August, 2011

VIETNAM

EDC ECONOMICS

Economy
Nominal GDP (2010) 93 bil USD Population (2010) 87 million Total Trade/GDP (2010) 147 % Currency Vietnamese dong Exchange regime Pegged rate Merchandise imports from Canada (2010) CAD 205 million Main sources of for. exchange (excl. FDI) Crude oil Textile and apparels Largest merchandise export market (2010) U.S. (20 %) Main imports Refined petroleum Industrial M&E Iron & steel

• With the new government in place, the focus has clearly shifted to controling inflation over continued economic growth. The Central Bank has raised interest rates aggressively since November, up 500 basis points, while the government has slashed capital investment plans and public spending by 7.4%. As a result, GDP growth figures for Q1 and Q2 came in at 5.4% and 5.7% y/y respectively, a sharp slowdown from previous quarters and well below Vietnam's 7-8% potential growth. Growth will slow to 5.8% in 2011, and accelerate to 7.0% in 2012. • With FX reserves falling to USD 12 billion early in the year, authorities devalued the dong by 8% in February then imposed import restrictions on luxury goods in April to rein in the trade deficit. The Central Bank's tightening and efforts to de-dollarize the economy should limit devaluations and ease inflationary Economic Activity
10 9 8 7 6 5 4 3 2 1 0 Q206 Q406 Q207 Q407 Q208 Q408 Q209 Q409 Q210 Q410 Q211 Real GDP, y/y % chg. (L) Industrial production, y/y % chg. (R) 25 20 15 10 5 0 -5 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 -4,000 -2,000 -3,000 -1,000

External Trade
Trade balance, USD Mn. (L) Exports, USD Mn. (R) Imports, USD Mn. (L) 2,000 1,000 0

Financial Indicators
22,000 21,000 20,000 19,000 18,000 17,000 16,000 15,000 14,000 13,000 12,000 12 000 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 0 0 Jun-06 400 200 10 5 600 15 VND per USD (L) EMBI sovereign spread (R) 1,200 1,000 800 30 25 20

Monetary Policy Indicators
Prime rate, % (L) Inflation, y/y % chg. (L) M2, y/y % chg. (R) Claims on private sector, y/y % chg. (R) 70 60 50 40 30 20 10 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11

V Sovereign Ratings
MLT external debt # Fitch B+ # S&P BB# Moody's B1 Risks to the outlook
- Higher FDI and privatization - Easing of tensions with China - Sharp devaluation - Banking sector problems

External Sector Performance
45 40 35 0 30 -5 20 10 0 2001 30 External debt, % of GDP (R) Current account balance, % of GDP (L) FDI, % of GDP (L) 15 10 5 60 50 40

Fiscal Performance
Public Debt/GDP, % (L) Budget Balance/GDP, % (R) 0 -1 -2 -3 -4 -5 -6 -10 -15 -7 -8 2003 2005 2007 2009

Economic & Political Intelligence Centre
EPIC@edc.ca

25 20 2001 2003 2005 2007 2009

Economic Indicators
GDP (% growth, real) Inflation (% chg, pa avg.) Fiscal Balance (% of GDP) Exports (%, comp. annual growth) Imports (%, comp. annual growth) Current Account (% of GDP) Reserves (months of curr. debits) External Debt (% of GDP) Debt Service Ratio (due) Exchange Rate (to USD; eoy)
Sources: EIU, EDC Economics

Canadian Exports and CDIA
2010 6.8 9.0 -5.5 25.5 19.8 -5.4 1.8 31.7 1.3 19498 2011 5.8 18.9 -10.0 33.4 29.2 -4.0 1.8 32.0 1.2 19700 2012 7.0 11.9 -5.6 6.8 9.0 -4.4 1.7 31.1 1.2 21685
140 120 100 80 60 40 20 0 2000 2003 2005 2007 2009 CDIA, CAD Mn. (L) 350 300 250 200 150 100 50 0

