Previous Quarterly Editions
Expropriation Risk: 38 41 416 46 Political Violence Risk: 36 39 40 40 Terrorism Risk: 15 18 18 18 Exchange Transfer and Trade Sanction Risk: 56 51 51 49 Sovereign Default Risk: 52 53 53 50
TREND ▼ OUTLOOK ►
Vietnam’s economy remains in good health, with growth reaching a ten-year high of 7.1% in 2018. Growth for the first quarter of 2019 was 6.8%, boosted by an expansion in manufacturing and processing and the continuing strength of FDI inflows. Investors, particularly those focused on export-oriented manufacturing, appreciate Vietnam’s strong emphasis on infrastructure spending as well as the improving legal and regulatory environment. First quarter exports were up 4.7% and imports up 8.9%, producing a trade surplus of just over half a billion dollars. The rise of an urban middle class with disposable income should gradually lower Vietnam’s reliance on export-driven demand. Although inflation remains firmly under control at 3%, the 8% increase rise in electricity prices that was announced with immediate effect in March 20 will probably feed into the inflation figures during the second quarter of 2019. The price rise was introduced partly in the hope of attracting private investment into the power sector, as rising electricity demand is forcing up energy imports. In February, the government abandoned plans for merging the Hanoi and Ho Chi Minh City stock exchanges and instead appointed a state-owned holding company to manage them. In March, a further round of stock market liberalisation expanded the range of derivatives to be traded, such as government bond futures. Vietnam’s success in becoming the newest host of a Formula 1 race, starting in 2020, reflects the extent to which it is starting to be recognised as an Asian economic force; in Southeast Asia, only Malaysia and Singapore host F1 races. Tensions between Hanoi and Beijing remain, although they have lessened in recent months over competing territorial claims in the South China Sea. Vietnam’s reliance on its current cadre of senior officials was underlined in April when rumours circulated that Nguyen Phu Trong, the country’s president and the Communist Party’s general secretary, was seriously ill. The government admitted only that Trong was suffering from overwork but he was not seen in public for almost a month. Had he been seriously incapacitated, it was clear that the Party did not have an individual of sufficient status able to move smoothly and without challenge into those roles. Trong re-emerged in May but his absence gave added importance to the forthcoming party plenum that will begin to select the next generation that will start taking up leadership roles from 2021.
TREND ► OUTLOOK ▲
While the risk of physical expropriation remains low, the cyber security law that came into effect in January empowers the Ministry of Public Security to decide what constitutes undesirable online content. It also requires that all technology service providers have their Vietnam data stored on servers physically located within the country by the end of the year. Within two weeks of the new law coming into effect, 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 in the new cyber security legislation, as well as more general and reputational concerns about greater government control over online content. Recent years have seen an increasing crackdown on the use of social media to criticise government policies, bringing it into line with the tight controls on conventional media.
The new restrictions on social media in the cyber security law sparked a rare wave of street protests that appeared to take the government by surprise. Although such protests are very unusual, the prospect that access to social media might become more difficult clearly touched a nerve in a country where half the population of 100 million people can connect to the internet. A similar outbreak of opposition led to street demonstrations in Hanoi and Ho Chi Minh City in 2018 against a government proposal to grant 99-year leases to select foreign investors in a small number of new economic zones, with the move being 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, with fifteen subsequently sentenced to 2-3 year prison terms in March 2019 for blocking a highway during the protests, but the lease proposal was subsequently dropped.
TREND ► OUTLOOK ►
Although widely criticised by human rights groups for its use of excessive force, the extensive reach of the Vietnamese security apparatus has been extremely successful in deterring and preventing not only acts of terrorism but also other forms of violent and non-violent protest.
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. Vietnam is not currently subject to any trade sanctions, and there is no expectation that this will change. Instead, international engagement is growing. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership came into force in Vietnam in January, and negotiations for a comprehensive trade agreement with the EU are well advanced. Moreover, the recent increase in trade tensions between the US and China is having a positive impact for Vietnam as some export-oriented Chinese manufacturers relocate their production to Vietnam in a bid to circumvent rising US tariffs.
The IMF noted in April that the budget deficit is contracting and that public finances are being put on a firmer footing. Total public debt at the end of 2018 appeared to be around 55% of GDP, slightly lower than in recent years. 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, and a similar figure looks likely this year. The IMF also commended the emergence of a corporate bond market and other capital markets, which will help reduce the cost of capital in Vietnam.
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