Dragoman Digest

Vietnam scrambles to upskill manufacturing workforce

Skills gap poses a potentially existential threat to Vietnam’s manufacturing and growth ambitions

Vietnam is struggling to upskill its local workforce, jeopardising its ability  to move up the manufacturing value chain and capitalise on investment from firms pursuing a ‘China plus one’ strategy. Despite attracting major tech companies such as Apple and Samsung in the past few years, Vietnam has largely remained an assembly hub for products. None of Samsung’s 25 suppliers for its Vietnamese plants are based in the country. Similarly, none of Apple’s 21 suppliers for Vietnam are based domestically. Samsung exports around 17 percent of its products from Vietnam while Apple produces MacBooks, iPads and Apple Watches in the country.

Hanoi has been slow to address the issue. It has been reluctant to enforce stringent local content and technology transfer laws, cognisant that this would risk driving away investment – particularly given the relatively small size of Vietnam’s internal market. The limitations of Vietnam’s vocational training systems have been a focus for improvement but has yet to reach adequate standards.

Last month, Prime Minister Pham Minh Chinh asked Samsung to start training locals for higher-skilled jobs. Vietnam has had success in attracting unskilled work with its large labour pool. But requirements for firms used to higher skills and logistics standards in China have raised the bar for Vietnam, which has also become a target for immigrant labour recruitment to South Korea and Japan.

Canada’s LNG exports rush

Environmental permitting remains a challenge 

Asian importers looking to secure new sources of supply are driving Canada to become a significant exporter of liquified natural gas (LNG). Projects envisaging over 40 million tonnes of LNG per annum have reached the investment decision stage. If all were developed, Canada would become a larger LNG exporter than Russia, which last year exported 33 million tonnes. Qatar, the US and Australia – the world’s largest gas exporters – each shipped around 80 million tonnes of LNG last year. LNG Canada, a joint venture between Shell, Malaysia’s Petronas, Japan’s Mitsubishi, PetroChina and South Korea’s Kogas, is set to commence operations in 2025 and will produce 14 million tonnes of LNG annually, with a step up to 28 million tonnes per year in a second phase.

Demand from Japan, South Korea and China and fresh competition from Europe for non-Russian gas sources has renewed interest in Canada. However, new projects are subject to stringent environmental regulations. The US$36 billion Pacific Northwest LNG project was scrapped in 2017 partly due to findings by the Canadian Environmental Assessment Agency. Developers have in some instances negotiated land-use agreements with indigenous communities. The offshore Ksi Lisims project, for instance, is being developed in conjunction with the indigenous Nisga’a Nation while the offshore Cedar LNG project is the first indigenous majority-owned project.

China slows regulatory approvals for EV producers

Beijing is acting to limit market overcapacity

Beijing appears to be tightening regulatory approvals for EV production in an attempt to address heavy oversupply. No specific changes to rules have been announced, however only two EV production expansions have been approved since the start of the year. Companies new to the EV industry including search giant Baidu, smartphone maker Xiaomi and ride-share group Didi have each invested billions into their first EV fleets, but none have received regulatory approval for commercial production. Even established player Nio, which is attempting to launch a new budget EV brand in China, has failed to receive approval for production.

Beijing is looking to squeeze out overcapacity in the market. According to financial management company Bernstein, China has capacity to produce over 40 million vehicles a year. Domestic demand has hovered around 20 to 26 million. This has contributed to an ongoing price war among larger players such as BYD and Tesla and the gradual attrition of smaller players. The top four players in the Chinese EV market raised their collective market share to 60 percent of the EV market in Q1 2023, up from 44 percent in Q1 2020. There are now around 100 EV manufacturers in China, down from approximately 500 in 2019. While China’s market is oversupplied, some of the leading players like BYD are moving quickly to build global production and distribution.

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Demand for high voltage transmission cables to overtake supply by mid-decade

Persistent shortages threaten pace of the energy transition

Cables used to transport renewable energy across long distances may soon be in short supply. Offshore wind consultancy 4C Offshore projects that outside of China, demand for high-voltage direct current (HVDC) cables will outstrip forecast supply from 2025. HVDC cables allow for far more efficient power transfer over long distances than standard alternating current (AC) lines. Demand for such cables is rising as countries look to take advantage of wind speeds and solar resources in distant locations. One such project is NeuConnect which will lay a 700km HVDC cable between the southeast of the UK and northwest Germany. The operational date of the project has been delayed four years to 2028, largely due to insufficient cable supplies.

There are a number of pressure points in the supply chain. Supply of the raw materials used in cables, such as copper and aluminium, is already tight. According to some estimates, demand for copper will outstrip supply by up to 5 million tonnes per year around 2025. Global copper supply is around 25 million tonnes per annum. The market is also highly concentrated among a small number of companies. Three companies – Prysmian, NKT and Nexans – command 75 percent of the HVDC cable market. The companies have stepped up their investment commitments in response to the shortages. Prysmian will invest €1.1 billion (US$1.1 billion) between 2022 to 2024 largely in new manufacturing facilities to increase cable capacity. Skilled labour, particularly engineers, and installation vessels are in short supply. Long lead times for cables will add yet another bottleneck for new renewable energy capacity.