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Southeast Asia’s Improved COVID Situation Offers a Positive Outlook For Economy Rebound

With intensive vaccine rollout and heavy restrictions, Southeast Asia has significantly improved its COVID situation towards the end of 2021. Regional governments are gradually lifting restrictions and pushing to reopen, aiming to strike a balance between virus containment and movement of people and money.

 

Tourists in Bangkok, Thailand

Southeast Asia’s COVID Cases

Southeast Asia’s top economies – Vietnam, Indonesia, the Philippines, Malaysia, and Thailand, all faced a surge in COVID cases during the summer of 2021. The number of COVID-infected citizens soared in Indonesia during June-July, making it the country with the highest rate of infections in the region. Vietnam, originally successful in preventing the disease, also suffered a severe outbreak from June of 2021.

Table showing number of confirmed COVID cases in Southeast Asia

With heavy restrictions in place, the rate of daily new COVID cases has decreased for most countries. Indonesia, once the pandemic centre of Southeast Asia, reported the lowest number of daily new cases among the top economies. Except for Thailand, other countries have reduced their daily record of infections to less than 5,000 cases.

Graph showing daily ne confirmed cases in Southeast Asia

Southeast Asia’s COVID Vaccination Progress

Making up for a slow beginning, Vietnam and Indonesia are speeding up their vaccination program with over 1 million doses administered daily in October. Thailand and the Philippines are lagging in the race, with around 5 to 6 thousand doses administered daily. Only Malaysia has fully vaccinated over 70% of its population.

Table showing vaccinations in Southeast Asia

All countries target to achieve herd immunity with at least 70% of the population fully vaccinated against COVID-19. There are several complications in reaching these deadlines. For example, shortage of doses, government and localities coordination and local anti-vaccine movement (particularly in the Philippines and Indonesia), just to name a few.

Vietnam and Indonesia both aim to achieve herd immunity by March 2022. The Philippines is set to immunize 60% of its population by the end of 2021. Malaysia has surpassed the 70% benchmark and plans to vaccinate 80% of its target population (adults aged 18 and over) by December 2021. Thailand aims to vaccinate 70% of its population within 2021, focusing on covering tourist-concentrated areas.

Countries are also introducing vaccination programs to children ahead of the new school year. In October 2021, the Philippines began a pilot program in hospitals to vaccinate minors aged 12 to 17 with underlying medical conditions. Thailand recently kicked off a vaccination program with the Pfizer vaccine, aiming for more than 5.04 million students, aged 12 to 18. Vietnam will also start vaccinating children aged 12 to 17 with the Pfizer-BioNTech vaccine, starting November 2021.

Future Outlook: GDP, FDI, Supply Chains, and Tourism

The surge in infected cases led several governments to apply COVID-zero strategies, including limited international and local movements, and halted business activities. Unsurprisingly, strict regulations carried a negative impact on the economy. After months of heavy restrictions that put the economy on the brink, countries in Southeast Asia have lifted several social curbs and, most importantly, planned to reopen.

According to Oxford Economics, Foreign Direct Investment (FDI) flowing into Southeast Asia remains strong. As the global value chains continue to adjust to higher labour costs and trade protectionism in China, Southeast Asia is likely to be the key beneficiary. London-based think tank Capital Economics projected the region’s economy to rebound strongly in the fourth quarter of 2021 as COVID cases have dramatically reduced.

Vietnam

Vietnam’s GDP declined sharply by 6.17% in Quarter 3 of 2021 – the first recorded negative growth since 2000. In the first nine months of the year, the country’s GDP has now only grown by 1.42%. The Ministry of Planning and Investment estimates the annual GDP growth of 2021 to be at 3-3.5% compared to 2.91% in the previous year.

Foreign investors remain optimistic about Vietnam’s long-term growth. Its role in the global supply chain is only expected to grow, as noted by American Chamber of Commerce in Vietnam. Information services company IHS Market also stated that Vietnam’s involvement in the global supply chains would not be diminished by the pandemic, since the costs to relocate would outweigh the costs of momentary disruptions.

