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Emerging Market Growth Prospects: Vietnam

  • November 2013
  • -
  • Frost & Sullivan
  • -
  • 56 pages

Insight into Emerging Markets

Vietnam's GDP growth declined in 2012. Government efforts to revive growth include increased lending and implementation of reforms. Vietnam has set a target of becoming an industrialized nation by 2020. Manufacturing, and information and communication technology (ICT) sectors are expected to play a key role in Vietnam’s transition to an industrialized nation. Foreign investment in infrastructure is expected to rise, however slow implementation of structural reforms could affect investor sentiment. Rise in working age and middle class population, and increasing disposable income are expected to support growth during the forecast period.

Executive Summary

Political Policy and Trends
• The Communist Party of Vietnam won the 2011 elections. The party has committed to work toward building public trust before the next elections, following the heavy criticism it faced for the 2012 growth slowdown.
• Concerns regarding violations of freedom of expression have plagued the government in the past.

Foreign Relations
• Vietnam has bilateral trade commitments with South Africa, India, China, and New Zealand.
• Its relationship with China is strained over territorial disputes in the South China sea.
• The Trans-Pacific Partnership (TPP) talks with the United States is expected to conclude by the end of 2013.

Economic Growth
• Growth declined in 2012 as a result of two key factors: the increase in borrowing costs and the reluctance of banks to lend due to the rise in non-performing loans. Lending is expected to increase as efforts are made to revive growth.
• The Vietnam Asset Management Company (VAMC) was set up in 2013 to purchase bad debts that burdened the banking sector.
• Vietnam is striving to become an industrialized country by 2020. Gross domestic product (GDP) is expected to rise, and services and industry together is estimated to contribute X% of the GDP. In 2012, services and industry accounted for X% and X% of the GDP, respectively.

Fiscal Policy
• Bonds were issued in 2013 to reduce the budget deficit that stood atX% of the GDP in 2012.
• State-owned enterprises (SOEs) incurred huge debts and were largely responsible for the high proportion of non-performing loans in 2012. The asset management company, VAMC, will also address this problem.
• To promote business and growth, the corporate income tax rate is expected to be slashed toX% in 2014 from X% in 2012. A further cut to X% is expected by 2016.

Monetary Policy
To revive growth from 2013, the monetary policy has been devised in a manner that simultaneously boosts lending and monitors inflation.

Investment and Competitiveness
As a result of cumbersome formalities and a lack of infrastructure, Vietnam was unable to meet its foreign direct investment (FDI) target for the third straight year in 2012. Going forward, the government will strive to improve the investment climate.

• Vietnam will reap the benefits of the golden population structure till 2040. During this period, the working-age population will be higher than the dependent-age group.
• Vietnam is also witnessing a rise in the middle-class population.
• Issues of concern include gender imbalance at birth and rising youth unemployment.

• The new labor code passed in 2012 increased the maternity leave from four to six months, extended the retirement age by five years, and reduced the duration of the work permit for foreign employees from X to Xmonths.
• A draft regulation is underway to increase the stake of foreign investments in Vietnamese banks beyond the present X%.

Automotive Industry
• Vietnam imposes high taxes and fees on its cars.
• Sales dropped in 2012 as a consequence of the rise in vehicle registration fees and high borrowing costs. Sales will revive from 2013 onward as registration fees and interest rates are expected to be slashed.
• According to a regional ASEAN treaty, import tariffs on vehicles will be progressively reduced to X% by 2018. If Vietnam does not reduce its heavy taxes by then, the demand for locally manufactured cars will decline.

Manufacturing Sector
• In 2012, the manufacturing sector accounted for X% of the GDP. It is expected to grow further as Vietnam aspires to become an industrialized nation by 2020.
• Industrial parks and export processing zones have helped to attract considerable FDI into the manufacturing sector. This trend is expected to continue over the next five years.
• The new industrial policy outlines further development of labor-intensive and key industries, as well as the promotion of support industries. It will remain in effect till 2020.

Healthcare Industry
• The growing population, along with the increasing demand for quality services from the middle class, make healthcare an industry of choice for FDI.
• The government is striving to increase health insurance coverage from X% (2012) to X% (2020).
• Both the pharmaceuticals and medical devices markets in Vietnam are import reliant.

Energy Industry
• In the past, Vietnam has been heavily dependent on hydropower. The 10-year national power development plan, approved in 2011, aims to lower the reliance on hydropower and increase energy production from coal. Coal exports are expected to be scaled down to meet domestic energy needs.
• Priority is also being given to renewable energy.
• Vietnam is expected to start the construction of its first nuclear power plant in 2014.

ICT Industry
• The information and communication technology (ICT) industry will greatly benefit from the industrialization drive that Vietnam is expected to undergo.
• The telecommunication market in Vietnam is dominated by three state-owned enterprises.
• Third generation (3G) services were rolled out in 2009. Fourth generation (4G) services have been pushed to 2015.

Mining Sector
Vietnam has not been able to optimally use its mineral reserves. Moreover, the mining sector is also faced with charges of environmental damages. The government is seeking international support to enable the efficient use of mineral resources.

Political Framework and Regime

The Communist Party of Vietnam won by a landslide in the 2011 elections. However, the party faced much criticism for the 2012 economic decline. The country has been mired in allegations pertaining to the alleged violation of freedom of expression. Anti-corruption reforms are expected to be vigorously pursued from 2013.

Political System
• The constitution was adopted in 1992.
• The highest legislative body is the National Assembly. It is a 500-member body elected for a term of five years.
• The President is elected by the National Assembly for a term of five years.
• The Prime Minister is appointed by the President for five years.

Current Political Regime
• Ruling Party: Communist Party of Vietnam (CPV)
• President: Truon Tan Sang (Elected in July 2011)
• Prime Minister: Nguyen Tan Dung (Appointed in June 2006; re-appointed in 2011)

Key Political Trends

2006: A 5-year socio-economic development plan was launched in 2006 with the aim of increasing growth, maintaining political stability, and speeding up the process of industrialization and modernization in line with Vietnam’s target of becoming an industrialized nation by 2020.
2011: The CPV won the May 2011 elections. In a meeting held in October 2011, the CPV highlighted the need for economic restructuring in Vietnam. State-owned enterprises (SOEs), public investment, and the financial sector are expected to receive high priority over the next five years.
2012: Restriction on the freedom of expression has been a source of dispute in Vietnam. In 2012, a draft decree regarding Internet controls was passed. It sought to curb content related to political dissent. The decree came to force in 2013.
2013: With rising allegations concerning corruption; anti-corruption reforms are expected to be pursued in 2013 and an anti-corruption committee is expected to be established.

Table Of Contents

Emerging Market Growth Prospects: Vietnam
Table of Contents

1. Executive Summary
2. Political Overview
3. Economic Overview
4. Social Overview
5. Legal Overview
6. Automotive Industry
7. Manufacturing Sector
8. Healthcare Industry
9. Energy Industry
10. ICT Industry
11. Mining Sector
12. Key Takeaways
13. The Frost and Sullivan Story

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