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Country Profile 2007

Vietnam This Country Profile is a reference work, analysing the country�s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit�s Country Reports analyse current trends and provide a two-year forecast.

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ISSN 1356-4145

Symbols for tables �n/a� means not available; �� means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

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Nan DinhNan Dinh

Ninh BinhNinh Binh

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Hai DuongHai Duong

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Haiphong

Da Nang

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Ho Chi Minh City

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Country Profile 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007

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Vietnam 1

© The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

Contents

Vietnam

3 Basic data

4 Politics 4 Political background 5 Recent political developments 8 Constitution, institutions and administration 9 Political forces 10 International relations and defence

13 Resources and infrastructure 13 Population 14 Education 14 Health 15 Natural resources and the environment 16 Transport, communications and the Internet 18 Energy provision

19 The economy 19 Economic structure 20 Economic policy 24 Economic performance 25 Regional trends

25 Economic sectors 25 Agriculture 27 Mining and semi-processing 29 Manufacturing 30 Construction 31 Financial services 32 Other services

33 The external sector 33 Trade in goods 34 Invisibles and the current account 34 Capital flows and foreign debt 35 Foreign reserves and the exchange rate

36 Regional overview 36 Membership of organisations

39 Appendices 39 Sources of information 40 Reference tables 40 Population 40 Employed labour force 41 Transport statistics 41 National energy statistics

2 Vietnam


42 Government finances 42 Money supply 42 Interest rates 43 Gross domestic product 43 Nominal gross domestic product by expenditure 44 Real gross domestic product by expenditure 44 Gross domestic product by sector 44 Prices and earnings 45 Industrial crops 45 Perennial industrial crops 46 Food crops 46 Fisheries output 46 Main manufactures 46 Retail trade 47 Tourism statistics 47 Main exports 47 Main composition of trade 48 Main trading partners 48 Balance of payments, IMF series 48 Foreign direct investment 49 External debt, World Bank series 49 Foreign reserves 49 Exchange rates

Vietnam 3


Vietnam

Basic data

330,363 sq km

84m (2006)

Population (of province) in �000 (2006)

Ho Chi Minh City 6,106 Hanoi (capital) 3,217 Haiphong 1,803

Tropical monsoon; north cool and damp in winter (November-April), hot and rainy in summer; south more equable; centre most subject to typhoons. The rains are highly unpredictable

Hottest month, June, 26-33°C; coldest month, January, 13-20°C; wettest month, August, 343 mm average rainfall; driest month, January, 18 mm average rainfall

Hottest month, April, 24-35°C; coldest month, January, 21-32°C; wettest month, September, 335 mm average rainfall; driest month, February, 3 mm average rainfall

Vietnamese (spoken by about 90% of the population); English (increasingly favoured as a second language); some French; a little Russian and German; minority languages such as Hmong, Thai, Khmer in remoter rural areas

Metric system. Local land measurement 1 mau=3,600 sq metres (north); 1 mau=5,000 sq metres (centre)

Dong (D). Average exchange rate in 2006: D15,994:US$1; exchange rate on October 5th 2007: D16,162:US$1

7 hours ahead of GMT

January 1st (New Year�s Day); February 17th-20th (Tet, Lunar New Year); April 30th (Liberation of Saigon); May 1st (Labour Day); September 2nd (National Day)

Land area

Climate

Weights and measures

Currency

Time

Public holidays, 2007

Population

Main towns

Weather in Hanoi (altitude 216 metres)

Weather in Ho Chi Minh City (altitude 9 metres)

Language

4 Vietnam


Politics

The Socialist Republic of Vietnam is a one-party state, run by a collective leadership comprising the Communist Party general secretary, Nong Duc Manh, the prime minister, Nguyen Tan Dung, and the president, Nguyen Minh Triet.

Political background

Vietnam�s identity was forged out of resistance to China, and the expansion southwards from its original heartland in the Red River Delta and the north-eastern coastal plain. For over 1,000 years until AD 939, it was governed as a Chinese province. Thereafter Vietnam remained closely linked with China, both politically and militarily, as a tributary state that frequently had to resist Chinese invasions. It also absorbed Chinese cultural influences, including the Confucian model of government, a hierarchical bureaucracy that stressed the subordina-tion of its subjects to the political leader at its centre. The expansion south-wards, driven by population pressure, brought Vietnam into conflict first with the Champa empire, which occupied what is now central and southern Viet-nam, and then with the Khmer empire in what are now Cambodia and Thai-land. By 1802 Gia Long, of the Nguyen noble family, controlled the entire coun-try and Vietnam reached its present southern limit on the Gulf of Thailand.

The Nguyen were, however, unable to resist the growing challenge of French colonialism, and by 1885 all of Vietnam was under the rule of the French, who divided the country into three large administrative areas, Tonkin in the north, Annam in the centre, and Cochinchina in the south. The colonially imposed administration damaged the traditional equilibrium of village life, undermined the authority of the scholar-gentry class and blocked the growth of an indigenous bourgeoisie. In these circumstances the only effective challenge to French colonial rule was communist-led. A number of communist groups were formed during the 1920s, which coalesced in the Communist Party of Indochina, founded by Ho Chi Minh in 1930.

The second world war transformed the Communist Party�s prospects. After a period of collaboration the French were swept aside in March 1945 by the Japanese, who installed Emperor Bao Dai as leader of a nominally independent Vietnam. The communist united front organisation, the Vietminh, quickly filled the vacuum left by the surrender of Japan in August 1945, and on September 2nd, in the capital, Hanoi, Ho Chi Minh proclaimed the independence of the Provisional Democratic Republic of Vietnam, although shortly thereafter he turn-ed to France to help repel an invasion by a Chinese army that reached Hanoi.

France�s refusal to give up its colony led to a protracted war, which soon became another engagement in the cold war. In 1954, on the eve of talks held in Geneva, Switzerland, to settle the future of Indochina, the Vietminh inflicted a humiliating military defeat on the French at Dien Bien Phu. The conference divided Vietnam at the 17th parallel but failed to achieve agreement on a political solution. Soon after the Geneva agreements a US-backed northerner,

Chinese cultural influence is strong

The French control the whole country by 1885

The communists gain strength and the French withdraw

Vietnam 5


Ngo Dinh Diem, took power in the south. Mr Diem�s intransigence dampened hopes for a peaceful reunification. In 1959 the Vietminh embarked on a more active strategy in the south, and in the following year the National Front for the Liberation of South Vietnam (NLF) was formed to oppose Mr Diem.

After the assassination of Mr Diem during a military coup in November 1963, the conflict increasingly turned into an American war. By 1968 there were 500,000 US troops in Vietnam. In January 1968 the communist forces launched the Tet (New Year) offensive, revealing the fragile hold of the South Vietnamese on their territory. In the wake of the offensive the US agreed to hold peace talks in Paris. In January 1973 the parties agreed on terms for the withdrawal of US troops.

Two years later the North Vietnamese launched a massive offensive and the South�s forces quickly crumpled. On April 30th 1975 the communists entered Saigon (the capital of South Vietnam, now Ho Chi Minh City), marking the end of Vietnam�s 30-year war of independence. Subsequently the victorious North rapidly undertook the formal reunification of the country, and the Socialist Republic of Vietnam came into existence on July 2nd 1976. The new authorities subjected tens of thousands of officials and soldiers of the former South Vietnamese government to �re-education�, and many urban southerners were sent to work in remote so-called new economic zones, where conditions were often harsh.

At the same time, ambitious plans for the �socialist transformation� of the south were launched, but the high hopes generated by the victory there were short-lived. Instead of being accepted into the international community and receiving aid for the reconstruction of its shattered economy, Vietnam was treated with suspicion as a potentially disruptive force with wider hegemonic designs in south-east Asia. Although it was carried out in response to agg-ression, the Vietnamese invasion of Cambodia, which resulted in the ousting of the Khmer Rouge regime in late 1978, appeared to confirm these suspicions.

The invasion led to a break with China, with which relations had already soured owing to Vietnam�s close relations with the Soviet Union after the Sino-Soviet split and the Vietnamese authorities� harsh treatment of its ethnic-Chinese community. The latter had borne the brunt of the government campaign against the bourgeoisie, and many Chinese joined the exodus of �boat people�. In early 1979 China launched an incursion over Vietnam�s northern border in response to Vietnam�s invasion of Cambodia, only to be repulsed by the more experienced Vietnamese troops.

Recent political developments

The landmark sixth Communist Party congress in 1986 made a historic commitment to economic �renovation� (doi moi). By the late 1980s economic reforms had become part of the new consensus, but, with communist regimes in the Soviet Union and eastern Europe under threat, there was no prospect of, or desire for, matching political liberalisation. Reflecting this dichotomy, the politburo (the party�s executive body) that emerged from the eighth party

The communists take over

The party leadership focuses on reform

6 Vietnam


congress in June 1996 not only contained several economic reformers but also gave strong representation to the security apparatus.

Since the final withdrawal of its troops from Cambodia in 1989, Vietnam has emerged from the international isolation that followed its invasion of Cambodia at end-1978. Within months of the Paris Agreement on Cambodia of October 1991, Vietnam established diplomatic and economic relations with most of the countries of western Europe and East Asia, including China. Vietnam�s �multi-directional� diplomacy has been explicitly based on its perception of growing global economic interdependence. Its integration into the regional and global economy has been formalised through membership of international organisations. The most important of these is the Association of South-East Asian Nations (ASEAN), which Vietnam joined in July 1995, the Asia-Pacific Economic Co-operation (APEC) forum, which Vietnam joined in November 1998, and the World Trade Organisation, of which Vietnam became a member in January 2007.

There has been some evidence of divisions within the party in recent years. The more conservative �party bloc� is concerned about the perceived negative effects of economic growth, such as corruption and drug-trafficking, whereas the more reformist �government bloc� argues for government to be separate from the party and for a greater role for the private sector. However, formal factions have not emerged, and both sides share a suspicion of political pluralism. With the election of Nong Duc Manh as party general secretary during the ninth party congress, the reformist group gained the upper hand. This has been reflected in the quickened pace of economic reform since 2002 compared with the glacial pace of political change.

During his first term in office, Mr Manh fostered a less polarised political environment, and his resolve to clamp down on corruption had some effect. During 2000-04, 12,300 government employees were disciplined for corruption, and since 2001 the Communist Party has disciplined over 10,000 members, including seven members of the Central Committee. The minister of agriculture and rural development, Le Huy Ngo, was sacked in May 2004 for allowing a swindle in a firm supervised by his ministry; and the minister of transport, Dao Dinh Binh, resigned in April 2006 for similar reasons. Mr Manh�s message was clear: senior officials had been put on notice that they were not beyond the reach of the law.

At the tenth party congress, in April 2006, Mr Manh retained his post after receiving a resounding vote of confidence from the party�s new enlarged Central Committee. This was widely seen as a reward for his success in main-taining party unity, but it also reflected members� unwillingness to upset the balance of the party at a time of relative crisis!corruption scandals attracted much of the public�s attention in the months leading up to the congress, a trend that was damaging the party�s leadership authority. During the congress, Mr Manh stated that corruption is a major threat to the party�s survival.

At the tenth party congress the then prime minister, Phan Van Khai, and the then president, Tran Duc Luong, both resigned from the party�s Politburo,

�Reformists� gain the upper hand under Nong Duc Manh

There are changes at the senior level of government

Mr Manh retains his post, as focus on corruption intensifies

Vietnam 7


effectively bringing to an end their terms in office. The decisions by Mr Khai and Mr Luong, aged 72 and 68 respectively, were widely anticipated, as both had already served two terms in office, but the changes were not made official until the ninth session of the eleventh National Assembly (the legislature) in June. Mr Khai was succeeded by his first deputy, Nguyen Tan Dung, 56, a southerner and a committed economic reformer. The party�s secretary in Ho Chi Minh City, Nguyen Minh Triet, 64, was chosen to succeed Mr Luong. Mr Triet is widely regarded to have economic reformist credentials and managerial competence, and he was instrumental in leading the campaign in 2003 to bring to justice the powerful Ho Chi Minh City gangster, Truong Van Cam (�Nam Cam�), and root out corrupt officials associated with him.

Important recent events

2004

January. An outbreak of avian influenza (bird flu) emerges. The government arranges for 35m fowl to be slaughtered, but, after disappearing for a couple of months, the disease reappears in July and has re-emerged sporadically since. The government�s procedures have contained, but not eliminated, the threat posed by bird flu.

2005

June. The then prime minister, Phan Van Khai, makes a historic trip to the US!the first by a Vietnamese leader since the end of the US-Vietnam war three decades ago. November. The National Assembly passes the country�s first anti-corruption law. The law, which came into effect in June 2006, holds the heads of agencies responsible for corruption within their organisations.

2006

April. The Communist Party holds its tenth congress amid an escalating corruption scandal. Nong Duc Manh is called upon to serve a second five-year term as the party�s general secretary. The prime minister, Phan Van Khai and the president, Tran Duc Luong, signal their intention to step down from their posts. June. Nguyen Tan Dung succeeds Mr Khai as prime minister and Nguyen Minh Triet becomes the new president. Both men are considered to be reformists. November. Vietnam hosts the annual meeting of the Asia Pacific Economic Co-operation (APEC) group. The Hanoi Action Plan is issued, which affirms support for opening trade further under the auspices of the World Trade Organisation (WTO).

2007

January. Vietnam formally becomes a member of the WTO and is accorded permanent normal trade relations status by the US. May. A general election produces a new 493-member National Assembly; 91% of the deputies are members of the Communist Party, and just one is an independent. August. The National Assembly confirms Mr Dung as prime minister and Mr Triet as president, trims the cabinet, and adds two new deputy prime ministers. The cabinet reshuffle represents continuity in the twin policies of economic liberalisation and restraint on political expression.

8 Vietnam


Constitution, institutions and administration

Vietnam has had five constitutions, adopted in 1946, 1959, 1980, 1992 and 2001 respectively, each regarded as appropriate to its time. The 1992 constitution was geared to the era of renovation and dropped the revolutionary rhetoric of the 1980 constitution. The Communist Party was to operate within the framework of the law and the constitution. No longer responsible for ensuring the building of socialism, the government was charged with specific management functions under a prime minister with defined powers. The 2001 constitution committed the state to protect the �legitimate rights� of overseas Vietnamese (Viet Kieu).

