnam Chamber Trade in Vietnam” has been released for the third time. of Commerce and Industry, General Director of Vietnam Chamber In the commonly referenced series “Doing of Commerce and Industry - HCMC Branch business” to promote the business environment in different countries, “A Guide to Investment 6 Vietnam Chamber of Commerce and Industry and Trade 2021” was developed by retaining Ho Chi Minh City Branch prominent features of previous editions, including visual representations, logical structure and module-based contents presented in separate sections and chapters to allow diverse audiences to explore one or more aspects of Vietnam’s business environment. Those who are interested in understanding Vietnam’s country profile, people and business practices will be reading Chapter I; business owners who wish to be updated on developments of the “macroeconomic landscape” and “sector-based environment” may refer to Chapter II for more details; and, to learn more about the legal frameworks that govern foreign investment and related procedures, investors can read Chapter IV intensively. In the “Industry analysis” section, Vietnam’s logistics industry was selected for introduction in Chapter II. The COVID-19 pandemic has caused numerous socio-economic issues globally, and Vietnam is not an exception. In 2020 and 2021, there have been key political agendas in Vietnam, including the 13th Party Congress, followed by election of the National Assembly deputies and the Government members for the new term, and development of Vietnam’s socio-economic development directions and strategy for the period 2021 - 2026, vision to 2030 and 2045. The Law on Investment 2020 and the Enterprise Law 2020, with key solutions to attract investment, have entered into force and new incentive policies will surely be of strong interest to investors.

In terms of foreign economic relations, the EU- Vietnam Free Trade Agreement (EVFTA) and the Regional Comprehensive Economic Partnership (RCEP) to which Vietnam is a signatory will bring greater opportunities to both foreign businesses and investors operating in Vietnam in market entry into the member countries while enabling them to get access to incentives as indicated in these agreements. In addition, the list of priority investment projects in the southern provinces is included in the appendix as useful reference information for those who are seeking investment and networking opportunities. Taking this opportunity, I would like to, on behalf of the Vietnam Chamber of Commerce and Industry, send my sincere thanks to the Management of Deloitte Vietnam for their continued support and collaboration in the preparation of this guide to deliver a highest-quality publication. I would also like to extend my gratitude to the donors for their trust and collaboration in developing the publication. My heartfelt thanks also go to all readers of our publications and I hope to further receive your support and feedback to improve our publications and address the business community expectations. May you all have good health and success! Sincerely, Ho Chi Minh City, 28 November 2021 Vo Tan Thanh Vice President of Vietnam Chamber of Commerce and Industry General Director of Vietnam Chamber of Commerce and Industry - HCMC Branch 7

“The Voice of Business in Southern Vietnam” VIETNAM CHAMBER OF COMMERCE AND INDUSTRY HO CHI MINH CITY BRANCH ABOUT US MISSION Vietnam Chamber of Commerce and Industry (VCCI) l Enhance the competitiveness of the business is a national organization that assembles and community through representation, promotion represents the business community, entrepreneurs, and capacity building activities. employers and business associations in Vietnam. The purpose of the Chamber is to develop, protect CORE VALUES and support the business community, contribute l Credibility - Transparency - Professionalism - to national socio-economic development. VCCI was Innovation - Community Spirit. established in 1963 in Hanoi as a non-governmental, non-profit organization. WHAT WE DO - WHAT WE OFFER l Trade promotion: Trade promotion event Vietnam Chamber of Commerce and Industry, Ho arrangement such as business briefing, B2B Chi Minh City Branch (VCCI-HCMC) is the largest matching, seminar, conference, outbound trade branch of VCCI. Based in Ho Chi Minh City, we also mission overseas. cover the operation of 6 other provinces including l Policy advocacy; legal & investment consultancy; Binh Duong, Binh Phuoc, Dong Nai, Long An, trade document certification & certificate of Lam Dong and Tay Ninh, altogether forming the origin (C/O) issuance. southern key economic region. l Trade facilitation: business & investment environment monitoring and networking VISION l Industrial/labor relations consultation, l To be the leading representative organization for productivity improvement and skill development the business community in Southern Vietnam. l Membership development & capacity building including short term training course Contact us arrangement l Others: Office and conference rooms for rent. VIETNAM CHAMBER OF COMMERCE AND INDUSTRY HO CHI MINH CITY BRANCH (VCCI-HCMC) No. 171, Vo Thi Sau Street, Ward Vo Thi Sau, District 3, Ho Chi Minh City +84-28 3932 6598 +84-28 3932 5472 [email protected] www.vcci-hcm.org.vn

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CHAPTER I CHAPTER II CHAPTER III CHAPTER IV CHAPTER V

VIETNAM AT A GLANCE - Vietnam country and people

1. GEOGRAPHY, LANDSCAPE AND CLIMATE Located on the Indochinese Peninsula in Ha Giang Cao Bang Southeast Asia, Vietnam overlooks the Pacific Ocean and for that reason, has been Lai Chau Lao Cai Tuyen Bac Can nicknamed the “balcony over the Pacific”. Yen Bai Quang Dien Thai From a bird’s eye view, Vietnam is shaped Bien Nguyen Lang Son like the letter S. A single mountain range called Truong Son stretches along Vietnam’s Vinh Phuc Bac Giang western border from the North to the South, Phu Tho often likened to the shoulder pole that carries the two “rice baskets”, the Red River Son La Ha Noi Delta rice basket on one end and Mekong River Delta one on the other. Ha Tay Quang Ninh Hoa Binh 1.1. LOCATION AND BORDERS Hai Phong Hung Yen With an area of 331,070 square kilometers, Vietnam is roughly the same size as Italy, Ha Nam slightly smaller than Germany and a bit larger than the US state of New Mexico. Ninh Binh Vietnam borders China to the north, Laos Nam Dinh and Cambodia to the west and the Pacific Ocean to the east. Running along the east Thanh Hoa of the Indochina peninsula, the country boasts 3,260 kilometers of coastline, Nghe An territorial and inland waters (internal waters and territorial waters). There is also Ha Tinh an exclusive, 500,000 square kilometers Quang Binh economic zone, located approximately 200 miles from shore. Last but not least, a Quang Tri Hoang Sa 100,000 square kilometers area occupied Thua Thien Hue Paracel Islands by more than 4,000 islands and islets, Da Nang including the Paracel (Hoang sa) islands and (Vietnam) the Spratly (Truong sa) archipelago. Quang Nam Quang Ngai Kon Tum Binh Dinh Gia Lai Phu Yen Dak Lak Dak Nong Khanh Hoa Ninh Thuan Binh Phuoc Lam Dong Tay Ninh Dong Nai Binh Duong Binh Thuan Dong Ho Chi Minh City An Giang Thap Long An Tien Giang Ba Ria - Vung Tau Phu Quoc Ben Tre Vinh Long Kien Giang Truong Sa Spratly Islands Can Tho Tra Vinh (Vietnam) Soc Trang Bac Lieu Ca Mau Con Dao Figure 1. Map of the Socialist Republic of Vietnam 12 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

Vietnam’s coastline is likened to “the balcony looking out upon the Pacific Ocean” where busy sea lanes run by. Source: EagleSpeak 1.2. CLIMATE 1.3. LANDSCAPE Laying within the tropical rain belt, Vietnam Mountains and hills account for about three fourths experiences high temperature and humidity of Vietnam’s territory. This mountainous terrains all year round. extends from the northwest to the southwest, helping to direct the flow of rivers and position The weather in the Northern part of Vietnam hydropower plants, dams, and reservoirs. (from the Hai Van pass northwards) is divided into four seasons (spring, summer, autumn The two largest granaries are North red river and winter). Meanwhile, weather in the delta covering about 16,700 square kilometers and South (from the Hai Van Pass southwards) Mekong River Delta covering about 40,000 square consists of a tropical monsoon with two kilometers. While in the north, the dyke system has seasons - the rainy season spanning from been established and reinforced to prevent floods May to November and the dry season from for hundreds of years. In the south, the terrain December to the end of April. There also exist is crisscrossed by a maze of rivers and canals. microclimates engendered by Vietnamese The farmers in the Mekong Delta region for ages topographical features that support have learned to coexist with floods and maximize agricultural diversification and enhances deposits of silt for rice cultivation and water for landscape aesthetic. aquaculture. The Mekong Delta’s network facilitates the connection between Vietnam and the world, especially with the potential development of an international port and a modern logistic system. 13

2. VIETNAM - THE COUNTRY AND THE PEOPLE 1. Traditional sketches Vietnamese history is also closely associated to a continual fight for independence against foreign As a market economy with a socialist orientation, aggressors. Generations after its independence, Vietnam has been proactively integrating into descendants not only remember the founders the global economy. During its transition into the and the builders of the country, but also the modern era, Vietnam seamlessly incorporates national heroes who established the glorious traditional cultures and foreign cultural influences. feats of fighting against foreign invaders, to whom the country will pay tribute to forever. One Demographically, Vietnam features a mix of 54 quintessential example is Tran Hung Dao, The ethnic groups led by the “Kinh” group which Great Prince and military Commander of the Dai represents approximately 85% of the population. Viet (Great Viet) armies that successfully triumphed Other ethnic groups such as the Tay, Thai, Muong three times over the mighty Mongol Yuan invaders and Khmer each represent about 2% of the in the 13th century. To this day, he is steadfastly population. This multi-ethnicity has resulted in worshipped. There are temples established in his the emergence of a vibrant culture of rich and honor alongside other national heroes. The culture diverse heritage manifested in Vietnamese cuisine, of historical commemoration also extends to the literature, legends, festivals and celebrations. As king’s envoys who were sent to foreign lands to a result, Vietnam has rapidly become a favored learn and bring back the crafts of trade to their destination for both social scientists and travelers homeland. The Temple of Literature, the first alike who enjoy from the cultural diversity brought national university, built in 1070 in Thang Long, Ha by different regions of Vietnam. Noi, perfectly accredits the value and endurance of knowledge through generations. Here, a stone Another element that has immensely influenced stelae standing on stone turtles is inscribed with the country foundation is its history. Vietnam’s the names and academic careers of those who heroes and history are often celebrated through ranked first in the royal national examinations, festivals and holidays. For instance, the Hung as a way to honor their fondness for learning and Kings, founders of the first Van Lang kingdom (from devotion to the country. It was once the royal 2879 BC to 258 BC) are honored on Hung Kings method of upholding meritocracy, irrespective of Commemoration day, annually held on the 10th of social cast and stock. This tradition of respecting March of the Lunar calendar. Another renowned the talents is exemplified through the famous Vietnamese individual who has changed the course saying of Than Nhan Trung, who is also inscribed in of history is King Ly Thai To, who with great vision one of the Doctor’s stele at this Temple “Hiền tài là decided to shift the kingdom from Hoa Lu citadel nguyên khí quốc gia - The righteous talents are the to Dai La citadel in 1010 and rename it to what is vitality of a nation…”. currently known as Thang Long - ‘the ascending dragon’ or the royal city, Ha Noi, current capital of The veneration of ancestors and national heroes Vietnam. will long continue to inspire modern Vietnamese as they develop their society, culture and economy. 14 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

