Vietnam - Australia: Ready for a new phase

The report "Vietnam and Australia: Ready for a New Phase" recently published by HSBC Global Research stated that, based on the bilateral relationship that has developed over many years, the upgrading of the relationship to a Comprehensive Strategic Partnership will have even more positive prospects, including trade, FDI, ODA and tourism.

Commerce

The report looks at Australia's role in Vietnam's growth and potential directions for the bilateral relationship.

In terms of trade, bilateral trade between Vietnam and Australia has boomed over the past decade, more than doubling to US$13.8 billion in 2023.

Within the ASEAN region, Vietnam is Australia's second most important economy in terms of merchandise exports, accounting for 2.1% of Australia's merchandise exports in 2023, up from around 1.5% before the Covid-19 pandemic.

Part of the increase in trade since the pandemic has come from rising global prices for raw materials. The two commodities that have seen the biggest increases in value are coal and cotton.

Vietnam is currently Australia's largest single cotton export market, accounting for 40% of the country's total cotton export turnover, double the market share in 2020. Meanwhile, Australia accounts for nearly 40% of Vietnam's cotton import turnover.

Although in terms of proportion of total exports, Vietnam's textile and garment industry has seen its market share decline in recent years while electronics have increased, this is still considered an advantage for Australian cotton exporters.

The trade boom is not limited to manufacturing. A large increase in household discretionary spending has also fuelled demand for some Australian exports.

Specifically, Australian beef exports have boomed thanks to the elimination of many tariff lines under the AANZFTA Agreement in 2018. More encouraging is the potential for beef consumption in Vietnam. According to OECD-FAO, by 2030, Vietnam's per capita beef consumption is forecast to be the highest in ASEAN, opening up opportunities to increase trade flows.

"The above analysis may make us think that the relationship between the two countries is purely one-way, but that is not the case, Vietnam's exports to Australia are also increasing," said Yun Liu, economist in charge of ASEAN markets, HSBC Global Research Department.

Agricultural products are the leading category, with nuts and seafood accounting for the majority. Cashew nuts imported into Australia come largely from Vietnam, according to ITC data.

According to Jamie Culling, economist in charge of Australia, New Zealand and global raw materials, HSBC Global Research, in order to further take advantage of the trade agreements that the two countries are members of such as AANFTA, CPTPP and RCEP, it is equally important for Vietnam to improve quality control of agricultural exports, especially in the context of Australia's quality standards and regulations being stricter than those of the US and EU in some areas. Currently, only four types of fresh fruit from Vietnam have access to the Australian market, including mango, dragon fruit, lychee and longan, but that is also a sign that there are still great opportunities to expand the market.

And many other potential fields

Exports of goods are not the only sector with potential opportunities; services are also an area that can expand, although at a slow pace. HSBC’s report shows that in 2023, the ASEAN market will welcome 4 million tourists from Australia, but less than 10% of them will visit Vietnam. Part of the reason may be related to visas, as Australia does not have a visa exemption and there are still restrictions on the number of flights.

Encouragingly, Vietnam is considering expanding its visa exemption list and introducing new routes, both of which are important initiatives as Australian tourists tend to stay longer and spend more during their holidays.

In terms of investment, the report said Vietnam has the world’s second-largest rare earth reserves, most of which are untapped. Australian companies with expertise in mining and processing are also looking to seize this opportunity, with steady FDI flows into the sector in ASEAN as a whole. In Vietnam, a prime example is Blackstone Minerals, which has two facilities in Son La province, one for exploration and mining and one for deep nickel processing.

In addition to its critical minerals, Australia’s role as a major energy supplier to Vietnam puts the country in a strategic position to help accelerate Vietnam’s energy transition, with the Australian Government committing A$105 million to support Vietnam in this area.

In addition to trade and FDI, other forms of cooperation are equally important. While Indonesia has long been a major recipient of official development assistance (ODA), Vietnam has also seen a steady flow of development assistance.

The human resources sector is also closely linked. Australia has long established an educational milestone by establishing the first foreign-invested international university in Vietnam (RMIT University) since 2000.

As part of its commitment to Vietnam, the Royal Melbourne Institute of Technology (RMIT) in Vietnam received an additional AUD$250 million investment last year, contributing to the launch of an Innovation Hub to support workforce upskilling.

"Over the years, Australia has played a role in Vietnam's growth story. Going forward, opportunities arising from new demand will be the foundation for a new page in Vietnam-Australia relations," according to the HSBC report.

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