Vietnam has been one of the fastest-growing economies in Asia in recent years, with the economic boom lifting many of the Vietnamese out of poverty. The country has been strengthening its trade and aid ties in a bid to increase foreign direct investment into the manufacturing sector, and to diversify its exports away from lower value products. Vietnam’s relations with the US have witnessed a marked improvement, with Washington seeing Hanoi as a potential geopolitical ally in South East Asia.
We keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 20 of Vietnam’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our results-proven research teams. We aim to keep you ahead of the curve, so you can operate with confidence in Vietnam.
Vietnam Country Risk
Vietnam completed its leadership transition on April 9 2016, and we expect the new government to maintain its strategic non-alignment foreign policy. In the latest maritime dispute between China and Vietnam, the new administration adopted an unyielding tone against Beijing, suggesting that it will not be subservient to its larger neighbour. However, we expect Hanoi to seek to maintain a delicate balance as it attempts to appease Vietnamese at home, while preserving crucial economic relations with China.
We forecast the SBV to embark upon on a relatively shallow rate-cutting cycle of 50bps over the course of the year in order to reduce lending rates and provide support to the economy. The low inflationary environment (we forecast CPI to average 2.1% in 2016) will also provide sufficient room for the central bank to act. However, still-strong economic growth...
Vietnam Operational Risk Coverage (9)
Vietnam Operational Risk
Vietnam Operational Risk
BMI View: Vietnam's labour market offers a number of notable advantages for firms looking to invest. Companies enjoy access to a competitive and available workforce characterised by high rates of literacy and numeracy for Vietnam's income level and an increasingly skilled and well-educated graduate population, suiting the needs of firms engaged in a diversity of activities. However, the cost of labour represents a source of risk to companies due to a difficult labour-management environment, troubles in hiring foreign workers and a high rate of labour strikes, increasing firm costs and threatening business activities. Taking these factors into account, Vietnam receives a score of...
Vietnam Crime & Security
Vietnam Crime & Security
BMI View: Oman's transport sector has been experiencing a significant expansion. The government has a five-year spending plan (2011-2015), which foresees OMR30bn (US$78bn) of expenditure, the majority of which is allocated to social and transport infrastructure. In addition, the participation of Oman in one of the biggest infrastructure projects in the Gulf - the inter-Gulf Cooperation Council rail network - will greatly enhance the country's transport links.
Transport Infrastructure Outlook And Overview...
Vietnam Labour Market
Vietnam Labour Market
Vietnam offers a number of notable advantages to firms in the national labour market. Companies enjoy access to a competitive and available workforce characterised by high rates of literacy and numeracy for Vietnam's income level and an increasingly skilled and well-educated graduate population, suiting the needs of firms engaged in a diversity of activities. However, the cost of labour represents the largest source of risk to companies due to a difficult labour-management environment, troubles in hiring foreign workers, and a high rate of labour strikes, increasing firm costs and threatening business activities. Taking these factors into account, Vietnam received a score of 49.3 out of 100 for its labour market risk, meriting a rank of 14 th regionally out of 29 Asian countries. The country therefore falls in the middle of the sub-regional pack, between Southeast Asian leaders such as Singapore (second), Malaysia (ninth) and Thailand (10 th...
While Vietnam's logistic infrastructure is basically sound, its rapid rate of economic growth, export-focused industrial base and ambitious economic goals have meant that constant improvements are required to keep pace. Logistics operations are still costly relative to key regional peers such as China, Malaysia and Thailand, primarily because of unpredictability in supply chains, which increases costs by making it necessary for businesses to carry more inventory than they would otherwise need to manage their everyday operations. We give Vietnam a score of 64.3 out of 100, in 11 th place in the 30 Asian countries and territories we assess in our Logistics Risk Index.
According to the World Economic Forum's Global Competitiveness Survey, inadequate supply of infrastructure is ranked as the fifth most problematic factor for firms doing business in Vietnam.
The key causes of supply chain unpredictability are...
Vietnam Trade & Investment
Vietnam Trade & Investment
Vietnam falls in the middle of the regional pack for its level of Trade And Investment Risk, offering both major advantages and drawbacks to foreign investors and businesses. Firms benefit from a high level of economic openness, which has enabled an impressive expansion in both trade and foreign investment. However, firm productivity and competitiveness are hindered by a diversity of factors, including high levels of government intervention in the economy, pervasive corruption that adversely impacts the efficacy of the legal system, an underdeveloped banking system, and a limited playing field for private companies vis-à-vis public firms. Taking these factors into account, Vietnam received a score of 43.1 out of 100 for Trade And Investment Risk, placing 16 th out of 29 Asian countries, between excellent sub-regional performers such as Singapore (2 nd), Malaysia (5 th), and Thailand (9 th), and underdeveloped countries...