Doctor’s stele engraved with famous compositions of Vietnam is geographically situated at the crossroads Than Nhan Trung which is available at the Imperial of the Pacific Ocean and the Indian Ocean with Academy - Temple of Literature in Ha Noi. great exposure to international sea lines, with ports of call like Hoi An (near Danang) and Pho Hien (near Hanoi). Serving as the meeting place between East and West, as the name Indochina implies, Vietnam is constantly acquiring and adopting new knowledge and cultures to further enrich its own. Eastern traditions and cultures including “Tam Giao – Three religions - Buddhism, Taoism and Confucianism” have long influenced and guided Vietnamese behavior and thought, in which, moral value and social obligation are honored. Meanwhile, the Western Latin alphabet has modernized the Vietnamese language into becoming a cultural carrier, facilitating learning processes and comprehension of global cultures and sciences. Instances of the melding past and present are found in the myriad of Buddhist temples and Christian churches, the still-influential fengshui practices in modern architecture, and the co-existence of herbal and western medicines., One of the most notable illustration of the acculturation process is reflected in the French architecture, paintings, culinary art and even the reasoning manners of many Vietnamese, French culture is deeply ingrained in every corner of Vietnam since French Colonialism and has somehow enriched Vietnam’s own culture. In Ho Chi Minh City, there still exists street and medical institutes named in honor of famous French persons such as Louis Pasteur, Alexander Yersin and Alexander de Rhode, who contributed their knowledge and devotion to the development of this land. As a culturally diverse country, combining different education systems is considered fundamental for the rapid development of Vietnam. Many Vietnamese families encourage their children to study abroad in more developed countries for a better standard of education. For these reasons, Vietnam has become a cultural melting pot that has withstood the test of time. 15

2.2. Vietnamese people through the modern cross-cultural prism 2.2.1. Think globally, Act locally: Just as a ship going to the sea often relies on a lighthouse to navigate, businessmen in the era of globalization and international economic integration when going to conquer new markets have on hand their mantra: “Think Globally, Act Locally”. Hofstede’s six cultural dimensions - frame of reference China United States Vietnam 80 70 91 66 62 46 87 68 40 20 20 40 30 30 57 35 26 24 Individualism Uncertainty Indulgence Power Masculinity Avoidance Long Term Distance Orientation A Golden Bridge on Ba na hill resort, Danang Source: Hofstede-insight.com/product/compare-countries/ If the first part of this mantra is meant to define the 2.2.2. Hofstede’s cultural dimensions vision, mission, economies of scale, brand identity, or participation in supply chains and value chains, In Hofstede’s Cultural Dimensions, culture is defined then the second part of the sentence implies as “The collective programming of the human localization of enterprise’s best business practices. mind by which one group of people distinguishes itself from another group”. A framework of cultural Take a good example of a successful enterprise dimensions is used to understand the differences like McDonald’s with a business model of providing in culture across countries and to discern the ways good value, tasty food, quickly and conveniently that business is done across different cultures. within a global brand. But when it comes to each Culture is a group phenomenon–it is used to specific market, it has changed and localized into analyze the behavior of groups and assess the Maharaja Mac in India, McDonald’s beer in Germany, likelihood of groups of people acting in a certain McLobster in Canada, Shrimp burgers in Japan and way. One person does not represent a whole culture Avocado burger in Chile... and the culture does not represent the person. The burgers variations reflect the local cultural The above framework consists of six dimensions adaptation, which is a sufficient condition to that help to orientate and navigate the cross- sustain the success of the business model, business cultural circumstances: best practices and brand of the business. l Power Distance Index l Collectivism vs. Individualism l Uncertainty Avoidance Index l Femininity vs. Masculinity l Short-Term vs. Long-Term Orientation l Restraint vs. Indulgence 16 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

a. Power distance b. Individualism/ Collectivism Power is defined as the extent to which a person is Individualism refers to the degree to which a able to influence other people’s ideas and behavior. society focuses on the relationship of the individual Power distance implies a gap or distance in power to the group. Collectivism refers to the degree to distribution in the society and organizations which a society focuses on the relationship of the and the degree of power distance varies among group as a whole. cultures. In individualist cultures, personal independence Individuals in high power distance cultures is valued while personal interdependence is of generally show a deference to the higher-ups and value in collectivist cultures. In term of a way of tend to accept power differentials while individuals communication, Individualists tend to communicate in a low power distance cultures readily question in direct styles with low context-they say what they authority and expect to participate in decisions mean. that affect them. According to the above relative scores, Vietnam and China are ranked as high power Vietnam, scored a fairly low 20 points which distance cultures while the U.S. is plotted as a low exemplifies its collectivist culture. There is a long- power distance culture in which the U.S people see term loyalty to the members of one’s group and themselves as more egalitarian. they take precedence before anything else. Greater emphasis is placed on the group rather than the Asian cultures with historically Confucian style individual. values tend to maintain their hierarchical mindset accordingly that power will be distributed is a fact Cultural background and Business of life. Vietnam scores high with 70 points on this implication dimension reflected in the traditional saying “the king’s son remains the king, the monk’s son still Exploring traditional historical contexts or keeps sweeping the banyan leafs”. perceptions that are factual and relevant to the content in question can help explain Cultural background & Business and illustrate these orientations in part. implication Collective thinking is also reflected in maxims such as: In countries with high power distance ranking, the acceptance for hierarchy “Một cây làm chẳng nên non, ba cây chụm and inequality in organizations is rooted lại nên hòn núi cao – one tree can’t make a in early socialization in the family and mountain, but three trees clumped together school. People in high power distance make a high mountain” or “Một con én societies will seldom question their không làm nên mùa xuân” - “one swallow supervisors. In the case of Vietnam, does not make a summer/ spring”. the children have been instilled the sense of the motto “Tiên học lễ, hậu học văn” - “politeness should be learnt first, before literature/learn virtue first, then literature” as well as “Tôn sư trọng đạo - “Be deferential to teacher and respect the moral values”. In today’s seminars, the moderators and the chairs have their role to warm up and spark off the first question for the next to follow. 17

c. Masculinity vs. Femininity Cultural background Masculinity as a societal, not as an individual and Business implication characteristic. According to Hofstede’s definitions: “Masculinity stands for a society in which social Traditionally, natural disasters and wars gender roles are clearly distinct: Men are supposed happened abruptly and caused major to be assertive, tough, and focused on material disruption. People became accustomed to success; women are supposed to be more modest, this and learned to adapt to new situations. tender, and concerned with the quality of life”. Nowadays, against the backdrop of an industrializing country and integration Vietnam scores 40 on this dimension and is process into the global economy, risk thus considered a Feminine society. In Feminine management and scenario planning have countries the focus is on “working in order to introduced to ensure the harmonization of live”, managers strive for consensus, people value communication process with the world. To equality, solidarity and quality in their working cope with high uncertainty and ambiguity, lives. Conflicts are resolved by compromise and managers usually introduce best practices of negotiation. Incentives such as free time and management, in which structure and order, flexibility are favored. Focus is on well-being; status the protocol of communication, report regime is not shown. An effective manager is a supportive between employers and employees are one, and decision making is achieved through established. written rules and procedures that involvement. Chinese and Americans are both very tell employees exactly what the organization “masculine” (with scores of 66 & 62) - so they are expects of them. KPI regime has now been both very success-driven and competitive. They introduced into the Vietnamese management tend to “live to work”, while Vietnamese are more system. “feminine” (with a score of 40), tending to “work to live” and providing their families a good life, but have other priorities and concerns besides just doing business to make a profit. d. Uncertainty Avoidance e. Long-Term Orientation vs. Short-Term Uncertainty Avoidance Index (UAI) – a cultural Orientation attribute that displays the extent to which a society The long-term orientation vs. short-term orientation feels threatened by uncertainty and ambiguous dimension considers the extent to which society situations and tries to avoid them. views its time horizon. With a score of 30, Vietnamese society clearly Countries with a higher Long-Term Orientation adopts a more relaxed attitude in which practice index rating are culturally inclined to be more and experience are more important than rules pragmatic and value thriftiness, perseverance and and divergence from the established standards education to prepare for the future (Hofstede, is more easily tolerated. In the workplace, people n.d.). Long-term orientation shows focus on the can work hard if essential but it is not a means future and tends to sacrifice immediate result and to an end. They feel comfortable in an ambiguous enjoyment for the sake of future achievement. environment, at the same time are motivated by achievement and esteem and happy being an in- Vietnam is considered a pragmatic culture, scoring group member. 57. People in pragmatic societies tend to believe that truth is more of a contextual matter. As earlier mentioned, Vietnamese adapt easily to change. 18 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