The 1992 constitution had stipulated that, instead of a centrally-run economy, Vietnam would have a �multi-sector economy in accordance with the market, based on state management and socialist orientations�. The autonomy of state enterprises was guaranteed but the �private capitalist economy� was given an explicit role. Foreign investors were given ownership rights and guarantees against nationalisation. The 2001 constitution went further, specifying that all economic sectors are important components of the socialist-oriented market economy. It states that organisations and individuals of various economic sectors are permitted to engage in any business not prohibited by law and develop in an equal and competitive manner according to law. It stipulates that there should be no restrictions on the size of private-sector operations or the sectors in which they may operate.

The 1992 constitution enhanced the powers of the National Assembly (the legislature) as �the highest organ of state power�, and the 2001 constitution has given it the power to hold votes of no confidence in leaders that it elects (including government ministers). Despite official calls for independent candidates, the election for the 12th National Assembly in May 2007 was as tightly controlled as in the past. No senior figures lost their seats and only 9% of elected candidates were not party members (down from 10% in the outgoing National Assembly and 12% in the previous assembly). Only one of the 238 �self-nominated� candidates won a seat.

As in the recent past, a high proportion of those elected (70%) were new to the National Assembly, a practice that injects new blood but reduces the ability of the body to serve as a counterweight to the Communist Party or the government. A quarter of the deputies are paid to serve full-time. However, the National Assembly, which acted as little more than a rubber-stamp until the late 1980s, has slowly become more vocal and assertive, calling on ministers to account for their performance and taking the initiative in amending proposed legislation and policy.

The judiciary is relatively weak and is not independent of the Communist Party. The country has only about 3,000 lawyers, and trial procedures are rudimentary. There is a growing backlog of unsettled civil lawsuits!the minister of justice, Ha Hung Cuong, has said that the country needs 900 more judges. The death penalty is still used regularly, especially in major cases of corrup-tion and drug-trafficking. Bureaucratic procedures, coupled with a lack of trans-parency in government activities, permit significant levels of corruption to occur.

The 2001 constitution offers more private-sector freedom

The National Assembly is more assertive

The judiciary remains weak

Vietnam 9


Political forces

The Communist Party remains the dominant political force. Other important forces!the government, the army and the bureaucracy!are subordinate to it. The party secretariat issues directives to party members and plays an important role in directing government policy. The party is entrenched in state institutions and mass organisations that are grouped under the Vietnam Fatherland Front, which exists to mobilise support for the party�s goals and to ensure their subordination to the party line.

The party selects future leaders and senior officials and gives them extensive mid-career training, some of it highly ideological. However, the party has been increasingly accepting of its members engaging in private business, and at the tenth party congress in April 2006 it formally allowed members to own businesses, thereby giving its tacit approval to capitalism as an economic ideology.

The politburo, which currently has 14 members, is the party�s executive and sets government policy and vets all major appointments. It is elected by the 160-member Central Committee at national party congresses, which are held roughly every five years. Almost all of the ministers in the cabinet are members of the Central Committee, and 91% of the deputies in the National Assembly are Communist Party members. Party committees exist at every level of the bureaucracy, in effect representing a parallel administration. This is a matter of some contention; reformers such as a former prime minister, Vo Van Kiet, have argued strongly that the party should stay out of the day-to-day working of government ministries, but this is not the dominant view of the current leadership. Efforts have also been made to establish a party presence in private enterprises, but with limited success. Managers or deputy managers often double as party secretaries in state enterprises, which helps to explain the continued resistance to thorough reform of such enterprises.

The People�s Army of Vietnam ranks in influence only behind the party and the government. The army has always had a political dimension, and a defence white paper written in 1998 rejected depoliticisation of the armed forces. Many senior officers (including a previous party general secretary, Le Kha Phieu) have moved on to top leadership positions in the Central Committee and the politburo.

Main political figures

Nong Duc Manh

Elected to the position of party general secretary in April 2001, and re-elected in April 2006, Mr Manh, a northerner, was born in September 1940. He is the first Communist Party general secretary to have a university degree, having studied Russian at the Hanoi Foreign Language College (1965-66) before spending five years in Russia at the Forestry Institute in Leningrad (now St Petersburg). He is best known for his role as chairman of the National Assembly (the legislature), a position that he held from September 1992 until April 2001; during this time the Assembly became

The party and government overlap extensively

The military is influential and deep-rooted

The Communist Party remains dominant

10 Vietnam


both livelier and more powerful. Mr Manh is a pragmatist, respected for his skills as a mediator and conciliator.

Nguyen Tan Dung

Elected as the sixth prime minister of Vietnam in June 2006 at the age of 56, Mr Dung previously served as first deputy prime minister under his predecessor, Phan Van Khai. At the age of 12 he volunteered for the army and was later wounded in the war. He graduated with a bachelor�s degree in law and joined the Communist Party in 1967. From September 1997 he served as deputy prime minister responsible for general economic and internal affairs. He comes from Ca Mau province at the southern tip of Vietnam, and is regarded as a vigorous and committed economic reformer.

Nguyen Minh Triet

Although Mr Triet was an initial challenger for the post of party general secretary at the tenth party congress in April 2006, in June he was chosen to serve as president. Prior to this, he was the party�s secretary of the southern province of Song Be, and presided over a period of spectacular industrial development. In 2000 he became party secretary in Ho Chi Minh City. His rise to the presidency may reflect his success in leading the campaign against a powerful gangster, Truong Van Cam (�Nam Cam�), in addition to his economically liberal credentials and managerial competence.

International relations and defence

The US lifted its economic embargo in February 1994, and full diplomatic norm-alisation was achieved in June 1995. The US accorded normal trade relations (NTR) status to Vietnam (allowing it access to the US market at the low tariff rates applied to most countries) in December 2001. Despite difficult and protrac-ted negotiations, the US accorded permanent NTR status to Vietnam in January 2007 so that Vietnam"s NTR status is no longer be subject to annual renewal.

The resistance in the US Congress to granting permanent NTR status came in part from those who want Vietnam to do more on the human rights front, whereas others would like to see Vietnam pay more attention to labour and environmental issues. Reports issued by the US State Department have routinely criticised Vietnam�s human rights record. However, the warming relationship between the US and Vietnam improved further after the historic trip to the US in June 2005 by the former prime minister, Phan Van Khai, when he met the US president, George W Bush, and the visit by the president, Nguyen Minh Triet, to the US in June 2007.

Partly because of ideological affinities, diplomatic relations between Vietnam and China continue to improve. High-level officials make frequent visits in both directions. Trade between the two countries has also expanded rapidly in recent years. Relations have not always been so friendly, however, and Vietnam remains wary of China�s intentions. A major and persistent area of disagreement is the sovereignty of a number of islands in the South China Sea; both countries claim parts of the Spratly and Paracel archipelagos and (more importantly) the surrounding seabed, which is believed to hold substantial oil

Ties with China are strong, but disagreements remain

Relations with the US improve, but remain prickly

Vietnam 11


reserves. However, when a Chinese patrol boat fired on a Vietnamese fishing vessel near the Spratly Islands in July 2007, the incident was downplayed by both sides, reflecting their eagerness to enhance co-operation in order to maintain stability. In April 2006 they conducted joint military patrols off the Gulf of Tonkin, the first time that the Chinese navy has operated in a joint exercise with Vietnam.

Vietnam�s ties with neighbouring Laos and Cambodia remain strong, although relations with the former are less complicated than those with the latter. Viet-nam and Laos have close political and security links. Vietnam has helped Laos contain its low-level insurgency by Hmong rebels. Both sides are keen to pro-mote trade and investment links, and Vietnam is now the third-largest foreign investor in Laos, with interests in rubber plantations and hydroelectric power.

Some of the complications in relations with Cambodia centre on disagreements over their common border. However, in November 2005 both sides ratified a �Supplementary Treaty to the Treaty on the Delimitation of the State Border� between the two countries. The Supplementary Treaty reaffirms the basic line mapped by the French (the Bonne map) in 1954 and upheld in a 1985 treaty between Vietnam and Cambodia. The Treaty adjusts six border areas where there were �mapping errors� at the time of the 1985 treaty, and adjusts the border to comply with international principles. Work has begun on positioning border markers, but will not be finished by the December 2008 deadline. Mutual trust has increased to the point where a developer has proposed a project that would include a golf course that would straddle the border between the two countries.

After Vietnam�s withdrawal from Cambodia in 1989 about 500,000 troops were demobilised. Since then, there have been sharp cuts in military spending, although a reduction in the influence of the armed forces has been tempered by continued suspicion of China, as well as by their enhanced internal security role. In addition to a mainly conscript army of 412,000 (two years of military service is, in principle, required of all men), there is a navy of 13,000, an air and air defence force of 30,000, a border defence corps of 40,000, and reserves of about 5m in the urban People�s Self-Defence Force and the rural People�s Militia. Government expenditure on the armed forces is believed to amount to about 2.5% of GDP, although the actual numbers are a state secret.

Security risk in Vietnam

Armed conflict

There is no armed conflict in Vietnam. A few émigrés, with some support among small minority groups in the Central Highlands (which supported the US during the �American war� and dislike the central authorities), favour the creation there of a separate state called Dega. This movement has not taken up arms, and would be no match for the Vietnamese army.

Close ties are maintained with Cambodia and Laos

The armed forces are less formidable

12 Vietnam


Unrest/demonstrations

Demonstrations and overt forms of unrest are rare but not unknown. In early 2001 there were serious demonstrations in the Central Highlands, which were repeated in April 2004 as members of ethnic minorities expressed their frustration at govern-ment attempts to restrict their freedom of religion (evangelical Protestantism is rife in the region) and at the gradual loss of land to ethnic Vietnamese who have moved into the area to cultivate coffee, often with government backing. In January 2005 there were protests, mainly directed at corrupt local officials, in the Tay province (near the capital, Hanoi) where protestors burned down a government building. Similar outbursts have occurred elsewhere, including in Ho Chi Minh City in July 2007, when police cleared a month-long protest after the banned Unified Buddhist Church of Vietnam expressed support for the farmers who were angry about the amount of compensation for government land acquisitions. The government�s response has typically been to send in police and soldiers, arrest some of the ringleaders, caution those who would undermine �national unity�, and offer some sops!more roads and scholarships, promises of grass-roots democracy, the demotion of some local officials and broadcasts in ethnic-minority languages. Short strikes have occurred in some foreign-invested enterprises (FIEs), but have been related to simple issues of working conditions and have been resolved quickly. FIEs are typically welcomed, not targeted, in large part because they provide good jobs.

Violent crime

There is little hard information on violent crime, but the popular perception is that Vietnam is not a particularly dangerous place. Foreigners in Vietnam do not generally live in enclaves and do not have to take any special security precautions. The country is considered to be one of the safest tourist destinations in Asia. However, pickpockets are common in the busier tourist areas, and drug-related robbery has become more common in Hanoi.

Organised crime

Organised crime, mainly related to drugs, gambling and prostitution, is of some concern. A notorious gangster in Ho Chi Minh City, Truong Van Cam (�Nam Cam�), was executed in 2004 following a highly publicised trial. Several prominent government figures were also found guilty during the trial, either for turning a blind eye to organised crime or for helping Nam Cam to avoid prison. There is a substantial flow of drugs from the Golden Triangle (an area where the borders of Thailand, Laos and Myanmar converge) to Hanoi, Haiphong and beyond, and sometimes customs and police officials are charged with trafficking. In 2007 the head of the anti-corruption inspection taskforce was himself put on trial for corruption.

Kidnapping/extortion

There are no cases of kidnapping for ransom. There is an irritating, if relatively minor, amount of petty extortion (for example, district police chiefs visiting foreigners in their districts before signing their residence papers; or ministry officials seeking bribes to expedite paperwork).

Vietnam 13


Resources and infrastructure

Population

The annual population growth rate has slowed, falling from an average of 3.1% in 1960-70 to 1.4% in 2002-06. In 2006 the population was estimated at around 84m, according to the General Statistics Office (GSO). The population is 73% rural and is concentrated in the two main rice-growing deltas, the Red River in the north and the Mekong in the south. The urban population is growing rapidly, at an annual rate of around 3.2% in recent years, and now accounts for three-fifths of the annual population increase. In January 2003 the govern-ment�s �one child/two children� policy, which helped to reduce the fertility rate from 6.7 per woman in 1970-75 to 1.8 per woman in 2005, was quietly dropped. In 2002 around 32% of the population was aged below 15 years, with around 5% aged over 65.

The populations of the Red River and Mekong deltas are almost entirely ethnic Vietnamese (kinh), but one-sixth of the population belongs to one of the 53 ethnic minorities, including the Tay, Thai, Nung, Muong, Hmong and Dao in the Northern Uplands, the Gia-Rai, Ba-na, Xodang and Ede in the Central Highlands, the Khmer in much of the south of the country and the Hoa (ethnic Chinese) in urban areas. Minority groups in the Central Highlands have been marginalised by inflows of migrants attracted by the prospect of profitable coffee cultivation. Many ethnic-minority people do not speak Vietnamese, especially in the more remote mountainous areas, and thus remain outside the economic and social mainstream.

Population, 2006a

�000 % of totalHabitation

Rural 61,332 72.9Urban 22,824 27.1Gender

Males 41,355 49.1Females 42,801 50.9Total population 84,156 100.0

a Figures do not include members of the armed forces and Vietnamese working abroad.

Source: General Statistics Office.

The once-sizeable ethnic-Chinese community was depleted after many left Vietnam, often as �boat people�, when the government closed down private businesses in the south in 1978. The 1989 census counted 962,000 Chinese, but the figure is now estimated to be more than 1.5m. A large proportion of the inflow of remittances, estimated at well over US$2bn a year, originates from the overseas Chinese. The Chinese business community remains vibrant, particularly in and around Ho Chi Minh City. There is a high rate of inter-marriage, with 30% of Chinese marrying a non-Chinese partner.