The government is developing a roadmap to be fully open to international tourists by June 2022. A pilot program for fully vaccinated international visitors to Phu Quoc Island will be carried out in November 2021, before reopening Nha Trang, Ha Long, Hoi An, and Dalat in December.

Indonesia

Indonesia, Southeast Asia’s largest economy, is expected to grow by 4.5% in the third quarter of 2021, much lower than the 7.07% growth of the second quarter. Indonesia’s finance minister stated that domestic demand had improved since the second week of August as restrictions relaxed. Exports from Indonesia, the world’s largest exporter of thermal coal and palm oil, also spiked as prices reached a record high. The new official forecast for the annual GDP in 2021 is at 4%.

The Indonesian Investment Ministry disclosed that the rate of foreign investment in Indonesia in the third quarter of 2021 decreased by 2.8% quarter-to-quarter, but increased by 3.7% year-on-year (YoY). With 13% of total foreign investment, the housing sector, industrial estates, and offices received the most attention. The transportation, warehouse, and telecommunications sectors received around 12.3%. The government is targeting 900 trillion rupiahs in total investment in 2021. By September, Indonesia has reached 73.3% of the target.

Indonesia is bracing itself for the year-end holidays, as nearly 20 million people are forecasted to travel to Java and Bali. The government has implemented several protocols for reopening tourist sites and hospitality services.

Philippines

Capital Economics projected an uptick in the Philippines’ GDP in the third quarter of 2021 from the second one. The second-quarter GDP was equivalent to an 11.8% growth YoY. Capital Economics also expects the fourth-quarter GDP to grow by over 4% compared to the third-quarter result and the annual GDP to grow 4.5% in 2021. The government set a target of 4-5% growth this year.

In the first half of 2021, FDIs to the Philippines amounted to US$4.3 billion, a 40.7% increase from the previous year’s level. The approved foreign investment reached a 45.5% increase YoY in the second quarter. The major investors to the Philippines in the quarter include the United Kingdom, which accounted for 55.6% of the total approved foreign investments, followed by South Korea (10%) and the United States (9.5%). 55.7% of the total foreign investment pledges are in the Information and Communication Industry (ICT). Construction came in second with a 16.1% share of total foreign investment commitments, while manufacturing came third with a 10.1% share.

The Philippines currently permits fully vaccinated international travellers from low-risk areas to arrive without quarantine. Most businesses in Metro Manila are allowed to operate at full capacity, while casinos, bars, and indoor tourist attractions can reopen at 30% capacity.

Malaysia

According to the Malaysian Institute of Economic Research (MIER), Malaysia’s economy is on the path of a V-shaped recovery. The GDP growth for 2021 is projected to be at 4.0%, slightly less than the average 4.9% growth of the pre-COVID period. Considering the improved COVID situation in Malaysia, Fitch Solutions has also revised the GDP growth forecast for Malaysia from 0.0% to 1.5% in 2021. Fitch Solutions’ forecast for 2022 remains at 5.5% growth in GDP.

In the first half of 2021, FDIs in Malaysia surged 223.1% YoY amid the pandemic, as stated by Malaysian International Trade and Industry Minister. FDI and domestic direct investment (DDI) have played a significant part in growing the company. FDI inflows in Malaysia targeted the manufacturing sector, which accounts for 79.9% of the total investment flow in the second quarter of 2021.

Archipelago Langkawi has reopened in October 2021 as part of the government’s Tourism Recovery Plan; however, the destination is only available for vaccinated domestic visitors.  The government plans to welcome domestic visitors to Tioman Island, Johor, Melaka, and the state of Sabah on the island of Borneo. International travelers will be welcomed after inter-state travel and tourism are running run smoothly.

Thailand

Thailand’s economy is set to grow at a slower pace than previously expected. The Finance Ministry lowered its forecast to 1% growth in annual GDP, from 1.3% predicted in July. The ministry expects the economy to have declined by 3.5% YoY in the third quarter. As a reopening plan is rolling, the ministry forecasts a 3% growth YoY in the fourth-quarter GDP. Thailand’s trade performance was higher than expected, with a 17.1% growth in exports YoY for the first three quarters of 2021.