Cultural background and Business implication f. Indulgence vs. Restraint Indulgence is the dimension that defines At a societal level, Vietnamese mottos features how people in society are able to control long-term orientation, for example: “Vì lợi ích their natural human desires and impulses. mười năm phải trồng cây, vì lợi ích trăm năm phải High scores of indulgence have relatively trồng người” - “For the sake of ten years’ interest, weak control of this and are considered one must plant trees; for the sake of hundred societies of indulgence, low scores are years’ interest, one must cultivate people”. When societies who have high restraint to these negotiating for possible joint venture, Vietnamese human instincts. partners and negotiators look not just for the factory to be established and new best practices With a score of 35, Vietnam is a society to be introduced, but also local people to be of restraint and does not put much of an retrained. In order to achieve it, language barrier emphasis on leisure time and people are should be minimized and win - win policy should able to control their desires. Societies be implemented to benefit both parties. of restraint also feel that their actions are restrained by social norms and that indulging themselves in wrong. 2.2.3. Lewis Model The colors are chosen to represent a particular cultural dimensions, blue denotes linear-active - cool, factual, decisive planners, discreet but in control; red symbolizes multi-active - warm, impulsive emotional, loquacian, passionate and yellow represents reactive - soothing, harmonious, courteous, amiable, accommodating, compromising and a good listener. Color shades and gradation imply the combined values of each country and culture in the continuum of each typical category. LEWIS CULTURAL STEREOTYPES Cultural Types: The Lewis Model Italy, Spain, Brazil, MULTI- Mexico, Colombia, Venezuela ACTIVE Peru, Bolivia Portugal, Greece, Angola, Nigeria, Sudan, Senegal Chile, Algeria Russia, Slovalia, Croatia, Saudi Arabia, Iraq, U.A.E Romania, Serbia France, Poland, Bulgaria, Turkey, Iran Hungary, Lithuania Belgium, Israel, KEY India, Pakistan South Africa Blue = linear-active - cool, factual, Indonesia, Malaysia, Denmark, Ireland, decisive planners Philippines Australia Red = multi-active - warm, emotional, Korea Nertherlands, Austria, Czech, loquacious, impulsive Thailand Republic, Norway, Slovenia Yellow = reative - courteous, amiable, China USA accommodating, compromiser, good listener LINEAR- REACTIVE Vietnam ACTIVE Sweden Finland Canada Singapore Taiwan Japan U.K latvia Estonia Hong Kong Source: Richard Lewis insights 19

Linear-actives (e.g. Germans) tend to be task- When facing an overwhelming opponent, oriented, logical thinkers, focusing on plans and the reactive strategy used is usually “avoid schedules and manage their actions chains by doing confrontation” and could instead be go for a long- one thing at a time, in accordance with a linear term war of resistance or scorched earth policy. agenda. The happy ending is a desire of the Reactives Multi-actives (e.g. Latins) Multi-active people tend especially when considering whether it is to be people-oriented. Behavior expressions are worthwhile to embark on a long journey to reach emotional, loquacious and impulsive. They are the promised land. On the other hand, to start to people who attach great importance to family, tread unknown ground, with a holistic mindset, the feelings and relationships. They switch from task to reactive strategic partners to seek pieces to slot task based on a combination of apparent urgency together like a jigsaw, as indicated by the motto of and whatever seems more interesting. They are Deng Xiaoping: “Qua sông dò đá - grope for stones more social than linear-actives and consider while crossing the river”. In business conversation, managing relationships as an essential part of the western interlocutor can note the manner of the job. When they disagree they can be loud and “beating around the bush” as a way to explore every emotional, but will quickly forget this as agreement avenue and whether step back or forward. As the is reached. saying goes: “the first step is the hardest”, when both sides can break the ice and learn from each Reactives (e.g. Asians) are good listeners, who rarely other, the momentum seems to be accelerated at initiate action or discussion, preferring to listen to the next stages. All in all, the reasonable reactive and establish the other’s position then react to it. partners realize that give and take and win- win is the best policy to ensure the sustainable Most Asians, with their ritualistic, moral and development. hierarchical features, rooted in Confucianism, are often classified as Reactives. And reactive means We can take what Lewis remarked on Vietnamese waiting for the partner to initiate in order to react. values as reference as follows: It is interesting to note that Vietnam’s position in “Communication patterns and use of language. this cultural behavior map is pitched at the right French influence is readily observable. Facial apex of the triangle and the extreme of reactive expression is much more evident than in, for continuum. instance, Japan, Korea or China, and some body languages reminiscent of the French is to be seen. Viewed from the traditional Vietnamese cultural Emotional factors can be used in argument. Good background, reactive behavior can have several education and a high rate of literacy lends people implications that could reveal in some contexts: confidence in communication. The literary tradition Reactive behavior sometimes could be judged as is strong particularly in poetry. People in the passive, bashful rather than proactive; and here South tend to be more open and frank than many there seems to be a correlation with the value of Asians (no doubt due to prolonged contact with the feminine on the scale of feminine-masculine of Americans). the Hofstede model. On the other hand, reactive demonstrates a humility and a polite manner in social life with set phrases like: “after you” and “please go ahead of me”. 20 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

Listening Habits. Vietnamese are good listeners, expecting speakers to be clear and logical. They are well-versed in French style debate. NATIONAL COMMUNICATION PATTERNS VIETNAM CRUNCH RESISTANCE WORD Cautious bureaucratic Some Retreat into Limited BASE start feelings creep bureaucracty satisfaction logical debating style proposal In elegant More open structure in south Source: business insider com During the negotiation process, between partners This trend can be exemplified through the process and negotiators from a reactive culture with a of negotiating and signing many FTAs in the same representative from Vietnam, and a partner from period, such as TPP, CPTPP, VN-EAEU FTA, EVFTA and a Linear-actives culture with a representative RCEP... from the United States, there were cases where misunderstandings occurred when the Vietnamese Considering the context that the EVFTA is an partner showed hospitality, because the meeting agreement that the EU has only signed with Korea, place was in Vietnam, offered to pay for the entire Japan and Singapore, and Vietnam has a much meal and met with fierce opposition from the US lower development level than the above countries, counterpart, because of its policy. US companies are that also partly shows that Vietnam has something members of the company must pay for their own to look forward to long-term when hoping to meals. Thus, even a well-intentioned impartiality achieve greater benefits in the future. On the other can still be misinterpreted as an attempt to bribe. hand, the negotiation to sign a new-generation So the lesson here is to recognize the difference free trade agreement with its complexity and and let your partners feel comfortable. many uncertain variables also partly reflects its acceptance of uncertainty. The Vietnamese are generally classified into a group of polychronic work style, meaning pursuing multiple actions and goals at the same time. In contrast to partners from linear culture who address issues in sequential order, with their own holistic mentality, they tend to cover all things jumping back and forth. 21

3. VIETNAM POLITICAL STRUCTURE IN VIETNAMESE POLITICAL REGIME, Every year, on Vietnam’s National Day, citizens are reminded ONLY THE PEOPLE of the instance when President Ho Chi Minh delivered HAVE ALL STATE the Proclamation on September 2, 1945, quoting the U.S. POWER, IN WHICH Declaration of Independence that states: “All men are LEGISLATIVE POWER created equal. They are endowed by their Creator with certain IS VESTED IN THE inalienable rights; among them are Life, Liberty, and the NATIONAL ASSEMBLY, pursuit of Happiness”. JUDICIAL POWER IS VESTED IN THE These universal values have since remained with the COURT WITH JUDICIAL Vietnamese people all through their fight for national OVERSIGHT UNDER independence, reunification and international integration. THE PROCURACY; EXECUTIVE POWER IS Now, Vietnam is a socialist country operating under ALSO VESTED IN THE the leadership of the Communist Party. A nation-wide GOVERNMENT WITH congressional vote (National Congress) of Vietnam’s THIS DECENTRATION OF Communist Party is held every five years to determine the ADMINISTRATIVE UNITS country’s orientation, strategies, and adoption of policies AT THE PROVINCIAL, on solutions for socio-economic development. The National DISTRICT AND Congress elects a Central Committee which in turn elects the COMMUNAL LEVELS. Politburo. Cascade of watershed events. National Congress of the Communist Party convened: On February 1st 2021, the 13th National Congress of the Communist Party of Vietnam (CPV) concluded in Hanoi. This quinquennial event marked the watershed development through which the new leadership including the secretary of the party as well as the members of politburo and the central committee were selected, new leaders of the corridors of power were nominated including the president of the state, the president of the national assembly, the prime minister and he Chief Justice of the Supreme People’s Court and the President of the Supreme People’s Procuracy. Mr. Nguyen Phu Trong was reelected as the General Secretary of the Party. The Congress projected a development vision until 2045. 22 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

