Vietnam Country Focus 2014
(January, 2015)
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Country Overview
Despite Vietnam's economic challenges in recent years and which it still has to overcome by taking serious and concerted steps to address macro issues as advised by donors and global financial institutions alike. There are nevertheless good reasons to support the country's long term future since Vietnam possesses key fundamentals such as:
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General Information (2013 by World Bank):
Economic Structure
As a basic breakdown the economic structure divides into three key areas namely agricultural sector at 18.12%, industrial and the servicing sector at 38.50% and 43.38% respectively.
Foreign Direct Investments (FDI)
In 2014, there were 1,588 new projects licensed, an increase of 24.5% in comparison with the previous year and total registered capital of US$20 billion, 19% higher than the plan. FDI inflows increased six folds between 2004 and 2008.
New multi-billion dollar factories have been transforming Vietnam from a low-end and labour intensive industries such as textile, garments & footwear exporter into a global manufacturer of mobile phones and electronic components, chips. It is anticipated that up to 40% of the world’s mobile phones will be produced in Vietnam by 2015, when Samsung opens its latest US$2 billion plant. The majority of FDI into Vietnam comes from Asian countries with the top three countries being Japan, Singapore followed by South Korean.
- GDP: US$171.4 Billion
- Global Competitive Index: ranked 68th
Economic Structure
As a basic breakdown the economic structure divides into three key areas namely agricultural sector at 18.12%, industrial and the servicing sector at 38.50% and 43.38% respectively.
Foreign Direct Investments (FDI)
In 2014, there were 1,588 new projects licensed, an increase of 24.5% in comparison with the previous year and total registered capital of US$20 billion, 19% higher than the plan. FDI inflows increased six folds between 2004 and 2008.
New multi-billion dollar factories have been transforming Vietnam from a low-end and labour intensive industries such as textile, garments & footwear exporter into a global manufacturer of mobile phones and electronic components, chips. It is anticipated that up to 40% of the world’s mobile phones will be produced in Vietnam by 2015, when Samsung opens its latest US$2 billion plant. The majority of FDI into Vietnam comes from Asian countries with the top three countries being Japan, Singapore followed by South Korean.
Opportunities
WTO membership and the upcoming ASEAN Economic Community (AEC) integration in 2015 will provide opportunities for Vietnam to achieve greater access to both foreign markets and capital, while forcing Vietnamese enterprises to reform stronger and through increased competition.
The Government will in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatization of state owned enterprises and much needed banking system overhaul. The UN forecasts urban population rising from 29% of the population to more than 50% by the early 2040. This urbanization trend will continue to drive Vietnam's long-term growth.
Exports and Imports
In terms of export, for the whole 2014, export turnover reached US$150 billion. In detail, heavy industry and the mining industry provided most of the revenues at US$6.5 billion. The Light industry included textiles, footwear and garments were the second largest revenue source at US$57.9 billion. Agricultural and forest products at US$17.8 billion, whilst seafood products accounted for US$ 7.9 billion.
In 2014, the United States and the EU continue to be two largest export markets for Vietnam, accounting for US$28.5 billion and US$27.9 billion respectively.
What are the main risks ?
How is the risk of default evolving?
In 2014, there are 7,052 new businesses have been set up successfully while a staggering 67,823 companies went into bankruptcies. Vietnam's banking sector remains underdeveloped. The government has also made headway regarding tackling the problems within the banking sector – namely a high ratio of non-performing loans (basic estimates range between 8% and 16% of total loans), however, these ratios would be much higher if the loan classifications were based on the International Accounting Standards.
A recent draft bankruptcy law would, however, allow credit institutions to fail as well as possible greater protection for interested parties. In all, the steps taken are in the right direction, but do not provide a full solution at this point in time and one expect this area to have key development in the coming years.
State owned enterprise reforms still have to be taken beyond the planning stage, which can be very problematic in Vietnam, coupled with the banking industry still anticipated to face large write-offs that could prove to be unmanageable.
In view of above, the development of credit insurance could not have come sooner at this critical stage in providing a secure vehicle for greater bad debt protection to businesses for both domestic and export trades.
WTO membership and the upcoming ASEAN Economic Community (AEC) integration in 2015 will provide opportunities for Vietnam to achieve greater access to both foreign markets and capital, while forcing Vietnamese enterprises to reform stronger and through increased competition.
The Government will in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatization of state owned enterprises and much needed banking system overhaul. The UN forecasts urban population rising from 29% of the population to more than 50% by the early 2040. This urbanization trend will continue to drive Vietnam's long-term growth.
Exports and Imports
In terms of export, for the whole 2014, export turnover reached US$150 billion. In detail, heavy industry and the mining industry provided most of the revenues at US$6.5 billion. The Light industry included textiles, footwear and garments were the second largest revenue source at US$57.9 billion. Agricultural and forest products at US$17.8 billion, whilst seafood products accounted for US$ 7.9 billion.
In 2014, the United States and the EU continue to be two largest export markets for Vietnam, accounting for US$28.5 billion and US$27.9 billion respectively.
What are the main risks ?
- Economic risks: High and volatile inflation will remain a problem given the country’s dependence on imports, currency weakness and high credit growth.
- Political risks: Disputes between Vietnam and China over perceived oil-rich islands in the South China Sea have created political tensions. In addition, these disputes sparked riots against Chinese-owned factories in Vietnam's key manufacturing hub, Saigon, in May 2014.
- Financial systems risks: The monetary policy framework is considered still weak, lack of transparency in accordance with World Bank Data. The financial system remains constrained by relatively poor infrastructure and a cumbersome bureaucracy. The State Bank of Vietnam has cut interest rates significantly this year as inflationary pressures have eased and global growth remains sluggish. The Vietnam Asset Management Corporation (VAMC) was set up in July 2013 to handle bad debts in the banking sector in an attempt to rebuild confidence and reduce significant non-performing loans.
How is the risk of default evolving?
In 2014, there are 7,052 new businesses have been set up successfully while a staggering 67,823 companies went into bankruptcies. Vietnam's banking sector remains underdeveloped. The government has also made headway regarding tackling the problems within the banking sector – namely a high ratio of non-performing loans (basic estimates range between 8% and 16% of total loans), however, these ratios would be much higher if the loan classifications were based on the International Accounting Standards.
A recent draft bankruptcy law would, however, allow credit institutions to fail as well as possible greater protection for interested parties. In all, the steps taken are in the right direction, but do not provide a full solution at this point in time and one expect this area to have key development in the coming years.
State owned enterprise reforms still have to be taken beyond the planning stage, which can be very problematic in Vietnam, coupled with the banking industry still anticipated to face large write-offs that could prove to be unmanageable.
In view of above, the development of credit insurance could not have come sooner at this critical stage in providing a secure vehicle for greater bad debt protection to businesses for both domestic and export trades.