In the January-September period, Thailand’s investment pledges climbed to a 140% growth from the year before. Japan, the United States, and China were the top three sources of FDI applications. Industries that saw significant inflows of foreign investments include electrical and electronics, medical and chemical sectors.

With tourism representing 18% of its GDP, Thailand has been the most eager country to reopen its doors to international travelers. Since the last week of October 2021, Thailand has welcomed vaccinated travelers from more than 40 countries. Beginning November 1, travelers from 6 more countries and territories that Thailand considers “low risk” will be able to enter without quarantine. The government anticipates 1 million tourists to enter Thailand by March 2022.

After a long battle with the pandemic surge, Southeast Asia has been able to relax its stringent social restrictions. The intensive vaccination programs have played an important role in curbing the daily infection rates. While the road to rebound to pre-pandemic levels might have prolonged, the region’s top economies have made multiple measures to balance its pandemic control and economic recovery. The short-term disruption in supply chains did not diminish Southeast Asia’s growing importance in the global supply chains, as foreign investors are still keen to enter the region.


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    Exploring The Booming Craft Beer Industry in Vietnam

    Craft Beer is becoming a new trend on Vietnam’s beer market and is favoured by the majority of the young Vietnamese generation thanks to its unique flavours. Although Vietnam is still an undeveloped market for craft beer, the alcohol consumption habits of consumers and the rapid growth of the middle class in the country will continue to drive the growth of the craft beer industry in the coming years and continue to attract new players to enter the market.

     

    Barman tapping a glass of draft beer

     

    The local Craft Beer market started to thrive around 2014 when foreign beer brewers started brewing in Saigon. Since then, many famous Vietnamese craft beer brands such as Platinum, Pasteur Street Brewing Company, Winking Seal, Heart of Darkness, Fuzzy Logic and C-Brewmaster have appeared and gained a proven position amongst Vietnamese consumers, especially the among the young generation. These craft beer producers do not only serve the local consumers, but have also embarked distribution internationally to America, Europe and all-around Asia.

    The craft beer market of Vietnam has also witnessed a penetration from foreign cooperation’s that want to take part of this thriving market. In 2018, Golden Gate, a pioneer in the restaurant chain business model in Vietnam, officially opened its American imported craft beer chain (Craftbrew Vietnam) in Hanoi with the expectation of becoming a bridge for America’s leading craft beer manufacturers to enter Vietnam’s market and bringing the Vietnamese beer lovers opportunities to enjoy high-quality and famous American craft beer brands. As of June 2021, Golden Gate has a total of 55 restaurants across the country, serving different craft beer brands such as Kona, Lost Coast, Green Flash, Sierra Nevada and Blue Moon.

    Further, the Vietnamese beer market is expected to grow at a CAGR of 6.44% between 2021 and 2025 and is expected to reach 9.5 billion USD in 2025. Additionally, the middle class in Vietnam, which is the main consumer of craft beer, is growing rapidly and is predicted to account for more than 50% of the population by 2045, according to the World Bank. Craft beer, therefore, will be a lucrative niche market for businesses.

    Graph showing craft beer market in Vietnam

    Besides the great opportunities in Vietnam, the craft beer industry is also facing certain challenges in Vietnam. The most noticeable one is the higher price compared to the regular beers. In Vietnam, the price of a regular beer is only about 0.6 to 0.9 USD/bottle, while craft beer is ranging from 2.9 to 3.8 USD/bottle. The price differences are mainly driven by the complicated production process of Craft Beer, and its higher nutritional composition compared to other types of beer. This has posed the challenge for craft beer producer in attracting the Vietnamese price-sensitive consumers.

    In conclusion, the craft beer market in Vietnam is expected to thrive in the next few years and will continue to attract the attention of both local and foreign players despite the challenges it might face. The rising income and increasing alcohol consumption as well as the changing tastes and preferences of Vietnamese consumers are opening up business opportunities for craft beer manufacturers and will continue to drive the growth of Vietnam’s craft beer industry in the upcoming years.