Vietnamese National Assembly Building in Hanoi Capital 3.1. Legislature branch - the Vietnam nominated by localities, according to the National National Assembly Election Council. The National Election Council has ratified the list of 499 elected deputies for the 15th The National Assembly is the highest law-making National Assembly (NA) for the 2021 - 2026 tenure, body, the highest-level representative body of in which four were self-nominated. Mr. Vuong people and the highest organ of state power of the Dinh Hue was elected a new Chairman of the 15th Socialist Republic of Vietnam. It is a unicameral National Assembly. body comprising of 498 delegates from various strata of people and different ethnic groups from At the first session of the 15th National Assembly across the country elected to serve a five-year held on 26th July 2021, the National Assembly term. The National Assembly exercises three main elected the State President. Next, the State functions: creating, exercising, and supervising legal President presents the list of nominees for the activities. The National Assembly meets bi-annually. National Assembly to elect the Prime Minister; Vice President, Chief Justice of the Supreme People’s The Standing Committee within the National Court, Chief Procurator of the Supreme People’s Assembly is the permanent executive body of Procuracy. After that, the National Assembly elected the National Assembly. Its principal functions the Prime Minister by secret ballot and votes to are the interpretation of the Constitution, Laws approve the Resolution to elect the Prime Minister. and Ordinances, the degree to which they are implemented, and the supervision of activities from Legislators also ratified Resolutions on the election the Government, the Supreme People’s Court and of the Vice State President, Chief Judge of the the Supreme People’s Procuracy. Supreme People’s Court and Prosecutor General of the Supreme People’s Procuracy. The election for the 15th National Assembly. Legislative elections were held in Vietnam on Lastly, Prime Minister Pham Minh Chinh presented a 23 May 2021 to elect members of the National proposed list of 27 Government members for the 15th Assembly. Of 868 the candidates, who will run for tenure to the 15th National Assembly’s ongoing first 500 seats in the 15th National Assembly, 665 are session in Hanoi on July 26. 23

3.2. The Executive Branch The Prime Minister is the leader of the Government. The Prime Minister is responsible for the day-to- Generally, the function of the executive branch is day operations of the Government. The Vietnamese to enforce laws and rules. The executive branch Government currently has 18 ministries and 4 comprises of the state president, the prime minister ministerial-level bodies. and the government. At the first session of the 15th National Assembly 3.2.1. The State President held on 26th July 2021, the National Assembly has elected Mr. Pham Minh Chinh as a new Prime The State President is the Head of State, elected by Minister for the 2021 - 2026 term. At that session, members of the for a five-year tenure to represent Prime Minister Pham Minh Chinh presented a the Socialist Republic of Vietnam in domestic proposed list of 27 Government members for the 15th and foreign affairs. The President has the right tenure to the 15th National Assembly. to proclaim Laws and Ordinances passed by the National Assembly and the Standing Committee. Accordingly, the Cabinet includes the Prime The President is the commander-in-chief of the Minister and four Deputy PMs in charge of directing armed forces and Chairman of the Council for the fields of diplomacy and global integration, Defense and Security. In foreign affairs, the legislation, apparatus organization, religious and President has the authority to appoint ambassadors ethnic affairs; general economy and inspection, and to sign international agreements and treaties. settlement of complaints and denunciations; sectoral economy; and science, education, and As the first session of the 15th National Assembly socio-cultural affairs. held on 26th July 2021, the National Assembly has elected Mr. Nguyen Xuan Phuc as a new State There are 18 Ministers of National Defence; Public President for the 2021 - 2026 term. Ms. Vo Thi Anh Security; Foreign Affairs; Home Affairs; Justice; Xuan was also voted as Vice State President. Planning and Investment; Finance; Industry and Trade; Agriculture and Rural Development; The President appoints and dismisses the Prime Transport; Construction; Natural Resources and Minister and the members of the Government Environment; Information and Communications; based on resolutions of the National Assembly or Labor, Invalids and Social Affairs; Culture, Sports its Standing Committee. Furthermore, the President and Tourism; Science and Technology; Education has the right to nominate key officials such as the and Training; and Health. Chief Justice of the Supreme Court and the Chief Procurator of the Supreme Procuracy, subject to the National Assembly’s approval. 3.2.2. The Government 3.2.3. The Judicial Branch Is the highest executive organ of the state. The The general function of the judicial branch is to Government has the same term of office as the interpret laws. The Supreme People’s Court is the National Assembly. In reality, the Government highest judicial organ of the Socialist republic of administers the implementation of the state’s Vietnam. It supervises and directs the judicial work affairs in the fields of politics, economics, culture, of local People’s Courts, Military Tribunals. society, national defense and security, and foreign relations. At the first session of the 15th National Assembly, Mr. Nguyen Hoa Binh was re-elected Chief Justice of the Supreme People’s Court and Mr. Le Minh Tri was voted as Director of the People’s Procuracy. 24 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

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CHAPTER I CHAPTER II CHAPTER III CHAPTER IV CHAPTER V

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I. LOOKING BACK ON THE LAST YEAR 2020 1. Review of the most notable events 1.1.2. Legislative elections. On election day May 23 in recent times - 2020 - 2021, eventful 2021, 499 new deputies were elected to the 15th landmark years National Assembly for the term 2021-2026 1.1. The concatenation of important events - On July 26, the first session of the 15th National projecting the vision and goals of socio- Assembly was convened and elected a new state economic development for the new journey. president for the 2021-2026 term. 1.1.1. The 13th quinquennial Party Congress was Next, the President presents the list of nominees held from January 25 to February 1, 2021 in Hanoi. for the National Assembly to elect the Prime Through this Congress, a fresh slate of party Minister; Vice President, Chief Justice of the leaders, including the new general secretary as Supreme People’s Court and Chief Procurator of the well as the central committee, the politburo was Supreme People’s Procuracy elected to helm the party, the key leadership of the power corridor including the chair of the National + After that, the National Assembly elects the Prime Assembly, the State President and the Prime Minister by secret ballot and votes to approve the Minister were assigned; and the party resolution Resolution to elect the Prime Minister. Lastly, the which projects the vision and the socio-economic session approved Prime Minister Pham Minh Chinh’s agenda for Vietnam for the next stages. proposal for the 27-member Cabinet line-up for the 2021 - 2026 term. After all the positions of the power superstructure were determined and occupied, it allowed for the implementation process of the party resolution. Vietnam’s 13th National Party Congress. The 18 ministers and four other members of the Photo: VGP Government for the 2021 - 2026 tenure. Photo: DUY LINH - NDO 28 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

1.2. Enterprise Law 2020 and Investment Law 1.2.2. The Law on Investment 2020 2020 come into effect - highlights - A New Decree On Market Access Conditions under 1.2.1. The Law on Enterprise 2020 the Law on Investment 2020. The 2020 Enterprise Law, effective from January The new LOI introduces the concept of “market 1, 2021, has new and revised clauses that affect access conditions applicable to foreign investors”. foreign companies operating in Vietnam Such conditions will be based on: (i) % foreign Limited companies are allowed to issue bonds: ownership, (ii) form of investment, (iii) scope of According to Clause 4 of Article 46 and Article 74 business activities, (iv) capability of investor(s), and of the Law on Enterprises 2020, limited liability (v) other conditions as prescribed in the relevant companies are allowed to issue bonds with the laws and international treaties to which Vietnam is purpose of raising capital. a party. Thus, a foreign company operating in the form of On March 26th, 2021, the Government issued a limited liability company will be able to raise Decree 31/2021/ND-CP (“The Decree”), which was capital in the following forms: effective from the date of signature, specifying and + Increasing the capital contribution of members; clarifying the regulations on conditions for business + Receiving new members; investment, business lines and for market access + Changing to a joint-stock company; applicable to foreign investors. The Decree provided: + Issuing bonds. + A Negative List of 25 business lines prohibited to foreign investors and Change of conditions to conduct a general meeting + A list of Conditional business lines which foreign of shareholders investors must satisfy market access conditions The General Meeting of Shareholders can be in order to invest in. (There are 58 sectors where conducted when the number of attending foreign investors must satisfy certain conditions to shareholders represents more than 50% of the enter the market). votes (Article 145 of the 2020 Enterprise Law) instead of 51% previously. - New business lines encouraged for investment or entitled to investment incentives: The General Meeting of Shareholders shall be (i) College education; conducted when it is participated by a number (ii) Manufacture of medical equipment and of shareholders that represent more than 50% of all pharmaceutical products (previously the the votes (Article 145 of the 2020 Enterprise Law) LOI 2014 only encouraged investment in instead of 51% previously. certain pharmaceutical products); (iii) Manufacture of products in supporting This regulation is very beneficial for industries on the list of industries eligible for large-scale foreign companies, especially development promotion provided in Government corporations or parent companies although Decree 111 dated November 3, 2015; the difference between the new regulation (iv) Manufacture of products and provision of and the old one is only 1% of the total services that create or participate in the value number of votes, for foreign companies chain or associated industries; with many shareholders, it can be large (v) Social housing projects; percentage of votes. (vi) Innovative start-up projects; (vii) Research and development centers; (Source: luatvietnam.vn) (viii) Small-or medium-sized business incubators; and (ix) Co-working space for small- or medium-sized businesses. 29

1.3. Newly signed FTAs, highlights In the face of the pandemic, the government forged ahead with important Free Trade Agreements with the EU and UK, which helped build a deeper market for Vietnamese exports. Importantly, the signing of the Regional Comprehensive Economic Partnership (RCEP) further opened up major global economies to Vietnamese exports, at a time when supply chains had been reconfigured in Vietnam’s favor following US-China trade tensions. On November 15, 2020, the RCEP agreement was signed between 15 members with the expectation to become the largest free-trade region in the world (with 2.2 billion consumers and representing about 30% of global GDP). Using a common set of rules of origin gives businesses, especially small and medium sized domestic enterprises, more favorable conditions in exporting to member countries. Vietnam’s textile and garment industry also benefits significantly from the rules of origin under this agreement because input materials are mainly imported from China. Increasing commercial competition in the domestic market is inevitable when the agreement comes into force. UKVFTA UK VEUFTA Kyrgyzstan Kazakhstan Armenia Belarus ASEAN Cambodia Philippines Indonesia Thailand Russia VKFTA !!! South Korea Laos Vietnam Singapore Brunei Malaysia Chile Mexico Myanmar Japan New Zealand Australia Peru Canada CPTPP RCEP China AVFTA Source: Asia Briefing Ltd. 30 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

