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  • 1. IMPORTANT NOTICE:The information in this PDF file is subject to Business Monitor International’s full copyrightand entitlements as defined and protected by international law. The contents of the file are for thesole use of the addressee. All content in this file is owned and operated by Business MonitorInternational, and the copying or distribution of this file, internally or externally, is strictly prohibitedwithout the prior written permission and consent of Business Monitor International Ltd.If you wish to distribute the file, please email the Subscriptions Department atsubs@businessmonitor.com, providing details of your subscription and the number of recipientsyou wish to forward or distribute this information to. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.
  • 2. Q3 2011 www.businessmonitor.comVietnaMBusiness Forecast reportincludes 10-year forecast to 2020Published by BusIness MonItor InternatIonal ltdIncludes 10-year forecasts to end-2017Positive Steps Towards Sustainable Growthissn 1745-0764published by Business Monitor international Ltd.copy Deadline: 19 May 2011
  • 3. 2 VietnaM – MacroeconoMic Data anD Forecasts 2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f Population, mn [4] 84.1 85.2 86.2 87.3 88.4 89.3 90.2 91.1 92.0 92.8 nominal GdP, us$bn [5] 60.9 71.1 89.8 92.8 101.9 113.0 129.7 150.8 174.5 200.6 VietnaM Q3 2011 nominal GdP, Vndbn [5] 974,265.8 1,143,715.1 1,485,038.0 1,658,389.0 1,953,223.3 2,326,853.6 2,641,667.1 2,985,462.7 3,358,614.4 3,761,091.7 GdP per capita, us$ [5] 724 835 1,041 1,063 1,153 1,265 1,438 1,656 1,897 2,161 real GdP growth, % change y-o-y [5] 8.2 8.5 6.3 5.3 6.8 6.3 7.2 7.2 7.2 7.2 industrial production index, % y-o-y, ave [1,5] 18.0 16.8 13.6 6.7 14.1 10.0 15.0 16.0 17.0 16.0 unemployment, % of labour force, eop [5] 4.8 4.6 4.7 6.0 5.0 6.0 5.0 5.0 5.0 5.0 Budget balance, Vndbn [6] 13,000.0 -11,194.0 9,897.0 -108,722.0 -87,725.0 -74,356.4 -43,290.0 -38,594.2 -30,862.3 -19,111.8 Budget balance, % of GdP [6] 1.3 -1.0 0.7 -6.6 -4.5 -3.2 -1.6 -1.3 -0.9 -0.5 consumer prices, % y-o-y, eop [2,5] 6.6 12.6 19.9 6.5 11.8 7.2 6.0 6.0 5.0 5.0 consumer prices, % y-o-y, ave [2,5] 7.5 8.3 23.0 7.0 9.2 11.5 6.5 6.0 5.5 5.0 central bank policy rate, % [7] 8.20 8.20 8.50 9.00 9.00 14.00 11.00 9.00 8.00 7.00www.businessmonitor.com exchange rate Vnd/us$, eop [8] 16,056.00 16,017.00 17,483.00 18,469.00 19,498.00 20,650.00 20,650.00 20,100.00 19,500.00 19,000.00 exchange rate Vnd/us$, ave [8] 15,993.58 16,077.42 16,543.00 17,868.67 19,174.42 20,600.00 20,375.00 19,800.00 19,250.00 18,750.00 exchange rate Vnd/eur, eop [8] 21,187.50 23,367.20 24,476.20 23,455.63 26,082.48 28,600.00 26,800.00 24,375.00 23,750.00 23,125.00 Goods exports, us$bn [9] 39.8 48.6 62.7 57.1 64.0 69.7 77.4 86.7 97.0 108.7 Goods imports, us$bn [9] 42.6 58.9 75.5 65.4 71.3 78.4 87.0 96.6 107.2 119.0 Balance of trade in goods, us$bn [9] -2.8 -10.4 -12.8 -8.3 -7.3 -8.7 -9.7 -10.0 -10.2 -10.3 Balance of trade in goods and services, us$bn [3,10] -4.2 -13.4 -18.1 -14.0 -13.1 -15.3 -17.1 -18.4 -19.8 -21.2 current account, us$bn [9] -0.2 -7.1 -10.8 -7.4 -5.6 -7.0 -8.1 -8.4 -8.8 -9.2 current account, % of GdP [9] -0.3 -10.0 -12.0 -8.0 -5.5 -6.2 -6.2 -5.6 -5.0 -4.6 foreign reserves ex gold, us$bn [9] 13.4 23.5 23.9 16.4 17.5 20.1 22.9 25.9 29.3 33.1 import cover, months g&s [9] 3.8 4.8 3.8 3.1 3.0 3.1 3.2 3.2 3.3 3.3 total external debt stock, us$mn [11] 18,610.2 22,737.0 24,963.9 28,673.8 31,407.3 34,276.6 37,131.9 40,229.4 43,589.7 47,234.9 total external debt stock, % of GdP [11] 30.6 32.0 27.8 30.9 30.8 30.4 28.6 26.7 25.0 23.6 total external debt stock % of XGs [11] 40.8 40.8 35.1 45.1 44.0 43.8 42.7 41.2 39.8 38.5 Notes: e/f = BMI estimates/forecasts. 1 At 1994 prices; 2 Base year 2000; 3 Includes investment income flows up until 2004; Sources: 4 World Bank/BMI calculation/BMI; 5 General Statistics Office; 6 Asian Development Bank, Ministry of Finance; 7 State Bank of Vietnam; 8 BMI; 9 Asian Development Bank; 10 Asian Development Bank, General Statistics Office from 2020; 11 World Bank.Business Monitor international ltd
  • 4. contentsexecutive summary ................................................................................................................................. 5core Views ......................................................................................................................................................................................5Major Forecast changes ................................................................................................................................................................5Key risks to outlook ....................................................................................................................................................................5chapter 1: political outlook .................................................................................................................... 7sWot analysis .......................................................................................................................................................... 7BMi political risk ratings ........................................................................................................................................ 7Foreign policy ............................................................................................................................................................ 8international rights Groups threaten politburo’s Grip on power international human rights organisations are calling for Vietnam to be reinstated on the us government’s list of countries of Particular concern in 2011, pressuring Hanoi to release religious and political detainees.Domestic politics....................................................................................................................................................... 9Hmong crackdown not a sign of Broader instability the Vietnamese government’s aggressive crackdown on Hmong demonstrations has raised concerns over growing public unrest.Long-term political outlook .................................................................................................................................. 10Key political challenges over the coming Decade Vietnam’s biggest political question over the coming decade is whether one-party rule under the communist Party of Vietnam (cPV) will face growing calls for democratisation, as was the case in other major south east asian countries.taBLe: VietnaM poLiticaL oVerVieW .......................................................................................................................................................... 10chapter 2: economic outlook ............................................................................................................... 13sWot analysis ........................................................................................................................................................ 13BMi economic risk ratings ................................................................................................................................... 13economic activity ................................................................................................................................................... 14public spending cuts to Keep economic Growth subdued the Vietnamese government’s shift in focus from driving economic growth towards fighting inflation and addressing macroeconomic imbalances is beginning to have a cooling effect on the economy.taBLe: econoMic actiVitY ............................................................................................................................................................................. 14Monetary policy ....................................................................................................................................................... 16risks of excessive tightening to Keep rates on Hold the state Bank of Vietnam introduced another 100-basis-point hike on april 29, bringing the policy rate from 13.00% to 14.00%.exchange rate policy ............................................................................................................................................. 17VnD: selling pressures set to Wane on sBV intervention aggressive monetary tightening by the state Bank of Vietnam in recent months – the central bank introduced 500 basis points of rate hikes from february to april – will help anchor inflation expectations and provide support for confidence in the dong.taBLe: eXcHanGe rate ................................................................................................................................................................................... 17investment climate ................................................................................................................................................. 18Government puts privatisation efforts Back in Focus the Vietnamese government is in a renewed push to privatise state-owned enterprises and has given the go-ahead to raise limits on foreign ownership in Vietnamese banks and listed companies.Business Monitor international ltd www.businessmonitor.com 3
  • 5. VietnaM Q3 2011Key sector outlook ................................................................................................................................................. 19Foreign competition Forcing Banks to catch up the Vietnamese government has undertaken extensive reforms in recent years to raise the competitiveness of domestic banks.chapter 3: 10-Year Forecast .................................................................................................................. 21the Vietnamese economy to 2020........................................................................................................................ 21rebalancing needed to Maintain High Growth We remain positive about Vietnam’s growth prospects over the next 10 years, in spite of the adjustment of our average GdP growth projection over 2013-2019 from 8.0% to 6.9%.taBLe: VietnaM LonG-terM MacroeconoMic Forecasts .................................................................................................................. 21chapter 4: Business environment ........................................................................................................ 23sWot analysis ........................................................................................................................................................ 23BMi Business environment risk ratings ............................................................................................................. 23investment climate.................................................................................................................................................. 24De-Dollarisation push to create uncertainty in a bid to reduce Vietnam’s heavy reliance on the us dollar, the state Bank of Vietnam has introduced a series of measures to discourage the use of the currency in recent months.Business environment outlook ............................................................................................................................. 25institutions .............................................................................................................................................................. 25taBLe: BMi Business anD operation risK ratinGs .............................................................................................................................. 26infrastructure .......................................................................................................................................................... 27taBLe: BMi LeGaL FraMeWorK ratinG....................................................................................................................................................... 27taBLe: LaBour Force QuaLitY..................................................................................................................................................................... 28taBLe: asia, annuaL FDi inFLoWs ................................................................................................................................................................ 29taBLe: traDe anD inVestMent ratinGs .................................................................................................................................................... 30taBLe: VietnaM top eXport Destinations .............................................................................................................................................. 32operational risk ..................................................................................................................................................... 33chapter 5: Key sectors .......................................................................................................................... 35Defence .................................................................................................................................................................... 35taBLe: VietnaM’s DeFence eXpenDiture, 2008-2015 ............................................................................................................................... 38Freight transport..................................................................................................................................................... 39taBLe: roaD FreiGHt ....................................................................................................................................................................................... 40taBLe: raiL FreiGHt ......................................................................................................................................................................................... 40taBLe: air FreiGHt ........................................................................................................................................................................................... 41taBLe: MaritiMe FreiGHt ................................................................................................................................................................................ 41other Key sectors ................................................................................................................................................... 42taBLe: FooD anD DrinK sector KeY inDicators ................................................................................................................................... 42taBLe: pHarMaceuticaLs sector KeY inDicators .............................................................................................................................. 42taBLe: oiL anD Gas sector KeY inDicators ........................................................................................................................................... 42taBLe: autos sector KeY inDicators ...................................................................................................................................................... 43taBLe: inFrastructure sector KeY inDicators ................................................................................................................................. 43taBLe: teLecoMs sector KeY inDicators............................................................................................................................................... 43chapter 6: BMi Global assumptions .................................................................................................... 45Global outlook ......................................................................................................................................................... 45Modest Downgrade to Global Growth, But upbeat outlook intacttaBLe: GLoBaL assuMptions ........................................................................................................................................................................ 45taBLe: DeVeLopeD states reaL GDp GroWtH Forecast (% cHG Y-o-Y)......................................................................................... 46taBLe: reaL GDp GroWtH – BLooMBerG consensus Forecasts.................................................................................................... 46taBLe: eMerGinG MarKets aGGreGate GroWtH (% cHG Y-o-Y) ........................................................................................................ 474 www.businessmonitor.com Business Monitor international ltd
  • 6. executive summarycore Views Major Forecast changes Vietnam’s real GdP growth will moderate in 2011 as the full impact We have revised our end-2011 policy rate forecast from 13.00% to of monetary tightening begins to feed through the economy. Public 14.00% to reflect the central bank’s 100-basis-point rate hike in april. spending cuts further suggest that economy activity will remain We expect interest rates to remain on hold through the end of the year. depressed in H211. However, private consumption should remain resilient on the back of increased government subsidies for the poor Key risks to outlook and robust labour market conditions. Downside Growth risks From rising commodity prices: should commodity prices continue to trend higher through 2011, we could selling pressures on the Vietnamese dong should continue to wane see the central bank adopting a more hawkish stance on monetary on the back of an improved outlook on inflation, a narrowing trade policy. further rate hikes would put considerable downside pressure deficit and continued efforts by the state Bank of Vietnam to curb on economic growth. us dollar speculation and de-dollarise the economy. Devaluation risks From persistent trade Deficit: despite multiple the state Bank of Vietnam’s monetary tightening cycle will come to devaluations since late 2009, Vietnam’s trade deficit has failed to an end in H211 as inflationary pressures begin to moderate on the see a sustained improvement. the latest devaluation in february will back of softening food prices. take several months before the full extent of its impact on the trade balance can be gauged. should we fail to see compelling evidence of an improvement in the trade balance, we would not be surprised to see the dong coming under further selling pressures.Business Monitor international ltd www.businessmonitor.com 5
  • 7. Chapter 1: Brief Methodology political outlooksWot analysis BMi political risk ratings Vietnam’s short-term political risk rating of 76.9 reflects a largely stablestrengths political system, kept in place by the ruling communist Party of Vietnam’s the communist Party of Vietnam remains committed to market- monopoly on power. While public expressions of discontent have so far oriented reforms and we do not expect major shifts in policy direction been limited, slower growth and high inflation pose a threat to stability over the next five years. the one-party system is generally conducive in the near term. However, we see one-party rule as inherently unsus- to short-term political stability. tainable in the longer term, and thus accord Vietnam a rating of 53.8 in relations with the us have witnessed a marked improvement, and our long-term political risk ratings, due mainly to a score of 27.6 in the Washington sees Hanoi as a potential geopolitical ally in south east ‘characteristics of polity’ rating. asia.Weaknesses s-t political rank trend singapore 96.7 1 = corruption among government officials poses a major threat to the Brunei darussalam 90.6 2 = Hong Kong 86.7 3 = legitimacy of the ruling communist Party. taiwan 83.3 4 = there is increasing (albeit still limited) public dissatisfaction with the laos 80.4 5 = china 80.4 5 = leadership’s tight control over political dissent. Malaysia 79.0 7 = south Korea 77.7 8 =opportunities sri lanka 77.1 9 = Vietnam 76.9 10 = the government recognises the threat corruption poses to its legiti- indonesia 73.5 11 = north Korea 73.5 11 = macy, and has acted to clamp down on graft among party officials. Philippines 67.9 13 = Vietnam has allowed legislators to become more vocal in criticis- thailand 65.4 14 = Bangladesh 64.6 15 - ing government policies. this is opening up opportunities for more india 64.0 16 + cambodia 62.7 17 = checks and balances within the one-party system. Bhutan 61.0 18 = Myanmar 54.8 19 =threats Papua new Guinea 51.9 20 = Pakistan 44.0 21 + Macroeconomic instabilities in 2010 and 2011 are likely to weigh on Regional ave 72.7 / Global ave 66.8 / Emerging Markets ave 64.5 public acceptance of the one-party system, and street demonstrations L-t political rank trend to protest economic conditions could develop into a full-on challenge singapore 82.6 1 + south Korea 82.2 2 = of undemocractic rule. taiwan 75.4 3 = Hong Kong 72.9 4 = although strong domestic control will ensure little change to Viet- china 67.4 5 - nam’s political scene in the next few years, over the longer term, Malaysia 67.2 6 = india 66.7 7 = the one-party-state will probably be unsustainable. Brunei darussalam 65.6 8 = Philippines 62.8 9 = relations with china have deteriorated over recent years due to Bangladesh 62.6 10 = sri lanka 60.2 11 = Beijing’s more assertive stance over disputed islands in the south indonesia 59.0 12 = Papua new Guinea 58.7 13 = china sea and domestic criticism of a large chinese investment cambodia 57.9 14 = into a bauxite mining project in the central highlands, which could thailand 56.8 15 = north Korea 55.2 16 = potentially cause wide-scale environmental damage. Vietnam 53.8 17 = Pakistan 52.7 18 = Bhutan 51.0 19 = laos 44.5 20 = Myanmar 33.3 21 = Regional ave 61.8 / Global ave 63.8 / Emerging Markets ave 60.3Business Monitor international ltd www.businessmonitor.com 7