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      Vietnam’s Growing Alternative Protein Market is Gaining Attention from Foreign Investors

      Vietnam’s Alternative Protein Market has already witnessed great growth in recent years and is predicted to grow strongly between 2021 and 2025 with a CAGR of 11.85% and reach 500 million USD by 2025. With the aggressive growth in the upcoming years, the market has become attractive for both foreign and domestic entrepreneurs, reflected by the rising foreign direct investment as well as the dynamic participation of local players ranging from start-up to leading food manufacturers.

       

      Woman eating a vegan burger

       

      By the end of 2020, Vietnam’s Alternative Protein Market reached 249 million USD, with the dominant share of soy-based protein (70%). Despite the raging pandemic, the market is expected to grow strongly with a CAGR of 11.85% the coming five years. The strong growth of Alternative Protein in Vietnam is mainly driven by the increasing health concerns among consumers and growing consumer focus in sustainability as well as ethical considerations.

       

      Graph showing trends for protein alternatives in Vietnam

      The rising demand for healthy sources of protein of Vietnamese consumers has further driven the growth of alternative protein market in Vietnam. According to Nielsen Surveys and Global Trend reports in 2018, health concern is by far the most important trend that affects alternative protein intake in Vietnam. The study showed that 37% of Vietnamese consumers consider health to be among their top two concerns while 90% are concerned about the long-term health impact of the ingredients.

      Graph showing health concerns in Vietnam

      Another rising concern is the environmental impact of the production of animal-based meat that have impacted the drastic growth of meat substitutes market in Vietnam. According to an analysis of The Guardian, meat production uses the vast majority of farmland (83%) and produces 60% of agriculture’s greenhouse gas emission. Therefore, alternative proteins which have less impact on environment and require less land-use, have gained popularity among Vietnamese consumers who are becoming more conscious about environmental issues. The market is also receiving increasing governmental support, reflected by the new tax incentives for entities that focus on clean, high-tech, and eco-friendly agriculture.

      With more people shifting away from animal-based meat toward healthier and more sustainable protein alternatives, many food manufacturers ranging from start-up to leading food companies, and even meat producers are embracing alternative protein products to meet the increasing demand.

      The market also captures the attention of foreign investors, reflected by a range of global plant-based protein brands such as Beyond Meat to enter Vietnam’s market in the recent years. In Vietnam, Cricket One – a start-up company that produces cricket protein powder received multi-million dollars investment in late 2020 from a Singaporean Investment Fund and continues to gain attention from foreign investors. The company is currently having its products sold in twelve different countries and is the only one in Asia that have the permission to export for human consumption to Europe. Also, Hadara Corporation – a Japanese plant-based meat company that already has its products present in Singapore and Thailand is also looking for distributors in Vietnam.

      In conclusion, there is no doubt that Vietnam is a potential market of alternative protein for both international and domestic players from start-up to leading companies. The demand for healthier and more sustainable sources of protein of Vietnamese consumers are increasing considerably due to their rising concerns on the impact of animal-based protein on their health as well as the environment. Vietnam’s Alternative Protein Market is therefore predicted to grow strongly in the upcoming years and will continue to gain the attention of foreign investors.


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        Vietnam and UK Sign Bilateral Free Trade Agreement

        On Tuesday, December 29th, 2020, Vietnam and the UK officially signed the bilateral free trade agreement which has been in progress for over two years.  The free trade agreement will ensure that there is no interruption in trading activities between the two countries due to Brexit, which will take place right after December 31st, 2020. Besides, the UK – Vietnam Free Trade Agreement (UKVFTA) is believed to give Vietnam more competitive advantages over other countries in the region as most countries have not established trade pact with the UK yet.

         

        Vietnam and UK flags combined

         

        Vietnam is currently the second largest Southeast Asian exporter to the UK after Thailand with bilateral trade value equaling 6.7 billion USD in 2019. During the period 2012-2019, the growth rate of Vietnam – UK bilateral import and export turnover increased by an average of 12.1% annually.