2. Macroeconomic indicators – highlights hard hit by coronavirus Overall, all macroeconomic indicators see the outstanding impacts of coronavirus pandemic. The efforts to cope with the bad effects of the pandemic determine the improvement of these indicators 2.1. Growth rate Vietnam’s Economic Growth (%, yoy) Looking at the growth chart of Vietnam’s economy 10% over the years, it is clear to see a clear decline 8% in growth in 2020 after years of averaging above 6% 6% annually. Compared to the target set at the 4% beginning of the year of 6.8 percent, the growth rate of 2.91% in 2020 has fallen short of the plan. 2% However, if compared with the growth indexes 0% I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV of most of the world’s economies in 2020, most 2013 2014 2015 2016 2017 2018 2019 2020 of which recorded negative growth, the positive growth performance of the Vietnamese economy is GDP Growth Trend still a remarkable effort. Source: Calculation from GSO data If we have a close look at the development of Vietnam’s economic performance quarterly in Economic performance 2020, it is interesting to compare the course of of China and Vietnam in 2020 events and the moment of being impacted by Year-on-year change in quarterly real GDP the coronavirus pandemic between China (when the pandemic originally broke out in Wuhan) and Q1 Q2 Q3 Q4 Vietnam. 5.0% n China n Vietnam 0.0% -5.0% Source: National Burcau of Statictics of China, Vietnam’s General Statistics Office 2020 GDP growth/ contraction of major Asian economies Vietnam -8.0% -6.0% -4.0% -2.0% -0.0% 2.0% Taiwan China Pakistan* South Korea Indonesia Japan Singapore Malaysia Hong Kong Thailand India* Philippines -10.0% Phu My Bridge connects District 2 with District 7 Source: Vietnam’s General Statistics Office, Central Bank of the Repuboic of China (Taiwan). National Bureau Statistics of China, Bank of Korea, Singapore’s Ministry of Trade and Industry, Hong Kong’s Census and Statistics Department, Philippine Statistics Authority, IMF World Economic Outlook (Jan 2021) * Data for India and Pakistan are on fiscal year 2020 - 2021 basics 31

GROWTH BY SECTORS Industry sector contributed 34.5% of GDP and employed 28% of the total workforce in 2020 (source: World Bank). In 2020, the industry and construction sector increased by 3.36% (yoy), significantly lower than the growth rate of the same period in the last ten years (8,9% in 2019 and 8,85% in 2018). The manufacturing and processing industry gained by 5.82% (yoy). The mining industry shrank by 5.62% (yoy) due to the slump in the output and price of crude oil and natural gas. The construction sector expanded most rapidly in the industry and construction sectors thanks to the vigorous growth in public investment. As of December 2020, realized investment capital from the State Budget reached 33.7% of the plan, higher than that of 2019 and 2018. Services represented 41.6% of GDP and employed 35% of the total workforce in 2020 (World Bank). Main services include tourism and telecommunications. The service sector in 2020 hit bottom compared to the same period of the last 10 years (2,3% (yoy)). In the service sector, wholesale and retail expanded by 5.53% (yoy), and finance, banking and insurance expanded by 6.87% (yoy), while transportation and warehouse contracted by 1.88% (yoy), and accommodation and catering services contracted by 14.68% (yoy) due to the profound impacts of the pandemic on the tourism industry. International visitors to Vietnam in 2020 stood at only 3.83 million arrivals, a drop of 78.7% (yoy). Agriculture represented 14% of GDP and employed 36% of the total workforce in 2020 (World Bank). In 2020, the agricultural, forestry and fishery sector faced many difficulties due to the impact of drought, saline intrusion, natural disasters, African swine fever, and COVID-19, which affected the production, import, and export of agricultural products. GDP grrowth across most key sectors has picked % YoY Agriculture up Manufacturing 20 Construction Services 15 10 5 0 -5 Aug-16 Jan-18 Jun-19 Nov-20 Mar-15 Source: CEIC, Mizuho Bank 32 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

2.2. Inflation rate Inflation went up to 3.3% in 2020 from 2.2% in 2019, and was forecast to average 2.7% in 2021 and 2.4% in 2022 by the latest World Economic Outlook of the IMF (April 2021). Vietnam’s CPI in 2020 climbed Inflation (%) by 3.23% (yoy) mainly because of the COVID-19 epidemic: (i) 8 1.5 food and foodstuff prices rose 6 0.5 due to panic buying happened 4 0.5 in Vietnam and the world, 2 -1.5 causing high demand of food, 0 -2.5 specially rice and meat; (ii) drug -2 and medical equipment prices increased dramatically; (iii) price 12-18 02-19 04-19 06-19 08-19 10-19 12-19 02-29 04-29 06-29 08-29 10-29 12-29 transport goods dropped due to lower oil prices and social Headline Inflation (mom, rhs) Core Inflation (yoy, lhs) distancing order (Source: KAS). Headline Inflation (yoy, lhs) Besides this, there were a number of factors contributing to restraining CPI growth rate in 2020: (i) Prices of essential commodities such as gasoline and oil decreased by 23.03% over the previous year (making the overall CPI decrease by 0.83%); kerosene price decreased by 31.21%; domestic gas prices decreased by 0.95% due to the influence of world fuel prices; (ii) People’s demand for travel and tourism decreased due to the impact of the Covid-19 epidemic, causing the price of the package tour group to decrease by 6.24% compared to the previous year; The freight rates and means of transport such as trains and planes were reduced. 2.3. Trade balance & Foreign Direct Investment Trade Balance and Growth Trade balance recorded a surplus of 19.95 billion 12 USD in 2020. 10 - 20% 2020 witnessed a trade surplus of 19.95 billion 8 - 10% USD, the highest level in the past 15 years thanks 6 to soaring exports and slightly decreasing imports (surplus in the same period was 8.6 billion USD in 4 - 0% 2019, 5.6 billion USD in 2018, and 2.7 billion USD in 2 2017). The domestic sector saw a deficit of 13.92 billion USD, a fall of 46.3% (yoy) (in 2019, the deficit 0 - -10% was 25.91 billion USD, a marginal increase of 1,2% I II III IV I II III IV I II III IV (yoy)). The FDI sector had a surplus of 33.87 billion USD, going down by 5.5% (in 2019, the surplus was 2018 2019 2020 35.85 billion USD, moving upward by 9.26%). Trade Balance (bil. USD, lhs) A closer look at the table below, the negative impact of Covid-19 is expected to be temporary. Import Growth (%, rhs) Export Growth (%, rhs) Source: GSO 33

Manufacturing powered Vietnam’s economic in 2020 Exports, year-on-year change (%) 10% 0% -10% Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: GSO, Bank of America Global Research estimates, CNBC Export turnover in 2020 reached 282.65 billion USD, a rise of 7.44% compared to that of the previous year (in 2019, export turnover was 264.3 billion USD, increased by 8,4% (yoy)). Phones and components were estimated at 51.18 billion USD, an increase of 0.4% from the previous year. Computers, electronic products, and components reached 3.12 billion USD, surging by 24.1%; textiles and garments were 29.8 billion USD, dropping by 9.2%; footwear was going down by 8.3%, and so on. Rice exports hit 20.3 billion USD, soaring 11.2%. Seafood products slipped 1.5% to 8.41 billion USD. In general, the share of some key export products still belonged to the FDI sector. Trade Balance and Growth The export value of the FDI sector reached 203.3 billion USD, accounting for 72.2% of total exports, % n FDI n Domestic a growth of 9.7%, on the year, 2019, it represented 69% of total exports, an increase of 3%). 100 The export turnover of the domestic sector reached 90 78.2 billion USD, contributing 27.8 % of the total export turnover, down 1.1%. 80 Generally, in 2020, import turnover reached 262.7 70 billion USD, increasing by 3.23% compared to that of the previous year. Regarding the composition 60 of imported goods in 2020, electronics, computers and components reached 63.97 billion USD, rising 50 24,6% compared to the previous year; machinery, equipment, tools, and other spare parts was 40 37.25 billion USD, climbing by 1.4%; phones and accessories grew by 13.9%... 30 20 10 0 I II III IV I II III IV I II III IV 2018 2019 2020 Source: GSO 34 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

In 2020, the export market faced many difficulties, so the average export price of many agricultural products decreased compared to the same period 2019, pulling down the export turnover of most agricultural and aquatic products below the 2019 level: Vegetables and fruits was down by 13%; cashew nuts was down by 3%; coffee was down by 7.2%; pepper was down by 6.8%. Export turnover for rice reached only more than 3 billion USD, increased by 9.3% due to the rising demand for rice reserves from other countries around the world as a result of the COVID-19 pandemic. TOP 10 Export products 2020 TOP 10 Imported products 2020 Unit: billion USD Unit: billion USD Cell phones and 52,1 Computers, electronic 64,0 accessories 46,6 products & components 37,3 29,8 16,6 Computers, electronic 27,2 Machines, 11,9 products & components 16,8 equipment, tools 8,1 12,4 8,4 Fabrics of all kinds Cell phones and accessories Machines, equipment, tools Fabrics of all kinds Footwear Stells Wood and wood Fllastics products TOP 10 main exporting markets of Vietnam in whole year 2020 Unit: billion USD 7,0 6,9 6,6 6,6 5,2 6,7 n Whole year 2020 n Whole year 2019 90 5,0 5,8 4,95,1 80 77,1 70 60 61,3 50 48,9 41,5 40 30 19,3 20,3 19,1 19,7 20 14 10 7,2 0 United States of America China Japan Republic of Korea Hong Kong Netherlands Germany India United Kingdom Thailand 35

