Vietnam Forecast 1 June2010

Vietnam:

Country Forecast

June 2010
Vietnam

Editor: Hilary Ewing

Editorial closing date: 1st June 2010

Country Forecast June 2010 © The Economist Intelligence Unit Limited 2010

Vietnam:

Five-year forecast summary


Vietnam: Five-year forecast summary

 The Economist Intelligence Unit expects the political scene to be broadly stable during the
forecast period. The Communist Party will stay firmly in control, but there are pockets of organised
opposition, and, although still rare, political dissidence will become more common. Political
effectiveness will remain fairly poor during the forecast period.
 Vietnam’s business environment rankings will see solid improvements in the forecast period.
There will be progress in nearly all areas of the business environment, underpinned largely by the
ruling party’s efforts to push ahead with its economic reform programme.
 Although Vietnam's long-term economic growth prospects remain positive, the early part of the
forecast period will be challenging. In 2010-11 annual real GDP growth is forecast to average 6.6%.
Growth will accelerate to around 7.5% a year on average in 2012-14.

Real GDP growth
(%)



 The Economist Intelligence Unit expects the political scene to be broadly stable during the
forecast period. The Communist Party will stay firmly in control, but there are pockets of organised
opposition, and, although still rare, political dissidence will become more common. Political
effectiveness will remain fairly poor during the forecast period.
 Vietnam’s business environment rankings will see solid improvements in the forecast period.
There will be progress in nearly all areas of the business environment, underpinned largely by the
ruling party’s efforts to push ahead with its economic reform programme.
 Although Vietnam's long-term economic growth prospects remain positive, the early part of the
forecast period will be challenging. In 2010-11 annual real GDP growth is forecast to average 6.6%.
Growth will accelerate to around 7.5% a year on average in 2012-14.

Real GDP growth
(%)
2010 2011 2012 2013 2014
Vietnam 6.2 7.0 7.4 7.5 7.8
Asia (excl Japan) 7.3 6.3 6.5 6.6 6.5
World 3.1 2.5 2.8 3.0 3.0



 The forecast for market opportunities is broadly positive. However, in most parts of the country
opportunities will still be limited mainly to the lower end of the market, while opportunities at the
higher end will be restricted to the main urban areas. Rising disposable income per head will
contribute to strong growth in demand for consumer goods.
 The prospects for long-term economic growth are bright. The economy will remain strong,
supported by an expanding private sector. Our central forecast indicates that annual growth in GDP
per head will average 4.5% in 2010-30.

Household consumption per head
(US$)



 The forecast for market opportunities is broadly positive. However, in most parts of the country
opportunities will still be limited mainly to the lower end of the market, while opportunities at the
higher end will be restricted to the main urban areas. Rising disposable income per head will
contribute to strong growth in demand for consumer goods.
 The prospects for long-term economic growth are bright. The economy will remain strong,
supported by an expanding private sector. Our central forecast indicates that annual growth in GDP
per head will average 4.5% in 2010-30.

Household consumption per head
(US$)
2010 2014
China 1,456 2,726
US 33,774 37,489
Vietnam 759 1,197
Malaysia 3,713 5,120
Philippines 1,350 1,968


Vietnam: Business environment rankings

Value of index a Global rankb Regional rankc
2005-09 2010-14 2005-09 2010-14 2005-09 2010-14
Overall position 4.93 5.62 71 66 15 15
Political environment 5.0 5.2 55 56 10 11
Political stability 6.3 6.3 47 47 9 9
Political effectiveness 3.9 4.2 59 62 12 14
Macroeconomic environment 4.7 4.9 80 82 15 17
Market opportunities 5.9 5.5 39 49 9 12
Policy towards private enterprise & competition 3.8 5.0 69 61 16 14
Policy towards foreign investment 6.0 6.9 59 45 13 8
Foreign trade & exchange controls 6.9 7.3 55 49 12 12
Taxes 5.2 6.3 63 38 16 12
Financing 2.9 4.8 79 67 17 16
The labour market 5.7 5.5 54 65 14 14
Infrastructure 3.4 4.9 76 70 15 12
a b c
Out of 10. Out of 82 countries. Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia,
Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and
Vietnam.

Methodology


Vietnam:

The political environment


Vietnam: Political outlook

Highlights
The ruling Communist Party of Vietnam will maintain its firm grip on power and will continue to
dictate the political agenda in 2010-14. However, political stability is not assured. Ongoing
economic troubles, combined with the government's continued harsh crackdown on dissenters
and disputes with various religious groups, could lead to public protests.
The party is due to hold its next national congress in January 2011, and this means that from
mid-2010 until the congress there will be considerable jockeying for position within the current
leadership, although it will be largely invisible from the outside. There will be major personnel
changes in higher echelons of the party, but the organisation's central tenets will remain
unchanged and its overriding objective will be to maintain its position of dominance.
The leadership will claim to be committed to maintaining the momentum of economic and
administrative reforms, but actual progress could be limited. A widening gap between competing
factions within the party means that consensus on key reforms could become increasingly difficult
to establish.
Vietnam will continue to make strides in strengthening its ties with the West, particularly the US,
but it will also maintain close relations with China. The government will continue to pursue
bilateral and multilateral free-trade agreements.

