Viet Nam Country Analysis

Country Analysis: Viet Nam Macro Environment Population & Ethnics In 2011, the population is 90.5 million, making it the world's 13th-most-populous country. There are 54 ethnic groups throughout the country, and Vietnamese, the so-called "Viet" or "Kinh", account for 85.8% of the population; others are minorities. Originating in what is now southern China and northern Vietnam, Kinh are purveyors of the dominant culture and exert political and economic control. The next largest groups are ethnic Tay and Thai, which account for 1.89% and 1.8% of Vietnam's population and are concentrated in the country's northern highlands. In 2010, 68% of the population is under the age of 40, supporting strong work force and a higher consumer spending in the future. However, statistics express a fall in the number of teenagers as well as the population percentage of children. There are signs for increasing longevity and a coming old population in Vietnam. The ratio of male to female is pretty fair. However, there’s an increasingly concern about the future sex ratio as more male babies are born than female ones. Area & Cites 331,114 sq. km. (127,243 sq. mi.) , varies from mountainous to coastal delta, with radiant rice fields and a long coastline measuring 3,444 kilometers. Capital: Hanoi (pop. 6.472 million). Other cities: Ho Chi Minh City (formerly Saigon; pop. 7.163 million), Haiphong (pop. 1.841 million), Danang (pop. 890,500), Can Tho (pop. 1.189 million). Climate Tropical in south; monsoonal in north with hot, rainy season (May to September) and warm, dry season (October to March) Natural Resources Viet Nam has considerable energy resources such as oil, gas and coal and its 41,000 km long waterways provide the basis for hydropower. The country is rich in minerals such as bauxite, iron ore, lead, gold, precious stones, tin, chromate, anthracite, granite, marble, clay, white sand and graphite. In addition, Viet Nam has a considerable fresh and saltwater fauna and dense tropical forestry resources. Language Vietnamese is the official language, and English is increasingly favored as a second language. Other major languages are some French, Chinese, and other ethnic minority languages. Religions In 2008, Buddhism (approx. 50%), Catholicism (8%-10%), Cao Dai (1.5%-3%), Protestantism (0.5%-2%), Hoa Hao (1.5%-4%), Islam (0.1%), and other animist religions Literacy Rate Definition: age 15 and over can read and write The literacy rate of the total population is 94% in 20009, with 96.1% in males and 92% in females. The education expenditures account for 5.3% of GDP. Politics The Vietnamese Communist Party (VCP) has a monopoly on power. A three-person collective leadership consists of the VCP general secretary, the prime minister, and the president. Now Trương Tấn Sang is the President of Vietnam. National Assembly, according to the constitution, is the highest representative body of the people and the only organization with legislative powers. It has a broad mandate to oversee all government functions. Once seen as little more than a rubber stamp, the National Assembly has become more vocal and assertive in exercising its authority over lawmaking, particularly in recent years. However, the National Assembly is still subject to Communist Party direction. There is a separate judicial branch. At the apex of the judicial system is the Supreme People’s Court (SPC), which is the highest court for appeal and review. But it is still relatively weak. There are few lawyers and trial procedures are rudimentary. Political stability Vietnam has an advantage in its political stability. Since 1990, most other regional countries, except Singapore, have experienced political crises. Meanwhile Vietnam has achieved political stability – a factor that enables Vietnam go ahead with its renewal process. Transparency In the 2011 Corruption Perceptions Index, Vietnam still performed below average with a score of 2.9 on a 0 (highly corrupt) to 10 (highly clean) scale. The country ranked 112 out of 182 assessed countries worldwide and 21st out of 35 countries in the Asia Pacific region. The Anti-Corruption Law, adopted in 2005, criminalizes several types of corruption, establishes asset disclosure requirements for governmental officials, and whistle-blower protection. However, corruption still affects different sectors such as health, education, construction, land management as well as natural resources and the extractive industries. Although companies surveyed by the World Bank Enterprise Survey do not rank corruption among the most important obstacles for doing business in Vietnam, more than 50% of them reported being expected to give gifts to public officials ‘to get things done’ (World Bank, 2009). Similarly, almost 59% of the firms interviewed by the Vietnam Provincial Competitiveness Report believe that the payment of informal charges is common among firms like their own (USAID and VCCI, 2010). Currency & Exchange rate The official currency in Vietnam is the Vietnamese Dong (VND). The currency is effectively pegged to the dollar, and the exchange rate is usually around 17,500 Dong to $1 US with only a small fluctuation. Furthermore, the government is reluctant to devalue the currency despite market pressure with a trade deficit. GDP & Inflation In 2011, the nominal GDP reached $121.6 billion, with nominal $1328.6 GDP per capita. Since 1990, Vietnam’s economy has made amazing progress with annual average growth of 7.5 percent. The inflation (CPI) was as high as 11.8% in 2010, and increased to 18.2% in the first 9 months of 2011, ranking 20 in the world. Gini Index Vietnam’s Gini Index was 38 in 2008, ranking 36th out of 101 countries investigated. The income share held by the highest 10% was over 30%, and the share held by the lowest 10% was around 3%. Poverty is mainly in rural areas with minority groups and women suffering most. Unemployment Unemployment was 2.2% in 2011, a slight decline from 2.8% in 2010. Labor Force by Industry Agriculture accounts for 53.9% of the total labor force in Vietnam in 2009, and it is still largely an agricultural economy. 20.3% of workforce was engaged in industry, and 25.8% in services. Agriculture, Industry, & Service Due to its high productivity, Vietnam is currently an important global supplier of key agricultural commodities. Key exports are rice, coffee (Robusta), pepper (spice), cashews, tea, rubber, wood products, and fisheries products. Rice and other farm outputs in Vietnam are quite profitable, but the total income from these small operations is increasingly insufficient to cover daily household needs. Off-farm income is necessary. Agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 21% in 2010, as production in other sectors of the economy has risen. On the other hand, the industrial sector accounts for nearly 40% of the country’s GDP in 2010, and the industrial growth rate averaged 17% over 2006 to 2010, with a growth rate in private businesses of 20.9%. Mining and quarrying, particularly the extraction of or oil and gas industry account for 11.2% of the total value of industrial production. Manufacturing accounted for 83.2% of industrial production, of which the food processing industry accounted for 20.6%. Other major manufactures are garments, shoes, plastics, and rubber. As for the distribution of industry, most heavy and medium industry is concentrated in the north, while the industrial sector in the south is characterized by light industry and consumer goods industry, including pharmaceuticals, textiles, and food processing, although there are some large utilities and cement works. On the other hand, outsourcing is emerging in the country. However, the proportion of the service sector in GDP has declined gradually, from 43.6% in 1996 to 39% in 2010. Vietnam's leading service industry is the post and telecommunication sector, with the number of telephone subscribers increasing from 3.2 million in 2000 to 133.1 million in 2011. IT industry is also boosting. In 2009, Global Media Services ranked Vietnam 6th in its list of Top 10 Outsourcing Nations and Ho Chi Minh City (formerly Saigon) 5th in its list of Top 50 Emerging Outsourcing Cities. Vietnam also aims to build a robust software-testing community and develop the country as the global software-testing destination in the Asian- Pacific area. Another major service industry is tourism, which already accounts for 4.3% of Vietnam's GDP and 3.7% of all jobs (2012) - numbers which are expected to rise at almost double the global average over the course of the next 10 years. Vietnam’s economic growth will drive development and opportunities in many adjacent and related sectors, including power, infrastructure, logistics and a more dynamic financial services industry to allocate capital more efficiently to drive growth. Economy Reforms 20 years ago, the Communist regime in Vietnam developed a highly centralized economy based on planned economy and the reform of the private sector similar to that seen in China, bringing Vietnam a high and stable GDP growth. Since the coming of new leadership in 2001, the authorities have committed themselves to a more liberal economy towards a mixed economy with both planned economy and market economy. The major policy to liberate economy is "equitizing" a significant number of smaller state enterprises-- transforming state enterprises into shareholding companies and distributing a portion of the shares to management, workers, and private foreign and domestic investors. Subsidies have been cut, but state-owned enterprises (SOEs) still receive priority access to resources, including land and capital. Also, Vietnam’s economy remains dominated by SOEs, which still produces about 40% of GDP. In 2011, the Vietnamese Government proposed a strategy for restructuring the economy by 2015. The three pillars of the proposed strategy are improving public investment; reforming