Vietnam Market Introduction

VIETNAM – EMERGING TIGER OF ASIA

 

Vietnam’s economy is experiencing a challenging and exciting phase of change and transformation. Rapid commercial growth, burgeoning industrialization and urban development projects, promising export markets and influx of foreign investments is making this country the second fastest growing economy in Asia, trailing only China with stable GDP growth rates of over 8 percent growth two years following.

 

GDP Growth Stays Strong

 

Vietnam’s Gross Domestic Product (GDP) grew at annual average rate of 7.8 percent between 2001 and 2006, which translates into 6.7 percent in per capital terms. In U.S. dollar terms, per capita GDP rose from 415 to 725. Compared with East Asian countries Vietnam’s growth in this period is second only to China, and somewhat better than other strong performers like India (Please see Figure 1). Growth has also been more steady in Vietnam, with low variation around the average rate.

 

Figure 1: GDP Growth in Vietnam and Selected Countries

Source: World Bank

 

Figure 2: GDP Growth by Quarter

 

Source: General Statistic Office (GSO)

 

GDP grew by 7.7 percent in the first quarter of 2007. This is the fastest rate recording in the first quarter over the last several years (See Figure 2). While this growth rate is significantly lower than in the fourth quarter of 2006, it is simply a reflection of the seasonal pattern of economic activity in Vietnam: the first two quarters typically show lower growth rates than the latter two quarters of the year. In terms of contribution to GDP, the first quarter’s share at around 20 percent is the lowest, while the share of the fourth quarter, at about 30 percents, is the highest. These patterns imply that GDP will need to increase by 8.7 percent in the latter three quarters to meet the government’s target of 8.5 percent in 2007. In 2006, growth in the last three quarter stood at 8.4 percent.

 

Table 1: GDP Growth by Sector

	2002	2003	2004	2005	2006	Q1-06	Q1-07
Total GDP	7.0	7.3	7.8	8.4	8.2	7.2	7.7
Agriculture, forestry & fishery	4.1	3.6	4.4	4.0	3.4	2.1	2.3
Industry & Construction	9.4	10.5	10.2	10.7	10.4	8.7	9.3
Services	6.5	6.5	7.3	8.5	8.3	7.4	7.8
Wholesale & retail trade	7.3	6.8	7.8	8.4	8.6	7.7	7.7

 

Service sector growth, which has picked up in the last two years, remained strong in the first quarter of 2007, especially, retail and wholesale trade, hotels and restaurants, and financial intermediation (Table 1). Retail and wholesale trade, which contributes more than one-third of the value added in the service sector, expanded by 7.7 percent. Within the industrial sector, manufacturing value added growth remained robust while mining was subdued due a decline in oil production. In terms of industrial turnover, the domestic private sector expanded 22 percent while State-Owned Enterprises (SOEs) grew 9.4 percent year-on-year.

Imports Register Hefty Increase

 

Imports have witnessed a hefty pick-up in the first four months of 2007 recording an increase of 33 percent year-on-year. Imports of machinery and equipment rose 53 percent (See Table 2). The rise is partly a statistical rebound, as this category of imports was depressed in the same part of 2006. But more importantly, the increase reflects the equipment needs of large domestic projects such as the Dung Quat refinery and industrial zone. IN addition, the increase in demand for capital goods is also possibly related to a pick up in the implementation of FDI projects.

Table 2: Import Structure and Growth

	Value (million $)		Share (percent)		Growth (percent)
	2006	2005	2006	2005	2006	4M–07
Total import value	44,891	100.0	100.0	15.7	21.4	32.8
Petroleum products	5,970	13.6	13.3	40.6	18.8	14.0
Final Goods
Machinery and equipment	6,628	14.3	14.8	0.6	25.5	52.7
Computers and electronics	2,048	4.6	4.6	27.1	20.0	36.1
Pharmaceuticals	548	1.4	1.2	22.5	9.2	23.9
Intermediate and raw materials
Garment and leather materials	1,951	6.2	4.3	1.3	-14.5	-5.4
Iron & Steel	2,936	7.9	6.5	13.9	0.2	72.9
Fertilizer	678	1.7	1.5	-22.2	5.9	45.7
Plastics	1,866	3.9	4.2	22.2	28.2	34.8
Fabrics	2,985	6.5	6.6	24.5	24.4	22.4
Chemicals	1,042	2.3	2.3	26.7	20.4	35.5
Chemical products	1,007	2.3	2.2	19.2	19.7	23.9
Automobiles  (CKD/IKD)	213	2.5	0.5	40.5	-76.6	-3.9
Yarns and fibers	544	0.9	1.2	0.2	60.2	43.2
Pesticides	305	0.7	0.7	15.9	25.3	27.8
Cotton	219	0.5	0.5	-12.1	31.0	49.7
Paper	475	1.0	1.1	46.1	31.2	10.7
Other	15,475	29.8	34.5	14.9	40.4	34.5

 

Another import category showing robust growth is still, including both unfinished and finished products. Imports have flown nearly 45 percent year-on-year in volume terms, with an increase in prices pushing up the dollar value almost 73 percent compared with the first four months of 2006. The volume increase in related to the continued strength of the construction sector, which has also been helped by a recovery in the real estate market.

Foreign banks report impressive growth

As Vietnamese banks struggle through numerous obstacles, foreign invested banks are reporting impressive growth rates for the first half of the year.

 

According to the State Bank of Vietnam’s Credit Information Centre, foreign bank branches and joint venture banks attained the highest growth rates, at 33 and 50 per cent, in terms of assets and outstanding loans in the first six months of the year.

 

Average growth rates in the whole banking system were only 8 per cent and 20 per cent, respectively.

 

Though representing only 9.3 per cent of total outstanding loans both in Vietnamese dong and US dollars, foreign banks and joint venture banks currently account for as much as 29.5 per cent of the total number of outstanding dollar loans in the whole banking system.

 

The centre said that business performances by foreign banks in Viet Nam were much better than those of Vietnamese banks.

 

With high liquidity and profuse capital, foreign banks have capitalised on the difficulties of Vietnamese banks to expand their market shares in the domestic retail banking market, which used to be dominated by Vietnamese banks.

 

Instead of focusing only on foreign direct investors, foreign banks, including HSBC, ANZ and Standard Chartered, have started providing services to Vietnamese private companies, small- and medium-size enterprises and Vietnamese households.

 

Standard Chartered has recently opened a branch and launched retail banking services in the domestic market.

Apart from the recent establishment of a wholly foreign bank branch in Viet Nam, ANZ also has plans to open four more transaction offices by the end of the year, and even more branches in Ha Noi and HCM City thereafter.