More from ViewsWire…


Vietnam:

Demographics


Vietnam: Demographic outlook

Population (m) 2005 2009 2014
Total 83.5 87.0 91.3

Period averages (%) 2005-09 2010-14
Population growth 1.0 1.0
Labour force growth 2.3 2.1

Vietnam's population is forecast to continue to grow at a steady rate of around 1% a year during
the forecast period, and as a result the population will reach 91.3m by 2014, up from 87m in
2009. The government has partially relaxed its "one or two child" family-planning policy, which
penalised families with three or more children.
There are growing concerns over the country's sex ratio at birth: the preference for male sons
has increased the incidence of gender-based abortions, and although the government will
maintain the ban on such abortions, reducing their incidence will be difficult.


Vietnam:

The business environment forecast


Vietnam: Business environment outlook

The Economist Intelligence Unit’s business environment rankings assess a country’s relative
attractiveness as an investment location, both globally and regionally.
Vietnam moves up to 66th place out of 82 countries in the Economist Intelligence Unit's global
business environment rankings for 2010-14, but the country remains near the bottom of the
regional rankings.


Vietnam: Macroeconomic environment

The macroeconomic environment will worsen in 2010-14 relative to 2005-09, decreasing the
attractiveness of the country as a place in which to do business.

Policymakers will face severe challenges during the early part of the forecast period in terms of
striking a balance between stimulating the economy and maintaining price stability.

We forecast that there will continue to be institutional weaknesses in policymaking, most notably
with regard to the lack of independence of the State Bank of Vietnam (SBV, the central bank).


Vietnam: Fiscal policy

Central government budget balance
(% of GDP) After expanding to an estimated 9% of
GDP in 2009, the budget deficit (excluding
on-lending) will remain wide in 2010-14.
There are serious concerns about how the
government will fund its deficit, particularly
in view of the fact that it is already
borrowing heavily to finance its off-budget
spending programmes.
The budget deficit is forecast to narrow
gradually in the forecast period, to stand
at 4.9% of GDP in 2014, but this will not
allay fears about fiscal sustainability.
The government's tax base remains
narrow, and tax evasion is still a serious
problem.


Vietnam: Fiscal policy

Central government budget balance
(% of GDP) After expanding to an estimated 9% of
2005 -4.1 GDP in 2009, the budget deficit (excluding
on-lending) will remain wide in 2010-14.
2006 -2.9
2007 -7.3 There are serious concerns about how the
2008 -5.4 government will fund its deficit, particularly
2009 -9.0 in view of the fact that it is already
borrowing heavily to finance its off-budget
2010 -7.7
spending programmes.
2011 -6.8
2012 -5.9 The budget deficit is forecast to narrow
2013 -5.5
gradually in the forecast period, to stand
at 4.9% of GDP in 2014, but this will not
2014 -4.9
allay fears about fiscal sustainability.
The government's tax base remains
narrow, and tax evasion is still a serious
problem.


Vietnam: Monetary policy

Money market interest rate
(%)

The SBV is expected to tighten monetary policy further in 2010 as inflationary pressures build,
but it will move cautiously in order to ensure that a lack of available financing does not undermine
economic growth.

Although it is not our central forecast, the government may choose to loosen policy again in 2010
in order to boost economic activity. However, such a course of action would have a severely
negative impact on economic stability.

Over the longer term, the government will seek to maintain an accommodative monetary policy
stance to support economic activity.


Vietnam: Monetary policy

Money market interest rate
(%)
2010 2011 2012 2013 2014
China 3.0 3.7 4.0 4.0 4.0
US 0.4 1.3 3.2 4.6 4.8
Vietnam 9.3 9.0 9.0 7.6 7.3
Malaysia 2.5 3.0 3.5 3.6 3.6
Philippines 4.7 5.0 5.1 5.1 5.1

The SBV is expected to tighten monetary policy further in 2010 as inflationary pressures build,
but it will move cautiously in order to ensure that a lack of available financing does not undermine
economic growth.

Although it is not our central forecast, the government may choose to loosen policy again in 2010
in order to boost economic activity. However, such a course of action would have a severely
negative impact on economic stability.

Over the longer term, the government will seek to maintain an accommodative monetary policy
stance to support economic activity.


Vietnam: Policy towards private enterprise & competition

2010-11: The government makes a determined effort to reform state-owned enterprises (SOEs),
but progress is slow. There are signs that the competition law will be implemented more
forcefully, with firms that abuse their monopoly status being punished.

2012-14: More SOEs undertake reforms and are equitised (part-privatised). Progress is made in
removing distortions in terms of access to opportunities and resources.


Vietnam: Policy towards foreign investment

2010-11: The government further reduces restrictions on foreign investment and seeks to promote
such investment in listed firms. Uncertainty persists regarding the implementation of the
unified legal system for foreign and domestic firms.

2012-14: Red tape remains a hindrance. Policy towards foreign portfolio investment becomes less
restrictive. The government opens up more service sectors to foreign investors.


Vietnam: Foreign trade and exchange controls

2010-11: Vietnam's membership of the World Trade Organisation leads to a lowering of trade
barriers and a reduction in tariffs. Negotiations towards a free-trade agreement (FTA)
with the EU begin.

2012-14: Trade barriers are lowered further. Vietnam pursues additional FTAs. The government
maintains capital controls.