         

        Graph showing value of imports and exports between Vietnam and the UK

        On Vietnam’s side, its main exports to the UK include electronic equipment, garments and textiles, and seafood, which winded up more than 50% of UK’s total imports value from Vietnam. As import taxes on 99.7% of export turnover to the UK will be eliminated by the time of full implementation (within six years from January 1st, 2021), Vietnam is expected to save around 151 million USD in tariff from the deal. Besides the traditional industries mentioned earlier, other industries that present great opportunities for UK businesses in Vietnam includes education, renewable energy, technology, infrastructure, and healthcare.

        On UK’s side, its top exports to Vietnam include machinery and mechanical appliances, pharmaceutical products, and electronic equipment, taking up around 45% of Vietnam’s total imports value from the UK. Although the UK expects to save only 36 million USD in tariff from the deal, the signing of UKVFTA helps the UK to achieve its goal of securing free trade agreements with countries that cover 80% of the UK’s trade within three years.

        Moreover, the deal between Vietnam and the UK also acts as a key step towards Britain’s entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2021.

        The UKVFTA was signed at a special time which marks ten years of the UK – Vietnam Strategic Partnership. It not only benefits supply chains and consumers of imports from Vietnam to the UK, but it also presents more opportunities for British investors to expand business into Vietnam. In addition, the trade deal paves the way for the UK to establish new FTAs in the future with some of the most dynamic economies and thus defines its role in the world for decades to come.


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          Vietnam’s Export of Wood and Wooden Furniture Recovers after COVID-19

          Export of wood and wooden furniture from Vietnam has increased significantly in the last two quarters of 2020. The monthly export has reached more than one billion USD every month since July, meaning that Vietnam will see a two-digit growth compared to last year, regardless of the raging pandemic.

           

          Loggers loading a truck with wood in Vietnam

           

          By the end of November 2020, Vietnam’s total export value of wood and wooden furniture reached 11 billion USD, of which wooden furniture accounted for 81.4%. The export value marks an increase by 15.6% compared to the same time period last year, with the total export value of 2020 to reach 12.5 billion USD, a CAGR of 13.8% between 2010 and 2020.

          Graph showing Vietnam wood exports

          The outbreak of the COVID-pandemic at the start of 2020 has significantly impacted the wood industry. Key export markets such as the US, China, EU, and Japan has all suffered heavily from the pandemic. Hence, containment measures were applied, causing companies to suspend business. In Vietnam, several factories were struggling to survive due to a shortage of orders. The worst decline took place in April, with a recorded decrease of 18.5% compared to last year.

           

          Fortunately, thanks to successful efforts to control the pandemic by Vietnam and other countries, wood and furniture factories has been able to recovere. Since June, the wood industry in Vietnam has witnessed continuous monthly year-on-year growth ranging from 16.4% to 32.9%. More surprisingly, the monthly export value reached over one billion USD for five consecutive months (July to November) for the first time in history. The US, China, Japan, and EU continue to be the largest export markets of Vietnam, comprising more than 78% of the total export value.

           

          Graph showing Vietnam wood furniture exports

          Besides support from the government, experts have pointed out other reasons for such impressive growth. One of them is that more people work from home to avoid the spread of the pandemic, which leads to an increase in demand for home furniture. Also, the US-China trade war caused the wood industry of China to bear anti-dumping duties and anti-subsidy taxes. This situation resulted in a shift of orders from China to Vietnam. Moreover, Vietnamese companies successfully identified and focused on strategic products that show an even higher demand than pre-COVID-19, such as wooden kitchen furniture, sofas with wooden frames, kitchen cupboards, etc.

          In conclusion, wood and wooden furniture is one of the commodity groups that has bounced back with impressive export value and growth rate in the latter half of this year. The achievement has been made possible thanks to successful containment of the virus, support from the government, a global shift from China as a sourcing market, and identification of strategic products for key export markets. In the whole year 2020, the export of wood and wooden furniture is projected to reach 12.5 billion USD. However, the outlook for the industry in the future remains uncertain due to the underlying risks of new waves of COVID-19 worldwide.


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            The Rise of Modern Grocery Shopping in Vietnam

            Although traditional grocery shopping through local markets and independent stores dominates Vietnam’s grocery industry, modern channels are expanding rapidly due to the change of customers’ behavior, pushed extra by the growing e-commerce during the COVID-19 pandemic.