Vietnam Industry Coverage (29)
BMI View: Recent developments in the country's economic and business environments add further weight to our positive view on Vietnam's agribusiness sector. The industry holds strong growth opportunities in terms of production, exports and retail sales, particularly with regard to the rice, coffee, livestock and dairy sectors. Moreover, economic and financial integration in South East Asia will benefit Vietnam's exports of rice, dairy and coffee. However, Vietnam is facing growing competition in its key markets. The fulfilment of its promising potential will only be achieved if the country steps up its competitiveness and improves both product quality and supply chain efficiency. Vietnam will have to significantly ramp...
BMI View: Proposed cuts to the tax rates levied on smaller cars should provide fresh impetus to the new vehicle sales market over H216. We still expect a slowing in growth from the elevated levels seen across 2015. We forecast 15.9% growth for the sector in 2016, with commercial vehicles to outperform passenger cars.
|Industrial Growth Favouring Commercial Vehicle Segments|
|Vehicle Sales By Segment, Units|
Vietnam Commercial Banking
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Vietnam Consumer Electronics
BMI View: Vietnam's consumer electronics market was boosted by tariff reductions and retail sector liberalisation in 2015, factors that will diminish and so spending is forecast to decelerate to a CAGR of 6.5% over 2016-2020. The growth story is still positive, based on rising household incomes in a market where device penetration rates are still low. This will see volumes and value increase as consumers acquire their first devices alongside an easing of price sensitivity in higher value consumer segments. Our bullish core scenario is, however, susceptible to downside risks including a hard landing in China or a broader emerging market debt...
Defence & Security
Vietnam Defence & Security
BMI View: We expect Vietnam's defence budget to continue increasing in absolute terms in the next five years. This will be driven by the country's need to significantly modernise its armed forces, in particular its navy, in order to counter maritime piracy and increase its military stance against China in the South China Sea. Despite this increase, however, the budget will remain limited compared to the significant changes that are needed, as well as the investments required for the development of the domestic defence sector, therefore the number of opportunities for third parties seeking to enter the Vietnamese defence market will remain limited for yet another few years.
Vietnam's 2009 Defence White Paper highlights a national defence policy that focuses essentially on the development of armed forces for the purpose of defending the country&#...
Food & Drink
Vietnam Food & Drink
BMI View: Vietnam is one of the most promising consumer markets in Asia, benefitting from favourable demographic dynamics, rapid economic growth fuelling household incomes and sustained levels of investment. Reflecting this positive view, all categories within the food, drink and mass grocery retail sectors will grow at a rapid pace throughout our forecast period to 2019.
Headline Industry Data (local currency)
2015 total food consumption growth: +18.0%; compound annual growth rate (CAGR) 2014 to 2019: +18.6%.
2015 alcoholic drinks value sales growth: +8.0%; CAGR to 2019: +10.0%.
2015 soft drinks value sales growth: +5.7%; CAGR to 2019: +8.4%.
2015 mass grocery retail sales growth: +10.7%; CAGR to 2019: +11.5%.
Vietnam Freight Transport
BMI View: Strong foreign direct investment (FDI), in addition to steady trade growth and the prospect of ongoing infrastructure development, both public and private, will impact favourably on the freight industry. Falling fuel prices will encourage road transport whilst rail transport will be spurred on by new investment both domestic and foreign. Government approval of the development project of Long Thanh Int'l Airport signals recognition of the need to strengthen Vietnam's credentials as an air transport hub for the Southeast Asian region.
We expect export growth in Vietnam to be maintained at a steady level in the medium term...
Vietnam Information Technology
BMI View: We do not expect there to be major disruption to the Vietnamese IT market growth story, or to the wider economy, from the regional decline in equity markets in August 2015. As a result, our core scenario for outperformance in 2015 and over the medium term remains in place in the Q415 update. Our bullish outlook is based upon our view that broad-based economic growth will substantially deepen the retail hardware market, as well as ensure a strong momentum for economic modernisation in the enterprise market, a trend illustrated through our household income growth forecast for Vietnam. We...