Vietnam: Taxes

2010-11: Progress is made on improving the efficiency of tax collection, but distortions persist.
Corporate taxes are held steady at 25%.

2012-14: The tax base is broadened, but the tax regime remains overly complicated. The
government fails to meet some of the demands of foreign investors regarding the tax
regime, particularly in relation to the foreign-contractor withholding tax.


Vietnam: Financing

2010-11: State-owned commercial banks undertake reforms. The government directs lending
towards important sectors and introduces a subsidy on lending interest rates. The
stockmarket remains weak.

2012-14: The availability of financing improves as limits on the activities of foreign banks are
relaxed further. As the regulatory environment improves, the stockmarket emerges as an
important source of finance.


Vietnam: The labour market

2010-11: Wages for unskilled labour remain low, and there are shortages of skilled labour. Labour
unrest becomes an increasingly serious problem for domestic and, in particular, foreign
investors.

2012-14: Wages rise in line with the implementation of a unified minimum wage, but are still low.
The education system remains ill equipped to train the next generation of young
professionals in order to meet the needs of foreign-invested enterprises.


Vietnam: Infrastructure

2010-11: Transport infrastructure is weak, with a shortage of capacity at ports a particular
problem. There are capacity constraints in energy supply and telecommunications as
demand rises sharply.

2012-14: Infrastructure improves markedly as a result of heavy investment. Bottlenecks at ports
are effectively resolved, and several of the country’s major airports are expanded.
Ongoing investment in power plants improves the reliability of the power supply.


Vietnam:

The economic forecast


Vietnam: International assumptions

Economic growth (%)

The European financial crisis has been contained by massive emergency support, so that its
impact on the world economy is likely to be limited. There are no clear signs that the crisis has
undermined the ongoing global economic recovery.
Positive data for a number of countries have led to a slight increase in our 2010 forecast for world
GDP growth at purchasing power parity rates, to 4.1%, from 3.9% previously. However, the
outlook remains uncertain, and global growth will slow in 2011 as the impact of stimulatory
measures dissipates.
Global GDP growth will pick up in the latter half of the forecast period to an annual average of
2.9%.


Vietnam: International assumptions

Economic growth (%)
2009 2010 2011 2012 2013 2014
US GDP -2.4 3.3 1.8 2.0 2.2 2.3
World GDP -2.2 3.1 2.5 2.8 3.0 3.0
World trade -11.2 6.8 5.3 6.3 6.4 6.3
Inflation indicators
US CPI -0.3 1.8 1.3 1.9 2.5 2.8
Oil (Brent; US$/b) 61.9 80.2 78.5 82.3 78.3 75.5
Non-oil commodities (measured in US$) -22.5 12.0 0.4 4.0 4.3 3.4
Financial indicators
€ 3-month interbank rate 1.2 0.7 0.9 1.5 3.6 4.1
US$ 3-month commercial paper rate 0.3 0.2 0.5 1.9 3.9 5.1
¥ 3-month repo rate 0.4 0.2 0.3 1.1 1.8 2.1

The European financial crisis has been contained by massive emergency support, so that its
impact on the world economy is likely to be limited. There are no clear signs that the crisis has
undermined the ongoing global economic recovery.
Positive data for a number of countries have led to a slight increase in our 2010 forecast for world
GDP growth at purchasing power parity rates, to 4.1%, from 3.9% previously. However, the
outlook remains uncertain, and global growth will slow in 2011 as the impact of stimulatory
measures dissipates.
Global GDP growth will pick up in the latter half of the forecast period to an annual average of
2.9%.


Vietnam: Economic outlook

Economic outlook
(% real change)

Although Vietnam's long-term economic growth prospects remain positive, the early part of the
forecast period will be challenging. In 2010-11 annual real GDP growth is forecast to average
6.6%. Growth will accelerate to an annual average of 7.5% in 2012-14.
Both private consumption growth and fixed investment growth will strengthen during the forecast
period, but government consumption growth will weaken as fiscal stimulus is withdrawn.
Export growth will accelerate during the forecast period, but the pick-up in import growth will be
almost as strong.


Vietnam: Economic outlook

Economic outlook
(% real change)
2010 2011 2012 2013 2014
Real GDP growth 6.2 7.0 7.4 7.5 7.8
Private consumption 6.3 6.3 7.6 7.8 8.5
Government consumption 8.0 7.8 7.8 7.7 7.0
Gross fixed investment 6.2 7.2 8.0 8.2 9.1
Exports of goods & services 13.5 11.3 11.8 11.9 11.9
Imports of goods & services 12.6 9.7 9.8 11.2 11.9

Although Vietnam's long-term economic growth prospects remain positive, the early part of the
forecast period will be challenging. In 2010-11 annual real GDP growth is forecast to average
6.6%. Growth will accelerate to an annual average of 7.5% in 2012-14.
Both private consumption growth and fixed investment growth will strengthen during the forecast
period, but government consumption growth will weaken as fiscal stimulus is withdrawn.
Export growth will accelerate during the forecast period, but the pick-up in import growth will be
almost as strong.


