Vietnam: Country Profile
Country Profile | 11 Mar 2011
The economy is growing at an impressive pace. Vietnam should be one of Asia's top performers for the next several years. Investment is the main
economic driver. Inflation will also rise as a result of large trade and current account deficits. Roughly 1.6 million jobs must be generated each year
and almost all come from the private sector. Vietnam's youthful age structure offers a potential “demographic dividend” and consumer boom if a
sufficient number of jobs can be created.
s Driven by private investment, consumption and non-oil exports, real GDP growth should be 6.8% in 2011. Vietnam should be one of Asia's top
performers for the next several years.
s Officials intended to cut the fiscal deficit to 5.9% of GDP in 2010 but missed that target badly. The new goal is to reduce the deficit to 3% of GDP by
2015. Achievement of this target would help ensure that the debt-to-GDP ratio remains below 50% of GDP.
s In an effort to counter the country's large trade and fiscal deficits, the authorities have devalued the dong six times in the past three years – most
recently in February 2011. The danger, however, is that devaluation could contribute to higher inflation.
s Half of the country's population is under 30 years. Such an age structure offers the opportunity for a “demographic dividend” and a consumer boom
if a sufficient number of jobs can be created.
329,565 square kilometres
New dông (= 10 hào = 100 xu)
Vietnam is located on the South China Sea coast of the Indo-Chinese peninsula. The country follows the coast for more than 2,000km from the
Chinese border in the north to the far south where it joins Cambodia on the Gulf of Thailand. There is also a western border with Laos. The climate is
tropical and extremely humid.
Head of State
President Nguyen Minh Triet (2006)
Head of Government
Nguyen Tan Dung (2006)
Communist Party of Vietnam (CPV)
The influence of the communist party remains dominant despite attempts at economic and political reform. The country has a semi-executive president
who has until recently been elected from single-candidate lists, and a 493-member National Assembly which is formally vested with all legislative
power. In practice, the CPV controls the armed forces and the judiciary.
Elections to the National Assembly were held in May 2007. The Vietnamese Fatherland Front (VFF), a front of the Communist Party of Vietnam,
dominated the poll, taking 492 seats. One winner was self-nominated and does not belong to the VFF. Triet was re-elected as president in July 2007.
Political Stability and Risks
Neither the outbreak of SARS nor the avian flu epidemic has slowed economic growth in the past. The dangers of a reoccurrence are great, however,
and the economic fallout could be sizeable next time.
The number of households in poverty fell in recent years but began to rise once again as the economy slowed. The poorest regions continue to be the
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Northwest (16.4% poor), the Central Highlands (13.6%), and the Northern Central Coast (12.7%). Ethnic minorities generally have a high incidence of
Though the private sector is growing rapidly, corruption and a pervasive bureaucracy weigh heavily on these new firms. They can be subjected to as
many as 15 different bureaucratic inspections each year.
Vietnam is involved in an ongoing territorial dispute over the potentially hydrocarbon rich Spratly Islands. Vietnam, China, the Philippines, Brunei,
Taiwan, and Malaysia all make claims to the Spratlys. The country successfully concluded its lengthy negotiations to join the World Trade Organisation
and joined in January 2007. Vietnam has trade disputes with both the USA and the EU.
Increased public spending associated with the economic slowdown in 2008 and 2009 pushed up the fiscal deficit from 4.5% of GDP in 2008 to 9.0% by
the end of 2009. The spending programme was abruptly ended in 2009. Officials intended to cut the fiscal deficit to 5.9% of GDP in 2010 but missed
that target badly. The new goal is to reduce the deficit to 3% of GDP by 2015. Achievement of this target would help ensure that the debt-to-GDP ratio
remains below 50% of GDP.
Total public debt was VND1,013,426 in 2010, equivalent to 51.2% of GDP. In comparison, public debt was just 42.2% of GDP in 2005. Nonetheless, the
country's debt level is regarded as moderate in comparison to other developing countries and considered to be sustainable.
Government spending on general public services accounted for 65.9% of the total in 2010 followed by spending on education (13.7%).
Economic Structure and Major Industries
Agriculture accounts for 51.3% the workforce. The amount of arable land available for farming is low even by Asian standards but policy makers are
working to make use of idle land. Major exports include coffee, cashew, pepper and rubber. There is ample rain and an extensive network of
waterways to develop an expansive aquaculture system that supports the country's very large fish and seafood export industry. Vietnam is the world's
second-largest rice exporter after Thailand. The government has set a growth target of 3.5-3.8% per year in 2010-2015.