Minority groups form one-sixth of the population

The Chinese community remains important

Annual population growth slows

14 Vietnam


Education

Although access to higher levels of education has historically been limited, the introduction of near-universal primary education has produced high literacy rates. The Viet Nam Living Standards Survey 2002 found that 92% of the population aged ten years and older were literate!89% of females and 95% of males. Literacy in the urban areas (96%) is only slightly higher than in the countryside (91%). Vietnam�s school enrolment rates have risen to record levels, with particularly rapid growth at the tertiary level. The number of university students rose from 873,000 in 2001 to 1.7m in 2006, including 209,000 students in private institutions. The share of government current spending allocated to education and training rose from just under 5% in 1989 to 23% in 2002. State spending is augmented by large amounts of household spending on fees, tutoring and educational supplies, which is thought to account for as much as half of all educational spending.

Enrolment rates in education (% of relevant age group; school years)

1990/91 2002/03Net primary enrolment rate 90 94Net secondary enrolment rate n/a 65

Source: UN Development Programme, Human Development Report 2007.

Despite rising enrolment rates, only 18.5% of those aged 15 or above have completed (upper) secondary school or higher, and four-fifths of the labour force is considered to be unskilled. Skilled workers are disproportionately concentrated in and around the capital, Hanoi (the Red River Delta region), and Ho Chi Minh City (in the south-east). In the south-east, 32% of workers are skilled, including 6% who have a college education; the comparable figures for the Red River Delta are 25% skilled and 6.5% with a college education.

Health

Healthcare provision is relatively good, as measured by such indicators as life expectancy, infant mortality and the number of doctors per head of population. After 1954 the government set up a public health system that reached down to the hamlet level and was extended to the south after reunification in 1976. According to data from the UN Development Programme (UNDP), government spending on healthcare amounted to just 1.5% of GDP in 2003, compared with private healthcare spending in that year equivalent to 3.9% of GDP. A feature of the healthcare system is the high incidence of unofficial payments to health workers to speed up access to treatments at public healthcare centres.

A shortage of funds has meant that improvements in water supply and sewerage systems have been slow in coming. These inadequacies are largely responsible for the most common infectious diseases, such as malaria, dengue fever, typhoid and cholera. Although the number of doctors rose by 73% between 1995 and 2006, the numbers of nurses and midwives stagnated during the 1990s, rising again only in recent years. There is particular concern about the health of people living in the poorer provinces, where malnutrition,

Enrolment rates reach record levels

Skills levels remain low

Healthcare is good but mainly privately funded

Vietnam 15


although falling, is still common. However, Vietnam�s health indicators have improved in recent decades. The infant mortality rate slowed to 16 (per 1,000 live births) in 2005 from 55 in 1970, and life expectancy has risen to 71 years from around 50 in 1970-75.

Health indicators, 2005 Prevalence of tuberculosis (per 100,000 people) 175Infant mortality (per 1,000 live births) 16

Fertility rate (per woman) 1.8Life expectancy at birth (years) 71

Source: World Bank.

Natural resources and the environment

Vietnam has a humid tropical climate heavily influenced by the monsoon. In the north (roughly north of the 18th parallel), there is wide variation in temperature between the cold, relatively dry season (November-April) and the hot, wet season (April-October). In the south, the two seasons are not distinguished by marked differences in temperature. The north-central coastal area is susceptible to typhoons, which regularly destroy houses, livestock and infrastructure. This frequent destruction of the capital stock helps to explain the persistent poverty of the region. Floods often hit parts of the Mekong Delta, destroying crops but also replenishing the soil.

Cultivated area per head, at 0.1 ha, is among the lowest in the world. The government has a policy to increase the amount of land that is under cultivation and effectively irrigated, and to plant trees on barren areas, which accounts for about 36% of total land area. Strict rules preventing the conversion of paddy land to other uses have been relaxed, particularly in areas with high potential for shrimp farming. An environmental protection law is in place, as are numerous local environmental ordinances, but implementation is weak and the rules are sometimes confusing.

In 2005 Vietnam�s natural forest was officially estimated at 9.5m ha, and planted forests at a further 2.9m ha; together these are equivalent to 38% of the land area. The government has an ambitious target of replanting 200,000 ha of new forest per year to cope with what a government report has described as �the most serious challenge since reunification�. The production of wood peaked in 1996; firewood output has been falling since around 1995.

Forested area, 2005 (�000 ha; year-end)

Natural forest 9,529Afforested area 2,889Total 12,419


Rapid urbanisation is putting stress on the antiquated infrastructure of the cities, where increased vehicle ownership has raised the level of pollution, congestion and accidents. Human exposure to airborne pollutants exceeds

Some regions are susceptible to flooding and typhoons

Cultivated area per head is low

Deforestation is being tackled

Overcrowded areas are a strain on the environment

16 Vietnam


permissible levels in most cities, and water quality is also a concern. Over 90% of factories lack treatment facilities, but as of 2004, 85% of the population had access to an �improved� water source.

Economic activity, especially prawn cultivation, also poses a threat to the man-grove wetlands, which serve as barriers to storm surges and nurseries for fish. Vietnam�s underpowered fishing fleet tends to operate close to the coast rather than venturing into deeper seas. The result is that coastal waters are over fished.

Transport, communications and the Internet

Vietnam had around 137,000 km of roads in 2004, according to official statistics. However, the road network is generally considered to be in poor condition, with only around 39% of roads being covered with asphalt. Over 10% of villages are inaccessible by road for at least one month of the year. Road use has been rising by about 8% a year for a decade, and in 2006 the road traffic amounted to 40.7bn passenger-km and 12.6bn tonnes-km. Since 1993, 90% of aid and counterpart funding for roads has gone towards the major highways, which constitute less than 10% of the total network. Insufficient attention has been paid to secondary roads, leaving many parts of Vietnam, particularly those in mountainous areas, isolated. In an effort to rectify this problem, the Ministry of Finance has proposed increasing spending on roads until 2010. Over 600 communes (out of a total of 8,850) are inaccessible by car.

The favoured means of transport in the capital, Hanoi, and Ho Chi Minh City is a motorcycle. There are an estimated 19m motorcycles on the road in Vietnam, equivalent to one for every household, and local production is now close to 3m units annually. The demand for cars is still modest, but is rising rapidly. Vietnamese roads are very dangerous, with an average of 38 fatalities daily, equivalent to almost 14,000 annually. Many of the deaths are due to head injuries, in part the consequence of a low rate of helmet use.

In an effort to alleviate congestion in urban areas and reduce the number of road deaths and pollution!the economic cost of pollution has been estimated at 0.5% of GDP in the large cities!the authorities in Hanoi and Ho Chi Minh City have long-term plans for rapid mass-transit systems. In Hanoi there are plans for the construction of a 25-km elevated railway, and the authorities in Ho Chi Minh City have been given approval to build a 19.7-km underground rail line, construction of which will begin in 2010, at an estimated cost of US$1.1bn. In total, the government plans to build six subways and three tram routes.

The railway system comprises six single-track routes totalling 3,260 km; this is equivalent to 0.04 km per head, or about one-third of the average density of other low-income countries. The Reunification Express takes 32 hours to travel the 1,730 km between Hanoi and Ho Chi Minh City. One-quarter of the rolling stock is not operational, and one-quarter of the functioning rolling stock is over 30 years old. Rail use in terms of passenger-km fell by 5.6% to 4.3bn in 2006, while the volume of freight carried (measured in tonne-km) rose, expanding by 17.2% to 3.4bn in 2006.

The road network is in poor condition

Motorcycles are the favoured means of local transport

Rail is less important than inland waterways

Vietnam 17


The tonnage-km of freight carried on the inland waterway systems, chiefly on the Mekong River, its tributaries and canals (which total 4,500 km) and the Red River and its tributaries (totalling 2,500 km), is nearly double that transported by rail. In 2006 5.9bn tonnes-km of cargo was transported on the waterways, an increase of 5.8% on the previous year. The World Bank estimates that poor maintenance and navigation aids reduce the productivity of water transport-ation to 40% below its potential.

There are seven international seaports and five special ports through which only oil and coal are shipped. The main ones are Haiphong and Quang Ninh in the north, Danang and Qui Nhon in the centre, Ho Chi Minh City in the south-east and Can Tho in the Mekong Delta. A significant amount of investment has gone into upgrading the ports, which can now handle more and larger ships. The ports handled 36m tonnes of freight in 2006, although improvements in ship-handling and land access have provided the capacity to handle three times the present volume. The port system is competitive, but the cost of shipping garments from Ho Chi Minh City to Los Angeles is 10% of the landed cost, compared with 4% for garments shipped from Shanghai, China.

The state-owned national airline, Vietnam Airlines (VA), has been modernising and expanding rapidly. The airline owned or leased a total of 38 planes in 2006, a fleet that included ten Boeing 777s (six of which are leased), six Boeing B767-300s and 15 Airbus A320/321s. The fleet has expanded over the past few years, and it plans to acquire a further 22 planes by 2010. The boom in international arrivals has also enabled VA to record strong growth. In 2006 the airline flew 6.8m passengers, up from 5.8m in 2005 and 4m in 2003.

The Vietnamese government has been slow to open its air routes to full competition in order to protect VA. As a result, air fares to Vietnam are considered to be high and to form an impediment to the development of tourism. However, change is occurring; a Singapore-based low-cost carrier, Tiger Air, now serves Hanoi and Ho Chi Minh City, and time slots at domestic airports will no longer be allocated by VA. Australia"s Qantas has taken a 30% stake in the small local discount carrier, Pacific Airways, which will eventually promote more competition on domestic routes. International airlines carry almost two-thirds of foreign visitors to Vietnam.

Vietnam�s telecommunications industry has been growing rapidly. By the end of 2006 there were 21.9m mobile phone subscribers, representing a penetration rate of 26 per 100 population and a near doubling in one year. The leading provider is Viettel, with 7.3m subscribers; it signed up 5m customers in 2006. The other two main providers are MobiFone (7.1m subscribers) and VinaPhone (5.3m subscribers), and are both owned by the state-owned Vietnam Post and Telecommunications Corporation (VPTC). Despite the rapid pace of expansion, the number of mobile-phone subscribers is low compared with other countries in the region, such as Thailand (at around 61 subscribers per 100 in 2006).

In 2006 there were 6.2m fixed lines, equivalent to a density of 7.4 lines per 100 population, up from 3.2 lines in 2000, but still low compared with around 12 in Thailand and 28 in China. Although the monopoly previously enjoyed by

Ports have been upgraded and can handle larger ships

Vietnam Airlines has modernised rapidly

The telecoms industry is growing fast

18 Vietnam


VNPT has ended, with five new telecoms service providers in, or about to enter, the market, VNPT remains dominant with a 94% market share.

Internet services, which became available in mid-1998 in both Hanoi and Ho Chi Minh City, are becoming more affordable, and there were 3.9m subscribers by September 2006. An estimated 14m people use the Internet regularly, which is equivalent to one person in six. Internet access, traditionally slow because of government firewalls, has speeded up with the arrival of Asymmetric Digital Subscriber Line (ADSL) technology. Most people wishing to access the Internet do so through Internet cafes, which are common in most urban areas. The dominant Internet service provider (ISP) in Vietnam is the Vietnam Datacommunications Company (VDC, a subsidiary of VNPT), which controls around 42% of the market. However, it faces keen competition from three local companies, FPT (which is listed on the stock exchange and accounts for 22% of the market), Viettel (16% of the market) and EVN Telecom (12% of the market).

A government firewall blocks access to some pornographic and politically sensitive sites abroad, but also limits bandwidth and makes confidential business transactions difficult. In an effort to boost investment in the information technology (IT) sector, the government is allowing a few firms to avoid the firewall.

Energy provision

Power generation reached 59.1bn kwh in 2006, up from 30.7bn kwh in 2001. The state-owned Electricity of Vietnam (EVN) had installed capacity of 12,270 mw at the end of 2006, up from 8,860 mw at end-2002. Of this total, 6,586 mw (54%) was thermal power, mainly based on natural gas, but also some coal; the remaining 46% of capacity was based on hydropower, including 1,920 mw at the Hoa Binh plant on the Da river in the north of the country.

Despite the expansion in energy provision, the system remains vulnerable to shortages because of its heavy reliance on hydropower!the Hoa Binh plant alone generates 14% of the country�s electricity!which is dependent on the amount of rainfall. As a result, the government is shifting to natural-gas and coal-fired power plants, and enough new capacity is coming on stream that the seasonal electricity shortages of the past couple of years are not expected to recur soon. The total demand for electricity is rising by about 12% annually.

Internet usage grows rapidly but faces firewalls

Electricity production is adequate for now

Vietnam 19


The economy

Economic structure Main economic indicators, 2006 (Economist Intelligence Unit estimates unless otherwise indicated)

Real GDP growth (%) 8.2a

Consumer price inflation (av; %) 7.7

Current-account balance (US$ m) 304.0

Exchange rate (av; D:US$) 15,994.3 a

Population (m) 84.2

External debt (year-end; US$ m) 20,948.8

a Actual.

Source: Economist Intelligence Unit, CountryData.

Measured by employment, Vietnam is an agrarian society, with 56% of the labour force working in agriculture, forestry and fisheries. Despite growth in value added of more than 3% annually over the past decade, the agricultural sector (including forestry and fisheries) accounted for only around 20% of nominal GDP in 2006, down from 40% in 1991. However, Vietnam is a leading exporter of a number of agricultural commodities, including coffee, rice, pepper, cashew nuts and rubber.

Industrial GDP has grown by more than 10% annually over the past decade, and industry (including construction, oil and mining) contributed 41% of GDP in 2006, compared with only around 23% in the early 1990s. By this measure, Vietnam is a highly industrialised country. Industry is relatively diversified, and all subsectors have expanded over the past decade, with particularly rapid growth in steel products, garments, footwear, cement, and car and motorcycle assembly. Mining (mainly oil and gas) accounted for 10% of industrial GDP in 2006, but this share is shrinking as the oil fields are slowly being depleted. The services sector has grown steadily over the past decade, but its share of GDP has fallen, dropping to around 38% in 2006 from 44% in the mid-1990s.