Vietnam: Wage and price inflation

Consumer price inflation
(%; annual av)
Inflation will rise in 2010 on the back of
supply-side pressures and higher global
commodity prices.
The Economist Intelligence Unit expects
year-on-year inflation to average 10.2% in
2010-11 before slowing to an average of
7.7% in the remainder of the forecast
period.
Vietnam will remain highly vulnerable to
movements in international commodity
prices, which will continue to have a
significant impact on the domestic rate of
inflation.


Vietnam: Wage and price inflation

Consumer price inflation
(%; annual av)
Inflation will rise in 2010 on the back of
2005 8.3 supply-side pressures and higher global
2006 7.4 commodity prices.
2007 8.3
The Economist Intelligence Unit expects
2008 23.1 year-on-year inflation to average 10.2% in
2009 7.0 2010-11 before slowing to an average of
2010 10.4 7.7% in the remainder of the forecast
2011 10.1 period.
2012 8.2 Vietnam will remain highly vulnerable to
2013 7.8 movements in international commodity
prices, which will continue to have a
2014 7.2
significant impact on the domestic rate of
inflation.


Vietnam: Exchange rates

Exchange rates

Strong demand for US dollars, underpinned by Vietnam's wide trade deficit and rising inflationary
expectations, put the dong under downward pressure against the US dollar in recent months.
Responding to this pressure, the SBV has devalued the dong twice recently.
Until there are clear signs that the trade deficit is narrowing, foreign direct investment is rising
and inflationary pressures are receding, it is unlikely that downward pressure on the dong will
diminish significantly.
The dong is forecast to depreciate to an annual average of D19,146:US$1 in 2010 and
D20,820:US$1 in 2011.


Vietnam: Exchange rates

Exchange rates
2009 2010 2011 2012 2013 2014
D:US$ (av) 17,799.63 19,145.82 19,610.64 20,028.03 20,413.79 20,820.07
D:US$ (end-period) 18,472.00 19,428.23 19,819.34 20,216.91 20,616.93 21,023.22
D:¥100 (av) 18,995.44 20,542.72 21,086.71 21,651.93 22,188.90 22,754.18
D:€ (av) 24,794.88 24,856.06 23,974.01 23,683.15 24,139.30 25,140.24
Real effective exchange-rate index (1997=100; av) 105.3 103.5 107.4 109.6 111.8 117.2
Purchasing power parity D:US$ (av) 6,465.54 7,008.62 7,414.40 7,752.50 7,967.84 8,141.48

Strong demand for US dollars, underpinned by Vietnam's wide trade deficit and rising inflationary
expectations, put the dong under downward pressure against the US dollar in recent months.
Responding to this pressure, the SBV has devalued the dong twice recently.
Until there are clear signs that the trade deficit is narrowing, foreign direct investment is rising
and inflationary pressures are receding, it is unlikely that downward pressure on the dong will
diminish significantly.
The dong is forecast to depreciate to an annual average of D19,146:US$1 in 2010 and
D20,820:US$1 in 2011.


Vietnam: External sector

External sector
(US$ bn unless otherwise indicated)

The current account will remain in the red throughout the forecast period, but as a proportion of
GDP the deficit will narrow, shrinking from an estimated 6.6% in 2009 to 5.5% in 2014.
The merchandise trade deficit will narrow modestly in the latter half of the forecast period as
export growth edges higher than import growth.
The services and income accounts will remain in the red throughout the forecast period.


Vietnam: External sector

External sector
(US$ bn unless otherwise indicated)
2009 2010 2011 2012 2013 2014
Current-account balance -6.1 -7.9 -7.5 -7.3 -8.0 -8.5
Current-account balance (% of GDP) -6.6 -7.8 -6.6 -5.8 -5.7 -5.5
Goods: exports fob 56.9 68.5 75.0 86.1 98.5 113.2
Goods: imports fob -65.0 -78.0 -83.9 -94.5 -106.8 -121.2
Trade balance -8.1 -9.5 -8.9 -8.5 -8.2 -8.0
Services balance -1.0 -1.1 -1.2 -1.2 -1.7 -1.9
Income balance -3.4 -4.2 -4.7 -5.2 -5.7 -6.6
Current transfers balance 6.3 6.9 7.3 7.6 7.7 8.0

The current account will remain in the red throughout the forecast period, but as a proportion of
GDP the deficit will narrow, shrinking from an estimated 6.6% in 2009 to 5.5% in 2014.
The merchandise trade deficit will narrow modestly in the latter half of the forecast period as
export growth edges higher than import growth.
The services and income accounts will remain in the red throughout the forecast period.


Vietnam:

Foreign direct investment


Vietnam: Foreign direct investment

Stocks and flows
According to the government, foreign direct investment (FDI) commitments for new projects (that is,
excluding additional investment in existing projects) fell to US$16.3bn in 2009, after reaching a record
high of US$60.3bn in 2008.
However, the bulk of FDI commitments are not disbursed in the year in which they are promised, if at
all. According to government figures (which often differ significantly from IMF statistics), total
disbursements fell by 13% in 2009, to US$10bn.
FDI has flowed into Vietnam from a wide range of countries, although nations in the Asia and
Australasia region are particularly prominent investors.
Vietnam has received less FDI than most of its South-east Asian neighbours, and the impact of FDI
has been less marked, with little technology transfer between foreign firms and their local partners.

