Business Irish

Wednesday 22 November 2017

Eastern investment pours in as Vietnam opens up to the West

Eddie O'Connor, Chief Executive of Mainstream Renewable Power Photo: Tom Burke
Eddie O'Connor, Chief Executive of Mainstream Renewable Power Photo: Tom Burke
Donal O'Donovan

Donal O'Donovan

This week's visit by President Michael D Higgins, and a $2.2bn (€1.99bn) renewable-energy contract for Eddie O'Connor's Mainstream Renewable Power, is putting Vietnam on the Irish radar.

The President is on an eight-day visit to Vietnam and neighbouring Laos, where the focus is on boosting Ireland's trade ties with the South East Asian nations.

Mainstream Renewable's deal is to help build up and operate wind-power capacity that Vietnam needs to meet soaring demand.

Vietnam's electricity demand is expected to grow 10.6pc a year over the next five years, according to its trade ministry.

The three wind farms that the Irish company will build will be able to generate an annual total of 940 megawatts (MW) of power, Mainstream said in a statement.

It added that it would partner with GE Energy Financial Services and local firm Phu Cuong Group for its main Vietnam project, an 800 MW wind farm worth $2bn. Mainstream will separately partner with Vietnam's Pacific Corporation on two other projects in the southern province of Binh Thuan, with a combined 138 MW in capacity and $200m in investment, the statement said.

A key reason for the growing energy demand is the foreign investment pouring into the country, including from Chinese manufacturers of everything from textiles and shoes to paper and furniture.

China is hoping to ride on the coattails of the Southeast Asian country's pending trade blitz.

Vietnam's Free Trade Agreement (FTA) with the European Union, which was signed last year, and the Trans Pacific Partnership (TPP), which still has to clear significant political hurdles in the US, would collectively give the country access to markets worth $44 trillion (€39.91 trillion) in combined gross domestic product.

Importantly, a base in Vietnam gives Chinese manufacturers access to trade agreements that China has not signed up to.

Even as doubts linger over the future of US President Barack Obama's TPP once he leaves office, early moves by China Inc to leverage off Vietnam's lower factory wages - about a third that of China's - show a re-centering of the world's factory activity.

"So far this year, I've had more than 30 Chinese wood companies coming to me for consultation," said Nguyen Ton Quyen, who heads Vietnam's Timber and Forest Product Association.

"There's a considerable amount of Chinese wood furniture firms moving their investments to Vietnam to enjoy tax incentives."

Chinese inflows into Vietnam in 2015 doubled from a year earlier to $744m. Around 80pc of that was in the second half of the year, just after Vietnam signed the EU FTA and the TPP.

In the first nine months of this year, investments from China quadrupled to $1bn compared with the same period in 2015.

Nominally communist Vietnam has numerous other free trade agreements, including with top investor South Korea, supporting resident giants like Samsung and LG. As a part of the Association of Southeast Asian Nations, it also enjoys free trade with other members of the 10-nation zone, and bilateral agreements with other economies, like China.

Even against a background of opposition to TPP from figures including Donald Trump, investors are betting that Vietnam is on the up. (Additional reporting Reuters)

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