Previous Quarterly Editions
Expropriation Risk: 56 57 57 56 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:17 16 15 13 ►Exchange Transfer and Trade Sanction Risk: 55 55 55 63 ▲Sovereign Default Risk:37 47 47 47 ►
TREND ▲
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: MediumFood/fuel policy protests: Medium
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Vietnam has been relatively successful at keeping consumer price inflation well within single digits over recent months. A peak figure of 4.9% year-on-year was recorded in January 2023, having trended up from 2.9% in August 2022. Yet a figure of 4.3% year-on-year in February 2023 suggests inflationary forces may now be abating.
As an avowedly socialist state, a range of social services and essential products are provided at subsidized levels, and Hanoi is unlikely to introduce austerity measures unless there is a marked deterioration in the national
budget. Public spending in education, health and some other social services is already relatively modest, relative to the demand of a population exceeding 100 million people, and so there is limited scope to revise these down.
Where price controls do exist, such as regarding electricity provision, these sectors tend to be dominated by state-owned enterprises, often resulting in them incurring corporate losses as they must absorb any discrepancy between subsidized pricing and the rising costs of inputs. EVN, the state-owned electricity provider, is currently thought to be in financial distress, and has been seeking government approval to increase the price it sells electricity.
There is relatively little scope for social or political instability as a function of economic hardship felt by the citizens of Vietnam. The ruling Vietnam Communist Party (VCP)’s long-held monopoly of the political realm gives little scope for any organised opposition, or for protest votes.
National elections for the National Assembly, held every four years, are closely controlled by the VCP
and its various arms, such as the Fatherland Front. Most candidates, and therefore elected delegates, are VCP members.
Furthermore, the highly effective internal security apparatus keeps a close, and unforgiving, watch on any signs of public criticism or protest, whether on the streets or on social media. Close relations between the ruling party and the military make the prospect of a coup virtually nil.
Indeed, the considerable overlaps that exist between individuals in the ruling VCP, the executive government, and the legislature virtually ensures that no organized opposition to the government can form, other than through the creation of some – as yet to be seen – grass roots uprising. But such a prospect is remote, because of the highly vigilant and embedded internal security apparatus that is wholly loyal to the leadership.
As the Vietnam leadership is well aware, the greatest potential for popular disquiet stems from ongoing frustration around corruption, which is fairly endemic and apparent at all levels of society and within all government institutions.
TREND ►
Expropriation risk regarding physical assets in Vietnam is relatively low, notwithstanding the lack of an independent judiciary and several weak institutions that make for a less-than-robust or benign operating environment for foreign business. However, Vietnam’s reliance on foreign direct investment to power its economic advancement mean that it has little incentive to gain a reputation for elevated expropriation risk.
Companies relying on the storage of internet data remain concerned about Vietnam’s 2018 cyber security law, which empowers the Ministry of Public Security to decide what constitutes undesirable online content and requires all internet service providers to keep all their Vietnam-related data stored on servers located in Vietnam, and open to inspection. In August 2022, a long-awaited decree was issued providing details on how the law is to be implemented and enforced.
Foreign investors are concerned about these data localization requirements, and more general and reputational concerns around Hanoi’s intense monitoring and control over all online content. For the government, which has complete hegemony over conventional media, the internet and social media are undesirable sources of criticism. This is in addition to long-held concerns around the general inadequacy of Vietnam’s intellectual property protections.
The degree of political violence risk is low. The communist government has no tolerance for anything resembling open dissent, both within its own ranks and the population. Vietnam’s internal security apparatus is highly effective, as noted above.
The most likely catalyst for public violence, such as riots, would be if China made provocative moves over its competing territorial claims in the South China Sea. Many Vietnamese have a deep-seated suspicion of China, and some feel their VCP leadership is not sufficiently hard-line in opposing Beijing’s strategic ambitions. This has occurred before, with damage inflicted on businesses believed (rightly or wrongly) to be Chinese owned.
The ideological linkages between the Chinese and Vietnamese communist parties do not always sit comfortably with the strong nationalist sentiment that runs through much of Vietnamese (and Chinese) society. However, Vietnam’s effective police and security apparatus would react speedily and firmly to any violence. The same apparatus ensured high compliance with COVID-19 pandemic-related lockdown regulations throughout 2020-21.
Vietnam is at very low risk of terrorism. The security apparatus (though criticized for media controls) has been successful in thwarting any potential acts of organized terrorism and most forms of violent protest. While anti-government sentiment exists among some of the Vietnamese diaspora, their ability to conduct terrorist acts inside Vietnam is virtually nil.
The dong is not freely convertible outside Vietnam and has held relatively steady against the U.S. dollar in recent years. In December 2019, Washington placed Hanoi on a watch-list for potential currency manipulation, but in April 2021 announced that Vietnam had been removed from the list, and therefore was no longer subject to the threat of economic sanctions. Hanoi had previously taken this threat of U.S. sanctions seriously, and explored ways to absorb more U.S. exports, hoping to reduce its trade surplus with the U.S.
Nonetheless, this trade surplus continues to rise, largely as growing numbers of China-based, export-oriented manufacturers relocate to Vietnam, hoping to side-step China-U.S. trade tensions, from which Vietnam has been a net beneficiary.
In early 2022, U.S. officials held a virtual meeting with Vietnamese officials, raising U.S. concerns over allegedly illegal timber practices, agriculture, and digital trade. While some retaliation by the U.S. or others for perceived trade violations is conceivable, these are unlikely to be large or long-lasting, given the scale of foreign investment in Vietnam and its burgeoning role as an important trading partner.
In July 2022, the IMF released the findings of its latest ‘Article IV’ negotiations with Vietnam, broadly giving the country a good bill of health. The IMF estimates Vietnam’s foreign exchange reserves to be around USD125 billion, or about four months of import cover. The government is not a major borrower on the international financial markets, and the IMF estimates Vietnam’s total public and publicly guaranteed debt at around 40% of GDP.
Total net borrowing by the government has been trending upwards in recent years, largely due to the pandemic, according to the IMF. However, most of Vietnam’s external debt (around 35% of GDP) is owed to multilateral development institutions at below-market terms. A significant proportion of publicly guaranteed debt stems from state-owned enterprises, many of which are loss-making, whether due to operational inefficiencies or being the subject of government price controls.
Concerns around corporate debt also contributed to the marked downturn in the stock market indices in 2022, of around 32%, making Vietnam one of the worst stock-market performers last year. There have also been growing concerns about rising non-performing loan levels in the banking sector.
In early September 2022, Moody’s revised its rating for Vietnam from Ba3 (with positive outlook) to Ba2 (with stable outlook). This followed Standard and Poor’s May decision to change Vietnam’s credit rating from BB (with positive outlook) to BB+ (with stable outlook). Fitch maintains Vietnam at BB with a positive outlook.
Vietnam recorded below-normal GDP growth rates of 2.9% and 2.6% in 2020 and 2021, respectively, due to the pandemic’s impact, but saw GDP growth of 8% in 2022, bucking a regional trend of more modest growth.
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