Vietnam Country Risk Assessment 2015

After a period of chaos and imbalance, Vietnam’s economy has stabilized. The economic growth rate of about 5.5% per year is more likely to be sustainable in the long term. The Free Trade Agreements will be able to strengthen the position of Vietnam in the world market as well as make Vietnam becoming a base for manufacturing industries. The major reforms in the banking and business sectors can continue to increase the country’s competitiveness in the long term, but it seems that these efforts are progressing slowly. Vietnam has huge potentials with an excellent geographical location in a dynamic area with good transport connections.

Vietnam is also strengthening its trade integration at both multilateral and bilateral levels. Especially there was the signing of the TPP (Trans Pacific Partnership) in October 2015.

By 2015, Vietnam has simplified business registration procedures and customs procedures. The Communist Party continues to control political, economic and social life of the whole country.

Strengths

Weaknesses

·        Continue to orient the economy towards market economy and private economy ·        Highly competitiveness export sector ·        Huge flow of foreign direct investment ·        Highly concentrated on reducing poverty ·        Skilled labor with low costs ·        Strong agricultural potential and rich natural resources ·        Development strategy based on openness and diversification of the economy ·        The economy is almost not affected by the deterioration of China

·        Weak banking sector ·        The operation of state enterprises is inefficient and subject to political control ·        Information is lack of transparency and low quality ·        Unstable policies ·        Lack of infrastructure

In 2016, economic growth of Vietnam will remain strong. The export sector will continue to benefit from the growth in foreign direct investment (FDI) and from the participation of Vietnam in a number of trade agreements the region. Currently, Vietnam is a production center of smart phones and tablets for the Korean companies. Demand from developing countries will offset the drop in demand from China – the third largest customer of Vietnam exports. Hence exports will still be maintained.

Furthermore, household spending will continue to grow. Consumer confidence will be improved as inflation is kept under control after years of high and instability inflation. In addition, investment may benefit from the acceleration in industrial production and the national plan to promote infrastructure development. However, it will continue to suffer weaknesses in the banking system. Although monetary policy has become more flexible, but credit growth is likely to continue to be hampered by the high rate of bad debt.

The farming sectors should also be developed after a year with bad weather conditions. After being affected by the anti-Chinese riots in May 2014, tourism has the ability to recover starting from the end of 2015.

Finally, Vietnam’s economy will remain a two-tier economy, with foreign companies enjoying strong growth and state owned companies with high debt and low profits.

In 2016, the budget deficit and public debt are likely to grow. In addition to the lack of financial transparency of government, the banking system is still fragile because of lack of funds and dollarized.

The dispute over sovereignty in the East Sea between Vietnam and China has been rekindled in 2014 when an oil rig of China was placed in the sovereign waters of Vietnam. It creates a powerful anti-Chinese wave in Vietnam, even led to protests and attacks against Chinese interests in Vietnam. China finally forced to move the oil rig under pressure from the United States. After that, ASEAN countries have decided to establish a code of conduct with China in this problem. In November 2015, during the APEC summit, Vietnam and the Philippines have reached a strategic agreement aimed at enhancing cooperation between the two countries, including in the settlement of dispute. In 2016, Vietnam is expected to continue to strengthen relations with the United States and Japan.

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