In terms of import and export markets, in 2020, the United States was Vietnam’s largest export market with a turnover of 77 billion USD, increasing by 25.6% compared to the 2019. China remained the largest import market of Vietnam with a turnover of 84.18 billion USD, rising by 11.57%. The United States was Vietnam’s largest trade surplus market, reporting a surplus of 63.36 billion USD with a climb of 34.76%. Vietnam had an export surplus of 20.3 billion USD with the EU. Trade deficit from China was 35.28 billion USD and from ASEAN was 6.9 billion USD. TOP 10 main importing markets of Vietnam in whole year 2020 Unit: billion USD n Whole year 2020 n Whole year 2019 90 84,2 80 75,5 4,7 4,5 4,4 4,5 70 60 50 46,9 47,0 40 30 20 20,3 19,5 16,7 15,2 13,7 14,4 11,0 11,7 10 6,6 7,3 5,4 5,7 0 China Republic of Korea Japan Taiwan United States of America Thailand Malaysia Indonesia Australia India Source: Vietnam Customs FDI inflow FDI attraction overr years According to the report of the Ministry of Planning and Investment (MPI), as of December 20, 2020, Unit: billion USD n Realized capital the total newly registered capital, adjusted and n Registered capital contributed capital and purchased shares (GVMCP) of foreign investors (Foreign investment) reached 35,88 35,46 38 28,5 28.53 billion USD, equal to 75% of the same period last year. The implemented capital of foreign direct 22,3 24,1 24,1 investment projects was 19.98 billion USD, equal to 20,3 14,5 98% of 2019. 20,4 20 17,5 19,1 13 12,3 14,5 10,5 11,5 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: GSO 36 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

TOP 10 main importing markets of Vietnam 112 countries and territories invested in Vietnam in whole year 2020 in 2020, of which Singapore led with a total investment of nearly 9 billion USD, accounting for Unit: billion USD 31.5% of total investment capital in Vietnam. South Korea ranked second with a total investment of n 2020 n 2019 (x) = 2019 ranking over 3.9 billion USD, accounting for 13.8% of total investment capital. China ranked third with a total United States (1) 158 261 registered investment capital of 2.46 billion USD, China (2) accounting for 8.6% of total investment capital. 149 Followed by Japan, Taiwan, Hong Kong,... In terms of Hong Kong, China (5) 141 the number of new projects, Korea ranked first with Singapore (3) 609 projects. China ranked second with 342 projects. India (8) 119 Japan ranked third with 272 projects. Hong Kong 74 ranked fourth with 211 projects. Luxembourg (25) Germany (7) 91 Ireland (4) 114 Mexico (14) 64 Sweden (32) 51 Brazil (6) 62 Israel (20) 15 Canada (10) Australia (12) 36 54 United Arab Emirates (22) 33 United Kingdom (11) 81 Indonesia (19) 29 France (15) 34 Vietnam (24) 10 26 Japan (26) 25 65 10 industries attracting the most FDI in 2020 From January 1, 2020 December 20, 2020 25 19 24 48 Unit: million USD 20 Manufacturing, 13,601 39 processing 20 18 Electricity production 5,142 20 and distribution 4,184 45 1,645 19 Real estate business 1,346 24 Wholesale and retail 611 18 34 trade; repair of motor 16 Source: UNCTAD, vehicles and motorcycles 16 Professional, scientific 10 FDI/MNE database and technical activities 15 (www.unctad.org) Transportation and storage Construction 559 According the World Investment Report 2021 by Accommodation and 341 UNCTAD, in 2020, Vietnam ranked 19th globally as a food service activities 286 FDI host country with 16 billion USD of investment Financial, banking and 183 capital, up five places compared with 2019. insurance activities Information and communication 10 countries and territories investing the * Including newly registered capital, adjusted and most FDI in 2020 contributed capital to buy shares of foreign investors Accumulate foreign investment as of December 20, 2020 Source: Foregin Investment Agency Unit: million USD South Korea 70,645 Japan 60,257 56,551 Singapore Taiwan 33,707 25,661 Hong Kong 22,255 British Virgin Islands 18,459 12,900 China 12,873 Malaysia 10,416 Thailand The Netherlands Source: Foreign Investment Agency 37

Foreign investors invested in 19 fields, in which the The percentage of trained workforce at preliminary processing and manufacturing industry ranked first level in 2020 was 24.1%, a 1.3 percentage point with total investment capital of 13.6 billion USD, higher than that in 2019. This rate in urban areas accounting for 47.7% of total registered investment was 39.9%, while in rural areas, it was 16.3%. This capital. The field of electricity production and significant difference is due to the fact that workers distribution ranked second with total investment in urban areas have more conditions to participate capital of over 5.1 billion USD, accounting for 18% of in training than workers in rural areas. total registered investment capital. The real estate, wholesale and retail fields, ranked third and fourth, (Source: GSO press release on labor employment with a total registered capital of nearly 4.2 billion situation Q4 and 2020) USD and over 1.6 billion USD respectively. 2.5. Other reference index FDI inflow in the first 6 months of 2021: Foreign 2.5.1. Credit rating direct investment into Vietnam rose 3.8 percent from a year earlier to USD 10.5 billion in January- Vietnam Credit Rating, 2021 July 2021. Meanwhile, FDI pledges, which indicate the size of future FDI disbursements, dropped Agency Rating Outlock Date 11.1 percent in the year to $16.7 billion. The May 21, 2021 manufacturing and processing sector received S&P BB Positive Apr 01, 2021 the largest amount of investment (47.2 percent of Mar 18, 2021 total pledges) followed by gas water and electricity Fitch BB Positive distribution (32.8 percent). Singapore was the top source of FDI pledges, followed by Japan and South Moody’s Ba3 Positive Korea. VIETNAM S&P Moody’s Fitch DBRS TE Source: Ministry of Planning and Investment, Vietnam BB Ba3 BB 43 - https://tradingeconomics.com/vietnam/foreign-direct- investment) Standard & Poor’s credit rating for Vietnam stands at BB with positive outlook. Moody’s credit rating 2.4. Unemployment & labor force status for Vietnam was last set at Ba3 with positive outlook. Fitch’s credit rating for Vietnam was last The unemployment rate among working age reported at BB with positive outlook. In general, population in 2020 was 2.48%, a 0.31 percentage a credit rating is used by sovereign wealth funds, point higher than that in 2019; unemployment pension funds and other investors to gauge the rate among younger group (aged 15 - 24) in 2020 credit worthiness of Vietnam thus having a big was 7.10%. The unemployment rate of working age impact on the country’s borrowing costs. This group in urban areas was 3.88%, up 0.77 percentage page includes the government debt credit rating points. The Covid-19 epidemic pushed many workers for Vietnam as reported by major credit rating into unemployment and forced many of them to agencies. become informal workers. Although higher than the previous year, the unemployment rate in urban (https://tradingeconomics.com/vietnam/rating) areas in 2020 did not exceed 4.0%, reaching the target set by the National Assembly in Resolution No. Socio-economic development plan 2020. In general, in 2020, the labor force aged 15 and over was 54.6 million people, a decrease of 1.2 million people compared to 2019. This decrease was mainly due to the labor force in the agricultural sector. Compared to 2019, the labor force from rural areas decreased by more than 1.1 million people. 38 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

2.5.2. Purchasing Managers’ Index (PMI) Purchasing Managers’ Index (PMI) Vietnamese manufacturing industry The IHS Markit Vietnam Manufacturing PMI rose to 45.1 in July 2021 from a 13-month low of 44.1 Vietnam Nikkei Maanufacturing PMI in June. This was the second straight month of contraction in the manufacturing sector, amid Jan ’19 May ’19 Sep ’19 Jan ’20 May ’20 Sep ’20 60 the latest wave of local COVID-19 cases, with the 55 reduction in exports being softer than that seen for 2019 2020 50 new orders, on some reports of improving demand 45 in international markets. At the same time, output 40 dropped faster, and employment was down sharply 35 due to reports of temporary company closures and 30 social distancing restrictions. Meanwhile, disruption May ’20 was also felt in supply chains, with delivery times lengthening to the greatest extent in more than 2021 ten years of data collection. Regarding prices, the rate of input cost inflation accelerated sharply, Latest Release Actual Previous but efforts to secure orders meant that firms Jun 01, 2021 53.1 54.7 raised their selling prices at a relatively modest pace. Finally, sentiment remained below the series average. Source: Markit Economics https://tradingeconomics.com/ vietnam/manufacturing-pmi II. LOOKING FORWARD 1. Long term perspective the next five years shall be 6.5 to 7 percent. By 2025, annual GDP per capita shall be $4,700 - $5,000. As mentioned above, 2020 - 2021 was an eventful and watershed year when the objectives and + Society: By 2025, the proportion of agricultural the goal for the stages were set. The 13th Party labor in the total workforce shall be around 25 Congress identified a clear development vision percent. Trained labor shall be 70 percent, urban between now and 2045 aiming towards concrete unemployment in 2025 shall be under 4 percent, goals in accordance with the following roadmap: and the rate of multidimensional poverty reduction shall be maintained at 1 - 1.5% per year. Total By 2025: To become a developing nation with health insurance coverage shall be 95%, and life modernity-oriented industry and surpass the low- expectancy shall be 74.5 years. middle-income level. + Environment: By 2025, clean water coverage By 2030: To be a developing nation with modern shall be 95 to 100 percent in urban areas, and 93 to industry and upper middle-income level. 95 percent in rural areas. 100 percent of facilities causing serious pollution shall be duly handled, and By 2045: To become a developed nation and high- forest coverage shall be maintained stably at 42 income level. percent. The Congress has also adopted key targets to chart In order to become a high-income country by 2045, the course for national development until 2025 and Vietnam will need to sustain average growth rates beyond, as follow: of at least 7 percent over the next 25 years-this would bring GDP per capita to about $25,000. + Economy: Average annual economic growth over 39

