Vietnam: Bright prospects but challenges could see it fall short Sian Fenner Lead Asia Economist, Oxford Economics sianfenner@oxfordeconomics.com Shawlin Chaw Senior Analyst, Control Risks Shawlin.Chaw@controlrisks.com November 217
FDI inflows and exports driving growth Vietnam: FDI by type mn, USD 4 35 3 25 2 Other Construction and real estate Manufacturing * 217 - Q1-Q3 Vietnam: Export growth %, year 25 2 15 1 5 Vietman Rest of Asia 15-5 1-1 5 212 213 214 215 Source : Oxford Economics/Haver Analytics 216 217-15 -2 215 216 217 Source : Oxford Economics/Haver Analytics 1
Vietnam to be star performer ASEAN: GDP growth forecasts % 8 7 6 216 217 218 219 5 4 3 2 1 Singapore Thailand Malaysia Indonesia Philippines Vietnam Source : Oxford Economics/Haver Analytics 2
External vulnerabilities Impact of scenarios on GDP growth % year 9. 8. 7. 6. 5. Baseline 4. Tighter policies China 3. Cyclical recovery in World Trade US Policy errors 2. 212 214 216 218 22 222 Source : Oxford Economics 3
Less fiscal buffers Vietnam : Government budget balance US$ bn 2-2 -4-6 % of GDP 2 F'cast -2-4 -6-8 -8-1 -12 % of GDP (RHS) US$ bn (LHS) -1-12 -14 1997 2 23 26 29 212 215 218 Source: Oxford Economics -14 4
Risk of financial imbalances Vietnam: Credit growth %, year 25 2 15 1 5 213 214 215 216 217 Source : Oxford Economics/Haver Analytics Vietnam: Domestic Credit to GDP ratio %, of GDP 14 12 1 8 6 4 2 2 22 24 26 28 21 212 214 216 Source : Oxford Economics/CEIC 5
Vietnam to outperform ASEAN-5 ASEAN: Potential GDP growth % pa 6 27-216 217-23 5 4 3 2 1 Source : Oxford Economics/Haver Analytics 6
Young workers and low wages boost advantage Vietnam: Demographics % of total population 8 7 Forecast Global: Nominal wages, USD US Singapore 6 5 4 3 2 Working population Old age dependency Korea Japan Taiwan China Malaysia Thailand 1 199 1994 1998 22 26 21 214 218 222 226 23 Source : Oxford Economics/Haver Analytics Philippines Vietnam 1 Source : Oxford Economics/ILO 2 3 4 7
Improved business climate Asia: Ease of Doing Business Ranking Myanmar Lao Cambodia Philippines China Indonesia Vietnam Thailand Malaysia Taiwan HK Singapore 5 Source : Oxford Economics/World Bank 1 15 2 8
Vietnam: Key risks to business www.controlrisks.com
Vietnam: Opportunities abound Source: US Chamber ASEAN Business Outlook Survey 218 (released September 218)
but challenges also aplenty What are the top supply chain issues experienced in Vietnam? 49% Corruption at ports of entry 56% Poor or inadequate infrastructure 72% Unclear regulations and enforcement Source: US Chamber ASEAN Business Outlook Survey 218 (released September 217)
Vietnam: Among the most corrupt in Asia
Corruption: Deep-rooted in everyday life Significant risk for foreign companies operating in Vietnam Government officials and agencies expect bribes and facilitation payments to be paid to access public services Efforts to strengthen the anti-corruption framework has largely been ineffective Corruption violations in Vietnam could attract the scrutiny of anti-graft regulators overseas (in particular the US FCPA and UK Bribery Act)
Highly politicised operating environment A heavy emphasis on patronage means that ruling party factionalism could impact business operations Contracts could be jeopardised if caught in the crosshairs of factional politics Delay implementation of economic policies, development in key sectors and divestment plans Clash of the political titans: Conservative Trong vs. Reformist Dung Judiciary is biased towards local interests
Vietnam scores better than other Asia frontiers Economic risk: Vietnam vs Emerging markets average Risk score, 1 = highest 1 8 Emerging markets average 6 4 2 Australia Singapore Korea China India Source : Oxford Economics Indonesia Vietnam Cambodia Bangladesh Laos Myanmar 15
Q&A email: sianfenner@oxfordeocnomics.com