State-owned enterprises (SOEs) continue to lose their share of industrial output, accounting for about 32% of all industrial output in 2006, down from 44% in 1999. Although output from SOEs has continued to expand!by 9.1% in 2006!the pace of growth has been slower than that recorded by domestic private firms and foreign-invested enterprises (FIEs). The fastest-growing part of the industrial economy has until recently been FIEs, which include both joint ventures and 100%-foreign-owned subsidiaries. Output in this sector rose by 19% in 2006, up from annual average growth of 16.5% in 1999-2004, and this sector accounted for 38% of industrial output in 2005.

The remainder of industrial output, now constituting 30% of the total, originates in the domestic, non-state sector. After a comparatively slow start, the private industrial sector has gathered momentum; the output of privately owned and �mixed� non-state enterprises rose by 24% in 2006, up from 21% annual growth during 1999-2005. The number of private firms registering has grown sharply

Agriculture remains important

The state�s share of industrial output is falling

20 Vietnam


since 2000 and an estimated 80-85% of these businesses are operating profitably, a high rate of survival by global standards.

The share of investment in nominal GDP rose rapidly from 11% in 1990 to 36% in 2004, where it has remained since. The general upward trend in investment over the past decade has been financed in part by increased government savings (8% of GDP in 2004), continued foreign direct investment (FDI), and a compression of domestic consumption relative to GDP that has permitted dom-estic non-government savings to rise. The relative stability of aid-financed in-vestment projects helps to explain the apparent stability of the government-supported component of the investment rate.

Comparative economic indicators, 2006 Vietnama Indonesiaa Thailand b Singaporea Malaysiab

GDP (US$ bn) 61.5 364.5b 206.3 132.2b 156.1

GDP per head (US$) 724 1,572b 3,126 a 29,473 5,859

GDP per head (US$ at PPP) 3,320 4,021 9,123 a 37,203 11,374a

Consumer price inflation (av; %) 7.7 13.1b 4.6 1.0b 3.6

Current-account balance (US$ bn) 0.3 9.7 3.2 41.7 25.6

Current-account balance (% of GDP) 0.5 2.7 1.6 31.5 16.4

Exports of goods fob (US$ bn) 40.0 102.7 128.2 289.4 160.8

Imports of goods fob (US$ bn) -40.3 -73.0 -113.4 -244.2 -124.0

External debt (US$ bn) 20.9 130.2 59.9 a 24.4 50.5a

Debt-service ratio, paid (%) 2.1 19.4 8.7 a 1.3 4.8a

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Economic policy

A commitment was made in 1986 to pursue a a policy of doi moi (economic renovation) that would open Vietnam to the world and allow private enterprise to operate. The essential foundations of a market-driven economy have been in place since 1992, and in recent years the government, and particularly a succes-sion of prime ministers, has articulated strong support for the private sector.

This strategy requires, in part, reform of the country�s SOEs. Significant progress has been made. Between 2001 and 2005, 3,346 of the country"s 5,655 SOEs were restructured!either equitised (part-privatised, accounting for 2,188), dissolved (252), merged (416), allowed to go bankrupt (184), transferred to individuals (124), or otherwise dealt with (182). By the end of 2006 over 3,000 SOEs had been equitised, representing 12% of state-owned capital. Equitisation consists of converting an SOE into a stockholding company under which the shares are transferred to private ownership; this is usually seen as the most important step towards privatisation. To date the state has retained 46% of the shares in equitised firms; a further 30% of shares are held by managers and employees, with just 24% going to outside investors. Only 20 of the equitised enterprises attracted foreign investment.

As the smaller SOEs are equitised, the average size of the remaining SOEs is increasing. In 2005 the average SOE was capitalised at D355bn (US$22.2m) and employed 499 workers. The government is now moving to equitise larger firms;

Investment�s share of GDP is stable

Private firms are encouraged, but state firms resist reform

Vietnam 21


Vietcombank has now been permitted to launch an initial public offering (IPO) and will be by far the largest company to be equitised so far. In June 2007 the government further trimmed, from 29 to 19, the number of sectors that are to remain entirely in state hands, including the railways, key airports, the media, tobacco, and defence equipment.

Opposition to privatisation is strong, primarily because SOEs have a number of advantages over private firms: they enjoy easier access to credit and to land-use rights (the latter being highly valued contributions to a joint venture), they are favoured for government contracts and in the award of trade and other licences, and some have access to subsidised loans. Workers and managers, accustomed to the security of working for SOEs, also fear that they could lose their jobs. In addition, several ministries oppose privatisation, as they do not want to give up the enterprises!sources of patronage and influence!under their control. However, managers in SOEs are paid on government-determined pay scales, which are very modest when compared with salaries in the private sector.

By the end of 2006 a total of 252,000 small- and medium-sized private enterprises had been registered in Vietnam, including 43,000 that were established in 2006. Around 60% of these firms are in the four main cities. Although the firms are small!average capital is just US$142,000 per firm!together they account for 39% of GDP and 32% of investment. Two-thirds of the investment undertaken by these private firms is financed internally, with most of the remainder coming from bank credit.

Key changes in economic policy

2003

July. The limit on foreign ownership of firms listed on the stock exchange is raised from 20% to 30% of total shares.

2004

March. The Hanoi Securities Trading Centre (HaSTC) opens to list smaller firms than those on the Ho Chi Minh City Stock Trading Centre (HoSTC). May. The National Assembly agrees to unify the corporation income tax rate at 28%. Previously it was 32% for domestic firms and 25% for most foreign firms.

2005

October. Vietnam successfully launches its inaugural international sovereign bond issue, which was heavily oversubscribed. The government raises US$750m in ten-year bonds. November. The National Assembly passes the new Law on Investment, which does not discriminate between local and foreign investors, and a new Enterprise Law, under which foreign investors are permitted to decide the legal form of their enterprise. Both laws come into effect in July 2006.

2006

May. The country"s five-year plan for 2006-10 targets real GDP growth of 7.5-8% annually.

22 Vietnam


2007

January. Vietnam formally joins the World Trade Organisation (WTO), and the US accords permanent normal trade relations (NTR) status to Vietnam. This completes Vietnam�s formal integration into the world trading system. May. The State Bank of Vietnam (SBV, the central bank) limits bank lending for securities trading to less than 3% of loans in an effort to cool the stock exchange. June. The SBV lifts the reserve requirement from 5% to 10% on short-term deposits, in a bid to restrain credit expansion and hence inflation. August. The government bans strikes in sectors of �extreme importance�, including power stations, airports, the post office, water supply and irrigation, and oil and gas.

A modern tax system was not introduced until the early 1990s, with new measures including excise taxes, business profits tax, personal income tax, and housing tax. Value-added tax (VAT) was introduced in January 1999, along with a simplified corporate income tax. The personal income tax rates and brackets for Vietnamese citizens were relaxed in 2001 and again in 2004. In May 2004 the rate of tax on corporate profits was unified at 28%; previously it stood at 32% for domestic companies and 25% for foreign firms.

Total fiscal revenue (including grants) stood at 25.9% of GDP in 2005, up from 21.6% in 2001. Tax revenue increased from 15.8% in 2001 to 19.8% in 2005, partly on the strength of growth in VAT receipts from 4% of GDP in 2001 to 5.5% in 2005. Personal income tax remains at around 0.5% of GDP, but corporate income tax collections rose from 5.4% of GDP in 2001 to 8.6% in 2005. Revenue from taxes on trade has fallen relative to GDP as Vietnam has implemented tariff reductions under the requirements of the Association of South-East Asian Nations (ASEAN) Free-Trade Area obligations. Thus revenue from import and export taxes peaked at 4.1% of GDP in 2002, falling to 2.8% of GDP by 2005; tariffs averaged 7.3% of the value of imports in 2002, but by 2005 this proportion had fallen to 4.1%. The government�s financial management system is considered opaque and inefficient, and allows corruption to thrive.

The government has run annual budget deficits in recent years, with total spending (including net lending) rising from the equivalent of 24.4% of GDP in 2001 to 27.1% in 2005. Excluding net lending and off-budget investment expenditure, the government recorded a total fiscal deficit of 1.2% of GDP in 2005, down from 2.8% in 2001, but the deficit was 5.9% of GDP if off-budget expenditure is included. There are concerns about the government�s reliance on off-budget investment expenditure. Net lending and off-budget investment reached the equivalent of 4.7% of GDP in 2005, up from 2.2% in 2001. Around one-third of government spending is devoted to the capital budget, which was equivalent to 8.6% of GDP in 2005, similar to the 8.4% level seen in 2001. The military is believed to absorb about 25% of the budget, although this may be an overstatement. (All budget figures should be treated with caution, as published numbers are incomplete and appear only with a long lag.)

Tax reform continues

Total tax revenue rises, but taxes on trade weaken

Net lending and off-budget investment spending increase

Vietnam 23


Vietnam enters the international bond market

Vietnam�s first international bond issue, which was launched in the US in October 2005, was a resounding success. The US$750m issue of ten-year sovereign bonds carrying a coupon of 7.25% was heavily oversubscribed, with the order book closing at US$4.5bn. Demand was geographically widespread, with interest from Asia (38% of total demand), the EU (32%) and the US (32%), and mainly came from banks and insurance companies. The government has used the proceeds to finance a large expansion by the state-owned Vietnam Ship Building Industry Corporation (Vinashin). No domestic corporation has yet issued bonds overseas, although a few large state-owned enterprises (SOEs) including PetroVietnam, Vietcombank, Vinashin, and Electricity of Vietnam, have together issued bonds domestically, worth a total of D16trn (US$100m). Electricity of Vietnam, Vietnam Airlines, Vietnam National Insurance Corporation, the Bank for Investment and Development, and Vinamilk are all preparing to issue domestic bonds by the end of 2007. All these state-owned enterprises (SOEs) are considering international bond issues, but the government is likely to be cautious in granting permission.

After rising by only around 6% a year during most of the 1990s, the average annual rate of expansion of narrow money (M1) rose to around 22% a year in 2001-06. There were equally rapid increases in dong and foreign-currency (mainly US dollar) deposits, raising liquidity (M2, or broad money) from 24% of GDP in 1998 to 86% of GDP in 2006. This burst of expansionary monetary policy was designed to maintain economic growth. However, this policy has raised concerns over sustainability, with outstanding domestic credit standing at around 70% of GDP in 2005 compared with only 35% of GDP in 2000. Concerned by a rise in inflation!which was 8.6% in the year to August 2007!the State Bank of Vietnam (SBV, the central bank) has moved to tighten mone-tary policy, raising the reserve ratio on short-term deposits from 5% to 10% in June 2007. The SBV has limited independence from the government and Com-munist Party, although it is becoming increasingly sophisticated. It faces the con-flicting policy objectives of maintaining economic (including price) stability while supporting the government�s efforts to achieve its high economic growth targets. Over the past few years the SBV has increasingly used open-market oper-ations to influence the money supply. In the first eight months of 2007 it acqui-red over US$7bn in foreign exchange, which it then sterilised by selling bonds.

In January 2007 Vietnam became a member of the World Trade Organisation (WTO), over a decade after it first applied for membership. This completes Vietnam�s efforts to become a full member of the world trading system. Even before joining the WTO Vietnam had begun a process of trade liberalisation, reducing its tariffs under its ASEAN free-trade agreement obligations. In addition, under its bilateral free-trade agreement with the US, which came into effect in late 2001, tariffs are being reduced, intellectual property rights are being increasingly protected, quantitative restrictions are to be gradually ended, and WTO-inconsistent measures (such as local-content requirements) are being phased out.

Monetary policy has been expansionary

Vietnam joins the WTO

24 Vietnam


Economic performance Gross domestic product (% real change)

2006 Annual average 2002-06GDP 8.2 7.8 Agriculture 3.4 3.9 Industry 10.4 10.2 Services 8.3 7.4


Throughout the 1990s up until the regional financial crisis in 1997-98, GDP growth did not fall below 8% a year, and Vietnam appeared to be on the trail of the Asian tigers. However, growth slowed in 1998-99 mainly as a result of the knock-on effects of the regional economic crisis. But there was also a domestic component, with economic reform incomplete and initial, somewhat excessive, investor enthusiasm being undermined by widespread corruption, pervasive red tape and uncertainty about dong convertibility.

Since 2000, however, GDP growth has remained strong, fuelled by a rapid rise in exports and buoyant industrial growth. In 2005 GDP growth surged to 8.4% and was 8.2% in 2006. The industrial sector has been particularly strong, with annual growth surpassing 10%, and services growth has been impressive at over 7%. Agricultural growth, however, has been relatively slow at 3.9% annually since 2002; even this number is an exaggeration, since it includes fisheries, a sector that grew at 8.1% annually over the same period.

The government has succeeded in implementing policies that have ensured that the hyperinflation experienced in the mid-1980s has not been repeated. In 2000 and 2001 average consumer prices actually fell, largely owing to a sharp decline in global food prices. When food prices rebounded, so did the rate of inflation, which jumped to an average of 3.1% in 2003 and has exceeded 7% annually since 2004. Consumer prices rose by 8.6% in the year to August 2007.

A major immediate cause of high inflation has been the rapid increase in world food prices. These feed through to domestic prices of food and foodstuffs, which in turn constitute almost one-half of the basket of goods and services used to measure consumer prices. In addition, the booming world economy has raised the prices of a number of commodities, including petroleum and steel, and these price rises have begun to feed into domestic prices. The rapid rise in domestic credit over the last two years has also played a role, and helps explain why Vietnam has seen more inflation than China.

Inflation 2006 Annual average 2002-06Consumer prices (av; %) 7.7 6.1


Rapid economic growth since 1990 has raised living standards. The percentage of people living in poverty (as defined by a budget adequate to buy 2,100 calories of food per person per day and a modest amount of non-food

GDP growth has generally been rapid

Inflation accelerates as food and fuel prices rise

Living standards rise, as does inequality

Vietnam 25


purchases) fell from 58% in 1993 to 29% by 2002, with a further fall to 20% by 2004. Child malnutrition has also decreased: in 1993, 53% of children under five experienced stunted growth, but by 1998 this proportion had fallen to 34%. The reduction in poverty has been accompanied by a modest rise in inequality, and in particular a widening income gap between the urban and rural areas. Concern about rising inequality has prompted the government to pay more attention to rural development, and efforts to combat poverty are now at the centre of the World Bank�s extensive activities in Vietnam. Poverty rates are about three times higher in rural areas than in urban areas.