2. Immediate perspective Manufacturing and processing, a key driving force for growth, is set to make up 25% of the GDP, and Looking at the closer stages of a 5 and 10-year plan, the digital economy would represent 20%. according to Minister of the Ministry of Planning and Investment (MPI) Nguyen Chí Dung, 2021 would The plan also targets an average productivity be the first year that Vietnam implements the 10- growth of 6.5% per year and a budget deficit of 3.7% year socio-economic development strategy for the of the GDP for the five-year period. period of 2021 - 2030 and the 5-year socio-economic development plan period 2021 - 2025. Accordingly, At a hearing on the same day of the session of Vietnam is aiming for 6 goals: the National Assembly, Minister of Planning and Investment Nguyen Chi Dung said the government Firstly, to effectively focus on the goal of both targets to allocate VND2,870 trillion ($125 billion) preventing Covid-19 epidemic and recovering and for public investment in the 2021 - 2025 period. developing socio-economic development “Such amount would be used for around 5,000 Secondly, to strongly promote economic public projects, less than half of the number in the restructuring associated with growth model last five years,” he said, noting the average funding innovation, improving productivity, quality and amount for each project is estimated at VND210 efficiency of competitiveness of the economy billion ($9.12 million), a 2.4-fold increase against the 2016 - 2020 period. Thirdly, to accelerate digital transformation and sustainably develop the digital economy, digital According to Mr. Dung, the main goal of the public society and digital government investment plan is to complete large-scale projects of national priority to form a comprehensive socio- Fourthly, to attach importance to high-quality economic infrastructure system that would help human resources associated with scientific and Vietnam better adapt to climate change and embark technological development and innovation, on the digital transformation process. reforming administrative procedures, creating a more open and favorable business investment Reference growth forecast by International financial environment in order to open up capital sources for agencies. investment and development According to the updated IMF forecasts (World Fifthly, to step up external relations and Economic Outlook Report) from April 2021, GDP international integration growth in Vietnam was expected to bounce back to 6.5% this year and 7.2% in 2022, subject to the post- Sixthly, to actively and flexibly manage monetary pandemic global economic recovery. IMF maintained policy in association with fiscal policy and other Vietnam GDP forecast at 6.5% in 2021. policies. Supporting businesses, including SMEs, to access capital sources and investment and business 3. Growth Drivers Beyond 2021 opportunities. Continue to promote stimulus for domestic consumption by appropriate measures. Export, FDI manufacturing as well as the public Prioritize promotion of digital transformation, spending and domestic consumption remain the digital economic development, digital government, key drivers of the growth at present and in the considering this as a breakthrough in rapid and immediate future with orientation being more sustainable development. qualitatively value-added, as indicated through the ten reasons to invest in Vietnam. Most recently, at the session of the National Assembly, held on July 27, 2021, the five-year socio- economic plan for the 2021 - 2025 period was approved. Among key economic indicators, Vietnam expects to keep an average GDP growth of 6.5 - 7% for the period, which would translate into a GDP per capita of US$4,700 - 5,000 by 2025. 40 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

10 REASONS TO INVEST IN VIETNAM IN THE NEW PERIOD 01Stable political regime, consolidated through the election of the top leadership for the new term Through the nomination of the 13th Party Congress and through the first session of the 15th National Assembly’s approval, the new government for the new term determined, marking the starting point of the roadmap to implement the socio-economic plan in the next 5 years, 10 years, with a commitment to innovation to improve the country’s competitiveness and international economic integration. 02Determined vision, goals and development roadmap for the whole new period Socio-economic development goals and measures were set with milestones of 2025, 2030 and 2045 being shaped through the resolution of the 13th Party Congress, thereby indicating the development orientation of the socio-economic agenda in the new period. 03The new legal framework has been completed and upgraded, identifying new priorities The Enterprise Law 2020 as well as the new Investment Law 2020 have both upgraded and streamlined the legal foundations with rules based economic policies as key elements, which are also compatible with the commitments in the signed FTAs. Priority sectors have been defined to attract investors. 41

04FTAs have just been signed and taken effect with strategic partners with highly developed economies as well as dynamic regional markets In Asia, the EU has only signed free trade agreements with Japan, South Korea, Singapore and most recently with Vietnam, the EU-Vietnam Free Trade Agreement (EVFTA). The EVFTA will bring competitive advantages not only to Vietnamese enterprises but also to foreign enterprises operating in Vietnam. Preferential tariffs and favorable market access conditions under the provisions of the agreement is expected to give a much - needed boost to Vietnam’s industries. The Agreement will help Vietnam favorably step into the market made of 27 countries with total population of 448 million people. EU is a high purchasing power market with per capita income of 34.11 thousand USD. Besides EVFTA, Vietnam takes part in another free trade agreement which was newly signed among 15 countries, the Regional Comprehensive Economic Partnership (RCEP). This market covers 2.3 billion people and a total GDP of 24.2 trillion USD. This agreement promises member countries to expand their market and exploit new opportunities. Macroeconomic impact of potential FTAs on Vietnam economy by 2030 Percent deviations from the baseeline GDP EXPORTS IMPORTS 6.6 22.8 30 6 20 19.1 24.9 4 3.5 3.6 21.7 20 2 1.0 10 3.6 4.3 10 7.6 5.4 6.3 11 0.4 6.9 TPP-12 RCEP 5.3 TPP-12 RCEP 0 4.2 0 TPP-12 RCEP CPTPP CPTPP 0 CPTPP n Standard n Productivity Kick Source: WB 05Strong commitment to upgrading Biggest infrastructure spenders in Asia infrastructure investment Spending as a percentage of gross domestic product Currently, Vietnam is spending 5.7% of its GDP % on infrastructure improvements, with large- scale airport construction, seaport upgrading, China highway and roads projects being implemented. Vietnam Also many large scale electric and renewable energy projects are in progress which are great India opportunities for foreign investors. Indonesia Myanmar Note: Data includes public-and private-sector investment Singapore Source: Asia Development Bank, Bloombberg straits Philippines times graphics Malaysia Thailand 01 234567 42 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

06Determined to catch up with the 4.0 economy and build a digital economy Free trade agreements (FTAs) signed with partners such as Korea and the EU all have regulations on market opening, including the telecommunications industry and related sub-sectors. The Government sets policies as well as encourages businesses to invest in digital infrastructure, including 5G telecommunications infrastructure, increasing the rate of e-commerce and e-payment. VIETNAM - PREPARING FOR INDUSTRY 4.0 Several Market forces are pushing Vietnam into industry 4.0. The government realizes this and is currently working on national strategy for Industry 4.0 lead by the ministry of Investments and Planing. NATIONAL STRATEGY FOR INDUSTRY 4.0 Targets / Expectations Priority Sectors l 2025: All administrative agencies would provide l Public administration, and Civill level-4 online public services via technology services l 2025: 100% online payments for public services l Healthcare, l 2025: Fiber optic and mobile broadband internets l Education, (4G and 5G) would cover all communes. 100% internet l Manufacturing (particularly penetration leather, textile), l 2030: Planned R&D in artificial inteligence, block l Food processing, chain, 3D priting, cloud computing, Internet of things, l Aquaculture and Agriculture, cybersecurity, and clean energy l Transportation and logistics, l 2030: Smart city plans by local governments l Information and communication, l Agriculture 4.0 Goals include: l Finance-banking (e-payments) USD 4.4 Mil credit package for clean agriculture, and up to 60% support for setting up a plant in Vietnam Plans for 200 hi-tech agricultural business +10 hi-tech agricultural zones Source: Spire Research and Consulting 07Build a nest to welcome Hanoi the eagles Major manufacturing Northern Key The network of export processing zones, industrial clusters in Vietnam Economic Zone parks and high-tech zones spanning the country and key economic regions of the country acts as Population 17.1m a nest to welcome eagles (By the end of 2020, there were 280 industrial parks under construction. Ready-made garments Central Key Currently, the Department of Economic Zones Footwear Economic Zone Management (DEZM) has approved the master plan Pharmaceuticals map for 561 upcoming industrial park projects with Processed wood products Population 6.5m an area of over 201,000 hectares). The government Phones is ready to quickly intervene to ensure stable Screens and panels Southern Key operation of industrial zones. When the Covid-19 Household appliances Economic Zone epidemic broke out in many places, including Automobiles and related Population 21.3m industrial parks, in addition to the frontline forces, machinery workers working in industrial parks were among Integrated circuits Ho Chi Minh the first priority subjects for vaccination. Major seaports Mekong Delta Key Economic Zone Population 6.1m Sources: The Economist Intelligence Unit; General Statistis Office of Vietnam, Poputation and Housing Cersus 2019. 43

08Competitive human Vietnam will remain wage competitive resources Monthly manufacturing worker wages in nominal US$, Vietnam is going into demographic dividend forecast exchange rate for 2024; full-time, excluding era where more than 70% of its population will overtime and benefits) be below 35 years of age. With a population of about 100M as of 2019, there are only n 2018 n 2024 about 13% who come under the middle class/ income category. This is forecast to double by 600 2025/2026 to 26%. This will give a big boost to their consumption story and push growth rates 400 higher from the current 6% average. Vietnam still ensures competitiveness in terms of the 200 golden population pyramid factor as well as in terms of labor costs (in terms of total labor 0 force and labor wages...). The Investment Law provides incentives for projects to upgrade Vietnam China* Indonesia Philippines India the quality of human resources, research and development centers, contributing to ensuring Sources: The Economist Intelligence Unit; JETRO competitive human resources. * Guangdonng, Jiangsu, Shandong and Zhejiang provinces 09The purchasing power market 11% is increasingly attractive of the population are The rate of urbanization and the middle class is increasing. classified as such today, By 2035, more than half of Viet Nam’s population is consuming USD 15 a day projected to join the ranks of the global middle class. or more. https://www.oecd-library.org Urbanization Forecasts in Vietnam Urbanization Forecasts 1998 2010 2020 Urban Class Number % of urban Number % of urban Number % of urban of Cities population of Cities population of Cities population Hanoi & HCMC special Cities National Cities Class I 2 37% 2 37% 2 40% Regional Cities Class II Provincial Cities Class III 3 9% 3 37% 3 11% District Towns Class IV Townlets Class V 12 15% 12 37% 12 17% 16 7% 18 37% 20 9% 58 14% 62 37% 66 12% 612 18% 1172 37% 1831 11% Sources: World Bank 44 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

