Vietnam in Southeast Asia is one of the best growing economies in the region. The country has become an attractive destination for investments from all over the globe. The trade wars between the US and China have certainly contributed to this outcome. Since the US has stopped cooperating with China in a number of industries, the profitability of manufacturing in China has come down. As the general living standard has also increased, labour is cheaply available in other regions.
This has motivated the manufacturers to find cheaper destinations, such as Vietnam. The government of Vietnam has made a lot of efforts to make the country a good host for incoming investment and companies. Several companies have moved their units across the border to Vietnam from China. This includes tech companies like Nokia, Samsung and Olympus, as well as shoe manufacturers such as Nike and Adidas. Vietnam has particularly attracted interest from Australia in recent times.
They were on the opposite sides of battlefield a few decades back, but now, business has brought the governments together. The visit of Australian Prime Minister Scott Morrison to Vietnam in August 2019 was reflective of the increasing bilateral ties. Morrison’s visit to Hanoi was the first for an Australian prime minister since 1994, and it was characterized by cooperation in sectors of business and defence. The bilateral business between the two countries stands at US$14.5 billion a year, and is increasing by the day.
Australia exported $5 billion worth of goods to Vietnam in 2018, while imports stood at $6.1 billion. Australian investment abroad contributes to only 0.1 per cent in Vietnam but it is set to change as more companies are interested in opening their units in Vietnam. Several companies such as ANZ in banking, Austal in shipbuilding, Linfox in logistics, and RMIT International have also entered the Vietnamese business landscape. Australia is also looking to build infrastructure and supply Liquefied natural gas (LNG) to Vietnam. Former Australian rugby player, Wes Maas, has invested in Vietnam and set up a construction unit in the country in July 2019.
The outskirts of Ho Chi Minh City are lined up with warehouses of Japanese and Korean companies. Average wages in Vietnam are as low as one-tenth of Australia. The ease of doing business index for Vietnam is at 69 in 2019. This is against India’s rank of 77. India has lagged behind due to heavy paperwork and land issues. Vietnam has maintained a GDP growth rate of more than 6 per cent since 2000, whereas other neighbouring Southeast Asian countries have faltered badly due to the trade wars.
The electronic items export of South Korea has gone down by 22 per cent. Dr. Guy Debelle, the Deputy Governor of the Reserve Bank of Australia, has said that Vietnam is nearing its full capacity. Many businesses are shifting production to Vietnam to avoid the effects of tariffs. Vietnam has granted investment licenses to about 1,720 projects in the first six months of 2019. The economy has grown at the rate of more than seven per cent in 2018, which was a ten-year high. The exports of Australia to China included heavy elements, such as iron and steel, but to Vietnam it includes Australian services, logistics and other products.
An Australian group, Sun- Rice, has set up its unit in Vietnam and is exporting rice to neighbouring countries. This is because Australia does not have free trade agreements for rice with these countries. This is how Vietnam’s free trade policies have helped attract industrialists from Australia. NITI Aayog CEO Amitabh Kant has pointed out the factors that act against India in matters of foreign investment. He has said that the production costs in India are higher than both China and Vietnam.
He is heading a committee expected to make recommendations of improvement of Indian electronic exports. India produced over 140 million handsets in 2010 while Vietnam produced only 38 million. Even though the quality differed, India had a numerical advantage. This has been overturned though, as India’s mobile phone production has gone down to a value of $2.5 billion in 2019, whereas Vietnam’s production of phones has gone up to a staggering $49 billion in 2018. The improved performance of Vietnam has not been limited to mobile phones, it has generally excelled in production of all electronic items.
A key factor in Vietnam that attracts industries is the lucrative corporate tax rate for large firms that are looking to relocate. A few large firms in Vietnam have managed to get tax rates as low as zero for the first five years, 5 per cent for the next decade and 10 per cent for the subsequent two. In comparison, India’s tax rates for a foreign firm could be as high as 43 per cent. The Australian prime minister’s interest in Vietnam is not entirely limited to business; Vietnam is strategically located in the South China Sea, quite uprightly standing up to China.
The defence and military cooperation between the countries was also another check box on Morrison’s list of objectives in his Vietnam visit. Vietnam is going to take a nonpermanent seat in the UN Security Council for 2020-2021 term, and she will also serve as the chair for ASEAN in 2020. She will be the first chair after the adoption of ASEAN’s outlook paper on the Indo-Pacific. It is noteworthy that Australia stands to gain immensely both in terms of security and business as the countries of Indo- Pacific come closer under one umbrella and are able to develop better ties among each other.
A good chunk of Australian business is dependent on the well-being of Southeast Asian economies. In March 2018, Vietnam and Australia upgraded their relationship to strategic partnership. There are possibilities of Australian companies collaborating with Vietnam to explore energy in the Vietnamese waters. A point to note is that India was also a part of this arrangement with Vietnam, however, it withdrew as Chinese objections became prominent. The Australian forces have helped airlift Vietnamese forces in South Sudan, indicating a cooperative defence relationship between the two countries.
In October, Chinese vessels in Vietnamese waters sparked off fresh tensions between the two countries that are embroiled in a large multilateral dispute in South China Sea over who shall control the strategic waters. For India, both Australia and Vietnam are extremely important countries. India has fast growing business and trade with both countries; and it strives to create a strategic balance as they share the same apprehensions about the rise and dominance of China in the Asia-Pacific and beyond.
By virtue of geography, relations between Australia and Vietnam will continue to grow manifold; it will be important for India to keep up with the bonhomie. Track 2 dialogue and cooperation would allow for greater opportunities of dialogue and identification of areas of cooperation. India has ample defence expertise as well as hardware. Defence cooperation among the three countries would be a necessity given the volatility of security on India’s northern fronts.
She must be able to secure the Southern front through a system of reliable alliances and stakeholders. Given the prime position of India in the Indo-Pacific region, its security and stability would be a stake for all countries in the region, including Vietnam and Australia. Therefore, trilateral cooperation among the three on business and security can only go in positive direction.
(The writers are, respectively, Associate Professor, Assistant Dean and Executive Director at the Center for Southeast Asian Studies (CSEAS), Jindal School of International Affairs, O.P. Jindal Global University, and a Masters student at the university presently interning at the Institute for Defence Studies and Analyses, New Delhi)