Regional trends

Vietnam�s peculiar geography, particularly the 1,700-km distance between the two main population centres, Hanoi and Ho Chi Minh City, has tended to encourage regionalism. Since doi moi (economic renovation) began in 1986, Ho Chi Minh City and the nearby provinces (especially Dong Nai and Binh Duong) have consolidated their position as Vietnam�s industrial heartland, although the Hanoi-Haiphong area has grown almost as quickly over the past few years and the central city of Danang is now expanding rapidly. Left behind are the mountainous areas of the north, the north-central coast and parts of the Central Highlands, which are the three regions where poverty rates are highest. In 2004 the country�s highest poverty rate was in the north-west, at 59%, followed by the central highlands (33%) and north-central coast (32%). These rates contrast with the relatively low poverty rates in the Red River delta area centred on Hanoi (12%), and the south-east region centred on Ho Chi Minh City (5%).

An estimated 27% of the population lives in urban areas. Only Hanoi, Ho Chi Minh City and Haiphong have populations of more than 1m, but Danang and Can Tho have at least half a million people each. Although these cities are also the main industrial centres, a number of smaller towns have specialised in particular industries, such as silk, porcelain or furniture.

Economic sectors

Agriculture

Although Vietnam is still predominantly an agricultural society, cultivated land is scarce. Only about 20% of the land is arable, and another 6% is devoted to permanent crops. Some of the remaining land may have potential, but most of it has been degraded by soil erosion, usually because of deforestation or, in the deltas, by saline or acid-sulphate conditions. About 70,000 ha per year of cultivated land is lost to soil exhaustion and urban encroachment. Against this background, it is surprising that the area of land sown to crops (including tree crops) continues to increase, reaching 13.4m ha in 2006, up from around 9m ha in 1990. Of the total cultivated area, 55% is devoted to rice and a further 26% is sown to other annual crops, with the remaining 19% being given over to perennial crops. Just over one-third of the increase in land area has been used to grow perennial industrial crops, such as rubber, cashew nuts, tea and coffee,

Regional inequality is increasing

Some smaller towns have specialised economically

Cropping intensity and yields have increased

26 Vietnam


and a further 30% of the increase is due to additional paddy land that has become available as a result of investment in irrigation.

In 2006 the yield of paddy rice stood at 4.9 tonnes/ha, very similar to the yield recorded in 2004-05. The use of (mainly imported) chemical fertiliser per cropped ha has risen, such that fertiliser applications are now at a higher rate than in Indonesia but still well below that in China. Rice output has barely risen but local demand has also reached a plateau, which has allowed for export growth to remain strong enough to allow Vietnam to maintain its position as one of the world�s top three rice exporters, a position it has held for a decade and a half.

The area planted to coffee rose rapidly from 101,000 ha in 1993 to a peak of 565,000 ha in 2001, before declining gently to 489,000 ha in 2006. Coffee output initially followed the same trajectory, rising from 136,000 tonnes in 1993 to 841,000 tonnes by 2001; after some slippage in 2002 and 2005, output rose to a record 854,000 tonnes in 2006 as yields increased, stimulated in part by a recent rebound in coffee prices. Most of this coffee, which is almost all of the lower-priced robusta variety, is exported. In 1997 Vietnam overtook Indonesia to become the largest coffee exporter in Asia, and in 2000 it became the second-largest exporter (by volume) in the world, after Brazil. Vietnamese firms have increasingly moved into downstream processing, making substantial investments in roasting, in the production of instant coffee, and in establishing brand recognition.

Tea. Vietnam produced 612,000 tonnes of fresh tea in 2006, up from 315,000 tonnes in 2000. Tea exports rose to 105,000 tonnes in 2006, up from only 55,700 tonnes in 2000.

Rubber. Rubber cultivation has benefited both from an expansion in the cultivated area, from 180,000 ha in 1985 to 512,000 ha by 2006, and from the replanting of land with new high-yielding varieties. Yields have now risen remarkably, from 0.27 tonnes/ha in 1985 to 1.07 tonnes/ha in 2006, and the quality of rubber produced has improved. Rubber output reached 546,000 tonnes in 2006, almost ten times the level recorded in 1990. Officially recorded exports rose to 697,000 tonnes in 2006, rising from an annual average of 367,000 tonnes in 2000-03.

Sugarcane. Although processing capacity has trebled to 70,000 tonnes of cane per day since 1994, the result of a government programme aimed at making Vietnam self-sufficient in sugar production, the area under cultivation peaked at 320,000 ha in 2002, after which it fell to 285,000 ha by 2006. Sugar output reached a record 17.1m tonnes in 2002, fell to 14.9m tonnes in 2005 (when drought hit parts of the country), and rebounded to 15.7m tonnes in 2006.

Rising affluence and population growth has increased the demand for meat. The number of pigs rose to 27m in 2006 from 12m in 1990, and the quality of pig meat has improved. Poultry production also rose rapidly, reaching a peak of 255m birds in 2004, compared with around 107m in 1990. However, poultry stock fell in 2004 as Vietnam was hit by the virulent H5N1 strain of avian influenza

Coffee output rises but planted area falls

Output of industrial crops rises rapidly

Demand for meat grows despite poultry woes

Rice yields remain high

Vietnam 27


(bird flu), with more than 46m birds being culled in an effort to curb the spread of the virus. Although the poultry industry has been diminished, it has also proved to be resilient, with a stock of 215m birds in 2006.

The reduction in poultry production has led to a shift to other sources of meat, with particularly rapid increases in the number of cattle (from 3.1m in 1999 to 4.9m in 2004 and 6.5m in 2006) and in goats and sheep (from a combined total of 780,000 in 2003 to 1.5m by 2006).

Bird flu remains a concern

In March 2004, despite World Health Organisation (WHO) warnings, the govern-ment mistakenly declared that the bird flu epidemic was over. Infected birds have been found again from time to time, and four people died of the illness in the first eight months of 2007. The government remains vigilant against further outbreaks, helped in its efforts by grants from international donors, and it has compiled a "Green Book" with proced-ures to be followed. The emphasis is on pre-emptive vaccination, but when out-breaks are detected, local flocks are culled, local transport of poultry is suspended, and local farms are disinfected. Poultry farming is now banned in urban areas of the capital, Hanoi, and at the household level in Ho Chi Minh City. The government has also put in place a system of compensation for birds that are culled, with an incen-tive for farmers to destroy their flocks voluntarily if they become infected. Scientists remain concerned that the H5N1 strain of bird flu could mutate so that it could be transmitted among humans, but this does not yet appear to have happened.

Environmental concerns have curbed the output of timber and timber products. In an effort to discourage timber production, the government banned the export of logs in 1992 and of all timber products in 1993 (although the latter ban was lifted in 2001). Timber removals reached 3m cu metres in 2006. In recent years the real value of forestry sector output has been stagnant, but reforestation efforts have had some success.

A coastline of more than 3,000 km and a network of rivers, canals, lakes and ponds give Vietnam abundant aquatic resources. Real fisheries output has risen by an annual average of 8.1% between 2002 and 2006, with particularly rapid gains in freshwater aquaculture output and shrimp production. The valuable shrimp farms are concentrated in the Mekong Delta region, and particularly in the southernmost province of Ca Mau. Exports of seafood have increased to US$3.4bn in 2006, making them Vietnam�s fourth most valuable export. This is despite the imposition of (modest) anti-dumping duties in recent years on Vietnam�s exports of catfish and shrimp to the US.

Mining and semi-processing

The production of natural gas has remained steady, rising from 6.3bn cu metres in 2004 to 6.4bn cu metres in 2006. Much of the gas comes from the Nam Con Son basin, which came on stream in late 2002 and comes onshore via a 399-km pipeline. The bulk of the gas is used to feed a combined power and urea plant, Phu My, which is located on the coast in the southern province of Ba Ria-Vung

Forestry output stabilises

The fisheries sector remains buoyant

Natural-gas output from Nam Con Son basin plateaus

28 Vietnam


Tau. Natural-gas reserves in the Nam Con Son basin are at least 60bn cu metres, but may be as much as three times this level.

Crude oil output rose steadily over the first two decades since production commenced, but output peaked at 20.1m tonnes in 2004, before dropping back to 17.2m tonnes in 2006, partly owing to efforts to prolong the life of oilfields. Output was boosted in October 2003 when the Su Tu Den (Black Lion) oilfield came on stream; its contribution initially offset the decline in output from Vietnam�s major oilfields, Bach Ho (White Tiger) and Rong (Dragon), but significant increases in output are not expected in the next few years. Vietnam�s proven oil reserves amount to around 3.3bn barrels.

Vietnam�s refining capacity is limited to a small!800 barrels/day (b/d)!facility at Cat Hai, near Ho Chi Minh City. Work has begun on an oil refinery with a capacity of 130,000 b/d (equivalent to 6.5m tonnes a year) at Dung Quat, 970 km north of Vung Tau (where the oil comes ashore), in central Vietnam. The total projected cost of the project has risen to US$2.5bn, and in May 2005 a consortium led by Technip (France) signed a US$1.5bn contract to build the core of the refinery. Construction is expected to be completed by 2009. The refinery will be run by PetroVietnam, after two consortia turned down the project when they found it not to be economically viable, in part owing to its poor location. The refinery has been subject to delays, owing partly to managerial corruption in PetroVietnam. In February 2007 the Vietnam Development Bank extended a 16-year US$1bn loan to the project.

Coal is the main form of commercial energy after oil, meeting about 25% of primary energy needs (excluding biomass). Almost all of the coal produced is high-quality anthracite. Reserves of anthracite alone are estimated at 3.7bn tonnes, mainly in the north-eastern province of Quang Ninh. Output reached 38.9m tonnes in 2006, up from 8.4m tonnes in 1995. Over three-quarters of output was exported in 2006, and most of the rest is used in power stations. Coal dust is formed into briquettes, which are inexpensive and are widely used as fuel for cooking in towns in the north.

Commercially significant quantities of coal, iron ore, apatite, chromite, rubies and gold are also mined. There are reserves of manganese and titanium ore, bauxite, tin, copper, zinc, lead, nickel, graphite and mica. An Indian company, Tata, is undertaking a feasibility study to develop an integrated steel mill that would produce 4.5m-5m tonnes of hot-rolled steel annually, using iron from Thach Khe, in the central province of Ha Tinh. The Thach Khe area is believed to have about 550m tonnes of ore, with an iron content of 61-62%, half of which is considered to be commercially exploitable.

Reserves of apatite (a source of phosphorus used in the manufacture of fertiliser) are close to 1bn tonnes. The Soviet Union developed the exploitation of Vietnam�s apatite, which is now being produced at a rate of around 470,000 t/y. Bauxite and copper are regarded as having great potential. Bauxite (with estimated reserves as high as 8bn tonnes) is found in the north and centre of the country. Copper mining has not been developed, but could become significant (there are estimated reserves of nearly 600,000 tonnes).

Crude oil output declines as work advances on a refinery

Coal meets around 25% of primary energy needs

Vietnam has a wide array of minerals

Vietnam 29


Manufacturing

Manufacturing accounted for 21.3% of current-price GDP in 2006, up slightly from 20.7% in 2002. The sector has continued to record strong growth in recent years, with annual average growth standing at around 11% in 2002-06. However, the role of state-owned industrial enterprises has continued to decline and in 2006 accounted for just 25% of total industrial output, compared with 43% in 2000. Over the same period the non-state sector (collectives, private enterprises and households) saw its share of manufacturing output rise to 37% from 27% in 2000, while foreign-invested enterprises (FIEs) accounted for 39% of industrial output in 2006, up from 30% in 2000.

Vietnam�s manufacturing base is fairly broad. Food products and beverages accounted for one-quarter of the total value of manufacturing output in recent years, and other important subsectors include manufacturing of textiles and apparel, assembly and repair of motor vehicles and other transport equipment, chemicals and chemical products, fabricated metal products, leather products, furniture, and electrical machinery and apparatus.

Assemblers of motorcycles have recorded strong growth in recent years. In 2006 around 2.1m units were assembled, up from only 610,000 in 2001. The motorcycle assembly sector, which comprises more than 50 firms employing 25,000 workers, is dominated by seven large FIEs, including Honda Motor and Yamaha of Japan and the Taiwan-invested Vietnam Manufacturing and Export Processing Company (VMEP). Reflecting the expansion in locally sourced parts, in 2006 imports of unassembled motorcycle kits totalled US$490m, down from US$787m in 2000.

Multinational manufacturers of cars and trucks established production bases in the mid-1990s in the expectation that the combination of a large population, rapid economic growth and few cars, trucks or competitors would lead to rapid sales growth. However, demand has not matched these high hopes, and has oscillated wildly from year to year, so that all local assemblers have suffered from overcapacity and high production costs. Sales rose from 14,000 units in 2000 to 41,000 in 2006.

Demand now appears to be rising more strongly, with sales of 40,500 in the first eight months of 2007, up 80% compared with the same period in 2006. The foreign-invested automotive assembly sector accounts for the majority of this output, but is facing increasing competition from low-cost Chinese and domestic assemblers.

Vietnam�s textile and garment manufacturers are enjoying healthy growth and in 2006 total output of readymade garments surpassed 1.2bn pieces, up by 14% on the previous year. Most of this output is exported. Easier access to US markets following the implementation of the US-Vietnam bilateral trade agreement in late 2001 led to a rapid increase in Vietnam�s textile and garment exports, to US$5.8bn in 2006, from US$2bn in 2001. Exports rose by 19.9% in 2006, helped in part by US and EU restrictions on imports from China.