  • 8. VietnaM Q3 2011 believe Hanoi has underestimated the consequences of dissentForeign policy suppression through the use of aggressive force, which has at- tracted the attention of international rights groups. Should theinternational rights Groups threaten government continue to ignore calls to release religious andpolitburo’s Grip on power political detainees, we warn that international rights groups may push to exercise their political influence on the international BMi VieW community to impose economic sanctions on Vietnam.International human rights organisations are calling for Vietnam to bereinstated on the US government’s list of Countries of Particular Con- under pressure For political change south east asia – short-term Political risk ratingscern in 2011, pressuring Hanoi to release religious and political detain- 100ees. We believe the politburo is unlikely to submit to pressures from STPR Regional Average 95human rights groups and allow for democratic reforms. However, we 90are beginning to see evidence that public dissent and growing pressure 85from international rights groups are becoming a threat that could even- 80tually undermine the Communist Party of Vietnam’s political agenda 75over the coming years. 70 65 60Hanoi is under increasing pressure from international human 55rights organisations to release detained religious leaders and pro- 50democracy dissidents or risk further political pressure from the Cambodia Myanmar Philippines Brunei Indonesia Singapore Vietnam Thailand MalaysiaUS, including possible economic sanctions. International rights Laosgroups including Human Rights Watch, Freedom House andAmnesty International are calling for Vietnam to be reinstated Source: BMIon the US government’s Countries of Particular Concern list in2011. This would classify Vietnam among a list of countries, a Weak attempt to appease politicalincluding China, Myanmar, Eritrea, Iran, North Korea, Saudi activistsArabia, Sudan and Uzbekistan, that are deemed responsible In what we see as an attempt by the government to pacify politi-for committing severe violations of religious freedom and hu- cal activists and human rights groups, the Vietnamese Appealsman rights under the International Religious Freedom Act. We Court announced its decision in April to reduce the jail sentencebelieve such a scenario would severely undermine Vietnam’s given to popular democracy activist Vi Duc Hoi from eight tocredentials in assuming a leadership role within the Association five years. The former party member of the CPV was convictedof Southeast Asian Nations, and threaten its ambition to extend in 2007 for conducting propaganda against the single-party po-political influence in the region over the coming years. litical system and proposing democratic reforms. Human rights groups have accused and criticised the Vietnamese governmentMaintaining a Grip on power of torturing political detainees during interrogation to pressureVietnam’s politburo has maintained an assertive stance in them into confessions and to disclose information about otherdefending its single-party political system and maintaining its pro-democracy activists.grip on power over the years. This has attracted criticism forresorting to aggressive means of suppressing political dissent We believe the government’s move to reduce jail sentencesand ignoring human rights issues. The Communist Party of for political detainees will be insufficient to appease politicalVietnam (CPV)’s National Congress in January 2011 also saw dissidents and international rights groups. The recent wave ofkey party leaders reiterating ideals of a single-party system and political uprising in the Middle East has raised doubts over thezero tolerance for pro-democracy movements, suggesting the sustainability of authoritative and suppressive governmentspolitburo is unlikely to submit to growing pressures to observe such as the CPV. Pro-democracy movements in Vietnam remainhuman rights and allow for democratic reforms in the near term. confined to small groups of political activists with limited in-However, we are beginning to see evidence that public dissent fluence on the CPV and capacity to push for major change. Asis slowly becoming a threat that could undermine the CPV’s such, we see are no compelling reason to revise our short-termpolitical monopoly in the longer term. More worryingly, we political risks rating of 76.9 out of 100 for Vietnam (see chart).8 www.businessmonitor.com Business Monitor international ltd
  • 9. poLiticaL outLooKThat said, we believe calls for democratic reforms will gradually evidence to suggest a large-scale political uprising could occurgain ground as the government continues to adopt aggressive in the short to medium term.measures to suppress public dissent. Combined with growingpressure from international rights groups, this will threaten the no signs of Widespread unrestCPV’s political agenda to maintain an authoritarian government Incidences of political demonstrations and public unrest in recentover the coming years. years suggest dissent against the government is related to wide- ranging and separate areas of concerns. These areas of concern include religious freedom, accountability and transparency of the government, land rights violations, income inequality and callsDomestic politics for democratic reforms. This is in stark contrast to a widespread and unified movement to challenge the government, which weHmong crackdown not a sign of believe would represent a more precarious scenario. We do notBroader instability rule out the possibility that these separate causes of dissent could gather momentum and eventually become a serious threat to BMi VieW political stability and policy continuity in Vietnam. However,The Vietnamese government’s aggressive crackdown on Hmong dem- at least in the near term, we have yet to see compelling evidenceonstrations has raised concerns over growing public unrest. Although that these relatively small-scale demonstrations are gaining inwe acknowledge public unrest remains a threat to political stability in momentum or becoming an urgent threat to the government.Vietnam, we see limited evidence that a large-scale political uprisingcould occur in the short to medium term. From our perspective, in- According to local media reports, the latest political demonstra-cidences of political demonstrations in recent years do not reflect a tion in May appears to be due to concerns unique to the ethnicwidespread and unified movement for political change, and we do not Hmong community in Dien Bien province. Foreign ministryexpect the latest incident to spread across the broader population. spokeswoman Nguyen Phuong Nga issued a statement on May 5 claiming the government had to step in after individual ele- inherently unstable ments were suspected of taking advantage of the situation to components of long-term Political risk rating encourage the crowd into establishing an independent ‘kingdom’ 80 70 of the Hmong. The Vietnamese government has consistently 60 maintained an assertive stance in defending its single-party 50 40 political system and maintaining its grip on power over the 30 years. Thus, we are not surprised that the government has taken 20 such an aggressive stance on clamping down on the Hmong 10 0 protestors. Indeed, similar incidents of public unrest among the ethnic community in Vietnam’s Central Highlands in 2001 Characteristics of society Policy continuity Characteristics of polity Scope of state and 2004 were quickly suppressed by the government. Given that such incidents do not reflect a widespread movement for political change, we believe these protests are unlikely to attract the interest of the broader population. As such, we believe risk of contagion remains remote and anti-establishment sentiment will remain limited to a minority group.Source: BMIIn what we see as an aggressive move to stem public unrest, Moderating inflation to cool tensionsthe Vietnamese government ordered a military crackdown on A key factor posing a greater risk to widespread public unrestHmong demonstrations in the north west province of Dien Bien is the recent surge in cost of living as a result of double-digiton May 5. Around 5,000-7,000 protesters – mainly consisting inflation, particularly food prices. The lower-income popula-of members from the ethnic Hmong population – took part in tion, which allocates a significant share of its household budgetsthe demonstrations, demanding for democratic reforms and towards food and daily necessities, has been struggling to copereligious freedom. Although we acknowledge public unrest with higher grain prices and rising transportation costs in recentremains a threat to political stability in Vietnam, we see limited months. The negative impact of surging food prices has beenBusiness Monitor international ltd www.businessmonitor.com 9
  • 10. VietnaM Q3 2011disproportionately skewed towards lower-income groups in com- fuelling pro-democracy sentiment. This explains the relativelyparison to the dominant middle class. However, on this front, we low score for our long-term political risk rating for Vietnam,expect inflationary pressures to moderate in H211 as aggressive which currently stands at 53.8 out of 100.monetary tightening by the central bank begins to feed throughthe economy. More importantly, our commodities team forecastsa relatively weak outlook for grain prices through 2011, whichshould help provide relief to the lower-income population. The Long-term political outlookVietnamese government is fully aware that further increases inprices of essential goods could risk undermining political stabil- Key political challenges over theity. In respond to that, it has implemented strict price controls on coming Decadeessential goods. To limit risks of a supply shortage due to sup-pressed prices, subsidies will be increased for producers of essential BMi VieWgoods, particularly the agricultural sector, and the government Vietnam’s biggest political question over the coming decade is whetherhas also promised to maintain social subsidies for the poor. We one-party rule under the Communist Party of Vietnam (CPV) will facebelieve the move will help mitigate risk of public dissent. growing calls for democratisation, as was the case in other major South East Asian countries. While our core scenario envisages the CPVLess optimistic in the Longer term transforming itself into a technocratic administration, it faces majorHaving argued against concerns of a large-scale political upris- economic challenges which if mismanaged could lead to widespreading in the short to medium term, we highlight that our long-term unrest. On the foreign policy front, we expect an increasingly powerfulpolitical outlook for Vietnam remains less optimistic. Indeed, China to drive Vietnam further into the camp of Asian nations with closewe have repeatedly argued that Vietnam’s one-party political relations with the US.system is inherently unstable in the long term (see Long-TermPolitical Outlook section). Calls for democratic reforms are gain- Although Vietnam is a politically stable country, we viewing momentum, albeit very slowly. Nonetheless, we warn that the ruling Communist Party of Vietnam’s (CPV) monopolyfurther policy mistakes by the government - such as failing to on political power as unsustainable over the long term. Oneaddress inflationary pressures and income inequality – would risk of the CPV’s biggest challenges will be managing Vietnam’s taBLe: VietnaM poLiticaL oVerVieW system of Government single-party socialist republic Head of state President nguyen Minh triet (serving first five-year term) Head of Government Prime Minister nguyen tan dung (serving first five-year term) last election Parliamentary – May 2007 communist Party congress – april 2006 composition of current Government communist Party of Vietnam Key figures the 14-person communist Party Politburo, elected by the 160-person party central committee at the national party congress, acts as the de facto highest decision-making body and comprises the top leadership of the cPV. its most important members are: Party General secretary nong duc Manh, state President nguyen Minh triet, Prime Minister nguyen tan dung and General Minister of Public security le Hong anh. other Key Posts deputy Prime Minister – nguyen sinh Hung; foreign Minister – Pham Gia Khiem; Minister of Plan- ning and investment – Vo Hong Phuc; Vice President – truong My Hoa; central Bank Governor – nguyen Van Giau Main Political Parties (number of seats in parliament) communist Party of Vietnam (cPV): founded in Hong Kong in 1930, the cPV has been in power in north Vietnam since independence in 1954 and in the south since the end of the american War in 1975. divisions exist within the party between a younger, more reform-minded faction originat- ing from southern Vietnam and an older generation, originating from the north, more aligned to traditionally communist ideology. next election Presidential and Parliamentary – May 2012 ongoing disputes ongoing dispute with china, Malaysia, the Philippines and taiwan over spratly islands in south china sea Key relations/ treaties asean and Wto member, temporary seat (2008-2009) on the un security council. BMi short-term Political risk rating 76.9 BMi structural Political risk rating 53.8 Source: BMI10 www.businessmonitor.com Business Monitor international ltd
  • 11. poLiticaL outLooKtransformation into a more pluralistic society over the coming has ceded to pressure from the US to allow a higher degree ofdecade and beyond. Indeed, the CPV’s strict control of the religious freedom, but is wary of the Catholic Church becom-media and political opinion is already cracking, with a growing ing a rallying point of political opposition, as was the case innumber of internet bloggers becoming increasingly critical of Communist Poland and the Philippines during the Marcos dic-government policy. tatorship. The Vietnamese government has thus slapped heavy sentences on Catholic activists who have extended their fightchallenges and threats to stability to encompass increased political freedom.Inflation And Devaluation As Drivers Of Discontent: Asin neighbouring China, economic growth has brought sizeable Relations With China: Relations with China have becomematerial gains for the majority of the population. However, the increasingly strained in recent years as Beijing has expanded itsVietnamese government’s loose fiscal and monetary policies economic, political and military influence southwards. The mainhave led to high levels of inflation and repeated devaluations point of contention is the conflicting territorial claims for theof the dong in recent years, which have eroded the real value of Paracel and Spratly Islands in the South China Sea. Vietnam’swages and savings. A failure to contain inflation at a reasonable relations with China have also been strained by the large bilaterallevel and uphold the real value of the dong could undermine trade deficit it runs with its northern neighbour, which amountsconfidence in the regime. to more than 10% of GDP, and criticism of a Chinese-financed bauxite mining project in the central highlands.Divisions Within The Communist Party: High inflation anddevaluation have opened schisms within the CPV leadership That said, the regimes in Beijing and Hanoi share the samebetween proponents of continued economic reform and a more ideological base and political system, and contacts betweenconservative wing which believes that a deceleration or even re- their respective politburos have decreased tension betweenversal of reform policies would benefit macroeconomic stability. them. Nonetheless, we believe Vietnam will seek increasingly close relations with the US – and potentially India and Japan –Ethnic And Regional Tensions: Vietnam is relatively ho- in the defence sphere, as a hedge against China’s rising powermogeneous, with ethnic Viet comprising almost 90% of the in the region.population. Ethnic minorities in the Central Highlands havepreviously objected to government policies promoting migra- Vietnam’s long-term political risk rating of 53.8 out of 100 istion of ethnic Viet into the highland region. While protests weighed down by a score of 27.6 in the ‘characteristics of polity’have died down, they could emerge in future. A potential spark subcomponent. This is due to the limited independence of thecould be the Chinese-financed bauxite mining project in Lam judiciary, the ban on political parties other than the CPV andDong and Dak Nong provinces, which is currently causing severe limitations on the media and civil society. While thesewidespread environmental damage and raising ire among the factors may presage stability in the short term, the experiencelocal population. of other South East Asian nations shows that rising wealth and development later lead to calls for political liberalisation. WeThere are also continued cultural differences between the have thus drawn up three scenarios for Vietnam’s political future:population of the Red River Delta around the capital Hanoi inthe north and the population of the Mekong Delta in the south, scenarios For political changewhere Ho Chi Minh City (formerly Saigon, the ex-capital of Core Scenario – CPV Turns Into A Technocratic Regime:South Vietnam) remains the commercial capital. While the Our core scenario is for the Communist Party of Vietnamgeneral perception is that northerners are more supportive (CPV) to shift increasingly towards a technocratic form ofof socialist rule and the southerners more inclined to support government aimed at maintaining high economic growth levelscontinued economic reform, a strong concept of national unity and an acceptable distribution of wealth across the population.nevertheless exists in both parts of the country. Ambitious young Vietnamese are already joining the CPV as a career path and as a means to serve their country rather thanDemands For Increased Religious Rights: One of the most because of ideological convictions. We thus foresee a continu-concerted challenges against the CPV in recent years has come ation of economic reforms in spite of the criticism emanatingfrom Catholics wishing for a stronger recognition of their right from older more traditionally minded party members. However,to worship in what is still a nominally atheist country. Hanoi intermittent periods of harsh repression against pro-democracyBusiness Monitor international ltd www.businessmonitor.com 11
  • 12. VietnaM Q3 2011activists and other government critics are a strong indicationthat political liberalisation is not in the offing.Best Case Scenario – Gradual Political Liberalisation: Ourbest-case scenario is the above scenario combined with a gradualmove towards political liberalisation involving an expanded rolefor the National Assembly, greater scope for differing opinionwithin the CPV, increased political competition at elections, andgreater media freedom. This scenario would see Vietnam movingfrom a one-party system towards a dominant-party system ofthe kind seen in neighbouring Cambodia, Malaysia and Singa-pore, where elections are held but only the ruling party has arealistic chance of winning them. Looking even further beyondthe horizon, the experiences of South Korea, Taiwan, and Japanhave shown that even dominant-party systems eventually giveway to opposition rule. However, in Vietnam’s case this maybe more than a decade away.Worst-Case Scenario – Mass Unrest And Violent Suppres-sion: Our worst-case scenario involves severe policy misstepsthat lead to a period of prolonged economic upheaval with highunemployment and rapid inflation eroding wealth. This wouldsignificantly strengthen the case for regime change, as advocatedby the pro-democracy movement. Faced with widespread streetprotests and an all-out challenge to one-party rule, we believe thatat least part of the CPV leadership would support a crackdownon demonstrators by security forces in order to stay in power.A violent suppression of street protests as seen in Beijing in1989 and in Myanmar in 2007 could easily result in a numberof deaths and the imposition of sanctions by the internationalcommunity. If so, Vietnam would likely face not only diplomaticisolation but also economic weakness as exports and foreigndirect investment tumble.12 www.businessmonitor.com Business Monitor international ltd