BMI View : We maintain our positive outlook for Vietnam's construction sector, which will continue to be supported by strong economic growth and regulatory changes. We forecast transport infrastructure to outperform in 2016, followed by the energy and utilities sub-sector. We also maintain our positive outlook on the residential and non-residential construction sector, supported by large FDI inflows and a strong project pipeline, and which will register the strongest growth over the long term.
Latest Updates And Structural Trends
The government's decision to select investors for 23 large-scale transport infrastructure PPP projects worth VND39.9trn (USD1.83bn) in 2016 poses upside risks to the transport infrastructure sector, which we forecast to grow at 7.1% in 2016.
BMI View: We retain a positive outlook for the Vietnamese insurance industry as a whole. We believe that the sector will expand at a significant pace over the next few years as robust economic growth bolsters demand for both personal and enterprise insurance lines. The market has thus far been hindered by low incomes and constrained purchasing power of households. Nevertheless, as we are witnessing a gradual push towards higher expenditure and rising discretionary spending powers, the expansion of the economy will support insurance sales, both life and non-life alike. Insurance products specifically targeting towards the low and middle income categories will be seen as a welcome sign. We also note the increase participation of multinationals which are driving innovation and product development. Sun Life Financial's growing exposure to the market is a case in point and also illustrates a...
Vietnam Medical Devices
BMI View: We expect the Vietnamese medical device market to increase by 7.0% in US dollar terms in 2016, up from 4.4% in 2015, due to a smaller depreciation of the local currency against the US dollar. The market will remain one of the strongest performers in the Asia Pacific region, with Vietnam growing as a manufacturing location for medical device companies and exports posting consistent growth.
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BMI View: We have increased our 2016 tin price forecast to USD16,500/tonne owing to a stabilisation in the Chinese economy over Q116 that has boosted all industrial metal prices significantly over January-April. While we expect consolidation over the remainder of 2016, tin prices will continue to recover beyond 2016 as the global market posts sustained market deficits and inventories dwindle.
BMI view: We have revised our aluminium price forecast from USD1,575/tonne to USD1,600/tonne in 2016, as the tightening market provided an earlier than expected floor in Q116. Aluminium prices will gradually edge higher as the global market moves into a deficit by 2018.
BMI View: Despite the strong H116 iron ore price rally, prices will edge lower due to weakening Chinese consumption over the latter half of 2016. From 2017 onwards, iron ore prices will remain subdued as iron ore prices remain under pressure from an over-supplied seaborne market, driven by strong production growth in Australia and Brazil, and weak consumption growth in China.
BMI View: Nickel prices will bottom in 2016 as weak production drags the global market into deficit. For instance, we expect Chinese imports of nickel to grow over the coming quarters. Prices will begin 2016 weaker than we had previously expected and we have thus revised down our 2016 average price forecast to USD9,000/tonne from USD10,500/tonne.
BMI View: We have revised down our average copper price forecast for 2016 to USD4,900/tonne. We expect prices to find a floor over the first half of 2016, and begin to stabilise thereafter, supported by production cuts and modest consumption growth.
BMI View: We have raised our gold price forecast for 2016 to USD1,275/oz and have a new five-year price target of USD1,400/oz. We have turned more positive towards prices due to rising inflation pressures and our view that real rates will remain depressed in developed markets beyond 2016. A modest rise in prices will be insufficient to reverse the trend of weak mine investment and industry consolidation.
BMI View: Global steel prices will remain subdued due to a persistent steel oversupply over the coming quarters. From 2017 onwards, steel prices will gradually edge higher as the global steel surplus will narrow due to Chinese supply moderation.
BMI View: We maintain our average zinc price forecast for 2016 of USD1,750/tonne. We expect zinc prices to reach a floor over the first half of 2016, and begin to stabilise thereafter, as production cuts shift the market to a deficit.
BMI View: Lead prices will gradually edge higher as the global lead market will shift into deficit by 2017 as production growth will slow over the coming years.
BMI View: Despite the rich deposits of untapped minerals on offer, we believe South East Asia's mining sector will struggle to fulfil its potential over the next few years. China's economic slowdown will remove a crucial outlet for raw material exports in the region and, more importantly, will impact the profitability of mining ventures, with high start up costs likely to deter new investment. While states such as Myanmar have made strides to relax the regulatory environment to encourage increased private sector investment, substantial obstacles remain across many parts of the region, including high levels of corruption and limited infrastructure. As such, many parts of the region continue to be perceived as frontier markets as far as mining activity is concerned.