Inward foreign direct investment stock, 2010
(% of GDP)



Stocks and flows
According to the government, foreign direct investment (FDI) commitments for new projects (that is,
excluding additional investment in existing projects) fell to US$16.3bn in 2009, after reaching a record
high of US$60.3bn in 2008.
However, the bulk of FDI commitments are not disbursed in the year in which they are promised, if at
all. According to government figures (which often differ significantly from IMF statistics), total
disbursements fell by 13% in 2009, to US$10bn.
FDI has flowed into Vietnam from a wide range of countries, although nations in the Asia and
Australasia region are particularly prominent investors.
Vietnam has received less FDI than most of its South-east Asian neighbours, and the impact of FDI
has been less marked, with little technology transfer between foreign firms and their local partners.

Inward foreign direct investment stock
(% of GDP)
China US Vietnam Malaysia Philippines
2010 9.9 17.2 60.0 41.6 13.1



Determinants
 Foreign investors have generally been attracted to Vietnam's buoyant economy. Other factors to
Vietnam's advantage include its stable political scene and low-cost labour base.
 Vietnam has been viewed as an appealing alternative to China by many foreign investors keen to
diversify their investment. In an effort to bolster foreign investor interest, the government has appeared
willing to implement reforms, most notably eradicating discrimination against foreign firms by
implementing a Unified Enterprise Law and a Common Investment Law in 2006. Foreign investors are
also now permitted to convert profits and principal into foreign exchange without any restrictions.
Foreign investors are still discouraged by pervasive red tape, weak human capital and problems
involving access to land and capital. The government is aware of these difficulties and is taking steps
to tackle them .

Inward foreign direct investment stock per head, 2010
(US$)



Determinants
 Foreign investors have generally been attracted to Vietnam's buoyant economy. Other factors to
Vietnam's advantage include its stable political scene and low-cost labour base.
 Vietnam has been viewed as an appealing alternative to China by many foreign investors keen to
diversify their investment. In an effort to bolster foreign investor interest, the government has appeared
willing to implement reforms, most notably eradicating discrimination against foreign firms by
implementing a Unified Enterprise Law and a Common Investment Law in 2006. Foreign investors are
also now permitted to convert profits and principal into foreign exchange without any restrictions.
Foreign investors are still discouraged by pervasive red tape, weak human capital and problems
involving access to land and capital. The government is aware of these difficulties and is taking steps
to tackle them .

Inward foreign direct investment stock per head
(US$)
China US Vietnam Malaysia Philippines
2010 416 8,285 690 3,259 249



Potential
Vietnam joined the World Trade Organisation in 2007, in a development that has already brought
about far-reaching changes benefiting foreign investors and increasing the country's appeal as an
investment destination.
Vietnam is set to lower barriers to entry in a number of important sectors, including insurance, banking
and telecommunications.
FDI inflows fell in 2009 as a result of the global economic crisis and will recover only slowly in 2010-
11. The longer-term prospects for FDI inflows are more positive.

Annual inflows of foreign direct investment
(US$ m)



Potential
Vietnam joined the World Trade Organisation in 2007, in a development that has already brought
about far-reaching changes benefiting foreign investors and increasing the country's appeal as an
investment destination.
Vietnam is set to lower barriers to entry in a number of important sectors, including insurance, banking
and telecommunications.
FDI inflows fell in 2009 as a result of the global economic crisis and will recover only slowly in 2010-
11. The longer-term prospects for FDI inflows are more positive.

Annual inflows of foreign direct investment
(US$ m)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Annual inflows of FDI 1,954 2,400 6,700 9,579 8,700 9,600 11,200 11,800 12,900 14,000
% of gross fixed investment 11.2 11.8 24.6 30.6 27.0 25.0 25.3 22.9 21.4 19.8


Vietnam:

Market opportunities


Vietnam: Market opportunities

GDP per head
(US$ at PPP)

Market opportunities in Vietnam will expand in line population growth and rising incomes,
although the country's low GDP per head by regional standards will limit the extent of
opportunities.
Opportunities at the higher end of the market will be restricted to the main urban areas, and
particularly to the capital, Hanoi, and Ho Chi Minh City, which are significantly richer than the rest
of the country.
Rising per-head disposable income in the forecast period will contribute to strong growth in
demand for consumer goods, particularly as the market in Vietnam for most consumer goods is
not yet fully developed.

Vietnam: Market opportunities

GDP per head
(US$ at PPP)
2010 2011 2012 2013 2014
China 7,509 8,183 8,945 9,877 10,905
US 48,093 49,274 50,606 52,542 54,708
Vietnam 3,145 3,374 3,642 3,962 4,342
Malaysia 14,372 14,835 15,494 16,321 17,472
Philippines 3,417 3,551 3,715 3,913 4,150

Market opportunities in Vietnam will expand in line population growth and rising incomes,
although the country's low GDP per head by regional standards will limit the extent of
opportunities.
Opportunities at the higher end of the market will be restricted to the main urban areas, and
particularly to the capital, Hanoi, and Ho Chi Minh City, which are significantly richer than the rest
of the country.
Rising per-head disposable income in the forecast period will contribute to strong growth in
demand for consumer goods, particularly as the market in Vietnam for most consumer goods is
not yet fully developed.