state-owned enterprises; and restructuring finance markets, focusing on the banking system. International Trade Policies Vietnam applied sequenced trade liberalization, a two-track approach opening some sectors of the economy to international markets while protecting others. But it also retained some market access limitations and exceptions to national treatment. Tariffs & Quotas Viet Nam has been a member of the WTO since 11 January 2007. And the import-export tariffs of most categories of goods have been significantly reduced to comply with the Asean Harmonized Tariff Nomenclature (AHTN) and with the nation's WTO commitments. High tariffs on selected products remain, however, including agricultural products and beverages and selected equipment for restaurant use and large engine motorcycles. Also, several quotas in export and import still exist to protect the local industry and national resources, especially the imports of tobacco, eggs, and sugar, and the exports of mining resources and unprocessed metals. In November 2010, Vietnam officially joined negotiations for the Trans-Pacific Partnership (TPP) free trade agreement. Foreign Direct Investment After foreign investment was authorized in 1988, foreign trade and foreign direct investment (FDI) improved significantly, although new registered FDI has started to trend downward. In the first 9 months of 2011, disbursed FDI capital totaled $9.1 billion, up 1% compared to the same period in 2010. Registered FDI (including new and additional capital) was $8.88 billion in the first 9 months of 2011, a fall of about 30% compared to the same period of 2010. Currently, the annual FDI volume calculated as a percentage of GDP puts Vietnam on a par with China in foreign direct investment. However, Vietnam only allows operation through joint ventures with local partners and less than 50% of the company’s ownership of financial services, telecommunications, express delivery, professional services, and distribution services. Major Foreign Relations & International Cooperation Over the past decades, Vietnam has recognized the increasing importance of growing global economic interdependence and has made concerted efforts to adjust its foreign relations to reflect the evolving international economic and political situation in Southeast Asia. Currently China is Vietnam's biggest importer, and the third biggest exporter, after the United States and Japan. Ideological affinities are driving improved relations with China. Despite improved relations, Vietnam remains suspicious of China’s intentions. In January 2000, China and Vietnam signed a treaty defining a common land border. However, the countries both claim sovereignty over the Spratly and Paracel Islands in the South China Sea, and this dispute is a potential source of renewed tension. On December 10, 2001, the Bilateral Trade Agreement (BTA) between US and Vietnam went into effect and the U.S. immediately provided Vietnam’s goods and companies’ access to the U.S. market. Bilateral trade between the United States and Vietnam has expanded from $2.97 billion in 2002 to $18.6 billion in 2010. The U.S. is Vietnam's second-largest trade partner overall (after China). Vietnam also enjoys a good political and economic relationship with Japan, and the two countries are partnering to exploit the disputed offshore oil fields in the South China Sea. In July 2004, Japan promised to boost direct investment in Vietnam. In December 2004, Japan announced a grant of US$19 million to fight poverty in Vietnam. In European Union, Germany is Vietnam’s largest EU trade partner. The trading volume between the two countries was US$3.3 billion last year. Germany also wants to strengthen links with Vietnam in culture and education. The two countries are currently negotiating the building of a Germany university, the first of its kind in Vietnam. Serious Trade Deficit Although exports expanded significantly, growing by as much as 20%~30% in some years, Vietnam has maintained a structural trade deficit, reaching $12.4 billion in 2010. Vietnam's total external debt, amounting to 42.2% of GDP in 2010, was estimated at around $32.5 billion. The government unusually devalued its currency twice in 2010 in order to improve the situation. However, the large deficit accompanied with a serious inflation can be dangerous. Taxation Vietnam applies a value added tax on goods and services in a number of categories listed in the Law on Value added Tax and related implementing regulations. Business Income Tax (BIT) is 25% currently, with a preferred 20% applies for a period of 10 years from the time when a business start operating in some supportive industries by government, and 10% applies for a period of 15years. For economic zones and specially encouraged investment projects, the Prime Minister will determine the BIT rates. Infrastructures Road conditions are not ideal, less than half of the national highways have two lanes or