Not What You Think
According to industry sources on July 20, one of the most significant issues recently faced by Korean companies entering the Vietnamese market is power shortages. Concerns have been raised that chronic power supply problems, leading to frequent power outages, could hamper production.
The power situation in Vietnam has deteriorated recently, resulting in regular blackouts. Notably, surges in power demand due to heat and drought have caused consecutive disruptions to electricity supply in key industrial zones like Haiphong, Bac Ninh, and Dong Nai. Four leading companies operating in the region reported experiencing at least one blackout this year. For appliances, mobile phone, and display factories, even short-term power outages can inevitably disrupt production.
A local electronics industry representative stated, “Blackouts are occurring three to four times a week, enough to cause a certain degree of disruption to factory operations,” and “Although it varies by region, I understand that factories are seeking joint solutions to cope with power outages.”
While the Vietnamese government is keen on addressing the power shortage, the chronic mismanagement of the state-owned Vietnam Electricity Corporation (EVN) is delaying resolution. An audit of the EVN by the Ministry of Industry and Trade of Vietnam on July 13 revealed issues in power supply management and the repair of hydroelectric dam defects, exposing EVN’s inefficient administration. With sloppy management and a capacity of only 30-50% to meet the growing demand for power from new power sources, the possibility of continued power shortages is high.
Another problem is skyrocketing electricity tariffs, with consecutive rate hikes adding to corporate burdens. Earlier this year, Vietnam raised electricity prices by double digits to resolve the unit losses of state-owned electricity companies.
Electricity prices in Vietnam are high relative to the average national income. While lower than in China and Thailand, they are higher than in neighboring countries like Laos, Bangladesh, and India. The average sale price of electricity in Vietnam is between 1,826 and 2,444 dong (US$0.077 to $0.10) per kilowatt-hour, with the EVN raising rates between 13.7% and 28.2% in March. This is the first double-digit increase since 2017.
Companies from other countries, including Europe, have also urged Vietnam to resolve power issues. Last month, EuroChem, representing European companies, sent an official letter to the Vietnamese government demanding quick solutions. Vice President Jean-Jacques Bouflet of EuroCham Vietnam said, “Due to consecutive power outages, companies entering Vietnam are encountering significant obstacles in their industrial activities,” and “Measures must be taken before losing its function as a global manufacturing hub.”
As the presence of Korean companies in Vietnam gradually increases, it is suggested that priority should be given to resolving power shortages at the government level. According to the “Overseas Direct Investment Statistics” of the Export-Import Bank of Korea, a total of 303 Korean companies established corporations in Vietnam last year, an increase of 30.6% compared to the previous year and approximately 56% more than China, which was the largest investor (194 companies). The trade volume between South Korea and Vietnam is also significant, totaling approximately 113 trillion won (US$88.2 billion).
An industry insider stated, “Not only the power shortage but also the soaring electricity rates are a significant burden for domestic companies.” They added, “Given that Vietnam is gaining attention as a new investment destination instead of China, it is crucial to cooperate with local areas to quickly solve power problems.”