The manufacturing sector records strong growth

Carmakers suffer high taxes and overcapacity

Garment exports continue to rise

Buoyant demand fuels motorcycle assembly growth

30 Vietnam


The footwear industry is continuing to grow, and is even exporting successfully to China. Exports of footwear reached US$3.6bn in 2006, up from just US$1.5bn in 2001. However, in 2006 footwear manufacturers, who ship three-fifths of their shoes to the EU, fell foul of an EU anti-dumping ruling. The EU, claiming to have found "compelling evidence of state intervention, dumping and injury", imposed a levy at a rate of 4%, which it subsequently raised to 10%, based on an investigation of eight Vietnamese shoemakers. The Vietnamese government claims that it neither interferes in businesses" operations nor subsidises them, but does admit to providing some incentives, including waivers on land-lease payments. Vietnamese firms exported 265m pairs of shoes to the EU in 2005, almost double the level of 2001. The shoe industry is said to employ 500,000 workers, four-fifths of whom are women.

The woodworking industry continues to thrive, with exports reaching US$1.9bn in 2006, compared with only around US$300,000 in 2000. The industry is strong in the Central Highlands provinces of Daklak and Gia Lai and in the southern industrial province of Binh Duong. Vietnam�s exports have been help-ed by allegations in the US of dumping by Chinese producers, which has led buyers to turn to other sources. Vietnamese furniture makers have been urged to cater for niche markets in the US in order to avoid anti-dumping suits. The industry is heavily reliant on wood imports, which came to US$760m in 2006.

Local electronic goods manufacturers and assemblers are enjoying success in building up overseas markets. Annual output growth has been impressive, at an average of 25% in recent years. In 2006 electronic goods exports jumped to US$1.8bn, up from US$1.4bn in 2005 and US$605m in 2002.

Efforts to expand the high-technology sector were rewarded in early 2006 when a major producer of microchips, US-based Intel, announced that it would invest US$1bn in a semiconductor assembly and test facility in the Saigon High-Tech Park in Ho Chi Minh City. The project is expected to employ 4,000 workers and will open in 2009. Meanwhile, Foxconn, the largest company in Taiwan, has said that it plans to invest at least US$2bn in Vietnam, and recently opened a factory near the capital, Hanoi, that produces parts for cameras.

Construction

Over the past several years the construction industry has grown relatively quickly, accounting for 6.6% of GDP in 2006, up from 5.9% in 2002. Residential construction remains robust in the crowded but fast-growing cities. Little housing was built in the north in the 50 years to 1990, with the result that there was pent-up demand for housing there. Over 95% of residential investment is undertaken privately.

Spending on infrastructure, particularly roads, continues to be strong, financed in large measure by a steady inflow of aid. The first boom in hotel and office block construction has now passed, but with occupancy rates rising, developers are again entering the office building market. The sector employed 1.3m workers in 2001, but this figure rose to 2m in 2005 and 2006.

The woodworking industry booms

The electronics sector enjoys strong growth

Footwear exporters thrive despite restrictions

Vietnam 31


Financial services

Before 1988 the banking system consisted of the State Bank of Vietnam (SBV, which was both the central bank and the main commercial bank), the Bank for Foreign Trade (BFT), and the Construction and Investment Bank, which implemented the government�s capital budget. Over the past decade Vietnam has moved to a diversified banking system with five state-owned commercial banks (SOCBs), 37 joint-stock banks, four joint-venture banks, and 26 foreign branches. However, the four main SOCBs!the Bank for Investment and Development of Vietnam (BIDV), the Bank for Foreign Trade (Vietcombank), the Bank for Industry and Commerce (Vietincombank), and the Bank for Agriculture and Rural Development (VBARD)!still account for around 70% of all loans, in part because most state-owned enterprises are expected to bank with them. In 2006 these banks were allowed to sell some of their bad debt to the Debts and Assets Trading Company, which is run by the Ministry of Finance. Owing to differences between Vietnamese and international accounting standards the extent of bad debts and capital adequacy are difficult to determine although the measures have improved substantially in the past couple of years. In late 2007 the government gave its approval for Vietcombank to launch an initial public offering; the bank�s capital adequacy ratio is believed to be 8%, in line with international requirements. However, the equitisation (part-privatisation) of the other large banks is likely to be delayed as a result of government worries about overheating of the stock exchange, and the potential for excessive inflows of portfolio investment.

The joint-stock banking sector, which comprises private or part-private banks that are much smaller than the country�s SOCBs, accounts for around 15% of total lending. Although most joint-stock banks are too small to attract foreign investor interest, they are keen to attract such investment in order to expand their capital base, in addition to improving their management expertise. In 2005 and early 2006, three large joint-stock commercial banks sold stakes to foreign banks!Saigon Thuong Tin Commercial Bank (Sacombank) sold a 10% stake to ANZ of Australia (for US$27m); Asia Commercial Bank (ACB) sold an 8.56% stake to UK-based Standard Chartered; and Vietnam Technological and Commercial Joint Stock Bank (Techcombank) sold a 10% stake to HSBC (also of the UK). In July 2006, Sacombank listed on the Ho Chi Minh City stock exchange, at which point it had about D19trn (US$118.8m) in assets.

Local banks currently dominate lending activity. Foreign banks face restrictions on their lending, but these will be eased substantially over the next few years. In 2007 the State Bank of Vietnam established the rules that foreign banks must follow if they wish to incorporate in Vietnam: the parent bank must have at least US$10bn in charter capital, maintain a capital adequacy ratio of at least 8%, and be profitable for three consecutive years in its country of origin. Six foreign banks have so far shown an interest in incorporating locally, including HSBC, Standard Chartered and ANZ.

The Ho Chi Minh City Stock Exchange (HOSE, formerly the Ho Chi Minh City Stock Trading Centre, which was launched in July 2000) remained a minor

Despite some diversification, SOCBs remain dominant

Joint-stock banks attract foreign interest

Foreign banking operations remain limited

Stockmarkets soared in 2006 and 2007

32 Vietnam


source of investment finance until 2006; only 30 companies were listed at the start of 2000, the market capitalisation was US$500m, and the index stood at 320. But by the end of 2006 the number of listed firms had risen to 106 and market capitalisation had risen to US$14.8bn. Fuelled by speculative trading, the index peaked in March 2007, dipped subsequently, and recovered most of the lost ground by October 2007. Smaller firms are listed on the Hanoi Stock Trading Centre (HaSTC), which opened in March 2005, and whose capitalisation is about a third of that of HOSE.

Firms that list on the HOSE exchange have to meet strict disclosure and accounting requirements, which has been a deterrent to some. They must also have a capitalisation of at least US$700,000, and must have been profitable for two years before they can be listed. No such rules apply to the vigorous unofficial �over-the-counter� (OTC) market, in which stock in around 1,000 companies is traded, typically at cafés in Ho Chi Minh City. The total market capitalisation of the OTC market is estimated at about US$1bn. Foreign ownership may not exceed 30% of the value of listed companies, and foreign holdings are believed to be close to this limit.

The insurance sector in Vietnam is small compared with other Asian countries, with total insurance premiums equivalent to 2% of GDP in 2006, when total annual premiums reached D18trn, up from D15trn in 2005 and just D4.5trn in 2001. Most of these funds are invested domestically in government bonds, listed companies with a strong performance record, and real estate, and by 2006 the insurance sector held US$2.2bn in assets. A total of 6.5m Vietnamese have life insurance, equivalent to about 8% of the population. There are eight life insurance companies, dominated by Prudential of the UK (with a 42% market share), Vietnam-based Bao Viet (with a 37% share) and Canada"s Manulife (with an 11% share).

Other services

Despite the devastating impact on the tourism industry of the outbreak of Severe Acute Respiratory Syndrome (SARS) in early 2003, policy initiatives to attract foreign tourists have generally been paying off. The number of inter-national arrivals (including holidaymakers, business people and overseas Vietnamese visiting their families) rose from 2.4m in 2003 to 3.6m in 2006. The largest source of visitors remains China, which accounted for 214% of the total in 2006, followed by South Korea, the US, and Japan, each accounting for around 10-11%. Domestic tourism has also been increasing rapidly, with around 16.5m domestic tourists in 2004, up from less than 8m in 2000, as travel within the country is becoming easier and disposable incomes are rising. There has been a significant improvement in the choice and quality of resort hotels, even in relatively out-of-the-way places such as Sapa in the northern mountains and Hoi An on the central coast.

The insurance industry expands rapidly

The tourism industry remains buoyant, despite setbacks

Vietnam 33


The external sector

Trade in goods Foreign trade, 2006 (US$ m)

Merchandise exports fob 39,605

Merchandise imports cif -44,410Trade balance -4,805


The pace of growth in Vietnam�s exports has been rapid over the last five years. In 2006 exports reached US$39.6bn, up from only US$15.1bn in 2001. Crude oil has been the leading export earner in recent years, buoyed by a rising world price but restrained by a declining volume of shipments. In 2006 the value of crude oil exports rose by 13% to reach US$8.3bn (21% of total export revenue). Non-oil exports have risen more rapidly, reflecting robust expansion in foreign sales of a number of goods, most notably textiles, garments and footwear, as well as commodities such as rubber, coffee and seafood. In 2006 exports of garments and textiles reached US$5.8bn, followed by footwear (US$3.6bn), and seafood (US$3.4bn), supported by substantial exports of wood products (US$1.9bn), electronics (US$1.8bn), rice (US$1.3bn) and rubber (US$1.3bn).

Strong export growth in recent years also reflects the fact that Vietnamese exporters have taken full advantage of the opening up of the US market under the two countries� bilateral trade agreement. By 2002 the US had become the single largest destination for Vietnamese exports.

Since 2001 the import bill has expanded rapidly, increasing by an annual average of around 25% in 2002-06. This rise in the value of imports is partly a result of higher world prices for products such as oil and steel, but also reflects growth in inputs that are needed to fuel Vietnam�s export boom, as well as the capital goods that underlie the high levels of investment. Rising affluence has also increased the demand for consumer goods, including cars and motorbikes. In 2006, imports stood at US$44.4bn, up from only US$16.2bn in 2001, and were dominated by machinery and equipment (US$6.6bn), petroleum products (US$5.8bn), steel (US$2.9bn) and fabrics (US$2bn).

Following the regional financial crisis in 1997-98, Vietnam sought to expand its exports to markets outside Asia!first western Europe, and, more recently, the US, Australia and China. In 2006 the US was Vietnam�s biggest export destination, accounting for almost 20% of total exports, followed by Japan, Australia and China. Despite the sharp growth in Vietnam�s exports to the US in recent years, Vietnam�s imports from the US remain relatively low, and well behind imports from China, Taiwan and Japan. The most spectacular increase in imports has been in those from China, rising from US$404m in 1997 to US$7.4bn in 2006, making China the single largest source of imports.

Exports surge owing partly to the US trade deal

Import growth has been rapid

Most trade is still with Asia

34 Vietnam


Main trading partners, 2006 Exports to: % of total Imports from: % of totalUS 19.7 China 16.5Japan 13.1 Singapore 14.0Australia 9.2 Taiwan 10.7

China 7.6 Japan 10.5Singapore 4.1 South Korea 8.6

Germany 3.6 Thailand 6.8Malaysia 3.0 Malaysia 3.3


Invisibles and the current account

Vietnam has recorded annual current-account deficits in recent years, but these have been much lower than the deficits of the mid-1990s. In 2002 the current-account deficit stood at US$604m and widened to US$1.9bn in 2003 (4.7% of GDP) as the import bill surged. However, in 2004, as export growth outpaced that of imports, the current-account deficit eased back to US$957m. This trend continued in 2005 and the current account registered a surplus of US$217m.

Vietnam continually runs a deficit on its services account, amounting to US$1.1bn in 2005, up from US$550m in 2000. Similarly, the income account remains in the red, largely in line with the repatriation of foreign investor profits and debt repayments, with a deficit in 2005 of US$1.2bn. However, remittances from overseas Vietnamese (Viet Kieu) have risen rapidly, helping to push up net transfers from US$1.3bn in 2001 to US$3.8bn in 2005. Inflows of portfolio investment were first noticeable in 2005, when they reached US$776m, and they increased sharply in 2006 as the stock market soared.

Capital flows and foreign debt

International donors continue to show their faith in the government, offering generous amounts of official development assistance. At the December 2006 meeting of the Consultative Group for Vietnam, which comprises a host of multilateral and bilateral donors, pledges of aid for 2007 came to a record US$4.5bn, up from US$3.7bn the previous year. The largest pledges came from the Asian Development Bank, Japan and the World Bank. Actual aid disbursements are typically about two-thirds of the pledged amounts.

Since 1988, when foreign investment was first allowed, Vietnam has attracted over US$60bn in foreign direct investment (FDI) commitments, although only about half of this has actually been disbursed. Until the regional financial crisis of 1997-98, the main sources of foreign investment were neighbouring countries, particularly Singapore, Taiwan, Hong Kong, South Korea and Japan. However, in the following few years, some European countries, including France and the Netherlands, were major sources of FDI. Asian investors, however, have since returned to the forefront, mainly with investments in industrial projects. According to Vietnam Investment Review, a Vietnamese business newspaper, during the first seven months of 2007 the leading sources of FDI commitments

The current account moves into surplus in 2005

FDI commitments pick up rapidly

Official development assistance remains robust

Vietnam 35


were South Korea (US$10.3bn), Singapore (US$9.6bn), Taiwan (US$9.1bn) and Japan (US$5.6bn), and a total of US$30.9bn in FDI had been disbursed. Total commitments of FDI surged in 2006, reaching US$10.2bn, up from US$6.8bn in 2005; an estimated US$3.9bn in FDI was actually spent in 2006, equivalent to 6.4% of GDP. (These figures vary significantly from IMF figures owing to differences in definitions.)

At the end of 2006 Vietnam�s medium- and long-term public and publicly guaranteed international debt stood at US$14.6bn, equivalent to 24% of GDP. Almost all of the hard-currency debt taken on by the public sector was incurred at concessional rates, with 80% of it carrying fixed annual interest rates below 3%. After the write-offs and reschedulings of recent years, debt-servicing costs (interest and amortisation) were equivalent to only 1.5% of annual export earnings in 2006, down sharply from 10% in 1999.

