The Report: Vietnam 2017

Trade & Investment

Vietnam’s economic success over the past three decades has been built in no small part on its openness to international trade and investment. It is now among the world’s most open economies, according to the IMF – in the last 15 years alone, its share of world trade has quintupled, with combined imports and exports now equal to around 160-170% of GDP. Along with its location, Vietnam’s political and social stability, and the consistency of its legislation regarding trade, make it a natural base for manufacturers feeding into global supply chains, where reliability of supply is a prerequisite.

This chapter contains interviews with Nguyen Chi Dung, Minister of Planning and Investment; Lim Hng Kiang, Singapore Minister for Trade and Industry (Trade); and Cecilia Malmström, European Commissioner for Trade.

Economy

Among the world’s most impressive emerging market success stories of the past three decades, Vietnam has been achieving high growth rates, encouraging a huge reduction in poverty and attracting billions of dollars of foreign investment. What was, until relatively recently, considered a comparatively poor country by regional standards – with an economy previously weakened by decades of war – is now solidly middle-income. If Vietnam is able to maintain its current momentum, it might potentially achieve high-income status within the coming few decades.

This chapter contains interviews with Dinh Tien Dung, Minister of Finance; Le Luong Minh, Secretary-General, ASEAN; and Stephen P Groff, Vice-President for East Asia, South-east Asia and the Pacific, Asian Development Bank.

Banking

Robust economic growth, the easing of restrictions on foreign bank ownership and increasing technological sophistication have added to the dynamism of the Vietnamese banking sector in recent years, as the industry puts the mini-crisis of 2012 behind it. Recent years have been characterised by substantial credit growth, as well as ongoing measures to address bad debt. Banking penetration is relatively low – only around 30% of the population have a bank account – providing ample space for growth. Vietnam’s strong GDP growth outlook is the single biggest upside factor for the country’s growing banking sector.

This chapter contains a roundtable with Nghiem Xuan Thanh, Chairman of the Board of Directors, Bank for Foreign Trade of Vietnam; Phan Duc Tu, CEO, Bank for Investment and Development of Vietnam; Natasha Ansell, Country Officer, Citibank Vietnam; and Pham Hong Hai, CEO, HSBC Vietnam.

Capital Markets

With economic growth, solid corporate earnings and a rising need for financing among domestic companies boosting stock markets and stimulating private equity activity, Vietnam’s capital markets have grown steadily in recent years. A wave of equitisation of state-owned enterprises is boosting the sector further, while a growing range of indices are broadening options for investors. A new unified index for both of Vietnam’s bourses – the Ho Chi Minh City Stock Exchange and Hanoi Stock Exchange – may presage a long-awaited merger, and support further product diversification.

This chapter contains interviews with Vu Bang, Chairman, State Securities Commission; and Trinh Thanh Can, CEO, ACB Securities.

Insurance

Strong economic growth and demographic change are catalysing the rapid expansion of Vietnam’s insurance sector, with premiums growing at double-digit rates and likely to do so for some years to come. Thanks to successive liberalising reforms since the 1990s, a range of foreign insurers and investors are benefitting from this growth, and competition looks set to grow as new entrants eye the opportunities available. Awareness of the benefits of insurance is growing, particularly for middle-class families acquiring assets and planning for the future.

This chapter contains an interview with Dao Dinh Thi, Chairman, BaoViet Holdings.

Energy

Substantial hydrocarbons and hydropower resources have allowed Vietnam to be largely energy self-sufficient and supported rapid economic growth. Exploitation of its coal and the harnessing of rivers for hydropower has helped Vietnam meet double-digit growth in demand for power, providing almost universal electricity access to its people. Development of the country’s oil and gas reserves has seen it become a net crude oil exporter and meet its gas demand in full. High annual GDP growth – at an average of 7-8% over the past 20 years – and increased affluence among a growing population have led to soaring demand for energy.

This chapter contains interviews with Duong Quang Thanh, Chairman, Vietnam Electricity; and Bui Ngoc Bao, Chairman, Vietnam National Petroleum Group.

Tourism

Offering 3200 km of coastline and spectacular white sand beaches, mountainous highlands popular with adventure tourists and a vast array of cultural, historic and culinary attractions, Vietnam has seen its tourism sector become a major economic growth driver in recent years. The sector has recorded positive performances across the board, including international arrivals, domestic tourists, revenues, spending and investment, leading the government to increase earlier growth targets in 2016 as foreign arrivals reached record levels. Although a restrictive visa scheme continues to prevent Vietnam from reaching the same visitor numbers as its fellow ASEAN tourism competitors, government moves to add a growing number of countries to the visa waiver list could see the country catch up with – and even surpass – markets such as Thailand and Malaysia in the coming years.