  • 13. Chapter 2: economic outlooksWot analysis BMi economic risk ratings Vietnam’s short-term economic risk rating of 50.0 reflects a deteriora-strengths tion of external conditions and the result of the government attempting Vietnam has been one of the fastest-growing economies in asia in to supplant a sharp reduction in external demand with fiscal stimulus. recent years, with GdP growth averaging 7.2% annually between Vietnam’s chronic fiscal and current account deficits also weigh down 2000 and 2010. our long-term economic risk ratings, where the fiscal and external the economic boom has lifted many Vietnamese out of poverty, components score 30.0 and 33.3 out of 100 respectively. However, with the official poverty rate in the country falling from 58% in 1993 this is partly offset by a robust score of 85.0 in the growth component, to 16% in 2006. reflecting a strong potential for rapid economic expansion and bringingWeaknesses the overall rating to 54.5. Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable to global economic s-t economy rank trend china 94.0 1 + uncertainties in 2011. the fiscal deficit is dominated by substantial taiwan 84.8 2 = Hong Kong 81.7 3 = spending on social subsidies that could be difficult to withdraw. singapore 80.0 4 = the heavily managed and weak dong currency reduces incentives south Korea 78.3 5 = Brunei darussalam 74.2 6 = to improve quality of exports, and also keeps import costs high, Malaysia 72.5 7 = thailand 71.5 8 - contributing to inflationary pressures. Myanmar 68.1 9 = indonesia 64.6 10 =opportunities Philippines 64.2 11 - india 62.1 12 = Wto membership has given Vietnam access to both foreign markets Bangladesh 60.8 13 = and capital, while making Vietnamese enterprises stronger through sri lanka 52.5 14 = laos 52.3 15 = increased competition. Pakistan 51.2 16 = Vietnam 50.0 17 - the government will in spite of the current macroeconomic woes, Papua new Guinea 42.9 18 = Bhutan 40.8 19 = continue to move forward with market reforms, including privatisation cambodia 31.9 20 = north Korea - - - of state-owned enterprises, and liberalising the banking sector. Regional ave 62.3 / Global ave 54.2 / Emerging Markets ave 53.0 urbanisation will continue to be a long-term growth driver. the un L-t economy rank trend forecasts the urban population rising from 29% of the population to china 79.2 1 = Hong Kong 77.6 2 = more than 50% by the early 2040s. singapore 76.9 3 =threats taiwan Malaysia 73.5 73.3 4 5 = = inflation and deficit concerns have caused some investors to re-assess south Korea 72.2 6 = Bangladesh 68.5 7 = their hitherto upbeat view of Vietnam. if the government focuses too thailand 66.0 8 - Brunei darussalam 65.2 9 = much on stimulating growth and fails to root out inflationary pressure, india 61.0 10 = Myanmar 57.2 11 = it risks prolonging macroeconomic instability, which could lead to a indonesia 55.1 12 = Philippines 54.7 13 - potential crisis. Vietnam 54.5 14 = Prolonged macroeconomic instability could prompt the authorities sri lanka 50.7 15 = Papua new Guinea 49.3 16 = to put reforms on hold as they struggle to stabilise the economy. Bhutan 45.6 17 = laos 45.1 18 = Pakistan 42.3 19 = cambodia 37.8 20 = north Korea - - - Regional ave 58.1 / Global ave 52.5 / Emerging Markets ave 50.3Business Monitor international ltd www.businessmonitor.com 13
  • 14. VietnaM Q3 2011 growth came in at a relatively subdued 5.4% year-on-yeareconomic activity (y-o-y) in Q111, compared with 7.2% in Q410. We expect economic activity to moderate over the coming months aspublic spending cuts to Keep the full impact of fiscal and monetary tightening continues toeconomic Growth subdued feed through the economy. This is in line with our forecast that economic growth will slow from 6.8% in 2010 to 6.3% BMi VieW in 2011. From our perspective, attempts by the governmentThe Vietnamese government’s shift in focus from driving economic to cool the overheating economy are a positive move that willgrowth towards fighting inflation and addressing macroeconomic imbal- help facilitate a more stable growth trajectory for Vietnamances is beginning to have a cooling effect on the economy. Vietnam’s over the longer term.real GDP growth came in at a relatively subdued 5.4% year-on-year inQ111, compared with 7.2% in Q410. We expect public spending cuts public spending a Key Drag on Growthand tighter credit conditions to keep economic activity depressed over Prime Minister Nguyen Tan Dung unveiled the government’sthe coming months. Accordingly, we are maintaining our forecast for latest measure to cool the economy on March 31, highlightingreal GDP growth to come in at a subdued 6.3% in 2011. plans to slash the fiscal budget by 7.4% this year. Accord- ing to the plan, public spending cuts will amount to around slowdown ahead VND50trn (US$2.4bn) of investment in public projects. We real GdP Growth, % chg y-o-y see this as a strong indication that the government is seri- 9 ous about addressing mounting inflationary pressures and 8 an overheating economy. However, given that the impact 7 of fiscal tightening has yet to be reflected in Q111 data, we 6 expect economic activity to continue to slow in Q211. Ac- 5 cordingly, we expect reduced public spending to be a key 4 drag on growth over the coming months. Business investments could also come under pressure as public projects begin to 3 be put on hold. 2 1 removing the punch Bowl 0 In line with the Vietnamese government’s attempt to slash Q111 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q210 Q310 Q410 Q110 public spending to cool the economy, the State Bank of VietnamSource: General Statistics Office, BMI (SBV) has also embarked on aggressive monetary tightening. Following a total of 300 basis points (bps) of rate hikes inLatest economic figures published by the General Statistics February, the central bank hiked rates by 100bps in March andOffice suggest a shift in the Vietnamese government’s focus April, bringing the policy rate from 9.00% at the beginningfrom driving economic growth towards fighting inflation of the year to 14.00%. The SBV’s move came after headlineand addressing macroeconomic imbalances is beginning to consumer price inflation (CPI) accelerated to a 25-monthhave a cooling effect on the economy. Vietnam’s real GDP high of 13.9% y-o-y in March, suggesting that inflation is at taBLe: econoMic actiVitY 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f nominal GdP, Vndbn [2] 1,485,038.0 1,658,389.0 1,953,223.3 2,326,853.6 2,641,667.1 2,985,462.7 3,358,614.4 3,761,091.7 nominal GdP, us$bn [2] 89.8 92.8 101.9 113.0 129.7 150.8 174.5 200.6 real GdP growth, % change y-o-y [2] 6.3 5.3 6.8 6.3 7.2 7.2 7.2 7.2 GdP per capita, us$ [2] 1,041 1,063 1,153 1,265 1,438 1,656 1,897 2,161 Population, mn [3] 86.2 87.3 88.4 89.3 90.2 91.1 92.0 92.8 industrial production index, % y-o-y, ave [1,2] 13.6 6.7 14.1 10.0 15.0 16.0 17.0 16.0 unemployment, % of labour force, eop [2] 4.7 6.0 5.0 6.0 5.0 5.0 5.0 5.0 Notes: e/f = BMI estimates/forecasts. 1 At 1994 prices; Sources: 2 General Statistics Office; 3 World Bank/BMI calculation/BMI.14 www.businessmonitor.com Business Monitor international ltd
  • 15. econoMic outLooKmajor risk of exceeding the central bank’s target of 7% this 2011 will stay in play.year. Accordingly, we have revised our policy rate forecastfrom 13.00% to 14.00% for end-2011, reflecting the SBV’s a Drag on economic Growth Goods exports & imports, us$mn (lHs) &latest rate hike. We expect the SBV to hold its policy rate at trade Balance, us$mn (rHs)14.00% as we see inflationary pressures moderating over the 10,000 4,000coming months. Indeed, the multi-month high headline CPI Trade Balance RHS 9,000 3,000 Exports LHSreading in March could be due to one-off effects of a currency 8,000 Imports LHS 2,000devaluation in February – which caused a spike in import prices 7,000– and electricity and fuel price adjustments in March (see our 6,000 1,000online service, March 29, ‘Wait-And-See For The SBV’). We 5,000 0acknowledge that the full impact of monetary tightening by 4,000 -1,000the SBV, which was only introduced in late February, will 3,000 -2,000take several months to feed through the economy. However, 2,000we note that lending rates, which have risen to 18.0-22.0% in 1,000 -3,000recent weeks, are already beginning to have a cooling effect 0 -4,000 Jan-11 May-05 Sep-05 May-06 Sep-06 May-07 Sep-07 May-08 Sep-08 May-09 Sep-09 May-10 Sep-10 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10on economic activity. Depressed By tight credit Source: General Statistics Office, BMI industrial Production, Vndbn (lHs) & % chg y-o-y (rHs)100,000 70 Industrial Production (LHS) 60 narrowing trade Deficit not enough to 90,000 % chg y-o-y (RHS) offset tightening Measures 50 80,000 Looking at the latest trade figures, we note that trade exports 40 70,000 came in at a robust 26.0% y-o-y in March, an encouraging 30 sign that Vietnamese exports could have benefited from an 60,000 20 8.5% currency devaluation in February. However, trade im- 50,000 10 ports also registered a significant increase of 21.5% y-o-y in 40,000 0 March, resulting in a trade deficit of US$1.2bn. We note that 30,000 a devaluation in the Vietnamese dong, which will dampen -10 demand for imports, should gradually translate into a smaller 20,000 -20 trade deficit in Q211. This in turn suggests that we could Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 potentially see rising net exports acting as a cushion against an expected slowdown in domestic demand. Nonetheless, weSource: General Statistics Office, BMI believe that any increase in net exports will be overshadowedindustrial production Growth stagnates by the combined effect of fiscal and monetary tightening inAs the accompanying chart shows, industrial production growth the coming months. Therefore, we are happy to maintain ourremained stagnant at a moderate growth rate of 15.1% y-o-y in forecast for Vietnam’s real GDP growth to come in at 6.3% inMarch. We believe tight credit conditions due to high lending 2011. Our forecast is slightly lower compared to the govern-rates, coupled with expectations for a slowdown in domestic ment’s growth target of 7.0-7.5% this year. However, givendemand will help keep industrial activity depressed in Q211. that the government has already reversed its pro-growth stancePrivate consumption should also start to cool as public spend- on the economy, we expect the government to revise its growthing and industrial activity continue to moderate over the com- target accordingly in the coming months.ing months. That said, we believe private consumption willremain resilient as the government plans to provide financialsupport to lower-income households to help offset the impactof fiscal tightening. Moreover, a strong labour market shouldalso help to provide support for private consumption in thecoming months. As such, our long-held view that privateconsumption will remain a key driver of economic growth inBusiness Monitor international ltd www.businessmonitor.com 15
  • 16. VietnaM Q3 2011 rates have surged from around 14.0-16.0% at the end ofMonetary policy 2010 to around 20.0-23.0% prior to the rate hike. We be- lieve that lending rates may rise further in response to therisks of excessive tightening to Keep SBV’s latest move. This should help to further cool demandrates on Hold for loans, in line with the government’s plan to keep credit growth below 20.0% for 2011. Although we acknowledge BMi VieW that higher lending rates will help limit credit growth andThe State Bank of Vietnam introduced another 100-basis-point hike on cool the economy, we are becoming concerned that exces-April 29, bringing the policy rate from 13.00% to 14.00%. Although we sive tightening by the SBV could risk a hard landing for themaintain a positive outlook on the bank’s efforts to cool the economy, we economy. Indeed, rising debt servicing costs as a result ofare increasingly concerned that excessive tightening could risk a hard higher interest rates are already beginning to undermine thelanding for the economy. We are sticking to our view that as the effects profitability and competitiveness of Vietnamese businesses.of monetary tightening begins to feed through the economy, inflation This has prompted the SBV to consider alternative measurespressures should cool over the coming months. As such, we see the to tighten credit such as raising minimum reserve require-central bank keeping its policy rates on hold at 14.00% throughout 2011. ments, which we believe will be a preferred option for the central bank going forward.Despite concerns that further rate hikes would raise debt servicingcosts and put increasing strain on businesses, the State Bank of signalling the end of tighteningVietnam (SBV) has surprised the market by introducing another During a press briefing prior to the Asian Development Bank100-basis-point hike on April 29, bringing the policy rate from (ADB) meeting in Hanoi, SBV Governor Nguyen Van Giau13.00% to 14.00%. Accordingly, we have revised our end-2011 expressed confidence in the central bank’s efforts to effectivelypolicy rate forecast upwards from 13.00% to 14.00% to reflect tame inflation. He added that government plans to slash publicthe central bank’s move. However, we maintaining our view that investment by 10.0% and cut public spending will stabilisethe SBV will keep interest rates on hold as inflationary pressures the economy and ensure social welfare. We see this as a signcontinue to moderate. We believe that the inflationary effects that the SBV will keep rates on hold at 14.00% until there isof one-off adjustments in electricity and fuel prices in Q111 further evidence that current measures are insufficient in tam-will begin to diminish. This, coupled with aggressive monetary ing inflation. ADB Vietnam Director Ayumi Konishi has alsotightening by the SBV in recent months, should help cool in- expressed strong support for the SBV’s monetary tighteningflationary pressures and keep inflation expectations in check. in recent months, while also highlighting that monetary and fiscal tightening will take time to feed through the economy. end of the tightening cycle This is in line with our view that as the effects of monetary Policy rate, % & Headline cPi, % chg y-o-y 30 tightening begins to feed through the economy, inflation Policy Rate, % pressures should cool over the coming months. This should Headline CPI, y-o-y % chg 25 reduce the SBV’s scope for further tightening. Unless we see compelling evidence that inflationary pressures will continue 20 to mount in H211, we expect the SBV to keep its policy rate 15 on hold at 14.00% throughout 2011. 10 5 0Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Source: General Statistics Office, State Bank of Vietnam, BMIrisks of a Hard LandingAccording to a statement published by the SBV, lending16 www.businessmonitor.com Business Monitor international ltd
  • 17. econoMic outLooK have a positive effect at boosting demand for exports and perhapsexchange rate policy even a stronger impact of reducing imports over the coming months, which would help reduce the trade deficit.VnD: selling pressures set to Wane onsBV intervention selling pressures set to cool spot exchange rate, Vnd/us$ & one-Month Vnd/us$ non-deliverable forward outright BMi VieW 22,000 Spot VND/US$ 21,500Aggressive monetary tightening by the State Bank of Vietnam in recent 1-Month VDN/US$ NDF Outrightmonths – the central bank introduced 500 basis points of rate hikes 21,000from February to April – will help anchor inflation expectations and pro- 20,500vide support for confidence in the dong. This, combined with measures 20,000by the central bank to curb currency speculation and reinforce efforts 19,500to de-dollarise the economy, should underpin stability in the exchange 19,000rate. We are maintaining our end-2011 target for the Vietnamese dong 18,500to remain stable at around VND20,650/US$. 18,000 17,500Back in February we reiterated our concerns that failure by the 17,000 Jun-09 Jun-10 Feb-10 Jun-11 Feb-11 Oct-09 Apr-10 Oct-10 Aug-09 Dec-09 Aug-10 Dec-10 Apr-11State Bank of Vietnam (SBV) to address mounting inflationarypressures and a persistent trade deficit – which have been the key Source: Bloomberg, BMIunderlying factors behind selling pressures on the Vietnamesedong – would inevitably lead to further devaluations down the aggressive stance on De-Dollarisationroad (see our online service, February 11, ‘Dong Devaluation The SBV has also imposed a series of aggressive measures toCall Plays Out, Further Weakness Possible’). However, fol- reinforce the government’s ongoing efforts to de-dollarise thelowing a significant 8.5% devaluation in February, we have economy. These measures include introducing an interest ratesince witnessed a decisive shift in the government’s focus cap on US dollar deposits, raising minimum reserve require-towards fighting inflation and addressing the root causes of the ments on the US dollar and ordering state-owned enterprises tocurrency’s weakness. sell their US dollar holdings back to the banking system. We see the SBV’s move as a strong signal to the market that theThe SBV has introduced 500 basis points (bps) worth of interest Vietnamese government is serious about pursuing its agenda torate hikes, including a 100bps rise on April 29 to bring its policy de-dollarise the economy. From our perspective, the SBV’s ag-rate from 9.00% in February to 14.00% by April. According to a gressive stance on curbing US dollar speculation raises the risksstatement published by the SBV, lending rates have risen from of that speculators may face tougher measures by the central bankaround 19.0% in March to around 22.0% in April as a result of over the coming months. This supports our view that speculativetighter credit conditions. We expect inflationary pressures to selling pressures on the Vietnamese dong should remain mutedwane over the coming months as aggressive monetary tighten- in the short to medium term. An improved outlook on coolinging by the SBV in Q111 begins to feed through the economy. inflationary pressures, a narrowing trade deficit and continuedFurthermore, the currency devaluation in February should also efforts by the SBV to de-dollarise the economy should provide taBLe: eXcHanGe rate 2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f exchange rate Vnd/us$, ave [1] 16,077.42 16,543.00 17,868.67 19,174.42 20,600.00 20,375.00 19,800.00 19,250.00 18,750.00 Vnd/us$, ave % change y-o-y [1] 0.5 2.9 8.0 7.3 7.4 -1.1 -2.8 -2.8 -2.6 exchange rate Vnd/eur, ave [1] 22,037.32 24,318.21 25,016.13 25,434.17 28,241.07 27,255.00 25,025.00 23,437.50 22,812.50 Vnd/GBP, ave [1] 32,185.38 30,642.60 27,696.43 29,720.35 32,783.34 33,575.00 33,687.50 32,812.50 31,937.50 Vnd/cHf, ave [1] 13,050.59 15,284.30 16,429.13 18,396.25 21,466.30 20,011.08 18,247.74 17,490.67 17,216.98 Vnd/aud, ave [1] 13,488.42 14,097.33 14,176.23 17,448.72 16,687.90 15,306.25 15,592.50 15,093.75 14,600.00 JPy/Vnd, ave [1] 0.01 0.01 0.01 0.00 0.00 0.00 0.00 0.01 0.01 Vnd/cny, ave [1] 2,114.81 23,81.73 2,616.39 2,823.92 3,013.60 3,069.31 3,052.66 3,034.05 3,013.41 Notes: e/f = BMI estimates/forecasts. Sources: 1 BMI.Business Monitor international ltd www.businessmonitor.com 17