Foreign reserves and the exchange rate

Vietnam�s foreign reserves have expanded sharply, rising to US$13bn by end-2006, up from only US$3.7bn at end-2001. In the first eight months of 2007 the State Bank of Vietnam (SBV, the central bank) purchased a further US$7bn in foreign exchange, bringing the total close to US$20bn, or enough to cover almost five months of imports.

The dong has been weakening slowly against the US dollar. The pace of nominal depreciation stood at around 3.7% a year in 2001-02, but has since slowed, to 1.5% a year in 2003-04 and only 0.8% annually since then. As a result of this depreciation, the dong averaged D15,994:US$1 in 2006, down from D14,725:US$1 in 2001. Owing to the acceleration in inflation in the past three years and the relatively slow pace of depreciation against the US dollar, the real effective exchange rate actually appreciated in 2005 and 2006.

The exchange-rate regime changed in 1999, with the government scrapping the pegged exchange-rate system in favour of a crawling peg, to allow the dong:US dollar exchange rate to adjust gradually to changed market conditions. The SBV sets the official rate on a daily basis, and the interbank market rate (in which banks exchange dong for foreign exchange among themselves) cannot deviate from the official rate by more than 0.5% per day. (The central bank widened the trading band from 0.25% to 0.5% in January 2007.)

Foreign hard-currency debt is manageable

Reserves continue to strengthen

The dong appreciates in real terms

36 Vietnam


Regional overview

Membership of organisations

APEC started life as a forum for informal discussion between six members of the Association of South-East Asian Nations (ASEAN), Brunei, Indonesia, Malaysia, the Philippines, Thailand and Singapore, and their six dialogue partners in the Pacific, Australia, Canada, Japan, New Zealand, South Korea and the US. In 1991 China, Hong Kong and Taiwan became members, followed by Mexico and Papua New Guinea in 1993 and Chile in 1994. Peru, Russia and Vietnam joined in 1998. APEC describes itself as �the primary vehicle for promoting open trade and practical economic co-operation� in the region, with the goal of advancing �Asia-Pacific economic dynamism and sense of community�.

APEC has had a permanent secretariat since 1992, and also runs four perma-nent committees!on budget and managerial issues, trade and investment, economic trends generally, and economic and technical co-operation. In addition, there are 11 working groups!on agricultural technical co-operation, energy, fisheries, human resources, industrial science and technology, marine resource co-operation, small and medium-sized enterprises, telecommuni-cations, tourism, trade promotion and transport. There is also an APEC business advisory council (ABAC), which includes up to three senior private-sector representatives from each member country. APEC as a whole has its headquarters in Singapore, while ABAC is based in the Philippines. APEC�s main business is done at annual meetings of member states� ministers of foreign affairs and economic affairs, which are followed by informal gatherings of members� heads of state. Every other ministerial meeting is held in a South-east Asian country. The chairmanship of APEC rotates on a yearly basis.

APEC"s high point was probably reached in 1994, when members agreed a timetable for the liberalisation of trade across the region: the ambitious aim was to eliminate all trade barriers by 2020 and then to extend reciprocal concessions to non-members. Since then, APEC has appeared to lose momentum and effectiveness. Its response to the Asian regional financial crisis in 1997-98 lacked substance, and subsequent meetings provided other distractions from the trade liberalisation theme. The latest ministerial summit, held in Sydney, Australia in September 2007, focused on climate change. Leaders at the summit endorsed a Declaration on Climate Change, Energy Security and Clean Development that outlined a number of initiatives for member countries to develop. APEC members also expressed their continued concern at the lack of progress on the World Trade Organisation"s Doha round of trade liberalisation talks.

APEC"s main problem is that it has no enforcement mechanism and cannot compel its members to take action, meaning that many of the statements issued following meetings are arguably of academic interest only. The conclusion to be drawn from recent meetings is that APEC is now more an informal talking shop than a serious regional reformer. However, the attendance of senior world leaders at its meetings indicates that, as a forum, it remains significant.

Asia-Pacific Economic Co-operation (APEC) forum

Vietnam 37


The Association of South-East Asian Nations (ASEAN) was established in 1967. The five original members were Indonesia, Malaysia, the Philippines, Singapore and Thailand. Brunei joined in 1984, as did Vietnam in 1995, Laos and Myanmar in 1997 and, most recently, Cambodia in 1999.

ASEAN summit meetings, which bring together the heads of government of member states, must be held at least every three years. Informal summits of heads of governments are also held. In addition, the foreign and economic affairs ministers of member countries meet annually. Joint meetings of foreign and economic affairs ministers are held before each ASEAN summit. There is also a standing committee (consisting of the members" accredited ambassadors to the host country), which usually meets every two months. There is a permanent secretariat, based in the Indonesian capital, Jakarta, and a number of committees.

The organisation started with some grand objectives, but has failed to deliver in most areas, with the exception of tariff reform. Early hopes that ASEAN could engineer a regional economic development strategy!with particular countries concentrating on particular industries!were soon dashed. In 1977 the Basic Agreement on the Establishment of ASEAN Preferential Tariffs was concluded, but members were permitted to exclude "sensitive" sectors, a let-out clause that a subsequent agreement in 1987 curtailed only slightly.

Plans for a proper ASEAN Free-Trade Area (AFTA) were unveiled in 1992, with the aim of implementing it by 2008. A common effective preferential tariff (CEPT) scheme was applied in 1993, providing for the gradual reduction of tariffs on intra-ASEAN trade in certain goods over a number of years. Again, however, member states could exclude sensitive items, limiting progress. A new AFTA programme, covering a wider range of products, was launched in 1994. During the mid-1990s the timescale for implementing the programme was steadily tightened, with the aim of reducing tariffs on most goods to below 5% by 2000. A limited AFTA, between the six earliest members of ASEAN and involving a reduction of tariffs on intra-ASEAN trade to between zero and 5%, came into operation on January 1st 2002. (Countries joining more recently have been allowed additional time.) The momentum for change has been maintained in recent years, and an ASEAN finance ministers" meeting in September 2004 agreed to abolish tariffs in 11 industrial sectors by 2012.

Before the recent acceleration in tariff reform, ASEAN"s slow progress towards AFTA had encouraged some of its members, notably Singapore and Thailand, to opt instead for bilateral trade pacts. But ASEAN"s hopes of further multilateral deals have not been extinguished. In December 2004 ASEAN and China signed a major trade deal, which aims to eliminate most tariffs on trade between ASEAN and China by 2010 (2015 for the less developed members of ASEAN). Tariffs will not go completely: countries will be able to designate a number of sectors as sensitive, and the greatest liberalisation is therefore likely to occur in areas where Chinese and ASEAN trade is complementary. In 2006 a similar trade agreement was signed between ASEAN and South Korea, but Thailand refused to participate owing to the fact that South Korea opted to exclude rice from the deal.

Association of South-East Asian Nations (ASEAN

38 Vietnam


The 1997-98 regional financial crisis exposed in a brutal fashion ASEAN"s failings in other areas. The organisation was unable to arrest the regional currency devaluations or alleviate the resulting economic hardship. Unfolding events in Indonesia then moved the focus of attention to the organisation"s security plans. ASEAN countries" commitment to the principle of non-interference in the internal affairs of other member states complicated the response to the crisis in Timor-Leste in 1999.

The non-interference principle has until recently also enabled the ruling military junta in Myanmar to escape strong criticism by the governments of other ASEAN countries. However, in July 2005 Myanmar gave in to international and regional pressure and agreed to forgo its turn to chair the association, thus sparing ASEAN embarrassment in its relations with the US and the EU. Moreover, since the end of 2005 ASEAN�s relations with the Burmese junta have become increasingly tense. In March 2006 a special ASEAN envoy to Myanmar was forbidden to visit the opposition leader, Aung San Suu Kyi, who is currently under house-arrest, and ASEAN leaders have become more vocal in their criticism of Myanmar"s glacial progress on political reform. Myanmar is increasingly seen as a serious impediment to ASEAN"s attempts to raise its profile and improve its credibility. In January 2007, at the most recent ASEAN summit, held in the Philippines, leaders of the association"s ten member countries endorsed recommendations for a charter that would give ASEAN the authority to enforce commitments and penalise members for misbehaviour. Member states pledged to complete a draft charter by November 2007. If this is implemented, the long-standing principle of non-interference in member countries" internal affairs will cease to apply.

Vietnam 39


Appendices

Sources of information

Communist Party of Viet Nam, Central Committee, Socio-Economic Development Strategy 2001-2010, 2000

General Statistics Office, Statistical Yearbook (annual)

Ministry of Planning and Investment, Law on Foreign Investment in Vietnam, 2000

Vietnam�s Socio-Economic Development (quarterly), Institute of Economics, National Centre for Social and Human Sciences, Hanoi

IMF, Direction of Trade Statistics (annual)

IMF, International Financial Statistics (monthly)

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual)

UN Development Programme (UNDP), Human Development Report (annual)

World Bank, Global Development Finance (annual)

World Bank, World Development Indicators (annual)

Melanie Beresford and Tran Ngoc Angie (eds), Reaching for the Dream: Challenges of Sustainable Development in Vietnam, Institute of Southeast Asian Studies, Singapore, 2004

Paul Glewwe, Nisha Agrawal and David Dollar (eds), Economic Growth, Poverty and Household Welfare in Vietnam, World Bank, 2004

William J Duiker, Ho Chi Minh, A Life, Hyperion, New York, 2000

General Statistics Office, www.gso.gov.vn

Nhan Dan online: www.nhandan.org.vn. The People�s Daily is the leading newspaper, and has an informative page that changes daily

UNDP, Vietnam: www.undp.org.vn. Includes UNDP reports, background on UNDP activities, and some trade and other statistical data

Vietnam Embassy in the US: www.vietnamembassy-usa.org. News summaries and practical information on visas

Vietnam News Agency: www.vnagency.com.vn. Publishes the Vietnam News

VietNamNetBridge: www.english.vietnamnet.vn. Online English-language newspaper

The World Bank in Vietnam: www.worldbank.org.vn. May also be accessed via www.worldbank.org. Includes World Bank reports, details of the role of the Bank in Vietnam, and useful links

International statistical sources

Select bibliography and websites

National statistical sources

40 Vietnam


Reference tables

Population ('000 unless otherwise indicated; annual av)

2001 2002 2003 2004 2005Males 38,684 39,197 39,755 40,310 40,845Females 40,002 40,530 41,147 41,721 42,274Total 78,686 79,727 80,902 82,032 83,120 Rural 59,217 59,705 60,033 60,295 60,701 Urban 19,469 20,022 20,870 21,737 22,419Population growth rate (%) 1.4 1.3 1.5 1.4 1.3


Employed labour force ('000; mid-year)

2001 2002 2003 2004 2005Total 38,563 39,508 40,574 41,586 42,709 Agriculture & forestry 23,386 23,173 23,117 23,026 22,780 Fisheries 1,083 1,282 1,326 1,405 1,477 Industry 4,260 4,558 4,982 5,294 5,496 Construction 1,292 1,526 1,688 1,923 2,140 Wholesale & retail trade 4,063 4,281 4,532 4,767 5,192 Hotels & restaurants 700 715 740 755 799 Transport & communication 1,180 1,183 1,194 1,202 1,253 Education, health, science & arts 1,416 1,497 1,584 1,657 1,796 Other services 1,184 1,291 1,410 1,557 1,777

Memorandum items State sector 3,604 3,751 4,035 4,108 4,127Non-state sector 34,598 35,318 36,019 36,847 37,906Foreign-invested sector 362 440 520 631 676


Vietnam 41


Transport statistics 2002 2003 2004 2005 2006Road Passengers (m) 699.3 926.2 1,011.5 1,103.5 1,216.1Passenger-km (m) 26,010 29,181 31,400 36,500 40,700Freight ('000 tonnes) 163,126 172,800 196,000 217,600 237,300Tonne-km (m) 8,650 9,300 10,600 11,500 12,600Rail Passengers (m) 10.8 11.6 12.9 12.8 11.6Passenger-km (m) 3,697 4,069 4,378 4,582 4,300Freight ('000 tonnes) 7,052 8,385 8,900 8,838 9,200Tonne-km (m) 2,392 2,725 2,791 2,948 3,400Inland waterways Passengers (m) 137.7 161.7 166.2 171.3 178.7Passenger-km (m) 2,481 3,282 3,440 3,420 3,600Freight ('000 tonnes) 52,300 55,259 59,071 63,900 67,900Tonne-km (m) 4,968 5,141 5,592 5,600 5,900

Maritime Freight ('000 tonnes) 18,492 27,400 31,300 33,799.0 35,900.0Tonne-km (m) 40,250 49,300 56,200 60,800 66,400Air Passengers (m) 4.4 4.5 5.5 6.5 7.4Passenger-km (m) 7,101 7,112 9,400 11,100 12,600Freight ('000 tonnes) 72 90 103 104 n/aTonne-km (m) 172 211 238 229 n/a


National energy statistics (m tonnes unless otherwise indicated)

2002 2003 2004 2005 2006Output Electricity (m kwh) 35,888 40,546 46,200 52,100 59,100Crude oil 16.9 17.7 20.1 18.5 17.2Coal 16.4 19.3 27.3 34.1 38.9Exports Crude oil 16.9 17.1 19.5 18.0 16.4Coal 6.0 7.3 11.6 18.0 29.3Imports Petroleum products 10.0 9.9 11.0 11.5 11.2

Sources: General Statistics Office.