Industry & Retail

On the back of sound economic growth, a continuing inflow of foreign direct investment and a healthy labour force, the industrial base in Vietnam has been steadily expanding over the past two decades, with export-orientated manufacturing playing a major role within the overall economy. The potential for manufacturing in Vietnam is much higher than it was just five years ago. Recently signed free trade agreements are likely to further boost competition, as well as extend the country’s international reach, as manufacturers continue to view Vietnam as a low-cost alternative to China.

This chapter contains interviews with Michael Behrens, General Director, Mercedes-Benz Vietnam, and Chairman, European Chamber of Commerce; and Mai Kieu Lien, CEO, Vinamilk.

Agriculture

The rollout of new free trade agreements gives Vietnam added possibilities to export its agricultural goods, but tapping these markets will require an enhancement of the sector’s sustainability. This effort is likely to involve the consolidation of smallholders, lack of which has so far prevented the country from transitioning into a key agricultural export player. Also on the agenda are food safety, environmental impact, increasing the export of high-end manufactured products, diversification and commercialisation of by-products. The government has put forth sector goals it wants to see accomplished by 2020 that involve drastic reforms in promoting science and technology for increasing productivity and development, and creating high-quality and competitive products, all while improving farmers’ livelihoods.

This chapter contains an interview with Tiet Van Thanh, General Director, Vietnam Bank for Agriculture and Rural Development.

Construction & Real Estate

After a series of lacklustre years between 2011 and 2014, the construction market has picked up considerably and will expand on the back of increasing residential demand and infrastructure needs. A key factor that will drive demand for further housing construction is the amended Housing Law and the Law on Real Estate Business, both passed in 2014 to remove restrictions on foreign ownership of residential and commercial properties. Meanwhile, among the local population, a growing young and middle class is expected to push up demand for quality homes and investment-grade offices.

This chapter contains an interview with Le Viet Hai, Chairman and General Director, Hoa Binh Construction Company.

Telecoms & IT

With the shift towards a more market-orientated economy, Vietnam’s telecommunications market is seeing further openings for foreign investment, including the supply of telecoms services and the establishment of infrastructure networks. The government has, meanwhile, taken some broad steps in boosting competition in the marketplace by restructuring the state-owned Vietnam Posts and Telecommunications Group and paving the way for the introduction of 4G services, which is expected to generate a spike in new opportunities for investors. With a population of approximately 95m, Vietnam is an important regional market both for global technology vendors and for home-grown entrepreneurs. The latter are getting more encouragement to innovate as the country modernises and adopts international standards in areas such as communications infrastructure and education technologies.

This chapter contains interviews with Tran Manh Hung, Chairman of the Member’s Council, Vietnam Posts & Telecommunications Group; and Truong Gia Binh, Chairman, FPT Corporation.

Transport

Occupying a unique position along the Pacific Ocean, Gulf of Thailand and Gulf of Tonkin, along with shared land borders with China, Laos and Cambodia, Vietnam is well-positioned to become a dominant regional transportation centre. Rapid trade, economic and population growth have made transportation upgrades a critical priority for Vietnam. Although many major planned projects face a funding gap which could hamper their timely implementation, recent reforms to the national public-private partnership framework have left the sector well-positioned to capture a larger share of private investment in the coming years. This will be especially critical for major planned highway and aviation projects, where rapid passenger growth has strained existing facilities, lending a sense of urgency to near-term development plans.

This chapter contains interviews with Truong Quang Nghia, Minister of Transport; and Wong Heang Fine, Group CEO, Surbana Jurong.

Tax

This chapter offers a breakdown of current regulations and guidelines, and covers the double-taxation agreement with the US and the new decree on transfer pricing released in February 2017.

It also contains an interview with Dinh Thi Quynh Van, General Director, PwC Vietnam.

Legal Framework

This chapter offers an overview of Vietnam’s legal framework, focusing on legislation passed to improve the business environment, the Law on Enterprises, the New Civil Code and other important areas.

It also contains an interview with Tuan Phuong, Managing Partner, VCI-Legal.

The Guide

This chapter includes a list of recommended hotels throughout Vietnam, a telephone directory of useful services and organisations, cultural tips for new visitors and tips for professional etiquette for the business traveller.

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