Companies around the world are beginning to look at Vietnamese manufacturers as a way to get around tariffs from the U.S. against China - which could be helping fuel a renewables boom in Vietnam.
China previously enjoyed the benefits of being the manufacturing country of choice for nearly every industry due to its huge labor force and relatively low manufacturing costs. Now that that’s changing, companies that used to manufacture goods in China - and even some that were founded in China, by Chinese citizens - are considering other options to fulfill the manufacturing needs of their businesses.
Even before the U.S.-China trade war, Vietnam’s economy had been heating up for decades. In 1986, the country launched “Đổi Mới,” or “Renovation,” a series of economic and social reforms that were executed in the country to create a market-based economy with socialist values. Although some argue this process had some negative social effects like widening the wealth gap between people in rural and urban areas, the reforms did succeed in transforming Vietnam’s economy, resulting in the creation of thousands of state-regulated private firms in various industries and rapid economic growth.
Most of that growth was fueled by coal and oil, of which Vietnam’s supplies are beginning to run dry. Because of this, the country is seeking out more sustainable ways to meet its energy needs. In 2018, Vietnamese Prime Minister Nguyen Xuan Phuc announced the “Viet Nam Urban Green Growth Development Plan 2030,” a plan to triple Vietnam’s renewable energy production, which includes increasing household solar energy usage by 12 percent, by 2030.
A big factor in Vietnam’s explosive growth since 1986 came from foreign investment, which has been increasing due to the trade war. American toy maker Hasbro announced in July that the company would be moving its manufacturing efforts to Vietnam and India due to the effects the tariffs were having on its Chinese manufacturers. Levi Strauss, Gap, and Steve Madden have made similar announcements, as have Nintendo and Apple. Even companies that haven’t totally picked up and moved out of China have started looking to Vietnam, as well as other countries in Southeast Asia, for ways to relocate part of their supply chain and manufacturing operations – a practice that is being called “China +1.”
In addition to increased foreign interest in Vietnam’s manufacturing industry, private equity investors are showing increased interest in its economy as well, and the country’s new love of green energy seems to be responsible for a big chunk of it. A survey by the financial services company Grant Thornton published in May 2019 found that of the 6 most attractive sectors for equity investment in Vietnam, green and renewable energy technology was the third-most popular choice – more so than healthcare and pharmaceuticals, e-commerce, and transportation and logistics. The report said that Vietnam’s average cost of electricity is much lower than nearby countries with similar GDP per capita like Cambodia, and that its equatorial location and long coastline are ideal for providing plentiful amounts of both solar and wind energy. The Vietnamese government is also extremely welcoming towards both foreign investment and green technology, offering tax incentives and other benefits to green energy projects; the country already relies heavily on hydroelectricity, wind power, and biomass fuel for electricity. According to a report by the International Finance Corporation (IFC), demand for renewable sources of energy have been rising steadily since 2000, and will continue to increase in development, manufacturing, and use through 2030.
Trade wars are disruptive by design, and the consequences of one - like any war - can be difficult to anticipate. One consequence of the ongoing trade war between the U.S. and China is that it may yet fuel the biggest renewable energy boom in Vietnam’s history. Of course, there are problems that could slow things down considerably if left unaddressed; even as companies from around the world flood into Vietnam to avoid tariffs, Vietnam has one-tenth the population of China, and its infrastructure is not as streamlined. That means the country will have to rapidly develop its infrastructure – building roads, establishing specialized supply chains, and accounting for its growing energy demands (the Grant Thornton study reports that Vietnam’s energy demand is likely to exceed its production capacity in 2020).
Still, it may well be that Vietnam is capable of meeting these challenges. The World Bank wrote in its 2019 overview for the country that since the 1980’s, Vietnam’s people have continuously seen improvements in general education and access to healthcare, as well as GDP per capita growth of 7.1 percent (an improvement from 2017). As manufacturers - including ones that produce renewable energy equipment - pull their operations out of China, one can hardly blame them for looking at Vietnam’s economic growth and not seeing “greener” pastures.
(Originally published in Electrical Apparatus Magazine. Print only.)