Previous Quarterly Editions
Expropriation Risk: 38 38 41 46 Political Violence Risk: 37 36 39 40 Terrorism Risk: 15 15 18 18 Exchange Transfer and Trade Sanction Risk: 54 56 51 51 Sovereign Default Risk: 54 52 53 53
TREND ▲ OUTLOOK ►
Vietnam’s economic fundamentals remain robust. Growth was slightly above 7% in 2018, with the important manufacturing and processing sector growing at 13%. In December, the country’s purchasing manager’s index was at its highest point in seven years, suggesting that the positive momentum will persist well into 2019. The agricultural sector, which includes forestry and fisheries, helped to drive the value of exports up to 245 billion dollars. This was a rise of 13.8% on the previous year and allowed Vietnam to record a small trade surplus. Other encouraging figures were a rise in FDI of 9% to 19 billion dollars and a rise of 20% in foreign tourists to 15.5 million. Despite this strong growth, there is little sign of economic overheating, with inflation running at around 3.5%. While currency and interest rates were both relatively steady in 2018, the country’s equity markets had a more volatile year, with the benchmark VNI ending the year down 9.3%. However, the listing of five large former SOEs during 2018 pumped an additional 2.6 billion dollars into the market, and the total capitalisation of Vietnam’s stock markets rose almost 13% to 170 billion dollars. As a result, Vietnam was the largest IPO market in Southeast Asia in 2018, ahead of Thailand, Indonesia and Singapore. While the worsening global economic backdrop is generally not conducive to economic growth in Vietnam, rising concerns about a US-China trade war could work to the country’s advantage. Some export-oriented companies in China look likely to relocate some or all of their operations to Vietnam in a bid to side-step any hike in US tariffs. In November, the National Assembly in Hanoi ratified Vietnam’s membership of the 11-country CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), and this took effect in Vietnam in mid-January. The CPTPP approval came shortly after the European Commission formally adopted the EU-Vietnam Free Trade Agreement in October. In arguably the biggest trade-related fillip to the country’s economy since joining the WTO in early 2007, the EU agreement means that, once ratified, Vietnam’s export-oriented manufacturing, processing and agricultural sectors will have tariff-free access to overseas markets that represent 45% of global GDP. The IMF is forecasting that Vietnam’s economic growth will be around 6.6% in 2019 and that inflation will remain under control at 3.8%. Among the new legislation coming into effect in 2019 are revised competition and anti-corruption laws.
TREND ▲ OUTLOOK ▲
The cyber security law that came into effect on January 1 empowers the Ministry of Public Security to decide what constitutes objectionable online content and requires that all technology service providers have their Vietnam data stored on servers within the country before the end of 2019. By January 9, the government had accused Facebook of permitting anti-government and 'slanderous' posts on its platform and then failing to remove them and block the users who posted them when told to do so. Foreign investors have legitimate worries about the data localisation requirements, as well as more general and reputational concerns about greater government control over online content. Recent years have seen an increase in draconian actions against bloggers and others who use social media as a platform to criticise government policies, in a country where the official media is already tightly controlled by the state. The law is likely to create barriers to foreign participation in a thriving digital economy; more than half of the country’s nearly 100 million people now have access to the internet.
When the National Assembly approved the greater restrictions on social media contained in the government’s cyber security legislation, it sparked a rare wave of street protests that appeared to take the government by surprise. Despite the tight rules governing free speech and public gatherings, Vietnam has had significantly fewer controls over the internet than China, with users usually able to access Facebook and other social media. The prospect that access might become more difficult clearly touched a nerve in a country where few protests take place without at least tacit government approval. The only other issue in recent years to trigger such a response has been anti-Chinese sentiment. Last year also saw street demonstrations against the government’s proposal to grant 99-year leases to foreign investors in a small number of new economic zones, which was widely interpreted as an attempt to allow increased Chinese influence in the country. Hundreds of demonstrators were subsequently arrested after clashing with the police and internal security officers. Competing offshore territorial claims in the South China Sea have helped stoke latent anti-Chinese sentiment in the recent past, having led to a short but significant period of rioting in 2014.
TREND ► OUTLOOK ►
Although widely criticised by human rights groups, the extensive reach of the Vietnamese security apparatus has been extremely successful in deterring and preventing terrorism. As a result, the risk of terrorist acts in Vietnam is particularly low.
TREND ► OUTLOOK ▼
Vietnam is not currently subject to any trade sanctions, and there is no anticipation that this will change. Following its sharp devaluation at the end of 2016, the dong has remained largely steady. The central bank closely manages the exchange rate, and the currency is not freely convertible outside the country. However, the economy’s reliance on FDI inflows and export earnings means there is always a degree of vulnerability to any disruption in global trade flows, or a sharp exogenous shock. Inflation was kept well in check during 2018, despite strong economic growth.
The Vietnam government’s finances remain opaque but total foreign reserves are thought to be around 60 billion dollars. Total public debt appears to be around 135 billion dollars, which would put it just above 60% of GDP. Total external debt is believed to be around 50 billion dollars, much of which is long-term in maturity, but that figure probably excludes some ‘off balance sheet’ obligations. The country consistently runs a fiscal deficit, which in 2018 was around 3.7% of GDP. A similar over-spend is expected in 2019.
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