06-10 avg. 7.0 10.9 -5.6 18.6 19.6 -6.8 3.2 30.5 1.7 17494

Sources: Haver Analytics, Statistics Canada

while opportunities exist. In spite of the 2006 anti-corruption law. both President Triet and CPV General Secretary Manh were replaced during the National Congress meetings. In spite of these competing factions. As such. The government will focus its efforts on managing the economy in the near term. land. these protests however are generally low-key and localized. At the same time. foreign companies continue to face challenges.5: Worst. the CPV’s prioritization of economic growth renders it unlikely that the party would make drastic changes to ongoing economic reform programs for fear of impacting economic growth. including the judiciary. The SOE ‘equitisation’ program to convert SOEs into listed companies or shareholding entities has been slow. managed to secure his position for a second five-year term despite speculation of his removal over alleged mismanagement of the economy. This reform process began in earnest following Vietnam’s accession to the WTO in 2007 but has progressed at a slower than expected pace. Political Political Structure One-party rule The Communist Party of Vietnam (CPV) General Secretary of CPV Nguyen Phu Trong President – Head of State Nguyen Minh Triet Truong Tan Sang Prime Minister – Head of Government Nguyen Tan Dung Executive/Legislative Bodies (Government and CPV)  15 member CPV Politburo  150 member CPV Central Committee  Quoc Hoi (Unicameral National Assembly) – Pre-approved Candidates elected by popular vote. In spite of considerable progress on foreign investment-related reform. While continuing efforts to promote growth. Vietnam has come to follow a path that resembles China’s development model. in the near term Prime Minister Dung will focus his attentions on managing the economy given the deterioration in the macroeconomic environment. the CPV has concentrated on fostering economic development as its main source of continued legitimacy.5 bn. Having embarked upon a process of reform in 1986. SOEs will remain a fixture of Vietnam’s investment environment for the foreseeable future. and the military’s support for the regime.000+ state-owned enterprises (SOE). More recently.org Economic & Political Intelligence Centre EPIC@edc. The reform process was accelerated in the lead-up to and following Vietnam’s formal accession into the WTO in 2007. All institutions of government. has been dominated by the 11th National Congress in January 2011 and National Assembly nominal elections in June 2011 where the CPV appoints the next generation of leader’s and sets policy direction.VIETNAM August 2011 ECONOMICS General Political Environment: Vietnam is a one-party state with the Communist Party of Vietnam (CPV) ruling at the national.5bn in 2009 due to the financial crisis. Vietnam observers have pointed to divisions within the CPV between reformers and conservatives. graft scandals in the public and corporate sector highlight the endemic nature of corruption. there remains a degree of protectionism among elements of Vietnamese political and ruling circles. These issues have come to the forefront in recent months as highlighted by alleged altercations. take their cues from the CPV. provincial and local levels. mostly as a result of internal divisions between reformers and conservatives. Last Elections  CPV Congress: January 2011  National Assembly: June 2011 Next Elections  CPV Congress: 2016  National Assembly: 2016 Press Freedom Survey:  2011 Score: 82 Not Free  (0: Free. Vested interests and conservatives within the CPV are likely to attempt to slow down economic and investment-related reforms. The judiciary lacks institutional capacity and has a tendency to take direction from the government. reports of localized protests over high food prices. investors continue to face several challenges including high levels of corruption and slow and uneven implementation of investment-related legislation. recent data highlights a recovery in FDI inflows in 2010. and has had to resort to power cuts with negative impacts on the manufacturing and industrial sectors. but are unlikely to halt or reverse them. Inadequate infrastructure continues to hamper the investment and operational environment. Similar tensions arose in 2008 during ExxonMobile and PetroVietname explorations in contested waters. but also offers opportunities for foreign investors especially in the power and transportation areas. and economic injustices including corruption surface periodically. For example FDI commitments almost doubled between 2006 and 2008 to USD 66. Specifically.5: Best) worldbank. National oil companies across the region appear to be accelerating exploration programs pointing to heightened tensions in the region. Political Violence: Political violence is not of significant concern in Vietnam due the government’s control over the population. The implementation of these reforms has led to increased interest in Vietnam on the part of foreign investors. However. As expected.ca . 100: Not Free)  freedomhouse. there’s been a rise in nationalistic anti-Chinese protests over maritime disputes. labor.org Control of Corruption Index:  2009 Score: -0. however. This shortage has resulted in the government approving several large power projects in recent months. of late. The government’s economic reform plans and market opportunities have resulted in increased FDI into Vietnam. Investment Environment: Vietnam is gradually moving from a highly-regulated and closed investment environment to one that is more open. While inflows dropped to USD 21. Political Outlook The National Congress meetings and elections in January and June 2011 took center stage in the political sphere as leaders maneuvered for top leadership positions at the CPV.52 (-2. SOE dominance in many infrastructure sectors is a challenge that foreign investors will have to overcome. Vietnam remains in dispute with several neighbouring countries over ownership of portions of the resource rich South China Sea and surrounding area. Prime Minister Dung. Corruption is endemic and Vietnam remains one of the most corrupt countries in Asia. +2. The political landscape. Vietnam faces an acute power shortage. Foreign companies may also find themselves in a disadvantaged position should they be in competition with one of Vietnam’s 3. A number of laws strengthening the investment environment have come into effect since 2006. Although dispute resolution mechanisms exist it often takes a very long time to have awards enforced. the latter which prefer to maintain strong CPV control over society and the economy. however. (including claims of sabotaging seismic cables) between Chinese and Vietnamese oil exploration vessels. While the government is generally supportive of foreign investment and has put in place legislation to encourage this investment.