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Vietnam: Solid Growth Prospects

Key Information
CapitalHanoi
Population95.3 million
CurrencyDong (1 USD = 22,684.5 VND as of 15 May 2017)
Official languageVietnamese

 

Major Merchandise Exports (% of total, 2016)Major Merchandise Imports (% of total, 2016)
Telephones & mobile phones (19.6%)Machinery, equipment & tools (16.2%)
Textiles & garments (13.4%)Electronics, computers & related parts (16.0%)
Computers & electronic products (10.5%)Telephones, mobile phones & related parts (6.1%)
Top three export countries (% of total, 2015)Top three import countries (% of total, 2015)
USA (20.9%)China (28.1%)
China (10.4%)South Korea (15.7%)
Japan (8.8%)Japan (8.1%)

Source: Economist Intelligence Unit (www.eiu.com)

Political Highlights

Vietnam is a one-party state with the ruling Communist Party of Vietnam maintaining a tight grip on power. Following the 12th Congress in January 2016, Vietnam’s National Assembly installed a new government led by Prime Minister Nguyen Xuan Phuc in April. His government will run the country at least until 2021. Since Vietnam operates under a consensus-based decision-making framework, the transit of power had little impact on the country’s overall policy directions. The major mandates of the government are to strengthen Vietnam’s economic performance, and to oversee its economic restructuring towards a more sustainable and innovative growth model.

Besides carrying out reforms to liberalise the economy, the Vietnam government also needs to address the local issues of land disputes, which had been a major source of friction between the Vietnamese authorities and the general public, especially people with lower incomes, who often complain that their land has been wrongly appropriated by the state. Land disputes are frequent in communist Vietnam, where the state owns all land and citizens are vulnerable to seizures for use by government-run conglomerates. Crucially, the way in which land-use rights are traded can be opaque, leading to conflicts, particularly in areas where quickly expanding cities begin to encroach into previously rural and agricultural areas.

Economic Trend

Economic Indicators2014201520162017^2018^
Nominal GDP (USD bn)185.8
191.4
201.4
222.8
235.3
Real GDP growth (%)6.0
6.7
6.2
6.6
6.8
GDP per capita (USD)2,0102,050
2,130*
2,340
2,440
Inflation (%)4.1
0.6
2.7
4.0
4.7
Budget balance (% of GDP)-4.7-4.6
-4.3
-4.3
-4.1
Current account balance (% of GDP)5.0
0.5
1.7*
-0.4
-1.5
External debt (% of GDP)39.0
40.7
41.6*
39.2
40.4

* Estimates ^ Forecasts
Source: Economist Intelligence Unit (www.eiu.com)

Vietnam’s economy decreased slightly to 6.2% in 2016, suffered from severe drought in early 2016 led to the value of rice exports fell by 21.2%. Although agriculture's performance was sluggish, other sectors performed well. The industrial and construction component grew by 7.6%. Foreign firms’ investment inflows remained strong, rising 9% to a record high of US$ 15.8 billion during the year. Inflation was in check, partly supported by the stability of the local currency dong, which only depreciated by 1.2% against the US dollar throughout the year.

Vietnam’s economy made a disappointing start in 2017, growing by just 5.1% yr/yr in Q1, the weakest start to a year since 2014 due to the policy-induced. The government refocused the economy away from the natural resources sector, leading to a sharp slowdown in oil extraction during the quarter. Manufacturing sector remained strong with growth of 8.3% yr/yr, it continued to attract the largest share (84.9%) of foreign direct investment and the longer-term prospects for the sector remained good. Most international institutions remained optimistic on Vietnam’s growth prospects and expected to remain one of the best regional performers, driven by robust domestic demand and export-oriented manufacturing.

Vietnam’s weak banking industry has been a heavy burden on economic development, caused by rapid credit growth and inadequate risk control. Weak banking sector made the economy relatively vulnerable to external shocks. The government would soon raise the 30% foreign-ownership cap on local banks in early 2017 and increase the foreign-ownership cap to help encouraging further investment into the banking sector, which would aid the industry's consolidation, and would reduce the level of non-performing loans.

Chart: Hong Kong total exports to Vietnam
Chart: Hong Kong total exports to Vietnam

Hong Kong-Vietnam Trade

Total exports from Hong Kong to Vietnam decreased by 5.8% from HK$76,612 million in 2015 to HK$72,173 million in 2016. The top three export categories to Vietnam were: (1) telecommunications, audio & video equipment (+7.4%), (2) electrical machinery, apparatus & appliances, & parts (+7.1%), and (3) textiles (-4.2%), which represented 44.4% of total exports to Vietnam.

ECIC Underwriting Experience

The ECIC imposes no restrictions on covering Vietnamese buyers. The Corporation’s underwriting experience on Vietnam has been acceptable, with two payment difficulty cases and two claim cases reported from May 2016 to April 2017, involving furniture and industrial machinery.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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