Oil & Gas
Vietnam Oil & Gas
BMI View : Declining production and rising domestic consumption will end Vietnam's self-sufficiency in crude oil and natural gas by 2019 and 2017, respectively. Consumption growth will be driven by a more than threefold increase in the country's refining capacity over the next five years, as well as sizeable gains in gas demand from the automotive and power sectors - characterised by the growing proliferation of natural gas vehicles and gas-fired electricity generation.
BMI View: Vietnam is set for a surge in refining and petrochemicals capacities in the next five years as investors seek to establish new operations in the Southeast Asian country. Strong growth in end markets and Vietnam's position as a global manufacturing hub are driving production, although there are enduring risks associated with land acquisition and regulatory approval as well as regional market over-supply.
Currently, limited capacity leads to a reliance on imports for domestic conversion and end-product manufacturing. With refinery developments in the pipeline, Vietnam will be able to increase capacities, particularly for polypropylene and ethylene in the medium term. However, slow land clearance and financing problems delay these projects, postponing capacity increases by a number of years.
The main risks will...
Pharmaceuticals & Healthcare
Vietnam Pharmaceuticals & Healthcare
BMI View: Vietnam's disease profile will be increasingly attractive for prescription drugmakers as chronic conditions become more prevalent. To adequately meet this large unmet medical need, pharmaceutical firms will have to adapt their product portfolios to account for the low purchasing power of the populace. Equally critical will be the need to coordinate with local healthcare institutions to improve Vietnam's diagnosis rates, which remain impeded by its underdeveloped medical system.
Headline Expenditure Projections
Pharmaceuticals: VND92.471trn (USD4.22bn) in 2015 to VND105.482trn (USD4.61bn) in 2016; +14.1% in local currency terms and +9.2% in US dollar terms. Forecast largely unchanged from last quarter.
BMI View : There are significant opportunities for independent power producers (IPPs), turbine manufacturers and private investors in Vietnam's thermal power generation sector - particularly the coal segment. A flurry of private sector activity in the coal sector will be supported by rapid growth in electricity demand and market deregulation, as well as delays to nuclear expansion and insufficient domestic gas supplies.
Vietnam Real Estate
BMI View: Strong economic growth is resulting in higher levels of take-up from tenants. Combined with the small amount of development activity in all three sub-sectors we cover, this is resulting in falling vacancy rates. Higher household spending will drive the growth of the retail real estate sector, although in absolute terms incomes will remain low. The sub-sector will also be boosted by Vietnam's growing tourism industry, while overall economic growth will support the commercial real estate industry in general and in particular demand for office and industrial space. Demand for industrial space will also be created by rising foreign investment in Vietnam and growing export volumes.
Vietnam's real GDP growth for the first three quarters of 2015 came in at an impressive 6.5% y-o-y, beating the Bloomberg consensus estimate of 6.4%. The strong economic showing is due in part to...
BMI View: Vietnam is a relatively underdeveloped but rapidly growing retail market. A resilient economic performance, rapidly rising household incomes, favourable labour market conditions and soaring tourist arrivals are expected to remain the key drivers of investment and growth in the sector. That said, household spending growth will be capped by modest inflation figures, while a potential economic slowdown in Vietnam's key export markets poses a further downside risk to our short term forecasts.
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|e/f = BMI estimate/...|
BMI View : Vietnam has experienced strong uptake of 3G and fibre broadband in recent quarters, demonstrating the rising inclination towards both mobile and fixed data use. We now hold a more positive outlook on the adoption of premium services and advanced networks, although the government's restrictions on 4G rollouts could restrict operators' abilities to meet rising data needs in the short term.
|4G Rollout Restrictions - A Downside To Technological Infusion|
|Vietnam Mobile Market Forecsts|
BMI View: Following a lacklustre 2015, we expect 2016 to be a year of strong growth for Vietnam's rebounding tourism sector. Rising visitor numbers from the Asia Pacific region, particularly China, as well as improving European tourist numbers will, helped by with concerted government efforts to support the sector, see inbound growth of some 9.2% in 2016, reaching 8.5mn arrivals. Looking ahead, the future is bright for the sector, with high-spending and/or fast-growing source markets such as Japan, China and South Korea all set to contribute to the growing value of the Vietnam's hotel industry and other tourism-related business. As the industry continues to expand and spread to new destinations, we expect to see significant further opportunities for major global and...