Manufacturing accounts for 14.6% of GDP and employs 14.6% of the workforce. Nike is one of the country's largest employers with about 160,000
Vietnamese making shoes and apparel. The company accounts for about 9% of Vietnam's manufactured exports and is the second largest supplier of
Nike-branded products after China. Exports of textiles rose sharply in 2010. Textile workers earn just US$84 per month, even after recent pay raises.
Vinashin, a huge state-owned shipbuilder, collapsed in 2010 under more than US$4.5 billion in debt. Foreign investors are very positive about the
sector's growth prospects in the medium term. .
Services represent 11.2% of GDP. Retailing and financial services will be the main drivers of the sector in 2011. In the tourism industry, the real value
of receipts slipped to just 0.1% in 2010 but gains of 5.8% are expected in 2011. Vietnam's banking system continues to be profitable but the lack of
reliable information is a concern. As credit to the private sector increases, some improvements in the regulatory system will be needed.
Driven by state investment in infrastructure, the construction industry should thrive over the next several years. Public investment is being channelled
into infrastructure, including roads, ports and power generation facilities. The government also plans a US$33 billion rail link between Hanoi and Ho Chi
Overview of the Economy
During the past decade, real GDP growth averaged more than 7% per year but the pace slowed in 2008 and 2009. Real GDP rose by 5.2% in 2009.
The slowdown was due to weakening exports, a slump in construction and a steep decline in the property market.
To reignite the economy, officials boosted public spending significantly. Much of this went to the country's struggling exporters. Other beneficiaries
included small and medium-sized enterprises. Altogether, as much as US$1 billion) was spent to support bank lending to these groups. All this
spending greatly increased the supply of credit and pushed up the fiscal deficit. Officials abruptly ended the stimulus programme at the end of 2009.
Real GDP rose by 6.5% in 2010.
Economic progress is uneven. Ho Chi Minh City alone accounts for 17% of national output, 30% of foreign investment and 40% of exports – far in
excess of its 9% share of population. Poverty has nonetheless fallen dramatically from 51% in 1993 to around 20% at the end of 2004. Unemployment
has been around 2% for several years but the number of jobless in the larger cities remains relatively high.
The private sector now accounts for more than 60% of GDP. Roughly 1.6 million jobs must be generated each year and almost all come from the
Foreign trade has been the main driver of economic growth for at last a decade. In 2010, exports accounted for 67.6% of GDP, up from 58.6% in
Exports of manufactured goods and mineral fuels including crude oil accounted for 74.8% of the country's total exports in 2010. Vietnam's export
markets are rather diverse with the USA taking 24.6% while the EU and Japan accounted for 18.1% and 13.0% respectively in 2010.
The current account deficit will be 8.0% of GDP in 2010 and will widen to 8.2% in 2011. International reserves amount to just 1.8 months of expected
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Driven by private investment, consumption and non-oil exports, real GDP growth should be 6.8% in 2011. Even faster rates of growth are expected in
the medium term. Vietnam should be one of Asia's top performers for the next several years.
Inflation will also rise as a result of large trade and current account deficits. The government has already been forced to devalue the currency three
times since November 2009. Credit has been growing at more than 25% per year and will have to be reined in.
Approximately 900,000 workers lost their jobs in 2008 and 2009. Officially, unemployment was just 2.4% in 2010 and it is forecast to fall to 2.2% in
2011. Vietnam still has a significant advantage relative to China and other neighbours because labour is much cheaper.
The real value of private final consumption rose by 6.5% in 2010 and growth of 7.4% is forecast for 2011. Consumer spending should receive a boost
as remittances recover. A tighter monetary policy could prevent even high rates of growth in the medium term.
Investment remains substantial – nearly 40% of GDP – and should help drive the economy in the medium term. The confidence of investors has been
shaken by accelerating inflation but many remain attracted to its youthful and rapidly growing consumer market.
In an effort to counter the country's large trade and fiscal deficits, the authorities have devalued the dong six times in the past three years – most
recently in February 2011. The danger, however, is that devaluation could contribute to higher inflation.
Evaluation of Market Potential
Although port congestion, power shortages and other infrastructure deficiencies continue to pose bottlenecks, Vietnam's economy will perform
impressively over the next several years. Many investors are extremely positive about the country's long-term prospects.
Hanoi plans to spend up to US$2.2 billion to upgrade the country's waterways by 2020. Demand for electricity is growing by 17% per year and is
overtaxing the system. Officials plan to boost spending on infrastructure to 11% of GDP in the medium term, up from 9% today.
In the longer run, planners hope to guide the economy into higher valued-added activities. To do this, the legal and institutional framework must be
improved. Continued efforts to shrink the size of the public sector are critical.
