It may be one of the world’s top producers of seafood – and a natural successor as a processing hub to China – but Vietnam has been experiencing serious growing pains.
A drought wracked the aquaculture-centric Mekong Delta this year, and the country faces a continued problem with infrastructure, according to the Japan External Trade Organization (JETRO) representative to Vietnam, Atsusuke Kawada, who recently spoke in Hanoi, Vietnam.
Its labor costs are cheap compared to China, but that isn’t enough to lure investors into seafood production and processing. Poor infrastructure and cold-chain logistics are also turn-offs to would-be investors, who are otherwise keen to invest in Vietnam, according to Kawada, who claims Japanese food and seafood processors are attracted to the Mekong’s fertile land and water sources for rice and shrimp production.
As someone who’s recently plied the region’s roads, that’s something I’d concur with.
Dr. Dang Kim Son, ex-director of Vietnam’s Agriculture Ministry’s Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD), laments that “there’s no railway or highway” servicing the Mekong Delta.
The economic attractions of Vietnam are obvious: its location bordering China and the dynamic southeast Asian region and the rapid growth of its own domestic consumer market. Vietnam’s GDP expanded 5.5 percent in the second quarter of 2016, according to the country’s statistics office, which also calculated the country’s annual GDP growth averaged 6.16 percent growth from 2000 to 2015. That suggests a nascent domestic market, while the country is also a member of the regional trade bloc ASEAN – and a future member of America’s proposed Trans Pacific Partnership pact, which would give it lower-tariff entry to the U.S. market.
And yet the comparative absence of packaged food brands will be obvious to anyone who’s visited supermarkets and convenience stores in major cities like Hanoi and Ho Chi Minh. Hence the opportunity for major trading partners like Japan. The U.S., which is Vietnam’s biggest export market, also has plenty of brands and retail experience it’d like to expand in Vietnam.
Wage growth in Vietnam will invariably drive domestic demand for food products, but investment in the agricultural and seafood sector is limited compared to other sectors. Only USD 64 million (EUR 57.4 million) of USD 12.9 billion (EUR 11.6 billion) in foreign direct investment into 2,000 projects in 2016 went into agriculture and fisheries. Recently, Vietnam has become a hotbed for manufacturing investment, especially in lower-margin processing, but it doesn’t appear to be the place to go if you’re producing perishable goods for export and for domestic sales.
Some of Vietnam’s challenges are remarkably similar to those which China has faced in recent years. A key issue is land. Japanese firms have found it very difficult to get sufficient supplies of land for development due to burdensome bureaucracy that makes it hard to line up sufficient land supplies for a viable aquaculture or processing project. Land ownership in Vietnam is, like China, subject to the control of the state, which grants land usage rights.
Reform of its land transfer system is a major bottleneck for China but the country’s has no such problem with infrastructure. The highway network in key seafood-producing provinces like Fujian, Guangdong and Shandong is first-class compared to Vietnam, and it’s interlinked with major ports that allow for cost-efficient shipment.
Aside from land reform the other big weakness Vietnam has, and also shares with China, is the comparative lack of cooperation and information in the industry. And that’s a result of the political system the two neighbours share. Vietnam lacks cooperation between agricultural and fishery producers and effective representative industry organizations, according to Dr. Bui Tat Thang, president of the Vietnam Institute for Development Strategies at the Ministry of Planning and Investment.
This, of course, is a challenge recognizable to Chinese counterparts: Industry bodies in China’s seafood industry are government-funded and -supervized and as such are not aggressive or outspoken as they should be in lobbying for the industry.
And yet despite its infrastructure gap, Vietnam has a lot of fundamental demographic advantages on its side that may, over the long-run, enable it to overcome issues like logistics. Vietnam’s population – which has trebled since the 1960s to 91 million today – is young and, as such, insulates the country from the demographic challenge that’s China faces with its rapidly aging population. Because of that problem, China is facing a labor shortage that is pushing up wages. The median age in Vietnam is just over 29 years. The country’s average wage is USD 170 (EUR 152), which is less than half the equivalent in China. Meanwhile Vietnam’s middle class is the fastest growing in Southeast Asia, and is projected to reach 33 million by 2020, according to several investment banks that look at the region’s consumer prospects.
These kinds of figures should give Vietnam the kind of long-term prosperity it needs to fix its obvious infrastructure problems.