  • 18. VietnaM Q3 2011support for the dong over the coming months. As such, we are that the government has given the go-ahead for a proposal bymaintaining our end-2011 target for the Vietnamese dong to the Vietnam Association of Financial Investors (VAFI) to seekremain stable at around VND20,650/US$. regulatory changes that would raise foreign ownership limits and allow foreign investors to acquire shares with non-votingrisks to outlook rights in domestic banks and companies.Despite incipient evidence that confidence in the Vietnamesedong is beginning to improve, we are not pencilling in steady opening up the economy ownership structure of local enterprisesappreciation in the currency for now. Although we are optimistic 5,000 Fully State Owned Enterprisesthat aggressive monetary tightening will help cool inflationary Joint Stock Companies With State Ownership 4,500 Fully Foreign Owned Enterprisespressures, we note that Vietnam remains heavily exposed to a 4,000slowdown in external demand. The recent devaluation will take 3,500several months before the full extent of its impact on the tradebalance can be gauged. Global economic headwinds present 3,000further downside risks to demand for Vietnamese exports. In- 2,500deed, we note that the financial market remains unconvinced that 2,000recent measures by the SBV will be sufficient in addressing the 1,500currency’s decline. One-month non-deliverable forward on theVietnamese dong continued to trade below the spot exchange 1,000rate and has remained stable despite a 1.3% appreciation in 2005 500 2006 2007 2008the spot market in recent trading sessions. Should we fail tosee clear evidence of an improvement in the trade balance, we Source: State Bank Of Vietnam, BMIwould not be surprised to see the dong coming under furtherselling pressures over the coming months. reinstating plans to privatise soes As a current member of the WTO and the Association of South East Asian Nations (ASEAN), Vietnam is required to fulfill its commitment to open up its economy to foreign competition.investment climate Therefore, plans to gradually privatise state-owned enterprises over the coming years that were put on hold as a result of theGovernment puts privatisation efforts global financial crisis will have to be reinstated. Under currentBack in Focus foreign ownership rules stipulated by the government, foreign investors are not allowed to own more than 30% of a Vietnam- BMi VieW ese bank’s total charter capital or more than 49% of a listedThe Vietnamese government is in a renewed push to privatise state- company. The VAFI submitted a request to the government toowned enterprises and has given the go-ahead to raise limits on for- conduct a review of the current foreign ownership rules backeign ownership in Vietnamese banks and listed companies. The lat- in December 2010 and recommended that these limits be raisedest move to raise foreign investor participation in the banking sector to 35-40% for banks and beyond 49% for listed companies.should strengthen the balance sheets of domestic banks. Furthermore, Given that the government has not openly rejected the VAFI’swe believe that the privatisation of state-owned enterprises reflects a proposal, we believe limits could be raised in accordance to thebroader strategy to raise the competitiveness of the economy over the recommendations laid out by the VAFI.longer term. a Boost to Vietnam’s competitivenessThe Vietnamese government is in a renewed push to privatise From another perspective, Vietnam’s difficulties in defendingstate-owned enterprises after policymakers temporarily halted its exchange rate policy and curbing US dollar speculation inprivatisation plans in light of economic uncertainties brought recent months may have played a part in the government’s de-on by the global financial crisis. On April 13, the government cision to allow foreign ownership limits to be raised. We noteissued a statement calling for the State Bank of Vietnam to that by allowing increased foreign investor participation in theconsider proposals to raise limits on foreign ownership in Vi- banking sector, the direct inflow of foreign capital into the bal-etnamese banks and listed companies. The statement indicates ance sheets of domestic banks will help the government fight18 www.businessmonitor.com Business Monitor international ltd
  • 19. econoMic outLooKagainst US dollars shortages within the banking system. More online service, November 11 2010, ‘Foreign Banks Poised Toimportantly, the privatisation of state-owned enterprises reflects Heat Up Competition In 2011’). However, despite governmenta sound strategy to raise the competitiveness of the economy efforts to boost the competitiveness of domestic banks by rais-over the longer term. Indeed, increased foreign participation ing capital requirements, tightening regulations and promotingshould help to enhance efficiency and bring operational capabili- improvements in service standards, domestic banks continueties of state-owned enterprises closer in line with international to lag behind their foreign counterparts in other areas. We notestandards. This will allow Vietnamese banks, in particular, to the gaps in technology, corporate governance, transparency andcompete more effectively against their regional counterparts product sophistication as key challenges that Vietnamese banksas part of ASEAN’s goal to establish an integrated economic will need to address over the coming years. Should domesticcommunity by 2015. banks fail to catch up in these areas we would not be surprised to see foreign banks taking a dominating share in Vietnam’s banking and financial services industry within the next decade.Key sector outlook closing the technological Gap Foreign banks are leading domestic banks by a significant marginForeign competition Forcing Banks to in terms of providing more efficient and sophisticated financialcatch up products and services. Due to limitations on the technological front, domestic state-owned banks have lagged behind foreign BMi VieW banks in developing new and innovative products and services.The Vietnamese government has undertaken extensive reforms in re- This gap, which is a result of a state-controlled banking sector incent years to raise the competitiveness of domestic banks. However, recent years to a certain extent, could be a key reason why foreigndomestic banks continue to lag behind their foreign counterparts in banks are optimistic about successfully competing in Vietnam.terms of technology, corporate governance, transparency and productsophistication. As domestic banks try to close the technological gap, According to estimates by the State Bank of Vietnam, 80-85%increased foreign participation could benefit the industry through the of financial transactions by non-corporate clients were made intransfer of skills and knowledge on international accounting and man- cash in 2010, while card-based transactions accounted for lessagement practices. than 5%. Inadequate investment by domestic banks in infra- structure such as ATM networks and point of sale systems has entering a new phase of Growth? been pointed out by the government as the main reason behind finance, Banking & insurance sector Growth, 2000-2012 the slow adoption of card-based transactions in Vietnam. Given16,000 13 VND bn (1994 prices) LHS that foreign banks are now allowed to compete for a share of 1214,000 % chg y-o-y RHS the retail banking sector, we are beginning to see encouraging 11 evidence that domestic banks are ramping up efforts to upgrade12,000 10 their technology to meet growing demand for card-based pay-10,000 ment methods and electronic banking services. 9 8,000 8 At the Vietnam 2010 Banking Conference and Exhibition in 6,000 December, the sector took a major step in promoting electronic 7 4,000 payments by connecting point of sale systems between banks 6 in Ho Chih Minh City. Furthermore, representatives from the 2,000 5 banking industry also expressed interest in developing other 2010e 2011f 2012f 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 services such as online and mobile banking services. Whilee/f = BMI estimate/forecast. Source: General Statistics Office, BMI Vietnamese banks continue to play catch-up with their foreign counterparts on the technological front, the government is alsoFollowing the country’s accession to the WTO in 2007, the taking steps to promote corporate governance and more trans-Vietnamese banking and financial services industry has re- parency in the sector.ceived extensive reform that was intended to prepare banks tocompete effectively with foreign competitors from 2011 (see ourBusiness Monitor international ltd www.businessmonitor.com 19
  • 20. VietnaM Q3 2011the Benefits of Foreign participationThe National Assembly have passed a revised version of the Lawon Credit Institutions that took effect on January 1. Revisions tothe law largely reflected the government’s increased focus onstrengthening the management, organisation and transparency ofcredit institutions to be consistent with international standards.We regard this as a sign of commitment by the government topromote corporate governance and transparency among Viet-namese banks as the industry heads into a new phase of growth.The move could also help discourage excessive risk taking bydomestic banks as they shift their focus towards improving thequality of their balance sheets in the coming years.Global players such as HSBC, Citibank, Standard Chartered,Deutsche Bank and BNP Paribas have already established apresence in Vietnam through partnerships with domestic banksand opening independent branches. Increased foreign participa-tion will help spur the development of Vietnam’s banking sectorand raise standards for corporate governance, in our view. Moreimportantly, the transfer of knowledge of international accountingand management practices should support the modernisation ofthe banking industry. Vietnamese banks have a lot of catchingup to do, but we maintain an optimistic view of the industry’slong-term prospects.20 www.businessmonitor.com Business Monitor international ltd
  • 21. Chapter 3: 10-Year Forecast manufacturing sector in recent years as its accession to thethe Vietnamese economy to WTO in 2007 and low labour costs have made it an attractive2020 outsourcing destination for apparel manufacturers and electronics producers. The development of the foreign-owned manufactur-rebalancing needed to Maintain High ing sector has been spearheaded by Japanese, South Korean andGrowth Taiwanese firms, which have become increasingly wary of rising costs of labour on the Chinese mainland, as well as the risks of BMi VieW becoming overly dependent on Beijing in their supply chains.We remain positive about Vietnam’s growth prospects over the next 10years, in spite of the adjustment of our average GDP growth projection Vietnam to enter 100 Million club Vietnam – Populationover 2013-2019 from 8.0% to 6.9%. This is because we expect a shift 120in government policy to accommodate the effects of a less conduciveglobal environment and a need to avoid overheating tendencies such 110as high inflation and a large trade deficit, which have characterised theVietnamese economy in recent years. 100 90Vietnam’s emergence as one of the most promising economiesin Asia, if not the world, stems largely from the Communist 80Party of Vietnam (CPV)’s adoption of market reform policies 70in 1986. The gradual but steady shift from a largely agrariancountry with a high degree of state ownership and government 60intervention to a bustling market economy has stimulated foreign 50investment and domestic entrepreneurship, which are now the 2000 2005 2010 2015 2020prime drivers of growth. Source: UN World Population Prospects, 2006 revisionThe attractions of Vietnam to foreign, as well as domestic, in- We expect foreign investment into the manufacturing sector tovestors are clear: a large and young population, eager to work continue to drive growth over the next 10 years and help Vietnamhard to improve their lot and open to foreign influences after move up the value-added chain as the advantages of sourcingdecades of ineffective ideological indoctrination. Vietnam has production in the country become apparent for more manufac-enjoyed a growing inflow of direct investment into its fledgling turing firms. However, we believe the global environment will taBLe: VietnaM LonG-terM MacroeconoMic Forecasts 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020 nominal GdP, us$bn [2] 150.8 174.5 200.6 230.8 265.9 306.5 353.7 408.6 real GdP growth, % change y-o-y [2] 7.2 7.2 7.2 7.2 7.3 7.3 7.3 7.3 Population, mn [3] 91.1 92.0 92.8 93.7 94.6 95.4 96.3 97.1 GdP per capita, us$ [2] 1,656 1,897 2,161 2,463 2,811 3,212 3,674 4208 consumer prices, % y-o-y, ave [1,2] 6.0 5.5 5.0 5.0 5.0 5.0 5.0 5.0 current account, % of GdP [4] -5.6 -5.0 -4.6 -4.1 -3.7 -3.2 -2.9 -2.5 exchange rate Vnd/us$, ave [5] 19,800.00 19,250.00 18,750.00 18,250.00 17,750.00 17,250.00 16,750.00 16,250.00 Notes: f = BMI forecasts. 1 Base year 2000; Sources: 2 General Statistics Office; 3 World Bank/BMI calculation/BMI; 4 Asian Development Bank; 5 BMI.Business Monitor international ltd www.businessmonitor.com 21
  • 22. VietnaM Q3 2011be less conducive to external demand-driven economies in the guaranteed. Less accommodative fiscal and monetary policyyears to come, meaning Vietnam will not be able to reach real is likely to lead to the elimination of less efficient firms andGDP growth rates above 8.0% as seen in 2004-2007. layoffs, an unappealing prospect for the political leadership. Vietnamese firms are still less efficient than their ChineseIndeed, the near-exclusive focus of the government on meeting counterparts, as evidenced by the large amount of cheaphighly set growth targets through accommodative fiscal and Chinese goods flooding the Vietnamese market and the sixmonetary policy has led to serious macroeconomic imbalances in point advantage (51.7 compared with 45.2) China enjoys overthe form of high inflation and ballooning trade and fiscal deficits Vietnam in our business environment ratings. The massiveover 2007 and 2009. We believe steps will be taken at the 11th US$11.1bn bilateral trade deficit in China’s favour in 2008National Congress of the CPV in January 2011 to adjust govern- means that the Vietnamese government will be averse to takingment policy over 2011-2016 towards achieving more sustainable any steps that will impair the relative cost- competitivenessgrowth by allowing checks on overheating tendencies such as of domestic firms.currency appreciation and inflation-targeting monetary policy.This would inevitably come at the cost of lower growth in the An appreciating currency would dampen inflationary pressures,medium term, and we expect the government to start targeting and we foresee consumer price inflation stabilising at aroundannual real GDP growth of 7.0-7.5% over 2011-2016, instead 5% annually from 2013 onwards. However, this is conditionalof 8.0-8.5% as it has been previously. on the government resolving bottlenecks in infrastructure and power supply. Vietnam’s limited road, rail and port capacity isWe do not foresee this constituting a turning point in the still putting it at a disadvantage compared with China when itVietnamese growth story, merely adjusting growth rates to comes to foreign investment in export-focused manufacturing.lower more sustainable trajectories. The main effect will be Moreover, the continued divide between demand and supply ofto decrease the share of net exports from a massive -16.5% of energy and resulting power cuts is a key threat to both growthGDP (in nominal terms) in 2008 towards -11.8% in 2013 and and inflation. Energy policy is an area that will have to be ad--5.7% in 2019 as export growth starts outpacing import growth dressed with more resolve than at present, as the governmentafter private consumption and fixed gross capital formation has impaired investment in power generation by its reluctancesettle at more sustainable levels. A decreasing trade deficit to expose state-owned EVN to competition.combined with continued growth, albeit at a slower pace, ofremittances and foreign direct investment should mean that Continued reform of the economy through the ongoing ‘equiti-upside pressure on the dong should resume once the govern- sation’ process of raising efficiency at state-owned enterprisesment has tightened its fiscal and monetary policy to curb the and transferring ownership to private hands will also be requiredstimulus-driven increase in domestic demand in 2009. We to reach annual GDP growth of 7%, as well as a concerted ef-thus expect the dong to start to appreciate beyond the initial fort to improve standards at all levels of the education system.depreciation needed in 2010. We are currently envisaging a Skilled staff are becoming increasingly difficult to find, result-2.6% depreciation in 2011, to be followed by an average 2.8% ing in upward pressure on wages and increased costs for firms,appreciation over 2012-2019. particularly in the fledgling financial sector. Vietnam will need to increase the number of high-standard university graduates inKey risks: competition With china, areas such as finance and science if it wants to avoid becominginflation, infrastructure and education trapped in low-value manufacturing.While a shift in economic policy is needed, it is far from BMi’s long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. our 10-year forecasts assume in most cases that growth eventually converges to a long-term trend, with economic potential being determined by factors such as capital investment, demographics and productivity growth. Because quantitative frameworks often fail to capture key dynamics behind long-term growth determinants, our forecasts also reflect analysts’ in-depth knowledge of subjective factors such as institutional strength and political stability. We assess trends in the composition of the economy on a GdP by expenditure basis in order to determine the degree to which private and government consumption, fixed investment and the export sector will drive growth in the future. taken together, these factors feed into our projections for exchange rates, external account balances and interest rates.22 www.businessmonitor.com Business Monitor international ltd
  • 23. Chapter 4: Business environmentsWot analysis BMi Business environment risk ratingsstrengths Vietnam has a large, skilled and low-cost workforce, that has made Vietnam’s business environment rating of 45.2 is constrained by an the country attractive to foreign investors. ‘infrastructure’ rating of 47.8, as massive bombing by the us during the Vietnam’s location – its proximity to china and south east asia, and Vietnam War put the country’s road and rail network decades behind peer its good sea links – makes it a good base for foreign companies to nations. Moreover, the ‘institution’ score of 36.7 reflects the vestiges of export to the rest of asia, and beyond. a planned economy still present in many government bodies and state-Weaknesses owned enterprises in spite of the ongoing economic reform process. Vietnam’s infrastructure is still weak. roads, railways and ports are indeed, the winds of change are noticeable in the ‘market orientation’ inadequate to cope with the country’s economic growth and links score of 51.0, which reflects an increasing degree of trade and financial with the outside world. market integration with the outside world. Vietnam remains one of the world’s most corrupt countries. its score Business environment rank trend in transparency international’s 2010 corruption Perceptions index singapore 80.8 1 = was 2.7, placing it in 22nd in the asia-Pacific region. Hong Kong 78.7 2 = Malaysia 63.4 3 =opportunities taiwan 62.7 4 = thailand 62.2 5 = Vietnam is increasingly attracting investment from key asian south Korea 60.6 6 = china 51.8 7 = economies, such as Japan, south Korea and taiwan. this offers Philippines 49.9 8 = the possibility of the transfer of high-tech skills and know-how. Vietnam 45.2 9 = india 44.1 10 = Vietnam is pressing ahead with the privatisation of state-owned sri lanka 42.7 11 = Brunei darussalam 41.0 12 = enterprises and the liberalisation of the banking sector. this should indonesia 40.2 13 = Papua new Guinea 39.4 14 = offer foreign investors new entry points. Pakistan 36.7 15 =threats cambodia Bhutan 35.5 32.0 16 17 = = Bangladesh 30.9 18 = ongoing trade disputes with the us, and the general threat of laos 26.4 19 = american protectionism, which will remain a concern. Myanmar - - - north Korea - - - labour unrest remains a lingering threat. a failure by the authorities Regional ave 45.1 / Global ave 45.0 / Emerging Markets ave 40.6 to boost skills levels could leave Vietnam a second-rate economy for an indefinite period.Business Monitor international ltd www.businessmonitor.com 23