Vietnam:

The long-term forecast


Vietnam: Long-term outlook

Real GDP growth
(% annual change)

Vietnam is one of the poorest members of the ten-country Association of South-East Asian
Nations (ASEAN), but it has enjoyed relatively rapid rates of economic growth in the past few
years.
Vietnam's favourable demographic profile will help to facilitate continued economic expansion.
Wide-ranging economic reforms will bolster foreign investor confidence in the country, paving the
way for a sustained pick-up in foreign direct investment (FDI). This in turn will contribute to the
upgrading of technology and to improved competitiveness.



Real GDP growth
(% annual change)
2009-10 2011-20 2021-30
China 9.3 7.0 4.3
US 0.4 2.6 2.6
Vietnam 5.7 5.8 4.8
Malaysia 2.6 4.7 4.0
Philippines 2.3 5.6 5.7

Vietnam is one of the poorest members of the ten-country Association of South-East Asian
Nations (ASEAN), but it has enjoyed relatively rapid rates of economic growth in the past few
years.
Vietnam's favourable demographic profile will help to facilitate continued economic expansion.
Wide-ranging economic reforms will bolster foreign investor confidence in the country, paving the
way for a sustained pick-up in foreign direct investment (FDI). This in turn will contribute to the
upgrading of technology and to improved competitiveness.



 Demographic trends: Vietnam's demographic profile is relatively favourable. The working-age
population in 2009 is estimated at 60.3m, representing around 69% of the population. This ratio
will rise over the next decade or more, thereby providing potential for continued economic
expansion. There are concerns about the growth of the elderly population, which is set to rise in
line with improvements in health indicators such as life expectancy. This trend could expose
inadequacies in social security and healthcare.

 External conditions: Vietnam will benefit from an increasingly favourable external environment
in the coming decades. Its relations with the US have improved greatly, and Vietnam joined the
World Trade Organisation in 2007, in a development that testifies to the willingness of the ruling
Communist Party to embrace the global trend towards a market-based economic model. Vietnam
looks set to follow the regional trend for the negotiation of bilateral free-trade agreements.

 Long-term performance: The economy will remain strong during the next few decades,
supported by an expanding private sector, which will contribute to greater competition and the
more efficient allocation of resources. Wide-ranging economic reforms could prove painful initially
as Vietnam becomes increasingly open to international trade, but these changes will bolster
foreign investor confidence, so paving the way for a sustained pick-up in FDI. The Economist
Intelligence Unit forecasts that annual growth in GDP per head will average 4.5% in 2010-30.



GDP per head
(US$ at PPP; index, US=100)

Nominal GDP
(US$ at PPP; index, Vietnam=100)



GDP per head
(US$ at PPP; index, US=100)
2010 2030
China 16 30
US 100 100
Vietnam 7 11
Malaysia 30 35
Philippines 7 11

Nominal GDP
(US$ at PPP; index, Vietnam=100)
2010 2030
China 3,642 3,884
US 5,391 3,263
Vietnam 100 100
Malaysia 150 125
Philippines 124 132


Vietnam:

Resources


Vietnam: Map


Vietnam: Comparative GDP, 2009

Gross domestic product Gross domestic product per head
(US$ bn; market exchange rates) (US$; market exchange rates)


Vietnam: Comparative GDP, 2009

Gross domestic product Gross domestic product per head
(US$ bn; market exchange rates) (US$; market exchange rates)
China 4,909.0 Australia 46,233.4
India 1,287.1 Singapore 35,529.6
Australia 982.9 Hong Kong 29,865.9
South Korea 832.5 New Zealand 26,796.1
Indonesia 540.3 South Korea 16,857.6
Taiwan 378.9 Taiwan 16,389.3
Thailand 263.9 Malaysia 6,759.1
Hong Kong 210.7 Thailand 3,938.6
Malaysia 191.3 China 3,677.9
Singapore 177.1 Indonesia 2,248.6
Pakistan 166.5 Sri Lanka 2,074.6
Philippines 160.8 Philippines 1,641.7
New Zealand 116.0 India 1,103.8
Bangladesh 89.5 Vietnam 1,026.4
Vietnam 89.3 Pakistan 918.1
Sri Lanka 42.0 Bangladesh 549.9


Vietnam: Basic data

Land area 330,363 sq km

Population 85.2m (2007, General Statistics Office estimate)
Climate Tropical monsoon; north cool and damp in winter (November-April), hot and
rainy in summer; south more equable; centre most subject to typhoons. The
rains are highly unpredictable
Weather in Hanoi Hottest month, June, 26-33°C; coldest month, January, 13-20°C; wettest month,
August, 343 mm average rainfall; driest month, January, 18 mm average rainfall

Weather in Hottest month, April, 24-35°C; coldest month, January, 21-32°C; wettest month,
Ho Chi Minh City September, 335 mm average rainfall; driest month, February, 3 mm average
rainfall

Language Vietnamese (spoken by about 90% of the population); English (increasingly
favoured as a second language); some French; a little Russian and German;
minority languages such as Hmong, Thai, Khmer in remoter rural areas

Currency Dong (D). Average exchange rate in 2009: D17,800:US$1

Time 7 hours ahead of GMT

Public holidays January 1st (New Year’s Day); February 14th-18th (Tet, Lunar New Year); April
30th (Liberation of Saigon); May 1st (Labour Day); September 2nd (National
Day)