            Vietnamese woman shopping in a supermarket

             

            Vietnam’s retail market has grown with a CAGR of 12.73% over the past decade, driven by an increasing wealth and disposable income, as well as a growing population. Among the categories of retailing, grocery and electronic appliance are the largest categories in Vietnam, accounting for more than half of the total retail sales in the country (by value).

            Grocery retail has grown by 5% yearly between 2014 and 2019, with traditional channel (markets and independent stores) still playing the leading role and dominating more than 90% of total market. Modern channel’s accounts for roughly 8% of the overall grocery retailing, but its big growth rate of 8.5% per annum shows that it is increasing faster than the market average.

             

            Chart showing Vietnam grocery sales by channel

            Vietnam’s retail market has the highest growth rate in modern grocery retail in comparison to other Southeast Asian countries. Therefore, Vietnam expects the greatest potential for modern grocery retail expansion in the future.

            Chart showing Vietnam grocery market size 2019

            Among the modern channels, supermarkets have become more and more popular for modern grocery shopping with an expansion rate of 16% (YoY) while hypermarket shopping appeared to stabilize in 2019. Convenient stores have the highest growth rate of 18% (YoY), with a market size of 190 million USD in 2019.

            Modern retail chains of grocery are continuously growing by expanding distribution networks to gain more market share. The number of modern grocery outlets soared from around 1,200 in 2014 to nearly 4,800 in 2019.  Supermarket and Minimart segment is dominated by local players, such as Saigon Co.op and Bach Hoa Xanh, Vinmart and Vinmart+. Within the Hypermarket segment, Big C is the biggest chain with 57.6% market share, followed by Lotte Mart, AEON, and Co.op Xtra (Saigon Co.op), while the convenient store segment is dominated by international companies including Family Mart (Japan), Circle K (US), Minimart (Japan) and B’smart (Thailand).

            Graph showing coverage of grocery retail chains in Vietnam

            In 2020, modern grocery saw a boost of online sales due to the COVID-19 pandemic. In addition, leading e-commerce providers in Vietnam, including Tiki, Shopee, Lazada, Sendo, Foody, etc. expanded their product range to groceries and fresh food. Vietnam’s e-commerce sector has already been experiencing significant annual growth of 30% over the past two years, and now it is becoming even more clear that the rise of online shopping is one of the major trends in the future.

            In conclusion, modern trade of grocery through supermarkets, hypermarkets and convenient stores has become more and more popular in Vietnam with a high growth rate, challenging the prevalence of traditional retail. In the future, the growth of omni-channel retailing, e-commerce shopping and market consolidation are pinpointed as key trends within the Vietnamese grocery market.


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              Asia-Pacific Nations Form World’s Largest Trading Pact

              After eight years of negotiation, 15 nations formally signed one of the world’s largest free trade agreements on the 15th of November 2020. The Regional Comprehensive Economic Partnership (RCEP) includes the 10 ASEAN nations as well as their close partners China, Japan, South Korea, New Zealand and Australia. The agreement stands as a symbol of China’s growing economic impact in Southeast Asia, at a time when the US places itself in an uncertain position in the region.

               

              RCEP map

               

              The RCEP shows that the world won’t wait around for the US, but instead engage in aggressive trade negotiations without it. The European Union are currently pursuing several free trade agreements at a high pace. As a result, many American exporters might lose their global market shares.

              The RCEP is expected to abolish a range of tariffs on imports over a 20-year period. It also includes regulations on intellectual property, telecommunications, financial services, e-commerce, and professional services. However, as the new trade agreement eliminates tariffs mainly on goods that are already eligible for duty-free treatment, it is expected to formalize, rather than remake, the business among the involved nations. Moreover, the pact introduces so-called “rules of origin”, which will set common standard for how much of a product needs to be produced within the region to qualify for duty-free treatment. As an effect, international enterprises will have an easier task of setting up cross-border supply chains that span several countries.

              Due to the ongoing global pandemic, the signing of the free trade agreement was a bit unusual as The whole process was conducted virtually. Each country’s trade minister took turn signing the deal, while his or her head of state or government stood nearby and watched the signing take place.