  • 24. VietnaM Q3 2011 tempt to send a strong signal to the market that the Vietnameseinvestment climate government is serious about pursuing its agenda to de-dollarise the economy.De-Dollarisation push to createuncertainty More Work needed foreign currency deposits, % of total deposits 45 BMi VieWIn a bid to reduce Vietnam’s heavy reliance on the US dollar, the State 40Bank of Vietnam has introduced a series of measures to discourage 35the use of the currency in recent months. From our standpoint, the gov- 30ernment’s push to de-dollarise the economy would allow Vietnam togain greater control over its money supply and increase the effective- 25ness of its economic policies over the coming years. In the near-term, 20we expect businesses that rely heavily on the US dollar for financingand overseas transactions to face an increasingly challenging environ- 15ment of higher lending costs and policy uncertainties. 10 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10On March 30, the State Bank of Vietnam (SBV) ordered localcompanies including major state-owned enterprises to sell their Source: IMF/IFS, BMIUS dollar deposits back to the commercial banking system.SBV governor Nguyen Van Giau claimed that the order was in a rush to De-Dollariseaimed at curbing speculative accumulation of the US dollar, As the accompanying chart shows, Vietnam has achieved con-which was partly responsible for the financing difficulties that siderable success in reducing the economy’s reliance on the USbusinesses with a legitimate need for the currency are currently dollar in recent years. Foreign currency deposits as a share offacing. He also affirmed that the SBV is looking into proposals total deposits in the banking system has been reduced steadilythat would allow banks to charge fees on dollar transactions, a from around 40.0% back in 2001 to around 18.0% in Octobermeasure that we believe would further discourage individuals 2010. After taking into account that a significant share of termand companies from accumulating and using US dollars for deposits are also denominated in US dollars, the ratio is esti-transactions in the future. mated to come to around 20% of total deposits. However, the Vietnamese government has expressed its intention to speed upsending a strong signal to the the process of de-dollarising the economy in recent months. ThisMarkets came after Vietnam experienced a tumultuous year of multipleWithin just two weeks of issuing an order to local companies to currency devaluations and setbacks in managing its economicreduce their US dollar holdings, the SBV announced its deci- policies in 2010, which the government claims that excessivesion to raised minimum reserve requirements for the currency. use of the US dollar has been a key contributing factor. Judg-According to the statement released by the SBV on April 9, the ing from the government’s renewed push to de-dollarise theminimum reserve ratio on deposits held in the US dollar will be economy, we expect the SBV to introduce further measures toraised by 2 percentage points to a range of 4.0-6.0% effective curb speculation and use of the dollar over the coming months.from May (4.0% for deposits exceeding a year and 6.0% forshort-term deposits). The SBV will also cap interest rates on Businesses to Face tougherdollar deposits at 3.0% for individuals and 1.0% for non-credit conditions aheadinstitutions, effective April 13. The move is aimed at encouraging Businesses that rely heavily on a stable source of US dollars tobanks to raise lending rates on US dollar loans since banks will finance overseas transactions are expected to face an increas-need to charge higher lending rates to maintain profit margins ingly challenging environment of higher lending costs and policyas the amount of dollar loans will have to be reduced while uncertainties over the coming months. According to local mediathe deposit rates are capped at 3.0%. Furthermore, the cap on reports, US dollar lending rates are currently at around 6.8% anddeposit rates will also reduce the attractiveness of holding US the latest move by the SBV to raise reserve requirement coulddollar deposits. We see the latest move by the SBV as an at- see lending rates head higher over the coming weeks. Although24 www.businessmonitor.com Business Monitor international ltd
  • 25. Business enVironMentwe believe importers, which are currently facing difficulties in issued in the early 1990s under market-led reform programmes.securing financing in US dollars in recent months, will benefit However, Vietnam rewrote almost all of its laws and regulationsfrom the increased liquidity in the banking system, we note affecting commercial activity and judicial procedures betweenthat higher lending rates could see profits margins squeezed. 2002-2006. Despite some progress in protecting intellectualFurthermore, uncertainties over the type of policies that the property rights, the overall legal system in Vietnam is regardedgovernment could introduce over the coming months represent a as excessively cumbersome.significant threat to businesses that are tied to their commitmentsin long-term contracts with suppliers, with import costs that are Vietnam’s judicial system lacks transparency, and there areoften denominated in US dollars. Recent measures imposed by widespread concerns about the independence of the judiciary.the Vietnamese government will help relieve pressures of a US Both local and foreign firms prefer to resort to arbitration ordollar shortage in the banking system. However, we warn that other non-judicial means as a result of weaknesses in the judicialwithout long-term policies aimed at addressing the macroeco- system – there is a general lack of confidence that the judiciarynomic imbalances in the economy, the government will achieve is capable of interpreting and enforcing the law.limited success in trying to de-dollarisation the economy overthe coming years. Nonetheless, we see de-dollarisation as a Vietnam’s legal system remains underdeveloped and, largely,sound long-term strategy that will allow the government to gain biased against foreign entities. The court system provides in-greater control of the country’s economic policies. adequate redress for commercial disputes while contracts are difficult to enforce, particularly if a party is non-Vietnamese. Foreigners also see the commercial arbitration system as weak. When disputes arise, foreign investors tend to try to negotiateBusiness environment outlook or include dispute resolution procedures in their contracts – however, even these are far from fail-safe.introductionVietnam’s large and inexpensive workforce remains its largest Foreign and domestic arbitral awards are legally enforceable inattraction for foreign investors, although there is an increasing Vietnam since it acceded to the New York Convention on theoccurrence of foreign direct investment (FDI) projects aimed Recognition and Enforcement of Foreign Arbitral Awards inat tapping the country’s growing consumer market. There is 1995. Local courts must respect awards rendered by a recognisedstill a large degree of state intervention in the economy, but international arbitration institution. However, this provides nothe government has been gradually moving towards a market assurance that contracts will be honoured. Non-judicial meanseconomy since 1986, with WTO accession in 2007 being the are therefore frequently used to enforce debt obligations.greatest achievement so far. The country’s decrepit infrastructurecontinues to be an impediment for many foreign investors, but Firms generally avoid the judicial system because the processwe see this as a diminishing problem because the government is lengthy and expensive, decisions are considered arbitrary andis investing heavily in new roads, railways and ports. enforcement mechanisms are ineffective. Smaller companies rely on personal relationships while larger foreign companies may make use of their access to government to ensure contract enforcement.institutions property rightsLegal Framework The 2006 Uniform Enterprise Law has allowed foreign investorsVietnam has a two-tier courts system, with courts of first instances to form any type of company instead of only limited liabilityand courts of appeal. The court system consists of the Supreme companies. In general, foreign companies and the private sectorCourt, the provincial People’s Courts and the district People’s are at a disadvantage compared with state-owned companies inCourts. The Vietnamese legal code is currently in a state of flux, terms of access to land, which is still viewed as the property ofand the authorities are drafting a unified legal framework for ‘the people’. Legislation has, however, progressively enhancedthe conduct of business. the status of private investors in recent years. The 1992 constitu- tion granted stronger land rights to individuals, including rightsMost of the legal documents in force relating to business were over commercial and personal property. Private land use rightsBusiness Monitor international ltd www.businessmonitor.com 25
  • 26. VietnaM Q3 2011(LURs) may now be granted for up to 50 years. Since July 1 to running a business in Vietnam. Joint ventures with state-owned2004, the Land Law has allowed local private companies with enterprises are particularly prone to corruption and abuse, thoughlong-term LURs to lease land to foreign investors. surveys indicate that while corruption affecting businesses is quite prevalent the amounts involved are usually quite small.intellectual property rights However, rapid economic growth provides opportunities forThe enforcement of intellectual property rights (IPR) is wholly graft to grow more quickly than government systems evolve.inadequate, with widespread pirating of products, particularly Vietnam scored 2.7 out of 10 in Transparency International’ssoftware, music and videos. The requirements of WTO accession 2010 Corruption Perceptions Index, placing it in 116th placemean that the government will have to beef up IPR protection among the 178 countries surveyed.substantially. In July 2006, a new Intellectual Property Lawcame into effect, designed to clarify the responsibility of gov- One of the best tools in restricting opportunities for corruptionernment agencies charged with protecting IPRs, though doubts has been the expansion of the ‘One-Stop Shop’ network – singleremain over the effectiveness of its implementation. The police agencies that deal with applications for a range of activities,service is generally slow to act on administrative orders where including construction permits, LUR certificates, businesstrademarks have been infringed. Often violators will seek to registrations and approvals for local and foreign investments.extract a pay-off in compensation for ceasing the infringement.Despite improvements in the enforcement of IPRs, the US State The Law on Corruption Prevention and Control was passed by theDepartment has kept Vietnam on its 2010 ‘Special 301 Report’ National Assembly in November 2005. A central anti-corruptionwatch-list of countries with inadequate protection of IPRs. steering committee was established in 2006, comprising repre- sentatives from the government, the National Assembly, statecorruption procurator, court and police. The committee is headed by theInvestors see official corruption as one of the biggest hindrances prime minister, and has the authority to suspend ministers and taBLe: BMi Business anD operation risK ratinGs infrastructure rating institutions rating Market orientation rating Business environment afghanistan 26.6 24.7 20.5 23.9 australia 75.0 78.2 70.1 74.4 Bangladesh 41.6 21.8 29.3 30.9 Bhutan 23.0 48.5 24.4 32.0 cambodia 31.4 24.2 50.9 35.5 china 56.3 52.4 46.6 51.8 Hong Kong 70.0 80.7 85.2 78.7 india 47.4 42.0 42.9 44.1 indonesia 37.1 31.2 52.3 40.2 Japan 78.3 80.1 55.9 71.4 laos 36.8 22.6 19.8 26.4 Malaysia 55.3 66.9 67.9 63.4 Maldives 40.3 52.5 30.7 41.2 nepal 28.1 32.6 23.2 27.9 new Zealand 77.4 91.0 77.1 81.8 Pakistan 35.5 32.9 41.7 36.7 Philippines 50.7 39.0 60.0 49.9 singapore 79.0 83.9 79.4 80.8 south Korea 71.2 52.7 53.5 60.6 sri lanka 45.7 42.5 40.0 42.7 taiwan 60.6 67.0 60.4 62.7 thailand 59.5 59.3 67.8 62.2 Vietnam 47.8 36.7 51.0 45.2 Source: BMI. Scores out of 100, with 100 representing the best score available for each indicator26 www.businessmonitor.com Business Monitor international ltd
  • 27. Business enVironMentchairs of people’s committees and people’s councils if suspectedof wrongdoing. The committee discovered 584 cases of alleged infrastructurecorruption, involving close to 1,300 people, in 2007. Amongthe most noteworthy convictions of corrupt officials was that physical infrastructureof former deputy trade minister Mai Van Dau, who was handed Vietnam’s infrastructure rating is 47.8, placing the country in 68tha 14-year prison term in March 2007 for accepting bribes in place in our rankings. The country’s inadequate infrastructurereturn for export licences. has become a major grievance for foreign investors and may thus impair future FDI. Our transport infrastructure rating forJapan and Vietnam have established a joint committee for Vietnam stands at 69.1, but are set to improve as the government,fighting corruption concerning the use of Japan’s official thanks to development assistance from international donors,development assistance in Vietnam, after two Ho Chi Minh is investing heavily in constructing new roads, railways, portsCity officials were convicted of accepting bribes from a and power plants. These projects include the US$33bn 1,600kmJapanese firm in September 2009. Japan and Vietnam have high-speed railway currently being planned, thanks to Japanesealso worked on a joint initiative to improve regulations on funding, between Hanoi and Ho Chi Minh City, which will cutbidding, purchase and implementation of all official develop- travel time to less than 10 hours when completed.ment assistance projects. As an example of progress already made, more than 90% ofThe burden of red tape is amplified by the overlapping of gov- rural households now have electricity, compared with just overernment approvals. Vietnam ranks poorly in the length of time 50% 10 years ago. Rapid industrialisation of the economy has,it takes to close a business. It can take about five years to close however, seen power demand increase by 15-17% per year,a business, compared with an average of 3.4 years in East Asia outpacing the expansion of capacity. Vietnam is estimated to& Pacific and 1.5 years in OECD states. have produced 69.7bn kWh of electricity in the first 10 months taBLe: BMi LeGaL FraMeWorK ratinG investor protection score rule of Law score contract enforceability score corruption score afghanistan 1.2 13.7 29.2 6.3 australia 52.9 91.8 76.5 92.8 Bangladesh 33.0 28.5 4.6 25.4 Bhutan 12.7 52.9 99.1 65.6 cambodia 16.7 14.8 40.4 21.3 china 58.5 26.8 86.4 29.3 Hong Kong 90.5 44.9 84.5 81.8 india 64.2 65.4 11.3 45.3 indonesia 34.7 37.3 23.3 37.8 Japan 82.5 82.1 75.9 90.0 laos 1.2 11.1 50.6 6.2 Malaysia 76.9 56.5 43.9 45.8 Maldives 40.1 41.7 57.7 46.4 nepal 44.5 27.0 35.8 25.7 new Zealand 92.4 92.7 83.7 96.6 Pakistan 46.5 15.1 35.7 14.1 Philippines 38.7 48.5 33.9 25.1 singapore 95.6 72.6 76.7 60.1 south Korea 11.1 77.0 40.3 68.4 sri lanka 51.4 52.3 35.3 26.1 taiwan 64.2 72.4 70.2 72.5 thailand 63.9 37.7 79.3 38.0 Vietnam 31.9 24.7 66.9 17.4 Source: BMI. Scores out of 100, with 100 representing the best score available for each indicatorBusiness Monitor international ltd www.businessmonitor.com 27
  • 28. VietnaM Q3 2011of 2009, up 12.3% from a year earlier, according to the General General Statistics Office estimated the number of employed atStatistics Office. It has been estimated that Vietnam needs to 45.0mn in 2008. The unemployment rate is expected to remainbuild 124 new power plants between 2006-2010, adding a total between 5-6% in 2010.capacity of roughly 36,000MW, to satisfy demand. Severalongoing construction projects of power plants have been hit by Vietnam’s reform-driven economic growth has resulted in adelays – due to slow land clearance, delayed equipment sup- restructuring of the labour market, with a shift away from ag-plies and poor contractor performance – and power blackouts ricultural employment to non-farm employment. The Generaland brownouts are therefore likely to remain a problem. Our Statistics Office estimated that farmers constituted 52% of thetechnological infrastructure rating for Vietnam stands at 25.0, workforce in 2008, with close to 21% working in industry andplacing Vietnam in 85th place in our rankings. construction, and close to 27% working in the service sector.Foreign direct investment has also helped to improve Vietnam’s Managerial talent and skilled workers are generally in shorttelecommunications system, with foreign groups investing heav- supply, which has the effect of raising costs. The expandingily in fanning out 3G telecom and broadband networks over the financial sector is particularly plagued by labour shortages andmost populous parts of the country. is said to be in need of tens of thousands of skilled personnel by 2010. Foreign companies are becoming increasingly troubledLabour Force by an excessive turnover of qualified workers, which is driv-Vietnam’s large, well-educated and inexpensive labour force ing up salaries for skilled personnel. Foreign companies haveremains one of the country’s chief attractions to foreign investors. previously been the prime choice of Vietnamese professionalsThe labour pool is increasing by up to 1.5mn a year, while wage as they pay 14% more than domestic firms on average, accord-costs are still low compared with other countries in the region, ing to a 2007 survey by human resources consultancy Navigosalthough wage growth has picked up pace in recent years. The Group. Working for domestic firms is, however, becoming taBLe: LaBour Force QuaLitY Literacy rate,% Labour Market rigidity score Female Labour participation, % afghanistan 28.1 20.0 n/a australia 99.0 24.0 45.3 Bangladesh 47.9 28.0 39.8 Bhutan 47.0 7.0 31.7 cambodia 73.6 36.0 48.8 china 90.9 31.0 45.9 Hong Kong 93.5 0.0 46.1 india 61.0 30.0 28.3 indonesia 90.4 40.0 37.0 Japan 99.0 16.0 41.6 laos 68.7 20.0 50.7 Malaysia 88.7 10.0 35.2 Maldives 96.3 18.0 41.1 nepal 48.6 46.0 45.0 new Zealand 99.0 7.0 46.1 Pakistan 49.9 43.0 18.7 Philippines 92.6 29.0 38.3 singapore 92.5 0.0 41.3 south Korea 97.9 10.0 41.3 sri lanka 90.7 20.0 39.8 taiwan 96.1 46.0 20.9 thailand 92.6 11.0 46.3 Vietnam 90.3 21.0 n/a Source: BMI/World Bank/ILO. Labour Market Rigidity score from Ease of Doing Business report, 1 = highest score28 www.businessmonitor.com Business Monitor international ltd
  • 29. Business enVironMentincreasingly popular as they are currently closing the salary Chinese Labour Contract Law on January 1 2008 has, however,gap with foreign firms. made many foreign companies view Vietnamese labour market regulation more favourably. Employers are required by law toLabour shortages and a sharply progressive income tax system establish labour unions within six months of setting up, andhave pushed up the costs for skilled personnel. Vietnam has, on these must be members of the Vietnam General Confederationthe other hand, maintained its cost advantage in manufacturing of Labour. While most factories have trade unions, many ofwages. Although wages are rising, we believe Vietnamese labour these do not operate in practice. Trade unions are more activeis still very competitively priced, in particular after the imposition in the public sector, and only one-third of foreign companiesof the Chinese Labour Contract Law on January 1 2008, which have collective agreements with their workforces.is estimated to have raised labour costs in China by 5-40% andwhich has prompted many South Korean and Taiwanese firms Vietnam does not have a bad industrial relations record. Mostto consider moving factories to Vietnam. strikes were at foreign-invested firms in the textiles and apparel sector, despite working conditions often being better at theseThe regulatory burden in Vietnam’s labour market has tradi- firms than at state-owned enterprises. Most strikes have resultedtionally been high, but is easing over time. In 2003, legislation from legal or contractual breaches, including failure to pay wageswas introduced that allowed foreign companies to recruit staff and benefits, failure to pay social insurance contributions, anddirectly, as long as they provide government agencies with a failure to pay severance pay at termination.list of recruited workers. However, the requirement to use em-ployment service agencies continues to apply to branches and The sharp uptrend in consumer price inflation, especially ofrepresentative offices of foreign companies. essential goods such as food, fuel and housing, prompted in- creased labour unrest in late 2007 and early 2008 as workersOne of the main regulatory burdens is the social protection demanded higher wages. The increasingly pressed economicsystem, which imposes a compulsory social insurance contribu- conditions for labourers prompted tens of thousands of workerstion scheme in which employers must pay in 15% of the salary, to go on strike in Ho Chi Minh City and Dong Nai provincewith employees proving 5%. Regulations for hiring workers are in January 2008. Lower inflation and tougher labour marketsignificantly more onerous than the East Asia & Pacific aver- conditions have dampened strike action in 2009. The latestage. Whereas the hiring cost is 17% of the salary in Vietnam, available figures from Vietnam’s national trade union showedit is only 5% in Thailand, for example. The imposition of the there were 46 wildcat strikes in Q109, compared with 113 taBLe: asia, annuaL FDi inFLoWs 2006 2007 2008 us$bn per capita us$bn per capita us$bn per capita australia 25.74 1,255.4 22.27 1,075.7 46.77 2,227.3 Bangladesh 0.79 5.7 0.67 4.7 1.09 7.6 cambodia 0.48 34.2 0.87 60.3 0.82 55.8 china 72.72 55.3 83.52 62.5 108.31 80.4 Hong Kong 45.05 6,520.6 59.90 8,602.3 63.00 9,000.4 india 19.66 17.3 22.95 19.9 41.55 36.0 indonesia 4.91 21.5 6.93 29.9 7.92 33.8 Malaysia 6.05 231.6 8.40 316.2 8.05 298.3 Pakistan 4.27 27.5 5.33 34.0 5.44 33.8 Philippines 2.92 33.9 2.93 33.3 1.52 16.9 singapore 24.74 5,646.5 24.14 5,441.2 22.72 4,695.1 south Korea 4.88 101.6 2.63 54.6 7.60 156.4 sri lanka 0.48 24.0 0.53 26.0 0.75 38.8 taiwan 7.42 324.0 8.16 354.8 5.43 236.2 thailand 9.01 142.0 9.58 149.9 10.09 156.9 Vietnam 2.36 27.5 6.74 77.5 8.05 92.7 Source: UNCTAD, BMI.Business Monitor international ltd www.businessmonitor.com 29