10Shifting regional and global supply chains tends to benefit the Vietnamese market VIETNAM AND MEXICO COULD BECOME MAJOR PLAYERS IN GLOBAL SUPPLY CHAINS Euijin Jung (PIIE) August 3, 2020 1:30 PM REUTERS/Jose Luis Gonzalez The US-China trade war and the COVID-19 pandemic have jolted big multinational corporations (MNCs) that manufacture goods in China for export to the United States. Major companies like Omnidex, GoPro, Apple, Microsoft, and Google have either already shifted or announced plans to shift production of inputs in their global supply chains from China to Vietnam and/or Mexico, taking advantage of their low labor costs and proximity to the Chinese and US markets, respectively. In 2019 US industrial pump maker Omnidex moved some production from China to Vietnam, and US camera maker GoPro added a new production line in Guadalajara, Mexico, for the US market, while maintaining its China operations to serve non-US markets. In early 2020, the outbreak of COVID-19 prompted MNCs to further accelerate supply chain diversification. About 30 percent, or 3 million to 4 million, of Apple’s classic AirPods wireless earphones will be produced in Vietnam rather than China. Google plans to manufacture its next generation smartphone Pixel 5 entirely in Vietnam. Microsoft is also planning to start producing its Surface line, including notebook and desktop computers, in Vietnam. Although current data on these trends are not available, such news reports imply that Mexico and Vietnam are going to be the next rising stars in global supply chains. Vietnam relies on Asian suppliers for its Mexico and Vietnam have increased their exports while Mexico’s top suppliers are role in global supply chains since 1990 geographically diverse Percent of total foreign value added to gross exports in Value added to gross exports 1990-2018, billions of dollars 2019 by country Mexico 6.5 34.9% Mexico $166 bn 5.0 16.7 2015 2018 US 3.0 $180 China 2.7 23.4 160 Germany 2.2 140 Japan 2.1 120 Canada 1.9 100 Korea 1.7 80 60 Italy 40 1995 2000 2005 2010 France 20 Brazil 0 Spain 1990 Rest of world Vietnam Vietnam China 22.9% $25 $20.4 bn Japan 20.5 2015 2018 Korea 7.7 20 Thailand 20.6 Singapore 5.5 15 5.5 US 10 Indonesia 4.8 4.5 5 Taiwan 2.9 Malaysia 2.7 0 1995 2000 2005 2010 Germany 2.5 1990 Rest of world Note: Numbers may not sum to 100 due to rounding. Note: Gross exports are sum of exports and reexports. The value added includes indirect domestic and foreign contents used in final exports. Source: UNCTAD-Eora Global Value Chain Database, https://worldmrio.com/unctadgvc/ 45

But will these MNC moves lead to a larger and deeper long-term trend? That remains an open question. Much will depend on how both countries emerge from the ravages of COVID-19 and other challenges. While Vietnam successfully contained the pandemic in the early stages, it must remain vigilant against a second wave. Mexico has to successfully contain the pandemic, which has worsened the security situation there. Both countries also have to contend with home-grown protectionism in major trading partners as the United States. To meet these challenges, they will need to adopt more trade- and investment-friendly policies and increase domestic investments in education and infrastructure to expand the pool of high-skilled labor and make their business environments more favorable to investors. Both countries have been increasing their value added in global supply chains since 1990 (figure 1). The value added includes indirect domestic and foreign contents used in final exports. Mexico’s trade in global supply chains was eight times larger than Vietnam’s in 2018. While both are emerging as attractive alternatives to China, key foreign suppliers involved in global supply chains are different for both countries (figure 2). In 2019 foreign value added in Mexico’s gross exports (exports plus reexports) came mainly from the United States, China, and Germany, and in 2018 it shipped 80 percent of its merchandise exports to the United States and Canada, illustrating Mexico’s flexibility in serving firms and consumers in North America, Asia, and Europe. For its gross exports Vietnam relied on sourcing mainly from Asian countries, particularly China and Japan, in 2019, and it shipped 44 percent of its merchandise exports to the United States, China, and Japan in 2018. 46 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch

LOWER LABOR COSTS, TARIFFS, AND INVESTMENT BARRIERS IN MEXICO AND VIETNAM ARE ATTRACTING COMPANIES Firms will evaluate several characteristics Thanks to trade pacts established since of countries as they reconfigure their supply NAFTA, Mexico’s preferential tariffs on chains. The World Bank (2020) suggests that imports from FTA partners recorded about 0.1 favorable factor endowments (e.g., natural percent in 2014 while Vietnam’s were about resources and labor), together with market 5 percent or less in 2018, according to the size, geography, institutional quality, and World Bank’s World Integrated Trade Solution proactive policies, can all serve to enhance database. Vietnam provides foreign investors a country’s participation in global supply with easier access to its manufacturing chains. Some of these features show what sector than Mexico does (OECD 2018), but Mexico and Vietnam can offer foreign both score better than China on the overall investors relative to China. Foreign Direct Investment (FDI) Regulatory Restrictiveness Index. Low labor costs are the main attraction. Average manufacturing labor cost per hour in As members of the Comprehensive and Mexico and Vietnam are estimated at $4.82 Progressive Trans-Pacific Partnership (CPTPP, and $2.99 in 2020, respectively, compared in effect 2018), Mexico and Vietnam would with China at $6.50 per hour. Labor-intensive provide preferential treatment to firms from manufacturers seeking to diversify their member countries looking to diversify their supply chains could find Mexico and Vietnam supply chains in the Asia-Pacific region. quite attractive, although automakers may Active expansion of FTAs has allowed the think differently about Mexico due to the new two countries to serve new markets as well domestic labor value content requirement in as reinforce existing trade relationships with the US - Mexico - Canada Agreement (USMCA), trading partners. Both can attribute their which replaced the North American Free Trade increased participation in global value chains Agreement (NAFTA) in mid-2020. to lower tariff and investment barriers. Over time both countries have sought to lower trade and investment barriers for key partners via free trade agreements (FTAs). Mexico liberalized its market via NAFTA (in effect from 1994 until USMCA replaced it), the Mexico - EU FTA (in effect 2000), and the Mexico-Japan FTA (in effect 2005). Meanwhile, Vietnam vigorously entered into bilateral and regional FTAs with most major trading partners except the United States, including the Vietnam - Japan FTA (2009), Vietnam - South Korea FTA (2015), and Vietnam - EU FTA (signed 2019). As a member of the Association of Southeast Asian Nations (ASEAN), Vietnam has an FTA with China (in effect 2005). 47

III. REVIEW OF TYPICAL SECTOR: LOGISTICS INDUSTRY INDUSTRY ANALYSIS - INVESTMENT OPPORTUNITIES IN LOGISTICS SECTORS 1. The role and significance of the logistics infrastructure, facilitate transportation and trade industry for the overall growth of the and develop modern services. Despite this progress, economy the sixth edition of Connecting to Compete reveals a mixed picture. High-income countries score, on According to the definition from the World Bank average, 48% higher than low-income countries report, global logistics is considered as “the when it comes to logistics performance. (WB. internet”. “Logistics is the network of services “Connecting to compete”). that support the physical movement of goods, cross-border trade, and trade within borders. 2. Vietnam’s Logistics Performance Index Logistics covers a wide range of activities beyond (LPI) - an Outsider’s view transportation, including, warehousing, brokerage, express delivery, and essential infrastructure The LPI is a study compiled every two years by services such as terminal loading and unloading the World Bank and ranks countries supply chain stations; A growing international network of performance on a scale of 1-5 with 5 being the best. multimodal service providers offering diverse The final score is an average based on the scores of business, trade and manufacturing solutions. six supply chain metrics - Customs, Infrastructure, In fact, the annual sales these global networks International Shipments, Logistics Competence, generate are over $4.3 trillion.” Advanced economies Tracking & Tracing, and Timeliness. These metrics remain the global leaders in trade logistics. are crucial for a country to be able to handle high Across the board, most countries have pursued volumes of trade moving across its borders. logistics-related reforms and investments to build TOP 10 LPI ECONOMIES, TOP-PERFORMING TOP-PERFORMING 2018 UPPER-MIDDLE-INCOME LOWER-MIDDLE-INCOME ECONOMIES, 2018 ECONOMIES, 2018 Economy 2018 Economy 2018 Economy 2018 Rank Score Rank Score Rank Score Germany China Vietnam Sweden 1 4.20 Thailand 26 3.61 India 39 3.27 Belgium 2 4.05 South Africa 32 3.41 Indonesia 44 3.18 Austria 3 4.04 Panama 33 3.38 Cote d’Ivoire 46 3.15 Japan 4 4.03 Malaysia 38 3.28 Philippines 50 3.08 Netherland 5 4.03 Turkey 41 3.22 Ukraine 60 2.90 Singapore 6 4.02 Romania 47 3.15 Egypt, Arab Rep. 66 2.83 Denmark 7 4.00 Croatia 48 3.12 Kenya 67 2.82 United Kingdom 8 3.99 Mexico 49 3.10 Lao PDR 68 2.81 Finland 9 3.99 Bulgaria 51 3.05 Jordan 82 2.70 10 3.97 52 3.03 84 2.69 Source: Logistics Performance Index 2018 48 Vietnam Chamber of Commerce and Industry Ho Chi Minh City Branch