              The agreement is the biggest of its kind in relation to the massive population it affects. The pact covers 2,2 billion people, more than any previous free trade agreement has ever covered. Moreover, the deal could increase global national income by 186 billion USD annually by 2030. It is believed that the pact will benefit China, Japan and South Korea the most.


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                The Potential of Wine E-Commerce in Vietnam

                Online sales of wine and spirits have been legalized in Vietnam since February 2020, with more transparent regulations of promotion, payments, and customer’s age. With the new laws in place, especially aided by the COVID-19’s push, online sales of wine in Vietnam is expected to grow significantly in the coming years.

                Wine bottles in a crate

                 

                The wine market in Vietnam can be categorized into non-grape wine, still grape wine, sparkling grape wine and fortified wine. Non-grape wine (mostly local products) is the most consumed in terms of volume, accounting for 69% of the total consumed wine, but still grape wine (red wine, rose wine, and white wine) accounts for the highest value of the market (61% market share) due to its higher price. Over the past years, the wine market in Vietnam maintained a growth rate of more than 10% per annum. Wine has become more popular among the middle and high-income consumers, especially due to the country’s increasing wealth and disposable income. In addition, the growing influence of the Western culture also accelerates the consumption of wine in Vietnam as it is considered the representation of social status.

                In 2020, under the impact of COVID-19 that reduced gatherings that restricted wine/alcohol drinking, the overall consumption of wine is expected to drop by 18.9% from 2019, but then to recover quickly during the years to come.

                Graph showing wine sales in vietnam by volume Graph showing wine sales in Vietnam by value

                More than 70% of the wine sold in Vietnam has been through hotel, restaurant and catering services. However, it is expected to drop by 33% in 2020 due to the COVID-19 induced restrictions, including social distancing as well as travel restrictions.

                On the other hand, nearly 30% of the wine sold in Vietnam is through retailers. In contrast to hotel, restaurants and catering, sales by retailers are expected to grow by 15% in 2020, especially through online platforms. Besides the fundamental requirements for wine businesses, online wine sellers must prevent minors from accessing information and purchasing alcoholic beverages through e-commerce sites.

                In conclusion, due to the COVID-19 pandemic that has limited public gatherings, customers are changing their behavior and getting accustomed to purchasing alcoholic drinks online. On the market, major e-commerce platforms in Vietnam have joined the wine online retail scene and complied with the new regulations. With the green light from the government for e-commerce of wine in Vietnam, the market is transforming itself into a digital-focused industry, gradually taking over parts of physical retail.


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                  Vietnam Issues New Taxation Regulation to Help Businesses Battle Against COVID-19

                  The uncertain and complex progress of COVID-19 have severely impacted the economy of Vietnam, especially when the second wave struck in July. In an effort to help the economy, Vietnam’s government has issued new tax support policies and regulations to help businesses overcome the difficult situation amid the pandemic.

                  Vietnamese currency notes

                   

                  As Vietnam experienced a second wave of the corona pandemic in July, many economists forecasted the country to experience a negative GDP growth rate this year. However, the Vietnamese government stated that they would do everything to foster this year GDP growth by providing economic support packages for enterprises and individuals. Subsequently, a regulation on delayed tax payments and tax cuts were released in the second quarter of 2020.

                  In particular, all micro and small businesses, which account for 93.7% of Vietnam’s total enterprises, are granted the tax and land rental payment deferral allowance. Besides, businesses working in the agriculture, forestry or aquaculture sector, as well as some selected industrial and service sectors are eligible for the incentive. According to the Ministry of Finance, with this Decree, approximately 180 trillion VND worth of taxes and fees will be extended, affecting more than 700,000 enterprises nationwide. With this new regulation, companies can reserve more capital to battle against COVID-19, as well as maintain business operation and production.

                  Table showing summary of Vietnam tax regulations changes

                  In June, the Vietnamese National Assembly passed a resolution to cut 30% of CIT for businesses whose total revenue don’t exceed 200 billion VND (8.54 million USD) during the financial year of 2020. In comparison to the original resolution proposal, the National Assembly raised the income ceiling from 50 billion to 200 billion VND, and thereby included medium-sized enterprises in the beneficiary group. Further, a criterion based on the number of full-time employees were also removed. These changes increase the exempted tax amount from 15.84 trillion VND (680.02 million USD) to 23 trillion VND (987.41 million USD). According to the Vietnamese government, the tax break will help companies overcome economic difficulties and reboot production.