  • 30. VietnaM Q3 2011cases in Q108. with the same period in 2009. Actual FDI disbursements were estimated at US$4.6bn in the same period.The government has raised the monthly minimum wage ratefor workers at foreign-invested enterprises from VND920,000- The rising levels of official development assistance pledged1,200,000 (US$51-67), dependent on economic zone, to by multilateral donors are also important, but have beenVND1,000,000-1,340,000 (US$55-74) from January 1 2010. The outpaced by inflows from foreign private sources over the13-15% imposed increases were lower than the 20-38% increase last five years. But, as the country tries to transform from ain the minimum wage rate for state- and domestic-employed centralised to a more market-oriented economy, the invest-workers to VND730,000-980,000 (US$40-55). This follows the ment framework is still poorly developed in many areas,government’s roadmap to introduce a universal minimum pay with bureaucracy and a lack of transparency cited amongrate for all enterprises by 2012. major problems. Despite ambitious targets for foreign investment as an important source of fuel for economic expansion plans, a number of barriersMarket orientation to investment remains. An opaque legal system, an inflexible financial system, corruption, a lack of regulatory transparencyForeign investment policy and consistency, a ponderous bureaucracy, and complex landIncreased FDI is an integral part of Vietnam’s ambitious eco- purchase rules are among areas criticised by foreign investors.nomic expansion plans; and, with ratings agencies pushingtheir grades higher, the country looks like a solid investment The government has been introducing and amending legislationdestination, especially for manufacturing. FDI pledges amounted in an effort to remedy these perceived shortcomings.to US$5.6bn in January-April 20, 2010, down 25.7% compared taBLe: traDe anD inVestMent ratinGs openness to investment score openness to trade score afghanistan 34.7 6.2 australia 68.6 35.1 Bangladesh 13.8 34.3 Bhutan 33.7 24.6 cambodia 82.6 81.6 china 39.9 65.5 Hong Kong 96.8 97.7 india 36.8 38.9 indonesia 39.4 60.0 Japan 5.6 34.4 laos 35.9 17.7 Malaysia 47.5 97.2 Maldives 27.5 43.0 nepal 46.8 20.9 new Zealand 71.4 76.1 Pakistan 59.6 51.4 Philippines 59.5 62.1 singapore 67.9 99.6 south Korea 4.9 77.5 sri lanka 22.3 57.3 taiwan 0.0 87.0 thailand 54.8 89.0 Vietnam 80.7 86.1 Source: BMI. Scores out of 100, with 100 representing the best score available for each indicator30 www.businessmonitor.com Business Monitor international ltd
  • 31. Business enVironMentKey legislation includes: (EPZs), industrial zones (IZs) and high-technology zones attract tax and other incentives, and offer a ready-made operational• The Law on Foreign Investment (1989), which has been infrastructure that may be difficult to arrange outside. amended several times to make FDI more attractive. EPZ investments carry 10-12% profit tax. The first established• Government decree 24 of 2000, which carries a pledge to was the Tan Thuan zone near Ho Chi Minh City in 1991, where avoid expropriation, and guarantees the right to repatriate more than 100 manufacturers currently operate. A number of profits. It also outlines the government’s intention to treat others have since been built, though they have not been as suc- private and state sectors equally. cessful as hoped, partly because all produce from EPZs must be exported.• A revised bankruptcy law and a Law on Competition, both passed by the National Assembly in 2004, in a bid to im- IZs are for use by firms in construction, manufacturing, process- prove the FDI climate. Fully owned foreign banks are now ing or assembly of industrial products, often food processing allowed to compete on an equal footing with domestic banks. and textiles production. IZ firms pay a 10% profit tax and get refunds if profits are reinvested. IZ firms may produce for theThe Vietnamese legal code is currently in a state of flux, and domestic market as well as for the export market. Most FDI intothe authorities are drafting a unified legal framework for the Vietnam comes from North East Asia, notably Taiwan, Southconduct of business. A new Common Investment Law and a Korea, Japan and China/Hong Kong. Canada and the US areUnified Enterprise Law came into effect in July 2006, as did a the largest non-Asian FDI sources. Leading sectors for FDI arenew Intellectual Property Law designed to clarify the respon- manufacturing, other industry and oil and gas.sibility of government agencies charged with protecting IPRs,but doubts remain over the effectiveness of its implementation. Foreign trade regime Although high tariffs, customs bureaucracy and legal inadequa-The main forms of foreign investment are: cies have provided significant trade barriers, the opening up of Vietnam’s economy has been accompanied by concrete measures• Joint venture agreements, under which foreign and domestic to meet the requirements of the WTO and other international firms share capital and profits. trade organisations. Vietnam has committed to bound tariff rates (or legal ceilings) on most products ranging from zero to• Business Cooperation Contracts, which allow a foreign 35%. Reductions in most bound rates from 17.4% on average company to carry out business in cooperation with a Viet- in 2007 to 13.6% are to be phased in gradually. namese firm through capital investment and revenue sharing, but without gaining right of establishment or ownership. Vietnam became a member of the WTO in January 2007. A bilateral trade agreement with the US in effect since December• Wholly foreign-owned enterprises are becoming more 2001 has substantially lowered tariffs on US industrial and ag- common, especially those involving industrial production ricultural products, removed non-tariff barriers on US service for export. providers and eliminated barriers to US exports in key areas such as pharmaceuticals and petroleum products.• Build-operate-transfer agreements are the least common form of foreign direct investment, and have a reputation The Vietnam-Japan Economic Partnership Agreement came among foreign investors of causing regulatory and financ- into effect on July 1 2009 and has already aided an increase in ing problems. garment exports to Japan. Moreover, the completion of a fee trade agreement with the EU should help to strengthen Vietnam’sForeign portfolio investment is permitted only in small quantities, share in European markets. The Swedish government has, ac-with aggregate foreign ownership of listed companies capped at cording to Swedish Ambassador to Hanoi Rolf Bergman, set up49%. Foreign ownership of banks is capped at 10% per investor, an FTA with Vietnam as one of its top three priorities duringand 30% in aggregate. Moreover, many of the shares listed on its presidency of the EU in H209, with the negotiation processthe Ho Chi Minh City Stock Exchange are too illiquid to at- expected to be completed by October 2010.tract foreign investors. Investments in export processing zonesBusiness Monitor international ltd www.businessmonitor.com 31
  • 32. VietnaM Q3 2011Vietnam is a member of the Association of South East Asian on income from land use rights.Nations (ASEAN) – with Brunei, the Philippines, Indonesia,Laos, Myanmar, Malaysia, Singapore, Thailand and Cambodia Individual Tax: The National Assembly passed Vietnam’s– as well as of the linked ASEAN Free Trade Area. Vietnam first-ever personal income tax bill on November 20 2007. Theis thus party to negotiations on free trade agreements being bill, which became effective on January 1 2009, replaces aconducted by ASEAN, such as talks with the European Union, previous system in which expatriates and domestics were taxedChina, Australia and New Zealand. at different levels. The new bill provides a common set of rules for individuals resident in Vietnam for 183 days or more in aVietnam will continue to dismantle tariffs in a bid to meet its 12-month period. However, the bill is also applicable to thoseWTO commitments. Furthermore, the government is expected having a permanent residence in Vietnam, a definition that in-to allow greater foreign participation in the banking sector. cludes a rented house. How this paragraph will be interpreted is still unclear, but could extend tax liabilities to expatriates andVietnam has agreed to comply with ASEAN’s Common Effec- locals who reside in Vietnam for fewer than 183 days per year.tive Preferential Tariff (CEPT) scheme on manufactured goods The new bill stipulates that personal income is to be taxed at awithin the ASEAN region, which calls for rates to be brought rate between 5% and 35%, with a personal allowance of VND-down to the 0-5% range. 48mn (US$2,800) and an additional allowance of VND19mn (US$1,120) per dependent. As such, the new bill reduces theThe legislation providing the framework for the trade regime highest marginal tax level applicable to expatriates from 40% tois 1998’s Law to Amend the Import and Export Tariffs Law. 35%. A new feature in the bill compared with previous legisla-However, given the ASEAN and WTO requirements, the tariff tion is that it covers non-employment income such as interest,structure is in a constant state of flux. To reduce the rising costs dividends, capital gains on real estate and securities investment.of a range of products, Vietnam in October 2007 cut import tariffsby between 30% and 60% on many food and dairy products. Indirect Tax: Main VAT rate is 10%. A 5% rate is charged on some goods, including computers and accessories, construction,tax regime machinery, chemicals, coal and metallurgy products. The fol-Since 2003, corporate tax has been charged at a unified rate for lowing attract a zero VAT rate: exported goods and software andboth domestic firms and foreign investors. From the start of 2005, services exported to firms in export processing zones. Registra-a self-assessment regime has been in effect. The previous tax tion is obligatory for businesses. VAT taxation is also subjectaudit system has been superseded by a tax investigation system. to an ongoing revision by the National Assembly.Corporate Tax: The main corporate tax rate is 25%, but firms Capital Gains: Usually taxed as income at corporate rate.involved in prospecting, exploration and mining of petroleum, Gains by foreign investors on the transfer of an interest in agas and other rare and precious natural resources are subject foreign or Vietnamese enterprise attract a 25% tax. Gains byto rates from 32% to 50%. Resident firms are taxed on global individuals on the transfer of a home or on land-use rights areincome. Non-resident firms are taxed only on Vietnamese- taxed progressively up to 60%.sourced income. A surtax of 10- 25% is charged progressively taBLe: VietnaM top eXport Destinations 2002 2003 2004 2005 2006 2007 2008 2009 united states 2,453.2 3,939.6 5,024.8 5,924.0 7,845.1 10,104.5 11,868.5 11,355.8 Japan 2,437.0 2,908.6 3,542.1 4,340.3 5,240.1 6,090.0 8,537.9 6,291.8 china,P.r.: Mainland 1,518.3 1,883.1 2,899.1 3,228.1 3,242.8 3,646.1 4,535.7 4,909.0 switzerland 66.7 74.7 120.2 103.9 155.7 236.9 516.9 2,486.5 australia 1,328.3 1,420.9 1,884.7 2,722.8 3,744.7 3,802.2 4,225.2 2,276.7 total 32,346.5 39,327.6 51,145.6 62,489.3 77,568.1 94,633.4 119,125.2 110,610.2 toP 5 23,179.1 28,947.9 37,570.2 45,322.3 56,089.2 68,390.5 88,144.1 82,139.4 % from top 5 trade partners 71.7 73.6 73.5 72.5 72.3 72.3 74.0 74.3 Source: IMF, Direction of Trade Statistics.32 www.businessmonitor.com Business Monitor international ltd
  • 33. Business enVironMentoperational risksecurity riskVietnam is generally a very safe country for foreign residentsand travellers. Petty street crime is rising in the major cities,but there have been very few serious offences against foreign-ers reported. Unexploded mines and ordnance are a continuinghazard, particularly in central Vietnam and along the Laos border.The poor standard of roads and other public infrastructure isalso a safety risk, as is the poor level of driving which makestraffic accidents one of the most prominent health risks for bothforeigners and nationals.Business Monitor international ltd www.businessmonitor.com 33
  • 34. Chapter 5: Key sectors of rising wages and improving consumer sentiment. However,Defence we expect import growth to continue to outpace that of exports in 2011. In light of a better-than-expected Q410 result and ourexecutive summary Global team’s upgrade on the US economy, we now expect realThe revelation that a Chinese stealth fighter jet was in the final GDP growth in 2011 to reach 6.3%.stages of development in January is expected to reignite Viet-nam’s concerns over China’s ambitions to modernise its military. Market overviewMore importantly, the pace of China’s progress in developing A former Soviet proxy, Vietnam has failed to develop its ownits military capabilities has come as a surprise to Washington. domestic defence industry adequately. Hindering its develop-US Defense Secretary Robert Gates commented during a visit ment has been its long history of conflict, meagre resources, lackto Beijing that China may be ahead in the development of the of domestic know-how and military doctrine of guerrilla andaircraft than US intelligence had previously predicted. China’s defensive warfare strategies, which are still being overcome.military expansion in recent years has prompted Vietnam to Most Vietnamese arms were purchased from the Soviets, exceptrespond by upgrading its own military capabilities. for a few newly acquired platforms from North Korea, Russia and a small number from India.Back in December 2009, Vietnam signed a series of major armsdeals with Russia that included six kilo-class submarines and 20 Perhaps the largest inhibiting factor preventing the industry’sSu-30 fighter-bombers. The deals amounted to around US$2.6bn, development is capital. With Vietnam so far behind regionalthe biggest since Moscow pulled its remaining military interests leaders economically, it lacks the required industrial and scien-out of Vietnam at the end of the Cold War about 20 years ago. tific base necessary for any credible defence industry. However,Judging from Vietnam’s response to China’s growing military future purchases, expected to come in the next decade, maypresence in previous years, we note that the recent revelation of include technology transfers, allowing Vietnam to jump aheadChina’s stealth fighter jet could potentially spark another round generations and to provide the foundation for a domestic industry.of arms deals between Vietnam and Russia. Vietnam maintains a small domestic defence industry capableIndeed, we anticipate further efforts by Hanoi to deepen ties with of supplying small arms, minor weaponry and ammunition. ForWashington over the coming years, as Vietnam lean towards more technologically advanced production, Vietnam relies onthe pro-US camp that already includes some of its Association reverse engineering and this technique has been employed toof Southeast Asian Nations (ASEAN) peers such as Indonesia keep the nation’s fleet of ageing Soviet aircraft in use prior toand Thailand. From our perspective, China’s growing influence an agreement with India. All defence production is facilitatedin the region and its expanding military presence in the South by state enterprises, and there is little if any research and devel-China Sea will continue to play a key role in aligning the political opment (R&D) done within the country aimed at creating newinterests of Hanoi and Washington. We saw a marked improve- platforms. However, through a focused procurement programme,ment in Vietnam-US relations in 2010 as the two countries made the Vietnamese defence industry will benefit from exposure toa series of symbolic moves in boosting bilateral ties. new technology.Our view that infrastructure investment would provide support Like most other sectors of the economy, Vietnam’s defencefor Vietnam’s economic growth in 2010 has played out well. industry is looking for technological transfers. OpportunitiesVietnam’s real GDP growth came in at better than expected in seem possible with companies from India, the UK, Russia2010, led by a strong performance in the construction sector. In and France. However, the larger issue remains funding. With2011, we expect domestic demand to remain robust on the back few resources directed towards the massive military and just aBusiness Monitor international ltd www.businessmonitor.com 35
  • 35. VietnaM Q3 2011small percentage of the total budget allocated to new purchases, offer incentives to Hanoi.Vietnam remains temporarily handcuffed until the economyexpands to such a point that significant money is allocated to As noted above, in December 2009, Vietnam ordered fromthe defence budget. Russia six diesel-electric kilo-class Project 636 submarines (at US$2bn in total) and 12 Su-30 fighter jets. This is in additionIndustry Trends And Developments: Vietnam’s defence to an earlier contract for 12 Su-30MK2 fighter aircraft signedindustry is largely underdeveloped compared to other neigh- in January 2009. (Source: Defense News, January 21 2010)bouring states, especially Singapore and Australia. Due to theweak indigenous defence industry, Vietnam imports most of its Vietnam’s Ministry of Defence has signed a contract with Vikingdefence systems, with Russia, Poland and Israel providing the Air of Canada to purchase six DHC-6 Twin Otter Series 400bulk of Vietnam’s arms acquisitions. French defence company aircraft for Vietnam’s navy.Thales is set to penetrate the Vietnamese defence and securitymarket, especially in the area of light arms. Specifically, Thales In Q207, Vietnam’s defence export structure received a boostis seeking to provide technology that can integrate with the Rus- when the US announced that it intended to lift the arms tradesian designed AK-630 naval Gatling gun. Thales has already sanctions placed on the country, after the International Trafficsuccessfully integrated its technology with Poland’s Orkan in Armed Regulations amendment enabled the US to embark onnaval missile craft. However, there are a number of obstacles examining two-way trade with Vietnam on non-lethal defencehindering the development of a robust defence and security systems. Items that are not included in the new agreement rangeindustry in Vietnam. from non-lethal crowd defence articles to night-vision systems used by security forces. It is likely that in the initial stages ofIn 2008, Vietnam’s defence industry continued to mature. In the arms trade relationship will be asymmetrical, with VietnamQ108, the government directed that all military-owned defence probably importing most of the arms from the US. However,industries will be managed by the government by the end of as the Vietnamese defence industry matures, the country could2012. There are some 140 defence firms managed by the mili- boost its arms exports, particularly in the area of small armstary. The change in ownership is framed in the Defence Industry and light weapons (SALW). Vietnam holds a comparativeOrdinance, which states that the role of the indigenous defence advantage in the labour-intensive SALW industry. As stated,industry is to support economic and social development in addi- Vietnam’s defence systems are old and need spare parts fromtion to the defence of Vietnam. The government stated that the older systems, which the US is unlikely to produce. Therefore,military’s management of the defence firms and military issues Russia is likely to remain Vietnam’s main arms trading partnerwere overloading the armed forces. However, it is likely that in the foreseeable future.the move was also driven by the need for Vietnam’s defenceindustry to mature more rapidly. Procurement Trends And Developments: With Vietnam’s recent economic growth and a replacement date of 2020 for mostIn December 2009, it was reported by Janes that the Vietnamese major platforms, there are opportunities for military sales. Viet-government had urged the ‘rapid development’ of its state-owned nam will need to replace: armoured personnel carriers (APCs),defence industries to supply the Vietnamese army with the most battle tanks, artillery, fighters, helicopters, transports, surfacemodern military equipment. No details were revealed about how assets and anti-missile systems. More specifically, maritimeit is planning to develop those capabilities. disputes present increased opportunities for at-sea clashes, with leading planners most likely to concentrate on adding naval as-Arms Trade Overview: Vietnam’s ageing platforms require sets, especially for the under-resourced coastguard.replacements if the military is to have any operational capacitywithin the next decade. The almost total absence of any large- Trade and barter agreements present an interesting opportunityscale defence industry translates into the nation’s need for for foreign suppliers. Such deals have proved successful inforeign purchases. Historical suppliers Russia and India will the cases of Indonesia and Malaysia, who have suffered fromlikely remain the primary sources of new purchases, as both funding issues in the past. Those firms hoping to compete withcountries offer technologically advanced systems for a relatively Rosoboronexport must consider this fact when competing forlow price in comparison to Western goods. However, there is contracts.the opportunity for UK and US firms, provided that they can36 www.businessmonitor.com Business Monitor international ltd