42 Vietnam


Government finances (D trn unless otherwise indicated)

2000 2001 2002 2003 2004Total revenue 90.7 103.9 121.7 141.9 166.9 Oil revenue 28.5 35.7 36.3 39.1 45.7 Non-oil revenue 60.2 66.2 83.1 100.8 119.2 Grants 2.0 2.0 2.0 2.0 2.0Total expenditure and net lending 112.6 127.9 142.3 172.1 190.2 Current 70.1 77.0 84.2 103.2 117.8 Interest paid 3.5 4.5 5.3 6.7 6.0 Capital 32.6 40.2 45.2 51.0 59.0 Net lending 9.9 10.6 12.8 17.8 13.3Balance (excl off-budget investment) -21.9 -24.0 -20.5 -30.1 -23.3Off-budget investment expenditure 0.0 0.0 3.7 13.9 8.5Overall fiscal balance -21.9 -24.0 -24.2 -44.0 -31.8Financing (net) Domestic 5.7 14.2 14.1 31.6 19.7Foreign 16.2 9.8 10.2 12.4 12.1Memorandum items (% of GDP) Revenue & grants 20.5 21.62 22.7 23.1 23.4Total expenditure 25.5 26.6 26.6 28.0 26.7Budget balance (excl on-lending) -5.0 -5.0 -3.8 -4.9 -3.3

Source: IMF, International Financial Statistics.

Money supply (D bn unless otherwise indicated; end-period)

2002 2003 2004 2005 2006Money (M1) incl others 125,329 157,025 197,989 242,002 292,215 % change, year on year 11.5 25.3 26.1 22.2 20.7

Quasi-money 158,815 221,035 297,459 406,572 548,796Money (M2) 284,144 378,060 495,448 648,574 841,011 % change, year on year 13.3 33.1 31.1 30.9 29.7


Interest rates (%; period averages unless otherwise indicated)

2002 2003 2004 2005 2006Lending interest rate (%) 9.1 9.5 9.7 11.0 11.2Deposit interest rate (%) 6.4 6.6 6.1 7.1 7.6

Money market interest rate (%) 4.8 5.0 5.0 5.0 5.0


Vietnam 43


Gross domestic product (market prices)

2001 2002 2003 2004 2005

Total (US$ bn) At current prices 32.7 35.1 39.6 45.3 52.8

Total (D bn) At current prices 481,295 535,762 613,443 713,071 837,858

At constant (1994) prices 292,535 313,247 336,243 362,435 392,989

% change, year on year 6.9 7.1 7.3 7.8 8.4

Per head (D '000) At current prices 6,050.7 6,649.0 7,515.4 8,623.5 10,001.9

At constant (1994) prices 3,677.7 3,887.5 4,119.4 4,383.1 4,691.3

% change, year on year 5.5 5.7 6.0 6.4 7.0


Nominal gross domestic product by expenditure (D bn at current prices where series are indicated; otherwise % of total)

2001 2002 2003 2004 2005

Private consumption 312,144 348,747 406,451 465,506 533,141

64.9 65.1 66.3 65.3 63.6

Government consumption 30,463 33,390 38,770 45,715 51,652

6.3 6.2 6.3 6.4 6.2

Gross fixed investment 140,301 166,828 204,608 237,868 277,647

29.2 31.1 33.4 33.4 33.1

Stockbuilding 9,732 11,155 12,826 15,818 19,453

2.0 2.1 2.1 2.2 2.3

Exports of goods & services 262,846 304,262 363,735 470,216 578,373

54.6 56.8 59.3 65.9 69.0

Imports of goods & services 273,828 331,946 415,023 524,216 613,842

56.9 62.0 67.7 73.5 73.3

GDP 481,295 535,762 613,443 713,071 837,858


44 Vietnam


Real gross domestic product by expenditure (D bn at constant 1994 prices where series are indicated; otherwise % change year on year)

2002 2003 2004 2005 2006

Private consumption 205,114 221,545 237,262 254,500 273,600

7.6 8.0 7.1 7.3 7.5

Government consumption 20,496 21,970 23,678 25,551 27,800

5.4 7.2 7.8 7.9 8.8

Gross fixed investment 98,160 109,843 121,312 133,100 144,600

12.9 11.9 10.4 9.7 8.6

Stockbuilding 6,096 6,780 7,604 10,200 12,100

0.2a 0.2a 0.2 a 0.7a 0.5a

Exports of goods & services 183,533 220,047 276,548 333,207 n/a

10.4 19.9 25.7 20.5 n/a

Imports of goods & services 204,926 251,495 306,671 355,522 n/a

15.8 22.7 21.9 15.9 n/a

GDP 313,247 336,243 362,435 392,989 425,100

7.1 7.3 7.8 8.4 8.2

a Change as a percentage of GDP in the previous year.


Gross domestic product by sector (at current prices; % of total)

2002 2003 2004 2005 2006Agriculture, forestry & fisheries 23 22.5 21.7 20.9 20.4Mining & quarrying 8.6 9.3 10.2 10.5 10.2Manufacturing 20.6 20.5 20.3 20.7 21.3

Electricity, gas & water supply 3.4 3.6 3.4 3.5 3.4Construction 5.9 6.1 6.3 6.4 6.6

Wholesale & retail trade 14.1 13.6 13.7 13.6 13.6Hotels & restaurants 3.2 3.1 3.1 3.5 3.7

Transport, storage & communication 3.9 4.0 4.3 4.4 4.5Financial intermediation 1.8 1.8 1.8 1.8 1.8Real-estate services 4.6 4.5 4.4 4.0 3.8

Other services 10.9 11 10.8 10.7 10.7


Prices and earnings (% change, year on year)

2002 2003 2004 2005 2006

Consumer prices (av) 3.8 3.1 7.8 8.3 7.7


Vietnam 45


Industrial crops 2002 2003 2004 2005 2006Rush Area ('000 ha) 12 14 13 13 13Production ('000 tonnes) 88 96 90 81 93

Sugarcane Area ('000 ha) 320 313 286 266 285Production ('000 tonnes) 17,120 16,855 15,649 14,949 15,677

Peanuts Area ('000 ha) 247 244 264 270 249Production ('000 tonnes) 400 406 469 489 465

Soybeans Area ('000 ha) 159 166 184 204 186Production ('000 tonnes) 206 220 246 293 258Cotton Area ('000 ha) 34 28 28 26 21Production ('000 tonnes) 40 35 28 34 26


Perennial industrial crops ('000 tonnes)

2002 2003 2004 2005 2006Coffee Output 700 794 836 752 854Exports 722 749 976 892 n/aRubber Output 298 364 419 482 546Exports 455 432 513 587 697Cashew nuts Output 129 164 205 240 235Exports 62 82 105 109 n/aTea Output 424 449 514 570 612Exports 77 59 104 88 105

Pepper Output 47 69 73 80 83Exports 78 74 111 109 n/a

Coconuts Output 915 893 960 977 982


46 Vietnam


Food crops ('000 tonnes)

2002 2003 2004 2005 2006Paddy rice 34,447 34,569 35,868 35,791 35,827 Spring 16,720 16,823 17,078 17,332 17,531 Autumn 9,189 9,401 10,300 10,415 9,715 Winter 8,539 8,345 8,490 8,044 8,582Cassava 4,438 5,309 5,573 6,646 7,714

Maize 2,511 3,136 3,454 3,756 3,819Sweet potatoes 1,704 1,577 1,536 1,461 1,455


Fisheries output ('000 tonnes unless otherwise indicated)

2002 2003 2004 2005 2006Sea fish 1,803 1,856 1,940 1,988 2,002Farmed fish & shrimp 845 1,003 1,203 1,478 1,694Total 2,647 2,859 3,143 3,466 3,696


Main manufactures ('000 tonnes unless otherwise indicated)

2002 2003 2004 2005 2006Raw materials & intermediate goods Steel 2,503 2,954 3,300 3,400 3,828Chemical fertiliser 1,158 1,294 1,714 2,119 2,176Insecticide 34 41 55 46 50Cement 21,121 24,127 26,200 27,100 30,976Bricks (m units) 11,365 12,810 14,501 15,702 16,699Consumer goods Textile fibre 227 235 241 259 265Fabrics (m sq metres) 470 496 502 561 575Television sets ('000 units) 1,597 2,188 2,660 2,515 2,282Bicycles ('000 units) 1,583 2,177 2,708 2,172 1,029Readymade clothing (m pieces) 489 727 923 1,011 1,212Footwear (m pairs) 113 134 155 114 125Cars assembled (units) 29,536 47,701 51,000 59,200 41,557Motorcycles assembled ('000 units) 1,052 1,180 1,828 1,982 2,094

Source: General Statistical Office.

Retail trade (D trn)

2002 2003 2004 2005 2006State sector 45.5 52.4 58 62.1 72.1Non-state sector 224.4 267.7 310.1 395 493.5Foreign-invested sector 10.9 13.7 8.8 18.2 15.1

Total 280.8 333.8 376.9 475.4 580.7


Vietnam 47


Tourism statistics ('000 unless otherwise indicated)

2002 2003 2004 2005 2006Visitor arrivals 2,628 2,430 2,928 3,478 3,583 For tourism 1,462 1,239 1,584 2,039 2,069 For business 446 468 522 496 576 Visiting friends & relatives 425 392 467 508 561 Other 295 331 355 435 378


Main exports (US$ m; fob)

2002 2003 2004 2005 2006Crude oil 3,226 3,777 5,671 7,387 8,323Textiles & garments 2,710 3,360 4,386 4,806 5,802

Footwear 1,875 2,261 2,692 3,005 3,555Marine products 2,022 2,200 2,401 2,741 3,364Furniture 431 567 1,139 1,517 1,904

Electronic parts & computers 605 855 1,075 1,442 1,770Rice 726 719 950 1,399 1,306

Coffee 317 473 641 725 1,101Rubber 263 383 597 787 1,273Total incl others 16,706 20,149 26,504 32,233 39,605

Sources: General Statistics Office.

Main composition of trade (US$ m; fob-cif)

2002 2003 2004 2005 2006

Exports fob Crude oil 3,226 3,777 5,671 7,387 8,323

Textiles & garments 2,710 3,630 4,386 4,806 5,802

Footwear 1,828 2,225 2,692 3,005 3,555

Fisheries products 2,024 2,217 2,401 2,741 3,364

Total exports incl others 16,704 20,142 25,984 32,233 39,605

Imports cif Machinery, equipment & parts 3,700 5,350 5,504 5,254 6,555

Refined petroleum 2,017 2,410 3,624 4,969 5,848

Steel 1,317 1,642 2,609 2,984 2,905

Material for textile industry 1,781 2,039 2,284 2,308 1,959

Total imports incl others 19,734 25,194 31,470 36,881 44,410


48 Vietnam


Main trading partners (% of total)

2002 2003 2004 2005 2006

Exports fob to: US 14.7 19.6 19.3 18.7 19.7

Japan 14.6 14.4 13.6 13.9 13.1

Australia 8.0 7.1 7.3 8.1 9.2

China 9.1 9.3 11.2 9.2 7.6

Imports cif from: China 10.9 12.5 14.6 15.9 16.5

Singapore 12.8 11.4 11.5 12.6 14.0

Japan 12.7 11.8 11.3 11.2 10.5

South Korea 11.6 10.4 10.7 9.9 8.6


Balance of payments, IMF series (US$ m)

2001 2002 2003 2004 2005

Goods: exports fob 15,027 16,706 20,149 26,485 32,442

Goods: imports fob -14,546 -17,760 -22,730 -28,772 -33,281

Trade balance 481 -1,054 -2,581 -2,287 -839

Services: credit 2,810 2,948 3,272 3,867 4,176

Services: debit -3,382 -3,698 -4,050 -4,739 -5,282

Income: credit 318 167 125 188 364

Income: debit -795 -888 -936 -1,079 -1,583

Current-account balance 682 -604 -1,931 -957 217

Direct investment in Vietnam 1,300 1,400 1,450 1,610 1,954

Inward portfolio investment (incl bonds) 0 0 0 13 776

Outward portfolio investment 0 0 0 0 0

Other investment assets -1,197 624 1,372 35 -634

Other investment liabilities 268 66 458 1,162 921

Financial balance 371 2,090 3,280 2,820 3,017

Net errors & omissions -846 -1,039 799 -914 -1,059

Overall balance 207 447 2,147 936 2,084

Financing (� indicates inflow) Movement of reserves -256 -467 -2,127 -827 -2,030

Use of IMF credit & loans 105 54 0 0 0


Foreign direct investment (US$ m)

2002 2003 2004 2005 2006Registered capital 2,999 3,191 4,548 6,840 10,201

Implemented capital 2,591 2,650 2,852 2,049 n/a

Source: Ministry of Planning and Investment.

Vietnam 49


External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end)

2001 2002 2003 2004 2005

Public medium- & long-term 11,436 12,179 14,363 15,614 16,513

Private medium- & long-term 0 0 0 0 0

Total medium- & long-term debt 11,436 12,179 14,363 15,614 16,513

Official creditors 9,174 10,527 12,921 14,150 14,416

Bilateral 6,964 7,658 8,851 9,213 9,289

Multilateral 2,210 2,869 4,070 4,937 5,127

Private creditors 2,262 1,652 1,442 1,464 2,097

Short-term debt 783 784 1,289 2,136 2,571

Interest arrears 79 79 82 49 71

Use of IMF credit 366 381 339 277 203

Total external debt 12,585 13,344 15,991 18,027 19,287

Principal repayments 835 895 507 430 516

Interest payments 384 301 301 357 438

Short-term debt 28 23 29 49 115

Total debt service 1,219 1,196 807 787 954

Ratios (%) Total external debt/GDP 38.5 38.1 40.4 39.8 36.5

Debt-service ratio, paida 6.0 5.3 3.1 2.3 2.3

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Foreign reserves (US$ ; end-period)

2002 2003 2004 2005 2006

Total reserves incl gold 4,231.9 6,359.2 7,186.1 9,216.5 13,591.0

Total international reserves excl gold 4,121.1 6,224.2 7,041.5 9,050.6 13,384.1

Gold, national valuation 110.8 135.0 144.6 165.9 206.9


Exchange rates (D per unit of currency unless otherwise indicated; annual averages)

2002 2003 2004 2005 2006

US$ 15,280 15,510 15,740 15,859 15,994

£ 22,900 25,323 28,818 28,834 29,429

� 14,438 17,539 19,570 19,756 20,083

S$ 8,533 8,902 9,312 9,527 10,066

Rmb 1,846 1,874 1,902 1,935 2,006

¥ 121.9 133.8 145.5 143.9 137.5


Editors: Hilary Ewing (editor); Gerard Walsh (consulting editor) Editorial closing date: October 12th 2007 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected]

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