                  In conclusion, the extended deadlines for tax submission and CIT reduction are aimed at helping businesses, especially SMEs, improve their cash flow, maintain operations, and develop their business during this difficult time. It has clearly reflected the Vietnamese government’s determination in recovering the economy and achieving positive GDP growth. The government is also committed to continue supporting enterprises affected by COVID-19 in the future through other necessary relief policies.


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                    by Asia Perspective Asia Perspective No Comments

                    25 Years of Economic Relations Between the US and Vietnam

                    July 2020 marked the 25th anniversary of diplomatic relations between the US and Vietnam. Once enemies, the two countries have now become strategic and economic partners. Amid the US – China trade tensions since mid-2018, Vietnam’s importance to the US’s economy has been rising, especially as an alternative for supply from China.

                     

                    USA and Vietnam flags combined

                     

                    After the US – Vietnam war ended in 1975, Vietnam’s economy was isolated until the major economic reforms of 1986, which aimed to build a market economy and to prioritize private-sector competition. Nine years into the reforms, in 1995, the US and Vietnam normalized their bilateral relations, and the relations have become increasingly cooperative and comprehensive ever since.

                    After almost five years of working on the first bilateral trade agreement (BTA) between the US and Vietnam, both countries signed the pact in 2001, covering trade in goods, protection of intellectual property rights, trade in services, investment protection, as well as business facilitation and transparency. When the trade agreement came into effect in December 2001, the US immediately provided access to Vietnamese goods on the American market – the global leading economy – on the same basis that the US offers to other countries with normal trade relations. The average tariff rates for Vietnam’s products dropped significantly from 40% to 3%. In return, Vietnam would reform its trade and investment regime towards a fair environment for American businesses in Vietnam.

                    Despite the normalization since 1995, not until the BTA was in place did the trade between the US and Vietnam begin to expand dramatically. This growth was accelerated after Vietnam became a member of WTO in December 2006, which granted Vietnam a permanent normal trade relations (NTR) status. During the 2007-2019 period, the value of US-Vietnam bilateral trade increased by more than six times, from 12.5 billion USD to 77.5 billion USD. Especially in 2019, the bilateral trade rocketed by 31.7% from the year before, partly because of the spillover impact from the US-China trade tensions, which have urged companies to relocate part of their manufacturing to Vietnam. Due to this growth, Vietnam has become the 7th largest source of US imports and the 27th largest destination of US exports. In the first seven months of 2020, although the coronavirus pandemic has affected global businesses, trade between US and Vietnam still recorded a growth of 10.8% date-to-date from last year.

                    Graph showing Vietnam Trade in Goods with the US

                    At the beginning of the trade relations between the two countries, clothing was Vietnam’s largest export to the US. Then footwear and furniture became major exports, each topping one billion USD in 2007; and in recent years, Vietnam has transformed into a major exporter of electrical machinery to the US. On the other hand, the leading American export to Vietnam are electrical machinery, cotton, aircraft, plastic articles and oil seeds.

                    Graphs showing top exports and imports between Vietnam and the US

                    In conclusion, the economic relations between the US and Vietnam are relatively new but have become more and more cooperative over the last two decades. Especially from Vietnam’s side, the country is endeavoring to build a more comprehensive and favorable economic connection with the world’s largest economy. Under the pressure of the US-China trade war, many companies on the American market have been forced to diversify the production that is traditionally rooted in China – the world’s greatest manufacturing hub. Now Vietnam – with advantages of cheap labor, strategic location, and well-built supply chains – appears to be a promising alternative producer, chiefly for electrical machinery.


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                      Marcus Sohlberg, Business Development Director

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                      During the consultation we will discuss your needs and how Asia Perspective can help. Please fill out the form and you will be contacted within 24 hours.

                      Marcus Sohlberg, Business Development Director


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