  • 36. KeY sectorsIn recent years, there has been a noticeable increase in the number a percentage of GDP in recent years and the likely trends, givenof large arms deals and growing defence budgets amongst what we know about the budgetary priorities of the governmentAsia Pacific states. The South East Asian region has stood out of the country in question.in particular, as many South East Asian states are attemptingto revive their ageing Soviet-era defence platforms. Defence Perhaps as a result of the financial crisis of early 2008, Vietnam’splatforms that have received the most attention include sub- defence spending ratio slipped a little that year, from 2.5% ofmarines, fighter-jets and missile systems such as the Brahmos GDP to 2.4%. We have taken the view that the ratio rises slightlycruise-missile. These defence platforms all focus on maintaining in each of 2009 and 2010, before remaining stable through thesuperior combat and strike capability based on stealth, a key rest of the forecast period.feature of fifth generation technology. Vietnam’s economy has been one of the region’s fastest grow-There are several drivers for the shift towards an arms build-up. ing, and it is important to note that Hanoi’s purchase of foreignFirst, China’s peaceful rise has not necessarily been reflected goods, especially for the military, has been contingent on itsin its handling of key territorial disputes, such as the Spratly economic growth. With new and possibly sustained growth,Islands. South East Asian states are aware that a dispute over Vietnam could be entering a potential spending phase similarthe One China policy is likely to emerge over Taiwan. Another to the one recorded in the pre-financial crisis years.key driver is that, internally, many South East Asian states haveexperienced increasing internal instability – such as the Philip- Hanoi announced plans in Q107 to reform many state-ownedpines, Thailand and Indonesia. For many states the increased enterprises (SOEs) throughout the country. Although the pacepurchase of arms is as much for internal protection as it is for of reform is behind schedule, something that should come asexternal protection. The question remains as to where Vietnam no surprise, the banking sector, utilities, post, telecommunica-fits into this regional trend. tions, chemicals, insurance and manufacturing sectors have been identified as profitable locations for foreign direct investmentGiven that Vietnam is on relatively friendly diplomatic terms and possible partnerships. In many of these sectors, foreignwith China, it does not necessarily have to be as concerned with investors will be offered the opportunity to buy shares in SOEs.the latter’s rise. Moreover, Vietnam does not bear any signifi- However, corruption and the opaque nature of business sug-cant territorial grudges towards any neighbours more powerful gest that these would be high-risk plays – especially without athan itself. Finally, the country is not experiencing any strong proven, workable legal framework to define business practices.or sustained internal dissent like in Thailand or Indonesia. Inthese cases the governments have had to resort to purchasing In the meantime, Vietnam remains a predominately agrarianarmoured personnel carriers and sophisticated communications society, with some 65% of the labour force employed in theequipment to control their respective insurgencies. sector, which includes forestry, fisheries and agriculture. The sector accounts for 23% of GDP. Vietnam’s staple crops in-In recent years, India has become a key player in assisting the clude coffee, rice and pepper; along with aquaculture exports,revitalisation of Vietnam’s armed capabilities. In Q108, India it continues to be a world production leader in these goods. Inannounced plans to provide 5,000 spare parts to Vietnam to relation to regional economies, Vietnam’s per capita GDP, netrevive its Petya-class frigates. The frigates form a core part of export values, and net GDP lag far behind regional competitorsVietnam’s maritime capability, having been used regularly to the Philippines, Thailand and Indonesia.patrol the coast and the Spratly Islands. However, the fleet isageing rapidly. The Petya-class frigates were acquired from In terms of civilian and possible dual use areas, Vietnam’s aero-India in 1978, with an additional three frigates acquired between space industry presents the most easily realised opportunities.1983 and 1984. The industry has been growing by 10-15% annually and has made several recent purchases from non-traditional suppliers.industry Forecast As air traveller numbers continue to increase, new planes andGovernment Expenditure: Our forecasts of defence spending infrastructure will be needed to accommodate demand.are driven by two variables. One is overall GDP, the other is thepercentage of GDP that is devoted to defence. In forecasting the The state-owned Civil Aviation Administration of Vietnamlatter, we give consideration to the size of defence spending as handles civilian air purchases. The administration is scheduledBusiness Monitor international ltd www.businessmonitor.com 37
  • 37. VietnaM Q3 2011to receive US$4.5bn for infrastructure and US$5bn for new SOEs to raise foreign capital or, in the case of mining opera-aircraft by 2010. Money for purchases will come from the state tions and other capital intensive industries, form partnershipsbudget, development assistance and joint partnerships. Japan, between SOEs and foreign investors, who will need to offerEurope and especially the US are the largest players in the expertise and R&D monies.industry, and the US market share is expected to grow as thetwo nations continue to normalise relations. Recent activity in Meanwhile, private enterprises in the country account forthe sector has included Vietnam Airlines adding to its fleet of roughly 25% of GDP, but for obvious reasons they are one of25 aircraft, which includes five Boeing 767-300s, 10 Airbus the fastest growth sectors and employ 400% more people thanA-320s and two Airbus A-321s, by signing a contract to buy the state sector. One sector, which will be key to the economy,four Boeing 777-200ERs. However, the best opportunity for is tourism. With Thailand facing insurgency in the south, Chinacontracts is located in the spares market and aiding the nation becoming more expensive along its rapidly evolving coast,in its multibillion infrastructure development plans. Indonesia and the Philippines stigmatised by their association with terrorism, and with the cost of living increases in Malaysia,Although Vietnam continues to have little or no indigenous Vietnam has the potential to emerge as a safe, cheap tourist des-defence industry, change could be just a decade away. The tination. Its lengthy coastline, numerous parks, wartime legacy,military needs to add new platforms to all services to maintain central location and cheap living costs will likely transform thetraining programmes and operational capacity. This need could nation into a tourist mecca in the decades to come.be met by defence agreements with Russia, India and possiblythe UK or South Korea. New large-scale contracts could form Defence Trade: As yet, we have no data for military weaponsthe backbone of a defence industry that would be well positioned exports, or exports of revolvers and pistols. We also have noto sell arms to questionable states such as Cuba and Burma. dataset for military weapons imports.However, for this to happen, foreign partners must be willingto transfer technology or sell licensing agreements to Hanoi. Imports of revolvers and pistols slipped quite sharply in 2008More importantly, the Communist Party of Vietnam (CPV) will and 2009. We assume that, through 2010 and 2011, such im-have to find funding or pursue non-traditional payment options. ports rise to the level that was the annual average in 2005-2009.Whether the CPV will make the development of this industry a They are assumed to rise by 5% annually thereafter. Imports ofnational priority remains in question. bombs, grenades, mines, missiles and ammunition have been quite stable in recent years and are assumed to grow by 5%Much like China, Vietnam has a glut of SOEs. Though account- annually through the forecast perioding for 40% of industrial output, SOEs do not receive foreigninvestment and hence are languishing in terms of technologicalupgrades. It is likely that in the next decade Hanoi will sell many taBLe: VietnaM’s DeFence eXpenDiture, 2008-2015 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f Vndmn 34,848,000 36,180,000 50,270,441 59,077,008 66,677,266 75,335,502 84,729,578 94,858,052.5 – % change y-o-y 21.3 3.8 38.9 17.5 12.9 13.0 12.5 12.0 – % of GdP 2.4 2.5 2.6 2.6 2.6 2.6 2.6 2.6 – Vnd per capita 404,218.6 414,497.6 568,914.7 661,768.9 739,438.5 827,258.7 921,452.8 1,021,847.0 us$mn 2,120.6 2,034.0 2,618.3 2,991.2 3,376.1 3,913.5 4,518.9 5,197.7 – % change y-o-y 18.6 - 4.1 28.7 14.2 12.9 15.9 15.5 15.0 – us$ per capita 24.6 23.3 29.6 33.5 37.4 43.0 49.1 56.0 eurmn 1,442.6 1,452.9 1,968.6 2,215.7 2,658.3 3,130.8 3,615.1 4,158.2 – % change y-o-y 10.6 0.7 35.5 12.6 20.0 17.8 15.5 15.0 – eur per capita 16.7 16.6 22.3 24.8 29.5 34.4 39.3 44.8 us$mn, constant prices 2,138.0 2,073.0 2,419.6 2,590.1 2,767.9 3,042.5 3,361.0 3,697.8 – % change y-o-y -1.5 -3.0 16.7 7.0 6.9 9.9 10.5 10.0 – constant us$ per capita 24.8 23.7 27.4 29.0 30.7 33.4 36.6 39.8 e/f = BMI estimate/forecast; per capita = per capita of population. Source: SIPRI38 www.businessmonitor.com Business Monitor international ltd
  • 38. KeY sectors are encouraged by Vietnamese airfreight exports, particularlyFreight transport in the high-tech sector.executive summary Movement On Long Thanh International Airport: The planWe maintain our forecast of a good year for Vietnamese to build a new airport – the country’s largest – at Long Thanhfreight transport in 2011. Our overall view has two major has been stuck in the pipeline for years, but now the authoritiescomponents: a background of high single-digit growth of say work on the US$1.27bn project will start in 2015.the economy on the one hand (albeit at a slower rate than in2010) and some disparities in the pace of expansion of freight Japanese Interest in Vietnam Ports Surges: The Japanesecapacity by transport mode on the other. While investment government, investors, contractors, and shipping lines are allis being channelled into ports and container terminals, for looking to get involved in the Vietnamese ports and shippingexample, officials admit that the rail freight sector is plagued sector. The Japan International Cooperation Agency is fundingby insufficient track and signalling. the bulk of a JPY140bn (US$1.7bn) new port project at Lach Hyuen in northern Vietnam. Shipping lines MOL and NYKAs far as the economy is concerned, the authorities are acting to are opening new services to the country. Japan’s Kobe Steelcool down the pace of growth so as to be able to control infla- says it will build its own US$244-365mn port there to securetionary pressures and narrow the foreign trade deficit. While this iron nugget supplies.is forcing a cut-back in some public sector investment projectsand therefore slower growth, BMI believes that a short-term Key Risks To Outlook: The main risk to our freight transportcorrection is necessary, and will ultimately be a positive factor projections is that this year’s macro-economic slowdown mighton the medium to longer term. be more severe than expected. A potential scenario in which this could happen would be if both domestic inflation and theAs far as the freight industry is concerned, it is important to foreign trade deficit remain much higher than desired, and shownote that it is only in the ports and shipping and road haulage no signs of responding to the tightening measures already taken.sectors that freight tonnage will expand at a faster-than-GDP The authorities could then find themselves forced to take morerate this year. Road haulage will be ahead of GDP by only 0.2 severe measures, with a consequent negative impact on GDPof a percentage point (6.5% versus 6.3%) while the ports sector growth and demand for shipping services.will be ahead only in some terminals (eg Saigon New Port).Volume growth across all other transport modes will lag behind Market overviewGDP: airfreight (+5.3%), followed by rail (+4.8%) and inland In January 2007, Vietnam officially joined the WTO, an eventwaterways (+4.3%) seen as an important milestone in the country’s closer integration into the global economy. WTO membership has helped boostHeadline Industry Data: Vietnam’s international trade and develop its freight transport capabilities.• The real value of total trade will rise by 11.3% this year, with exports gaining 11.0%, behind import growth of 11.6% Road transport is the most advanced in terms of freight sec- tor privatisation and is the dominant mode for freight, with a• Total volume handled at Saigon New Port (also known market share of around 60% of domestic cargo. There are over as Port of Ho Chi Minh City) will rise 7.5% to 21.843mn 1,050 enterprises registered in the road transport business, tonnes this year, while volume at the Port of Da Nang will which include 16 state-owned enterprises (SOEs), 233 limited rise 2.8% to 3.29mn tonnes. liability companies, 350 private companies and 450 joint stock companies. Very few foreign-invested companies are present.• Airfreight will grow by 5.3% this year to 147,910 tonnes. Most road transport companies are of small or medium size,Key Industry Trends – Jade Cargo Opens Hanoi Route: and each company, on average, owns about 50 vehicles. InNetherlands-based Jade Cargo has launched twice-weekly addition, tens of thousands of individual household businessesfreighter flights to Hanoi via Shanghai, India and Dubai. Execu- exist that operate informally in the road freight sector, and aretives say they are building the company’s Asian network and thus difficult to account for and monitor.Business Monitor international ltd www.businessmonitor.com 39
  • 39. VietnaM Q3 2011Vietnam has a national road network of 222,179km. Of this, at Haiphong are generally used for domestic flights to the threeonly 42,167km, or 19%, is paved. In addition, recent surveys larger hubs. In 2010, Vietnam’s air transport infrastructure wasindicate that approximately 40% of the network is in poor to very ranked 84/133 nations by the WEF.poor condition and will require substantial investment even toreach a maintainable condition. The quality of Vietnam’s road Vietnam’s dense river and canal network provides the countryinfrastructure was judged by the World Economic Forum (WEF) with a highly developed inland waterway system. This is theto be poor and was ranked 102 out 133 nations surveyed in the second largest sub-sector involved in domestic cargo trans-WEF 2010-2011 Global Competitiveness Report. port, accounting for 25-30% of total transport volumes. The inland waterway transport sub-sector is managed by two stateVietnam’s railway transport sector has only one operator, the corporations affiliated to the Ministry of Transport, one SOEVietnam Railway Corporation, established in April 2003 affiliated to the Vietnam Inland Waterway Authority, and someas a state corporation operating railway transport and related enterprises managed by other ministries, operating in supportservices. The government has announced plans to separate the of the power generation, cement and paper industries. In addi-management of rail infrastructure from passenger and cargo tion, there are about 230 cooperatives and hundreds of inlandservices. Vietnam’s rail network totals 2,600km (excluding waterway transport enterprises in the country.sidings). The network is mixed-gauge, comprising 2,169kmof 1.000m gauge and 178km of 1.435m gauge. The network Vietnam’s seaport network comprises of many small- and medium-has 1,790 bridges totalling 45km and 11.5km of tunnels. The sized entities, with inefficient distribution. Most big ports are lo-principal axis is Hanoi-Ho Chi Minh City (1,726km). Other cated far inside rivers, like Hai Phong and Ho Chi Minh City, withlines emanating from Hanoi are to Hai Phong (102km), Lao limited depth at the entrance. Some ports are located in big cities,Cai (296km) and Dong Dang (162km). Railway infrastructure thus making it difficult to connect with other modes of transportin Vietnam was ranked 58 out of 114 by the WEF. for cargo transfer to and from ports, due to traffic congestion. Ex- cept for several new or upgraded ports, most have been operatingThere are two principal airlines operating in Vietnam: Vietnam for many years and lack investment and are seriously degraded.Airlines and Pacific Airlines. Both are majority state owned,although Australia’s Qantas is now a minority shareholder in The loading and unloading equipment in some ports is obso-Pacific Airlines. The government has announced plans to build lete, leading to low productivity. The average productivity of athe country’s largest airport at Long Thanh in the southern Vietnamese port is only 2,500 tonnes/m per wharf, or 40-50%province of Dong Nai, at an estimated cost of US$8bn. The of productivity of other ports in the region.authorities also plan to expand Noi Bai International airport inHanoi. The three major airports handling freight are located at Vietnam’s port infrastructure is poor by international standards.Ho Chi Minh City, Hanoi and Da Nang, each of which have The WEF’s 2010-2011 Global Competitiveness Report gives it ainternational connecting flights. Minor airports such as Cat Bi score of 3.56, putting it just ahead of the regional underperformer, taBLe: roaD FreiGHt 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f road freight tonnes (000) 455,898.40 494,649.80 563,406.12 599,863.21 641,689.03 688,531.87 738,564.31 789,140.46 road freight tonnes % change y-o-y 13.02 8.50 13.90 6.47 6.97 7.30 7.27 6.85 road freight tonnes/km (mn) 27,968.00 30,261.40 34,467.73 36,840.47 39,562.62 42,611.29 45,867.56 49,182.10 road freight tonnes/Km % change y-o-y 13.47 8.20 13.90 6.88 7.39 7.71 7.64 7.23 Source: General Statistics Office of Vietnam taBLe: raiL FreiGHt 2008 2009 2010 2011f 2012f 2013f 2014f 2015f rail freight tonnes (000) 8,481.10 8,068.10 7,809.92 8,187.28 8,620.20 9,105.06 9,622.93 10,199.06 rail freight tonnes % change y-o-y -6.29 -4.87 -3.20 4.83 5.29 5.62 5.69 5.99 rail freight tonnes/km (mn) 4,170.90 3,805.10 3,717.58 3,893.05 4,094.36 4,319.82 4,560.63 4,799.43 rail freight tonnes/km % change y-o-y 7.43 -8.77 -2.30 4.72 5.17 5.51 5.57 5.24 Source: General Statistics Office of Vietnam40 www.businessmonitor.com Business Monitor international ltd
