Previous Quarterly Editions
Expropriation Risk: 41 46 47 47 Political Violence Risk: 40 40 40 38 Terrorism Risk: 18 18 18 18 Exchange Transfer and Trade Sanction Risk: 51 49 51 52 Sovereign Default Risk: 53 53 49 48
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The government’s economic targets for 2020 are GDP growth of 6.8%, inflation below 4%, export growth around 7%, and total investment at 33-34% of GDP. This is essentially a repeat of its results during 2019 and Hanoi is confident that they are achievable again. The World Bank shares this view, maintaining a similar growth forecast of 6.5% for 2020 and 2021 despite cutting its outlook for some of Vietnam’s neighbours against a worsening global macro-economic backdrop. The free trade agreement with the EU is expected to come into force early in 2020 and provide a fillip for the Vietnamese economy, which should also benefit from any further deterioration in trade relations between China and the US. Despite the robust growth of recent years, there is no immediate risk of over-heating. The most recent figures from the Purchasing Manager’s Index suggest that the industrial sector may be plateauing, ending almost four years of continual purchasing and production expansion in Vietnam’s manufacturing sector. With new order growth slowing, producers are starting to respond by easing back on both production and employment. Nonetheless, business confidence remains fairly buoyant moving into 2020, possibly on expectations of increasing export volumes to the EU. The consensus view is that the slowdown in growth is temporary rather than the beginning of a more structural economic contraction. In political terms, virtually all of 2020 will revolve around preparations for the 13th Congress of the Vietnam Communist Party (VCP), which is scheduled for January 2021. This is still a highly choreographed affair that is conducted every five years, with all the key decisions made in the run-up to the event and almost entirely behind closed doors. Provincial-level central committees, the national central committee, and ultimately the 15-person politburo will debate and agree a new leadership line-up in what will be a highly opaque and drawn-out process. These decisions will not only determine who holds the main positions in the VCP but also the State leadership (the executive) and the key positions in the National Assembly (the legislature). Party general secretary and State president Nguyen Phu Trong is widely expected to step down and the two most likely candidates to replace him appear to be current Prime Minister Nguyen Xuan Phuc and National Assembly Chairperson Nguyen Thi Kim Ngan, both aged 67. General Secretary Trong took over the additional position of State president in 2018, after the death of Tran Dai Quang, but suffered a mild stroke last summer. It remains to be seen whether the leadership will revert to separating the positions of VCP general secretary and State president or choose to keep them merged. Looking to the longer term, the impact of climate change on Vietnam has been underlined by a new report suggesting that by 2050 most of the Mekong delta and parts of Ho Chi Minh City, by then encompassing more than 30 million people, will be under water at high tide. Vietnam's deputy foreign minister made a three-day visit to China in November for talks with China's vice foreign minister to ease tensions over the South China Sea.
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Although the trend of moving manufacturing operations to Vietnam has been helped by the relatively low risk of asset expropriation, technology companies remain concerned about the cyber security legislation that came into force at the start of 2019. This empowers the Ministry of Public Security to decide what constitutes undesirable online content, and also requires that all technology service providers have their Vietnam data stored on servers physically located within the country. Although an initial flareup between the government and Facebook over the speed with which the company removed anti-government posts did not become more serious, foreign investors continue to have legitimate worries about the data localisation requirements, as well as more general and reputational concerns about greater government control over online content.
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Since Nguyen Phu Trong assumed the post of Party General Secretary, and particularly after he added the role of State president, the VCP has shown an increasing lack of tolerance for perceived agitators, both within and outside its own ranks. This has been the primary driver of efforts to bring social media into line with the tight controls that already exist on conventional media, and the crackdown is likely to outlast Trong’s expected departure at the end of 2020. Senior Party leaders are aware that the VCP’s greatest weakness in terms of legitimacy, apart from corruption, is the ideological linkage with the leadership in China, which sits uncomfortably with the strong nationalist sentiment running through much of Vietnamese society. This tends to come into sharp relief when Sino-Vietnamese tensions grow over competing territorial claims in the South China Sea, and any serious escalation may prompt the government to take the popular measure of restricting Chinese access to Vietnam’s property market.
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While condemned by human rights groups, which have pointed out the recent increase in the number of political prisoners, the Vietnamese security apparatus has been successful in deterring not only acts of terrorism but also most other forms of violent and non-violent protest.
TREND ▲ OUTLOOK ►
The central bank closely manages the exchange rate for the dong, which is not freely convertible outside the country. The greatest sanctions risk at present stems from Washington’s decision in May to place Vietnam on a watch-list for potential currency manipulation. Hanoi has taken the warning seriously and has been exploring ways to absorb more high-value US exports, including cars, as well as more agricultural produce, in order to avoid any possibility of new US tariffs. However, the size of the surplus has continued to increase, from 39.5 billion dollars in 2018 to 46.2 billon in late 2019.
Vietnam’s public debt is roughly equivalent to 55% of GDP. The country consistently runs a fiscal deficit, but this is currently below 4% and is trending downwards. The latest IMF country assessment is largely positive, noting stricter limits on new government guarantees and welcoming the recent fiscal consolidation efforts. In October, S&P affirmed Vietnam’s long-term foreign currency debt rating at BB with a ‘stable’ outlook. Fitch Ratings concurs, but with a ‘positive’ outlook.
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