Setting up Australia’s future in Vietnam: time to seize on their growing economic maturity
Vietnam’s Deputy Prime Minister Mr Vuong Dinh Hue met with Australian business leaders in Sydney this week to discuss trade, investment and the future of our bilateral relationship. It is a timely discussion that precedes Prime Minister Turnbull’s visit in Vietnam this November and preempts negotiations about upgrading our countries’ relationship from a bilateral to strategic partnership next year.
Despite the effort of diplomats, the Australia-Vietnam relationship has not attracted a lot of media attention in recent times. Much of the commentary and analysis is overshadowed by considerations of Australia’s broader interaction with ASEAN. This kind of coverage belies the great benefits of our bilateral partnership, and the need for Australia to increase its focus on fast growing and dynamic economies like Vietnam. So why is this relationship important?
First some background. Since establishing diplomatic relations in 1973 our two countries have experienced a growing mutuality of economic and security interests. Both states have reaped the economic rewards of growing Chinese demand and new regional supply chains as well as the security benefits of US defence ties.
The bilateral relationship was strengthened in 1999 with the start of defence relations, a decade before the Australia Vietnam Comprehensive Partnership was formed to promote trade and investment in 2009. This, in turn, was progressed to an Enhanced Comprehensive Partnership in 2015.
The figures back-up the importance of the relationship, with Australia’s investment in Vietnam reaching USD 1.85 billion in 2016, and bilateral trade reaching USD 5.3 billion. But while the current level of engagement is good, the real benefits still lie ahead.
With a median age of 30 and 30 percent of the 93 million population classified as middle class, there is enormous growth potential from the Vietnamese consumer market. What’s more, as an enterprising country of innovative young leaders, Vietnam has emerged as an important part of the value chain for hi-tech manufacturing, able to capitalise on its close proximity to China.
The stable reformist government is creating a platform for expansion, with a focus on privatisation, urbanisation and increased transparency of doing business. In 2016, these initiatives generated 6-7 percent GDP growth in Vietnam, the highest of the ASEAN economies.
Australia can and should do more to seize on the growth and maturation of the Vietnamese economy. Today, trade is largely comprised of traditional exports such as wheat, cotton and minerals. While education has started to take a larger share of trade, there is still a range of innovative services and high-end manufactured goods that have not could play a larger role in the relationship. The demand of Vietnam’s growing middle class will increasingly present companies with an opportunity to capitalise on the strength of our nation’s reputation for high-end goods and services.
This has been encouraged by Vietnam, with the Deputy Prime Minister seeking to attract more Australian participation in the Vietnamese economy, particularly through direct investment.
Attracting investment in Vietnam’s infrastructure, education, vocational skills training, renewable energy and tourism sectors has been a major focus for the Government. This appeal has had reasonable success, with 407 Australian investment projects already open in Vietnam. However, it is also a challenge for the Australian economy, with significantly lower levels of Vietnamese investment being reciprocated. There are currently 36 Vietnamese projects open in Australia, totaling just USD 200 million and creating a deficit of USD 1.65 billion.
So how do we encourage greater investment in Australia? The key is building our people links and connecting on an individual level to back up diplomatic efforts. Initiatives like the Australian Vietnamese Young Leaders Dialogue (left) has helped develop these connections to benefit Australia now and in the future. Even broad introductions to Australian business culture and opportunities can set the foundation for the closer integration of Vietnamese businesses.
As we anticipate next year’s ASEAN summit in Sydney, businesses should look to build on relationships with their counterparts in Vietnam as well as the future leaders of its maturing economy.