  • 40. KeY sectorsthe Philippines, which scores 2.92, and well behind regional lead- Total Tonnage – Saigon New Port To See Strong Volumeers Singapore and Hong Kong. Increasing international interest Growth: BMI maintains our projection of strong growth in 2011in Vietnam’s port sector on the back of growing intra-Asia trade volume handled at the Port of Ho Chi Minh City (also knownshould help to close the gaps in infrastructure investment. as SNP, Saigon New Port), up by 7.45% to 21.84mn tonnes, after the 6.22% rate estimated in 2010. We believe mediumindustry Forecast term growth will be vigorous, with the annual average over theRoad Freight – High Single-Digit Growth: Since our last report 2010-2015 period coming out at 8.0%, one percentage pointwe have maintained our forecast for road haulage. In 2011 we above the general growth rate of the Vietnamese economy. Atnow see a growth rate of 6.9% to 36.84bn tonnes per kilometre Da Nang Port (DNP), we see 2011’s volume increasing by 2.8%(bntkm). Thereafter road freight growth will continue expanding to 3.29mn tonnes. Average growth of volume at DNP acrossvigorously, averaging 7.4% per annum in the five years to 2015. the forecast period will however, be 3.4%, below the generalThis rate will exceed the average for GDP growth, a pattern GDP growth rate (this reflects capacity limitations at this port).consistent with this stage of Vietnam’s industrialisation process. SNP is expected to see 4.4% container handling growth to 2.89mnRail Freight – Waiting For New Investment: Rail freight twenty-foot equivalent units (TEUs) in 2011, following an es-carried is set to experience a slowdown in 2011, with growth timated growth of 13.89% in 2010. The DNP will see growthof 4.7% to 3.893bntkm. Average annual growth over the next of 7.09% to 79,252 TEUs. SNP will experience medium-termfive years will be 5.2%, below overall economic growth. This (2011-2015) average annual box handling growth of 5.6%;suggests that Vietnam’s poor track infrastructure and signalling while for DNP the figure will be a somewhat higher at 7.9%.system is limiting the potential for this freight transport mode.In volume terms freight carried by rail will recover by 4.8% in Trade – Forecast Remains At 11.3% Growth In Real Terms:2011 to 8.187mn tonnes. Chinese-backed rail investment projects In real terms Vietnam’s total trade (imports + exports) will growfor Vietnam present upside risks to our forecasts. by 11.3% in 2011. Over our forecast period to 2015, exports will grow at an average annual rate of 8.6%, ahead of imports at 7.5%.Air Freight – Growing At 5%-Plus: In terms of air cargovolume, BMI sees growth of 5.3% to 147,910 tonnes in 2011, Vietnam’s principal export commodities are crude oil and manu-compared with growth of 2.1% in 2010. In the medium term, the factured goods. The country’s main imports are machinery and2011-2015 forecast period, tonnage growth will average 5.9%, equipment. Vietnam’s main export partners are the US, Japan,just below the country’s general rate of economic expansion. Australia, China and Germany. The country’s main sources forIn terms of freight carried (volume x distance) we expect to imports are China, Singapore, Japan, South Korea and Thailand.see growth of 4.9% in 2011 to 327.73mntkm, a recovery from Vietnam’s geographic position on the South China Sea allows2010’s contraction of 1.3%. the country access to the main transpacific and intra-Asian shipping routes, enabling the country to meet its trading needs. taBLe: air FreiGHt 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f air freight tonnes (’000) 131.40 137.60 140.54 147.91 156.38 165.85 175.98 187.56 air freight tonnes % change y-o-y 1.39 4.72 2.13 5.25 5.72 6.06 6.10 6.58 air freight tonnes/km (mn) 295.60 316.60 312.48 327.73 345.23 364.83 385.76 408.23 air freight tonnes/km % change y-o-y 5.61 7.10 -1.30 4.88 5.34 5.68 5.74 5.82 Source: General Statistics Office of Vietnam taBLe: MaritiMe FreiGHt 2009 2010e 2011f 2012f 2013f 2014f 2015f Port of Ho chi Minh city (saigon new) throughput, tonnes ’000 19140.00 20329.57 21843.71 23581.42 25564.47 27691.79 29920.83 Port of Ho chi Minh city (saigon new) throughput, tonnes, % y-o-y -5.15 6.22 7.45 7.96 8.41 8.32 8.05 Port of da nang throughput, tonnes ’000 3132.00 3204.35 3292.86 3394.43 3510.34 3634.68 3778.43 Port of da nang throughput, tonnes, % y-o-y 14.21 2.31 2.76 3.08 3.41 3.54 3.95 Source: Port authoritiesBusiness Monitor international ltd www.businessmonitor.com 41
  • 41. VietnaM Q3 2011other Key sectorsLatest Forecast DataBelow are the latest forecast tables for our other core key sectors: taBLe: FooD anD DrinK sector KeY inDicators 2009 2010e 2011f 2012f 2013f 2014f 2015f food consumption, us$bn [1,4] 14.3 15.0 17.5 19.2 21.6 24.3 27.2 food consumption Vndbn [4] 255,243.5 288,312.2 344,695.2 378,840.9 415,535.3 454,832.2 496,660.5 Per-capita food consumption us$ [1,4] 164.4 169.9 195.5 212.7 237.0 263.8 293.2 confectionery sales, us$mn [1,5] 291.2 291.1 312.0 337.1 374.3 415.8 461.8 confectionery sales, Vndmn [5] 5,180,212.30 5,589,384.10 6,162,767.00 6,656,945.10 7,205,880.10 7,796,731.30 8,428,342.70 alcoholic drinks sales, us$mn [1,6] 1577.3 1610.2 1749.8 1952.1 2225.4 2538.4 2895.8 alcoholic drink sales, Vndmn [6] 28,055,193.4 30,915,919.3 34,558,532.1 38,553,502.2 42,839,245.8 47,595,751.6 52,847,801.5 soft drinks sales, us$mn [2,7] 311.7 319.1 358.1 384.7 424.1 467.7 515.7 soft drink sales, Vndmn [3,7] 5,544,000.00 6,126,106.40 7,072,386.50 7,598,305.10 8,163,946.10 8,768,928.70 9,412,179.10 total mass grocery retail sales, us$bn [1,7] 0.2 0.2 0.3 0.3 0.3 0.4 0.4 total mass grocery retail sales, Vndbn [7] 3,823.9 4,437.7 5,142.2 5,746.2 6,421.6 7,147.8 7,923.3 exports of food and drink, us$mn [8] 9,706 10,713 11,516 12,587 13,883 15,335 16,961 imports of food and drink, us$mn [8] 3,206 3,354 3,638 3,982 4,363 4,786 5,256 food and drink trade balance us$mn [8] 6,500.0 7,359.1 7,878.6 8,605.5 9,520.3 10,548.7 11,704.8 Notes: e/f = BMI estimates/forecasts. 1 US$ forecast using moving FX rates; 2 US$ forecast using moving FX rates. Figures include both on-trade and off-trade sales. Volume data are calculated using per capita consumption and population data while value is calculated using historic average price esti- mates; 3 Figures include both on-trade and off-trade sales. Volume data are calculated using per capita consumption and population data while value is calculated using historic average price estimates; Sources: 4 General Statistics Office, BMI; 5 General Statistics Office, company information, trade press, BMI; 6 General Statistics Office, company information, BMI; 7 Company information, trade press, BMI; 8 UNCTAD, Central Statistics Organisation, BMI. taBLe: pHarMaceuticaLs sector KeY inDicators 2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f Pharmaceuticals sales, us$bn [1,3] 1.114 1.400 1.538 1.713 1.952 2.261 2.662 3.105 3.560 Pharmaceutical sales, us$bn, % y-o-y [1,3] 16.5 25.7 9.9 11.3 14.0 15.8 17.8 16.6 14.7 Pharmaceutical sales, Vndbn [1,3] 17,908.41 23,005.89 27,360.89 32,886.07 38,550.33 44,656.55 51,251.10 58,217.79 64,974.98 Pharmaceutical sales, Vndbn, % y-o-y [1,3] 17.2 28.5 18.9 20.2 17.2 15.8 14.8 13.6 11.6 Health expenditure, us$bn [1,4] 5.06 6.55 7.28 7.89 8.98 10.33 12.11 14.07 16.22 Health expenditure, us$bn, % y-o-y [1,4] 26.6 29.5 11.2 8.4 13.8 15.0 17.1 16.2 15.3 Health expenditure, Vndbn [1,4] 812,77.57 107,602.66 129,491.07 151,515.75 177,443.39 204,103.94 233,032.81 263,792.61 295,993.23 Health expenditure, Vnd bn, % y-o-y [1,4] 27.3 32.4 20.3 17.0 17.1 15.0 14.2 13.2 12.2 Notes: e/f = BMI estimates/forecasts. 1 Last updated: 25/02/2011; 2 Data are DALYS, disability-adjusted life years; Sources: 3 Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press, BMI; 4 World Health Organization (WHO), BMI; 5 WHO, World Bank, IMF, BMI research. taBLe: oiL anD Gas sector KeY inDicators 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f Proven oil reserves, bn barrels [1] 4.730 4.500 4.500 4.600 4.700 4.650 4.560 4.470 oil production, 000b/d [1] 317.0 345.0 355.0 390.0 390.0 385.0 372.0 365.0 oil consumption, 000b/d [1] 333.9 345.0 365.7 384.0 403.2 427.4 453.0 480.2 oil refinery capacity, 000b/d [2] 0.0 140.0 140.0 140.0 140.0 140.0 340.0 540.0 oil exports, us$mn [1] 10,885.0 4,865.0 6,436.2 8,672.4 9,154.2 8,508.1 2,168.1 -3,974.8 Petroleum exports, us$mn [3] 6,436.25 6,436.25 6,436.25 6,436.25 6,436.25 6,436.25 6,436.25 64,36.25 import of refined products, 000b/d [1] 333.9 219.0 239.7 258.0 277.2 301.4 147.0 -5.8 Proven gas reserves, bcm [1] 557.0 682.0 682.0 690.0 670.0 660.0 650.0 630.0 Gas production, bcm [1] 7.9 8.0 9.1 10.0 11.7 15.0 20.0 22.0 Gas consumption, bcm [1] 7.9 8.0 9.1 10.0 11.7 14.0 16.0 18.0 Notes: e/f = BMI estimates/forecasts. Sources: 1 BP Statistical Review of World Energy, June 2010; 2 EIA/BMI research; 3 BMI calculation.42 www.businessmonitor.com Business Monitor international ltd
  • 42. KeY sectors taBLe: autos sector KeY inDicators 2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f Vehicles, units [1] 23,478 33,018 33,689 37,199 40,322 43,872 48,170 52,805 57,789 Vehicles, units mn [1] 0.02 0.03 0.03 0.04 0.04 0.04 0.05 0.05 0.06 Passenger cars, units [2] 22,542 31,684 32,805 36,315 39,438 42,988 47,286 51,921 56,905 Passenger cars, units mn [2] 0.02 0.03 0.03 0.04 0.04 0.04 0.05 0.05 0.06 commercial vehicles, units [1] 936 1334 884 884 884 884 884 884 884 commercial vehicles, units, % chg y-o-y [1] 197.1 42.5 -33.7 0.0 0.0 0.0 0.0 0.0 0.0 Vehicles, units [3] 80,392 111,946 119,460 112,224 118,824 126,562 138,656 159,496 181,478 Vehicles, units, % chg y-o-y [3] 96.8 39.2 6.7 -6.1 5.9 6.5 9.6 15.0 13.8 Passenger cars, units [4] 40,115 50,874 62,723 57,778 58,934 61,880 66,212 74,157 82,315 Passenger cars, units, % chg y-o-y [3] 71.9 26.8 23.3 -7.9 2.0 5.0 7.0 12.0 11.0 commercial vehicles, units [5] 40,277 61,072 56,737 54,446 59,891 64,682 72,444 85,339 99,164 commercial vehicles, units, % chg y-o-y [5] 129.9 51.6 -7.1 -4.0 10.0 8.0 12.0 17.8 16.2 Passenger car density, cars per 1,000 of population [6] 9.9 13.0 13.2 13.6 14.2 14.6 15.0 15.5 16.0 Notes: e/f = BMI estimates/forecasts. Sources: 1 OICA/BMI calculation; 2 OICA; 3 VAMA/BMI calculation; 4 VAMA; 5 ACEA/BMI calculation; 6 ACEA&Eurostat. taBLe: inFrastructure sector KeY inDicators 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f construction industry value, Vndbn [1] 95,696.00 110,255.00 139,162.00 154,635.74 174,407.18 195,809.42 218,825.82 243,411.90 construction industry value, us$bn [1] 5.8 6.2 7.3 7.8 8.8 10.2 11.7 13.3 construction industry, real growth, % y-o-y [1] -0.38 11.36 10.06 -0.38 6.29 6.27 6.25 6.24 construction industry value, % GdP [1] 6.4 6.7 7.1 6.7 6.6 6.6 6.5 6.5 Notes: e/f = BMI estimates/forecasts. Sources: 1 Vietnam General Statistics Office. taBLe: teLecoMs sector KeY inDicators 2010e 2011f 2012f 2013f 2014f 2015f number of main telephone lines in service (’000) [1] 16,136.8 16,230.9 16,142.2 16,044.1 15,846.0 15,523.0 number of main telephone lines in service, % change y-o-y [1] -10.8 0.6 -0.6 -0.6 -1.2 -2.0 number of main telephone lines/100 inhabitants [1] 18.3 18.2 17.9 17.6 17.2 16.7 number of mobile phone subscribers (’000) [1] 155,522.3 184,492.0 200,186.8 213,521.4 224,312.0 233,942.0 number of mobile phone subscribers, % change y-o-y [1] 40.4 18.6 8.5 6.7 5.0 4.3 number of mobile phone subscribers/100 inhabitants [1] 176.0 206.7 222.0 234.5 243.9 252.0 number of mobile phone subscribers/100 inhabitants, % change y-o-y [1] 38.6 17.4 7.4 5.6 4.0 3.3 number of internet users (’000) [1] 27,139.9 31,093.3 33,366.4 34,966.6 35,641.0 36,108.0 number of internet users, % change y-o-y [1] 19.1 14.6 7.3 4.8 1.9 1.3 number of internet users/100 inhabitants [1] 30.7 34.8 37.0 38.4 38.8 38.9 number of internet users/100 inhabitants, % change y-o-y [1] 17.7 13.4 6.2 3.8 0.9 0.3 number of broadband internet subscribers (’000) [1] 3,759.8 4,829.1 6,202.8 8,118.5 10,216.0 12,843.0 number of broadband internet subscribers, % change y-o-y [1] 26.7 28.4 28.4 30.9 25.8 25.7 Notes: e/f = BMI estimates/forecasts. Sources: 1 World Bank (International Telecommunication Union), BMI research. this report is abstracted from BMi’s industry report series, which covers 22 sectors across global markets. every quarter, we will provide tables showing the latest five-year forecasts for key industries as well as a forecast scenario for a key sector. if you would like to order a full report, or find out about BMi’s other 1,113 industry reports, please contact subs@businessmonitor.comBusiness Monitor international ltd www.businessmonitor.com 43
  • 43. Chapter 6: BMi Global assumptions We have downgraded our 2011 US real GDP growth forecastGlobal outlook to 2.9% from 3.1%, owing mainly to base effects from a disap- pointing Q111, in which real GDP looks to have grown by lessModest Downgrade to Global Growth, than 2.5%, versus the 3.5% that we had pencilled in. Meanwhile,But upbeat outlook intact China’s real GDP growth came in at a faster-than-expectedOur global real GDP growth forecast for 2011 has been revised 9.7% y-o-y in Q111, following the 9.8% growth seen in Q410,down slightly to 3.5% from 3.6%, while the 2012 projection and we have revised up our 2011 forecast from 8.3% to 8.9%has dipped to 3.7% from 3.8%. Although we are mindful of accordingly. That said, our view that China’s economy facesrisks from rising oil prices, unrest in the Middle East and North a slowdown in H211 remains in play, with further tighteningAfrica and reverberations from the global supply chain emanat- measures set to cause a housing market correction.ing from Japan’s earthquake and tsunami, our global outlookremains generally upbeat. The major changes to our global We have revised down our US Fed funds interest rate forecastassumptions stem from revisions to growth forecasts for the for end-2012 to 2.00% from 2.50%, but maintain that theworld’s two largest economies, the US and China. Additionally, Federal Reserve will end its QE2 policy as scheduled at thewe have revised our assumptions for US interest rates (on hold end of June. We have revised down our dollar exchange ratefor longer) and the dollar (more depreciation). forecasts versus the euro, with our new average annual forecasts taBLe: GLoBaL assuMptions 2009 2010e 2011f 2012f 2013f 2014f 2015f real GDp growth (%) us -2.6 2.9 2.9 2.9 2.8 2.5 2.4 eurozone -4.1 1.7 1.8 1.8 2.0 1.9 1.8 Japan -6.3 3.9 0.7 1.8 1.3 1.2 1.2 china 9.2 10.3 8.9 8.1 7.6 7.0 7.0 World -1.7 4.3 3.5 3.7 3.8 3.8 3.7 consumer inflation (ave) us -0.4 1.6 2.3 2.0 2.0 2.0 2.2 eurozone 0.3 1.6 2.2 1.9 1.9 1.9 1.8 Japan -1.3 -0.7 0.0 0.4 0.8 1.3 1.8 china -0.7 3.3 4.3 3.2 3.0 3.0 2.9 World 1.9 3.0 3.6 3.6 3.5 3.5 3.4 interest rates (eop) fed funds rate 0.00 0.00 0.00 2.00 3.50 4.25 4.25 ecB refinancing rate 1.00 1.00 2.00 3.25 4.00 4.00 4.00 Japan overnight call rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 exchange rates (ave) us$/eur 1.40 1.33 1.43 1.38 1.30 1.25 1.25 JPy/us$ 92.90 87.18 88.00 90.75 93.75 97.50 102.50 cny/us$ 6.83 6.79 6.55 6.43 6.31 6.18 6.06 oil prices (ave) oPec Basket (us$/bbl) 60.10 77.38 90.00 95.00 90.00 90.00 90.00 Brent crude (us$/bbl) 67.00 79.47 94.00 99.00 93.00 93.00 92.63 Source: BMIBusiness Monitor international ltd www.businessmonitor.com 45
  • 44. VietnaM Q3 2011are US$1.43/EUR in 2011 (previously US$1.35/EUR) and as our Canadian real GDP growth forecast for 2011 has beenUS$1.38/EUR in 2012 (previously US$1.27/EUR). We also bumped up substantially to 2.9% from 2.4%. This is mainlysee greater scope for emerging market currency appreciation as a result of an improved outlook for exports and businessover the coming months. investment, and in spite of a slightly less ebullient outlook for the consumer. Meanwhile, our outlook for eurozone growth isDeveloped states slightly above consensus, as we are looking for 1.8% real GDPOur forecast for developed states’ real GDP growth in 2011 growth in both 2011 and 2012 (versus the 1.7% expected byhas fallen to 2.1% from 2.3%, owing to downgrades to the US analysts surveyed by Bloomberg).(as mentioned above), but additionally we have lowered theoutlook for the UK, which we now see growing by 1.7% in emerging Markets2011 (previously 2.0%) and 2.2% in 2011 (previously 2.6%). We are forecasting 5.5% growth in emerging markets in 2011 and 5.6% in 2012, unchanged from the previous edition of ourThere is some good news among developed states, however, global assumptions. taBLe: DeVeLopeD states reaL GDp GroWtH Forecast (% cHG Y-o-Y) 2010e 2011f 2012f 2013f Developed states aggregate Growth 2.6 2.1 2.3 2.3 G7 2.8 2.3 2.4 2.3 eurozone 1.7 1.8 1.8 2.0 eu-27 1.8 2.0 2.0 2.2 selected Developed states australia 2.7 2.4 2.6 2.8 austria 1.8 2.0 1.9 1.9 Belgium 2.1 1.7 2.1 2.2 canada 3.1 2.9 2.8 2.8 denmark 2.1 2.0 2.3 2.6 finland 3.1 2.7 2.2 2.3 france 1.5 1.7 1.7 2.0 Germany 3.6 3.0 2.0 1.8 ireland -1.0 1.3 2.1 2.2 italy 1.2 1.6 1.9 1.8 Japan 3.9 0.7 1.8 1.3 netherlands 1.7 2.2 2.3 2.7 norway 0.4 2.0 2.3 2.2 Portugal 1.3 -1.3 0.8 1.8 spain -0.6 0.7 1.3 1.9 sweden 5.5 4.4 3.0 2.5 switzerland 2.6 1.9 2.0 2.0 united Kingdom 1.3 1.7 2.2 2.5 us 2.9 2.9 2.9 2.8 Source: BMI taBLe: reaL GDp GroWtH – BLooMBerG consensus Forecasts us eurozone Japan Brazil china russia india 2011 Bloomberg consensus 2.9 1.7 1.4 4.05 9.5 4.5 n/a BMi 2.9 1.8 0.7 4.5 8.9 4.3 7.8 2012 Bloomberg consensus 3.1 1.7 2.0 n/a n/a 4.4 n/a BMi 2.9 1.8 1.8 4.8 8.1 4.5 8.2 Source: BMI46 www.businessmonitor.com Business Monitor international ltd
  • 45. BMi GLoBaL assuMptionsIn the Middle East and North Africa, we have upgraded our Europe is set to continue its upward trajectory of recovery, withforecasts for growth in the UAE, owing to improving sentiment growth of 4.1% in 2011 and 4.4% in 2012 (the latter revised upon the ground and despite regional ructions (which may yet slightly from 4.3% previously).benefit the UAE’s relative safe haven status). Emerging Asia’saggregate 2011 growth forecast has been revised up substan- For 2011, we are now in accordance with consensus estimatestially to 7.4% in 2011 from 7.0% owing to the aforementioned for US real GDP growth, although we remain below consensusChina upgrade. Additionally, as a result of very strong Q111 for 2012. Despite an upgrade to our China forecast, ours remainsdata, we have revised up our 2011 Singapore forecast to 5.9% below consensus for this year.from 5.1%. Despite a downgrade to Kenyan growth (from 6.0%to 5.2%, owing to monetary tightening and a poor harvest), ourSub-Saharan Africa forecasts remain unchanged, with aggregateregional growth forecast at 4.8% in 2011 and 5.9% in 2012. InLatin America, we have increased our 2012 forecast to 4.1% from4.0%, with Brazil leading the way in 2011 and 2012. Emerging taBLe: eMerGinG MarKets aGGreGate GroWtH (% cHG Y-o-Y) 2010e 2011f 2012f 2013f emerging Markets aggregate Growth 7.0 5.5 5.6 5.6 Latin america 6.1 4.4 4.1 4.0 argentina 9.2 6.0 4.1 4.2 Brazil 7.5 4.5 4.8 4.9 Mexico 5.5 4.0 2.6 2.4 Middle east 4.1 4.1 4.0 3.9 egypt 5.1 3.2 3.7 4.9 saudi arabia 3.8 3.9 3.7 3.5 uae 2.9 3.3 3.2 3.2 africa 5.1 4.8 5.9 5.9 south africa 2.8 3.5 4.0 4.3 nigeria 7.9 7.8 7.6 7.8 emerging asia 9.1 7.4 7.1 6.8 china 10.3 8.9 8.1 7.6 Hong Kong 6.8 4.1 3.9 3.5 india* 8.6 7.8 8.2 8.0 indonesia 6.1 5.9 5.8 6.2 Malaysia 7.2 4.9 4.2 3.6 singapore 14.5 5.9 4.4 4.1 south Korea 6.1 4.0 4.7 4.1 taiwan 9.9 3.0 5.0 5.1 thailand 7.8 3.6 4.0 4.2 emerging europe 4.4 4.1 4.4 4.8 russia 4.0 4.3 4.5 4.7 turkey 8.9 4.3 4.5 5.4 czech republic 2.2 2.4 3.3 3.8 Hungary 1.1 2.3 2.6 2.8 Poland 3.8 4.6 3.8 4.0 * Fiscal years ending March 31 (2009 = 2008/09)Business Monitor international ltd www.businessmonitor.com 47
  • 46. Mermaid House, 2 puddle Dock, London ec4V 3Ds tel: +44 (0)20 7248 0468 Fax: +44 (0)20 7248 0467 email: subs@businessmonitor.com Website: www.businessmonitor.com © 2011 Business Monitor international. all rights reserved. all information, analysis, forecasts and data provided by Business Monitor international ltd is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). all such content is copyrighted in the name of Business Monitor international, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Businessanalyst: andy Wang Monitor international ltd.Key sector analysts: andrew Hutchings, andrew thompsoneditor: Krystal tan all content, including forecasts, analysis and opinion, has been based on information and sourcessub-editor: Maria iusubscriptions Manager: Katie Patton believed to be accurate and reliable at the time of publishing. Business Monitor international ltd makesMarketing Manager: Joanna ashton no representation of warranty of any kind as to the accuracy or completeness of any information provided,production: lisa church, chuoc lam and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies orpublishers: richard londesborough, Jonathan feroze omissions affecting any part of the content.