‘ Breathing Fire’ – Vietnam’s Hot Growth Sectors

‘A dragon being unleashed’ is how Google and Singapore’s Temasek Holdings described Vietnam’s internet economy growth prospects in a joint report released in 2018.

This bullish outlook also applies to the wider economy, and Vietnam, commonly called ‘the land of the ascending dragon’ is enjoying a period of strong, sustained economic growth that is attracting media headlines as well as global investors and businesses.

The Vietnamese government and agencies will continue

to create favourable conditions for foreign

investors such as Jardine Matheson Group to expand

their production, business and investment in Vietnam.

Trinh Dinh Dung

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Perspective

While Jardines made its first business investment in Vietnam more than 20 years ago, Vietnam’s Deputy Prime Minister (PM) Trinh Dinh Dung reiterated a ‘Vietnam is open for business’ message at a recent reception attended by Jardine Matheson Group Executive Chairman and Managing Director Ben Keswick in Hanoi.

“The Vietnamese government and agencies will continue to create favourable conditions for foreign investors such as Jardine Matheson Group to expand their production, business and investment in Vietnam,” he said.

The Deputy PM said the current restructuring of state-owned enterprises offers new investment opportunities in infrastructure, energy, industry and tourism. In this interview, Alain Cany, the Country Chairman for Jardine Matheson Vietnam, talks about these opportunities and others of potential interest to Jardines. Mr Cany also shares business insights and projections based on his 18 years of corporate experience in Vietnam, where he has seen the country transform from an emerging nation to become one of the fastest-growing economies in the world with an average growth rate of 6 to 7% per annum.

One of Alain Cany’s biggest career highlights has been witnessing and playing a part in Vietnam’s ‘slow lane to the fast track economic transformation’ over the past 18 years.

* Data sourced from: https://www.worldbank.org/en/country/vietnam/overview

Population of 97 million (tipped to reach 120 million by 2050), with 70% under 35 years of age

Top choice in ‘China plus one’ manufacturing (when companies set up production bases in one other market in addition to mainland China)

7.1% growth rate – fastest-growing economy in ASEAN last year

Fast-emerging middle class –

13% of the population; expected to reach 26% by 2026

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We also have four investments from Jardine Cycle & Carriage. In terms of value this is the biggest investment in the country. In all of these investments we have a minority stake varying from 10% to 30% in leading Vietnamese companies in the auto (Thaco), real estate, infrastructure (REE), and dairy (Vinamilk) and consumer goods sectors. Overall, Vietnam ranks number five in terms of income for the Group, after Indonesia, Hong Kong, China and Singapore, so we are on the right track; this has accelerated in the past 10 to 12 years, after Vietnam joined the World Trade Organisation (WTO).

How long have you been in Vietnam? Based on your experience and insights, what are some of the key drivers of the country’s economic success over the past 12 years?

I’ve been here for 18 years. I originally came to work for HSBC, before joining Jardines to support their expansion plans in Vietnam. In terms of growth drivers, in my opinion Vietnam was very brave to enter the WTO at an early stage of its development. There was also a strong determination to reform the country, and I think it’s a combination of the willingness of the government to open the economy to foreign investment, and Vietnamese entrepreneurship that is driving progress.

Up to the early 1990s, 100% of the economy was state-owned. Today, maybe only 30% of the economy is run by state-owned enterprises; so about 70% of the economy has been privatised in a 20-year period. Many foreign investors are attracted by the political stability here, the openness of the economy, new rules and regulations to support this, and the emergence of a Vietnamese private sector.

Vietnam is also one of the world champions in signing free trade agreements – Vietnam has free-trade agreements with many countries and if you manufacture in Vietnam you have access to very good trade terms to large parts of the world which makes the country very attractive to manufacturers. Recent major signings – including one with the EU, which will be implemented next year, and the trans-Pacific trade agreement – are expected to maintain Vietnam’s high growth rate. In addition, GDP growth in recent times has averaged around 7% per annum driven by rising FDI and a growing middle class.

As Vietnam has modernised and grown over the past 20 years, so too has our presence in the country; how big is the footprint today?

We have 14 different operations today, for a total investment of about US$2 billion. We have four operations for Hongkong Land – two commercial buildings in Hanoi and two residential projects in Ho Chi Minh City. We have four operations under Jardine Pacific, including the restaurants Pizza Hut and KFC.

There is also Jardine Schindler, which has been operating for more than 20 years. This includes the manufacturing division, and we are very proud that our factory here produces brackets that are equipped in every single Schindler lift around the world. And we recently inaugurated a new factory that is equipped with state-of-the-art equipment; this is a Jardine Schindler investment.

Under Dairy Farm, we have two operations. Guardian, in the health and beauty sector, is doing very well and we recently opened our 100th Guardian store. The Starbucks brand operated by Maxim’s is also very powerful. The Starbucks story is interesting because Vietnam has a rich coffee culture. As local people like to drink strong brews, we thought it might be a challenge to sell American-style coffee here, but as I said, the brand is powerful, and we have around 60 outlets already.

Ben Keswick enjoyed a tour of the Thaco showroom with Mr Duong, Chairman and founder of Thaco (second from right) during his recent visit to Vietnam.

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Perspective

From a ‘doing-business’ angle what are some of the biggest changes that you have seen in recent years?

It’s hard to pinpoint specific things – the reform process is ongoing, which is making market access easier and creating a more level playing field between local and foreign companies. There is a real determination from the government and while it’s not all perfect yet, we see a clear road map and a bright future given the young population and the fast-emerging middle class. When I first arrived here 18 years ago, you could see a lot of poverty and that it was very much a developing country. Since then however, the country keeps changing at a fast pace, and all parts of the population are benefitting. While there is still poverty in remote parts of the country, the overall poverty rate is falling.

Agriculture, food processing, manufacturing and tourism are some of Vietnam’s traditional sectors; what are some of the emerging industries, and which ones stand out from a Jardines perspective?

Everything that is consumer-driven. The emergence of the middle class is significant and driving strong demand for consumer goods. Infrastructure is another growth sector, as is energy, and there is a lot going on in the solar and wind power sectors.

Digital is also developing fast; many Vietnamese are extremely talented in mathematics and have tremendous digital skills, and we already have about one million people working in the software industry. Given this, we are extremely confident that everything related to Industry 4.0 and digital will see Vietnam – as well Indonesia – become one of the biggest digital economies in Southeast Asia. As a Group, with the Innovate Jardines team, we have started looking at new opportunities there.

Given Vietnam has the fastest-growing middle class population in Southeast Asia, what do you see as the most in-demand products and services from Vietnam’s middle class in the years ahead?

Education is number one by far. Any type of education is in hot demand and not just for children, but also young adults and adults. There is a huge appetite for learning and improvement whether learning foreign languages, vocational skills or other areas.

Healthcare and beauty is another strong sector, which is very good for the Guardian business. Everything related to housing and travel are other fast-growing industries.

Finally, for people who haven’t visited Vietnam, what are two or three places or experiences that you would recommend?

Starting in the north, a visit to Hanoi and Halong Bay is a must for first-timers. For a second visit, I would recommend Hoi An, Da Nang and Hue in central Vietnam for their rich history and culture. For a third trip, I’d recommend going deeper into the Mekong Delta, taking a small boat and visiting some remote places. If you do all three, you will have seen a lot, and have a lot of good memories.

THACO is one of the longest-established auto companies in Vietnam with a strong presence in the manufacturing, assembly and distribution sectors.

Healthcare and beauty is one of the fastest-growing consumer segments in Vietnam; Guardian recently celebrated the opening of its 100th store in the country.

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