more. On the other hand, the rail network is relatively well-developed. The longest and most important route is the Hanoi – Ho Chi Minh City line, which is now serviced by an express train. The lines connecting Viet Nam to China were re-opened a few years ago. Inland waterways are the major and cheap mode of transport. Vietnam has more than 2,300 rivers and canals with total length of 198.000 km. The two major inland waterway systems serve as major transportation outlets, which are Hanoi and the Red River area. Viet Nam has eleven major seaports. Ho Chi Minh City serves most of the South and now boasts modern container loading facilities. Consumer Characteristics --Growing Middle Class Based on real GDP per capita and adjusted for purchasing power parity, income levels have increased threefold in the past 20 years, leading to a doubling in the size of the middle class over the past 5 years. Rising affluence accounts for the expansion in basic sectors such as food and beverage, which will continue to account for more than 50% of total consumption, and in financial services (shown by the 280-fold growth in the number of debit cards issued between 2003 and 2010 Financial System Banking System Vietnam has a bank-based financial system. Before 1989 the financial system in Vietnam only consisted of the State Bank of Vietnam (SBV) served as the central bank and four sector-specialized state-owned commercial banks. In 1990 the rules on the sectorial specialization of these banks were removed (IMF, 1998), and the government stimulated the entry of new players into the financial sector. This policy led to a substantial, sharp increase in the number of representative offices and branches of foreign banks and the so-called joint-stock commercial banks as well. Joint ventures between foreign banks and state-owned commercial banks were also established. In a bid to encourage the use of banking services, the Vietnamese government in 2007 recommended all state companies pay their employees by depositing their salaries directly into bank accounts. In 2011, services acquiring technology and management process, namely factoring, guarantee, money flow management, derivatives, were all launched in the market. Vietnam's leading domestic banks used smoothly discount instruments, rediscount, and transfer of valuable papers to diversify their business. Since then, turnover structure of banks has changed gradually. Credit service, which previously had made up 90% of local banks' revenue, now is reduced to 30~50% of annual income. Loans are made mainly for state-owned enterprises (SOEs), and the state-owned commercial banks (SOCBs) have the highest concentration of SOE exposure, at 30%~40% of loan books. However, according to the State Audit of Vietnam, many SOEs operate ineffectively due to poor management and are financially weak, and thereby are likely to undermine the credit quality of Vietnam's banking industry. Standard & Poor's Ratings Services believed that SOEs’ credit costs put downward pressure on the industry's overall profitability and capital in 2010. Now foreign banks with license granted by the Central Bank will be able to offer the same full banking services as local lenders. Major foreign players in commercial banking are HSBC, Standard Chartered, Shinhan, ANZ, and Hong Leong. Foreign banks have more advantages than local rivals in developing corporate finance services, capital business and foreign currency market, international payment and funding supply chain. In order to raise credit market share at domestic enterprises, some foreign banks promoted the advantages as arranging large credits, issuing international bonds for Vietnam's state-run groups. Due to an expansion of per capita income and of accounts opened by residence, the outstanding loans of the whole banking system by December 31, 2011, had increased by 6.3 percent over 2010, of which joint venture banks’ outstanding loans had increased by 3.75 percent and foreign banks 9.04 percent. The outstanding loans growth rate of foreign banks was higher than that of joint stock banks (6.32 percent) and state owned banks (5.11 percent). Non-bank financial institutions Non-bank financial institutions, such as finance, leasing, and insurance companies, have come to exist as well, but they are unimportant in terms of financing firms. Insurance industry In Vietnam there are only 24 insurance companies, but the industry’s potential seems untapped, because certain types of insurances, which are compulsory for all the citizens. The third party automobile insurance and employers liability insurance is made compulsory for all the peoples. In Vietnam, life insurance market achieved the optimistic growth, there are 5 life insurance companies including one state owned company (Bao Viet), 3 of 100% foreign owned companies (Prudential. AIA, Manulife), and one joint venture company (Bao Minh-CMG). Non- life insurance market is considered as the market with hi