Vietnam: environment rankings: Methodology
Business

Outline of the model
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries
covered by Country Forecasts using a standard analytical framework. It is designed to reflect the main criteria used by
companies to formulate their global business strategies, and is based not only on historical conditions but also on
expectations about conditions prevailing over the next five years. This allows the Economist Intelligence Unit to utilise the
regularity, depth and detail of its forecasting work to generate a unique set of forward-looking business environment
rankings on a regional and global basis.
The business rankings model examines ten separate criteria or categories, covering the political environment, the
macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign
investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. Each category
contains a number of indicators that are assessed by the Economist Intelligence Unit for the last five years and the next
five years. The number of indicators in each category varies from five (foreign trade and exchange regimes) to 16
(infrastructure), and there are 91 indicators in total.
Almost half of the indicators are based on quantitative data (eg, GDP growth), and are mostly drawn from national and
international statistical sources for the historical period (2005-09) and from Economist Intelligence Unit assessments for
the forecast period (2010-14). The other indicators are qualitative in nature (eg, quality of the financial regulatory
system), and are drawn from a range of data sources and business surveys adjusted by the Economist Intelligence Unit,
for 2005-09. All forecasts for the qualitative indicators covering 2010-14 are based on Economist Intelligence Unit
assessments.
The main sources used in the business rankings model include CIA, World Factbook; Economist Intelligence Unit,
Country Risk Service, Country Finance, Country Commerce; Freedom House, Annual Survey of Political Rights and Civil
Liberties; Heritage Foundation, Index of Economic Freedom; IMF, Annual Report on Foreign Exchange Restrictions;
International Institute for Management Development, World Competitiveness Yearbook; International Labour
Organisation, International Labour Statistics Yearbook; UN, Human Development Report; US Social Security
Administration, Social Security Programs Throughout the World; World Bank, World Development Report; World
Development Indicators; World Economic Forum, Global Competitiveness Report.
Back to Rankings


Vietnam: environment rankings: Methodology
Business

Calculating the rankings
The rankings are calculated in several stages. First, each of the 91 indicators is scored on a scale from 1 (very bad for
business) to 5 (very good for business). The aggregate category scores are derived on the basis of simple or weighted
averages of the indicator scores within a given category. These are then adjusted, on the basis of a linear transformation,
to produce index values on a 1-10 scale. An arithmetic average of the ten category index values is then calculated to yield
the aggregate business environment score for each country, again on a 1-10 scale.
The use of equal weights for the categories to derive the overall score reflects in part the theoretical uncertainty about the
relative importance of the primary determinants of investment. Surveys of foreign direct investors' intentions yield widely
differing results on the relative importance of different factors. Weighted scores for individual categories based on
correlation coefficients of recent foreign direct investment inflows do not in any case produce overall results that are
significantly different to those derived from a system based on equal weights.
For most quantitative indicators the data are arrayed in ascending or descending order and split into five bands (quintiles).
The countries falling in the first quintile are assigned scores of 5, those falling in the second quintile score 4 and so on.
The cut-off points between bands are based on the average of the raw indicator values for the top and bottom countries in
adjacent quintiles. The 2005-09 ranges are then used to derive 2010-14 scores. This allows for intertemporal as well as
cross-country comparisons of the indicator and category scores.
Measurement and grading issues
The indices and rankings attempt to measure the average quality of the business environment over the entire historical or
forecast period, not simply at the start or at the end of the period. Thus in the forecast we assign an average grade to
elements of the business environment over 2010-14, not to the likely situation in 2014 only.
The scores based on quantitative data are usually calculated on the basis of the numeric average for an indicator over the
period. In some cases, the "average" is represented, as an approximation, by the recorded value at the mid-point of
the period (2007 or 2012). In only a few cases is the relevant variable appropriately measured by the value at the start
of the period (eg, educational attainments). For one indicator (the natural resources endowment), the score remains
constant for both the historical and forecast periods.
Back to Rankings


Vietnam: Indicator scores in the business rankings model
2005-09 2010-14
Regional Regional
Vietnam averagea Vietnam averagea

Political environment
1. Risk of armed conflict 4 3.4 4 3.6
2. Risk of social unrest 3 3.1 3 3.1
3. Constitutional mechanisms for the orderly transfer of power 1 3.1 1 3.3
4. Government and opposition 5 3.6 5 3.8
5. Threat of politically motivated violence 4 3.5 4 3.3
6. International disputes or tensions 3 3.2 3 3.1
7. Government policy towards business 3 3.5 3 3.6
8. Effectiveness of political system in policy formulation and execution 3 3.2 3 3.2
9. Quality of the bureaucracy 2 3.2 2 3.3
10. Transparency and fairness of legal system 2 2.9 2 3.1
11. Efficiency of legal system 2 3.5 2 3.5
12. Corruption 1 2.5 1 2.7
13. Impact of crime 3 3.5 4 3.6

a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.