It is still premature to expect a retail revolution based on large gains in consumer spending in the medium term. However, Vietnam's consumers are
becoming richer. Levels of per capita GDP in Hanoi and Ho Chin Minh City already exceed US$1,000 – a rough benchmark for initial entry into a
modern consumer society. The government hopes to reduce poverty to 15-16% of households by 2010.
The state's involvement in the economy is gradually declining while the private sector thrives. Government officials had hoped to partially privatise
1,500 state-owned enterprises but the pace of reform has slowed as growth has slowed. Presently, state-owned enterprises account for 30% of the
credit going into the economy.
Corporate tax rates were cut by 30% in 2008 for small and medium-sized enterprises as part of the effort to stimulate the economy. The government
also approved new laws on securities and the operation of enterprises which will improve the business environment. Further reforms will be introduced
in 2010. Corruption is widespread and the judiciary system is weak.
Vietnam needs a better balance between its inefficient state-owned sector and its rapidly-growing private sector. Private industry continues to expand
much faster than the state-controlled sector. However, many of these businesses lack ready access to land or capital.
Under the terms of its commitment to WTO membership, the government will now allow foreign ownership of firms in the service sector. WTO
membership will also offer greater opportunities for exporters, benefiting firms in the clothing, footwear and marine products industries.
Table 1 Indicators of Business Environment: 2010
Ease of doing business rank (out of 183) 78
Starting a Business
Cost (% of GNI per capita) 12.1
Time (days) 44
Dealing with construction permits
Time (days) 194
Cost (% of GNI per capita) 128.4
Minimum wage for a 19-year old worker or an apprentice (US$/month) 40.7
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Source: Euromonitor International based on the World Bank
Note: The cost for starting a business is recorded as a percentage of the economy's income per capita. It includes all official fees and fees for legal or
professional services if such services are required by law. In the absence of fee schedules, a government officer's estimate is taken as an official
source. In the absence of a government officer's estimate, estimates of incorporation lawyers are used. Figures for dealing with construction permits
records all procedures required for a business in the construction industry to build a standardised warehouse. Cost is recorded as a percentage of the
economy's income per capita. Only official costs are recorded. All the fees associated with completing the procedures to legally build a warehouse are
recorded, including those associated with obtaining land use approvals and preconstruction design clearances; receiving inspections before, during and
after construction; getting utility connections; and registering the warehouse property. The total tax rate measures the amount of taxes and mandatory
contributions borne by the business in the second year of operation, expressed as a share of commercial profit. Doing Business 2011 reports the total
tax rate for calendar year 2009. The total amount of taxes borne is the sum of all the different taxes and contributions payable after accounting for
allowable deductions and exemptions. Time is recorded in hours per year. The indicator measures the time taken to prepare, file and pay 3 major
types of taxes and contributions: the corporate income tax, value added or sales tax and labour taxes, including payroll taxes and social contributions.
Doing Business compiles procedural requirements for exporting and importing a standardized cargo of goods by ocean transport. Cost measures the
fees levied on a 20- foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included.
The cost does not include customs tariffs and duties or costs related to ocean transport. Only official costs are recorded.The strength of investor
protection index is the average of the extent of disclosure index, extent of director liability index and the ease of shareholder suits index. The index
ranges from 0 to 10 with higher values indicating greater investor protection. The cost of the proceedings for closing a business is recorded as a
percentage of the value of the debtor's estate. The cost is calculated on the basis of survey responses and includes court fees and government levies;
fees of insolvency administrators, auctioneers, assessors and lawyers; and all other fees and costs.
Vietnam has 4.4 billion barrels of proven oil reserves. The country has six operating oil fields but most are mature and production is falling. New oil
fields came on stream in 2008 but their contribution is not sufficient to offset the decline.
The $1.5 billion Dung Quat Refinery, located in Quang Ngai province, has a capacity of approximately 140,000 bbl/d. A second refinery project is under
consideration at Nghi Son, north of Hanoi in the Thanh Hoa province. The Vietnamese government has estimated the 150,000 bbl/d plant will cost US$3
Natural gas resources total 0.8 trillion cubic metres, with further increases expected as additional fields come on stream. However, much of Vietnam's
large population relies heavily on non-commercial biomass energy sources such as wood, dung, and rice husks. As a result, Vietnam's per capita
commercial energy consumption ranks among the lowest in Asia.
Ratio of minimum wage to average value added per worker 0.33
Total tax rate (% profit) 33.1
Labour tax and contributions (% of commercial profits) 20.3
Time (hours per year) 941
Documents for export (no.) 6
Time to export (days) 22
Cost to export (US$ per container) 555
Documents for import (no.) 8
Time for import (days) 21
Cost to import (US$ per container) 645
Strength of investor protection index (0-10) 2.7
Closing a Business
Time (years) 5
Cost (% of estate) 15
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