2005-09 2010-14
Regional Regional

Macroeconomic environment
1. Inflation* 3 4.4 4 4.5
2. Budget balance as % of GDP* 2 3.7 2 3.4
3. Government debt as % of GDP* 4 3.8 4 4.0
4. Exchange-rate volatility* 4 4.1 4 4.2
5. Current-account balance as % of GDP* 1 3.8 1 4.1
6. Quality of policymaking 3 3.6 2 3.5
7. Institutional underpinnings 2 3.7 2 3.8
8. Asset prices 2 2.3 3 3.0

a


2005-09 2010-14
Regional Regional

Market opportunities
1. GDP, US$ bn at PPP* 3 3.7 3 3.9
2. GDP per head, US$ at PPP* 1 2.8 1 2.9
3. Real GDP growth* 5 3.6 5 4.0
4. Share of world merchandise trade* 3 3.4 3 3.5
5. Average annual rate of growth of exports* 5 2.5 4 3.1
6. Average annual rate of growth of imports* 5 2.7 4 3.4
7. The natural resource endowment* 1 2.5 1 2.5
8. Profitability* 4 3.8 4 4.1
9. Regional integration 3 2.9 3 3.1
10. Proximity to markets 2 2.4 2 2.4

a


2005-09 2010-14
Regional Regional

Policy towards private enterprise and competition
1. Degree to which private property rights are protected 2 3.9 3 4.2
2. Government regulation on setting up new private businesses 2 3.3 3 3.5
3. Freedom of existing businesses to compete 2 3.4 3 3.6
4. Promotion of competition 2 2.8 3 3.2
5. Protection of intellectual property 2 2.9 2 3.2
6. Price controls 3 3.6 3 3.6
7. Distortions arising from lobbying by special interest groups 2 2.6 3 2.9
8. Distortions arising from state ownership/control 2 3.1 2 3.3
9. Minority shareholders 3 3.6 3 3.6

a


2005-09 2010-14
Regional Regional

Policy towards foreign investment
1. Government policy towards foreign capital 3 3.6 4 3.9
2. Openness of national culture to foreign influences 3 3.4 3 3.5
3. Risk of expropriation of foreign assets 4 4.1 4 4.2
4. Availability of investment protection schemes 3 3.4 4 3.6
5. Government favouritism 3 3.6 3 3.6

a


2005-09 2010-14
Regional Regional

Foreign trade and exchange controls
1. Capital-account liberalisation 3 3.5 3 3.9
2. Tariff and non-tariff protection** 2 3.5 3 3.6
3. Ease of trading 3 3.8 3 4.0
4. Openness of trade* 5 4.4 5 4.2
5. Restrictions on the current account 5 4.5 5 4.7

a


2005-09 2010-14
Regional Regional

Taxes
1. The corporate tax burden** 3 3.6 4 3.6
2. The top marginal personal income tax* 3 4.1 4 4.2
3. Value-added tax* 4 4.2 4 4.2
4. Employers' social security contributions 3 4.1 3 4.0
5. Degree to which fiscal regime encourages new investment 3 3.2 3 3.4
6. Consistency and fairness of the tax system 3 3.4 3 3.5
7. Tax complexity 2 3.5 3 3.6

a


2005-09 2010-14
Regional Regional

Financing
1. Openness of banking sector 2 3.2 3 3.4
2. Stockmarket capitalisation 2 3.4 2 3.6
3. Distortions in financial markets** 2 3.8 3 4.1
4. Quality of the financial regulatory system 2 2.9 3 3.5
5. Access of foreigners to local capital market 1 3.1 2 3.4
6. Access to medium-term finance for investment 2 3.2 3 3.2

a


2005-09 2010-14
Regional Regional

The labour market
1. Labour costs adjusted for productivity* 5 3.6 5 3.9
2. Availability of skilled labour* 2 2.9 2 3.1
3. Quality of workforce 3 3.1 3 3.2
4. Quality of local managers 2 3.7 2 3.6
5. Language skills 2 3.8 2 3.7
6. Health of the workforce* 3 3.4 3 3.7
7. Level of technical skills 2 3.4 2 3.5
8. Cost of living* 4 2.9 3 2.5
9. Incidence of strikes** 4 3.6 3 3.6
10. Restrictiveness of labour laws 3 3.2 3 3.3
11. Extent of wage regulation 3 3.9 3 3.8
12. Hiring of foreign nationals 2 3.0 3 3.4

a


2005-09 2010-14
Regional Regional

Infrastructure
1. Telephone density* 2 3.1 3 3.5
2. Reliability of telecoms network** 1 3.1 2 3.6
3. Telecoms costs* 1 3.5 2 3.9
4. Mobiles* 3 3.4 5 4.3
5. Stock of personal computers* 3 3.5 4 3.9
6. Internet use* 3 3.4 5 3.8
7. Broadband penetration* 3 3.5 4 3.8
8. R&D expenditure as % of GDP* 2 3.1 2 3.1
9. Research infrastructure 2 3.5 2 3.5
10. The infrastructure for retail and wholesale distribution** 2 2.9 2 3.4
11. Extent and quality of the road network** 2 3.3 3 3.4
12. Extent and quality of the rail network** 2 2.7 2 2.8
13. Quality of ports infrastructure 3 3.4 3 3.8
14. Quality of air transport 2 3.6 2 3.8
15. Production of electricity per head* 1 2.8 2 3.1
16. Rents of office space* 1 2.8 1 2.7
a

Vietnam Forecast 1 June2010

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