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Page 1: McKinsey Vietnam Report 2011

Country Report

Vietnam

November 2011

Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

Page 2: McKinsey Vietnam Report 2011

Economist Intelligence Unit

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Vietnam

Executive summary 3 Highlights

Outlook for 2012-16 4 Political outlook 6 Economic policy outlook 7 Economic forecast

Monthly review: November 2011 11 The political scene 12 Economic policy 14 Economic performance

Data and charts 16 Annual data and forecast 17 Quarterly data 18 Monthly data 19 Annual trends charts 20 Monthly trends charts 21 Comparative economic indicators

Country snapshot 22 Basic data 23 Political structure

Editors: Mike Jakeman (editor); Ananda Guha (consulting editor)

Editorial closing date: November 3rd 2011

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

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© The Economist Intelligence Unit Limited 2011

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Executive summary

Highlights

November 2011

• The Communist Party of Vietnam will keep a firm grip on power in the forecast period, and, despite signs of factional splits between conservative hardliners and reformers, there is no prospect of major internal instability.

• Vietnam will continue to make strides in strengthening its ties with the West, and particularly the US. Relations with China will remain strained over competing claims to the Spratly and Paracel islands in the South China Sea.

• Although the authorities have tightened fiscal and monetary policy, concerns persist over whether there is sufficient political will to implement the tougher measures that may be needed to stabilise the economy.

• A subdued global economy will put pressure on Vietnamese GDP growth in 2012, but a more benign climate from the following year will lead to a healthy average GDP growth rate of 7.3% a year in 2013-16.

• Inflation is set to slow to 11.7% in 2012 and to 8.1% a year on average in 2013-16, from an estimated 18.7% in 2011. Policymakers are likely to face an ongoing battle to prevent the dong from depreciating against the US dollar.

• The current account will remain in deficit throughout the next five years, but capital and financial inflows (including official foreign borrowing) will increase from the low levels to which they fell in 2009.

• It has emerged that the Vietnamese government is likely to come under pressure from its US counterpart to reform its inefficient state-owned sector if it wishes to join a planned US-led free-trade bloc, the Trans Pacific Partnership.

• Tensions between the claimants to the South China Sea have continued to simmer. Newspapers run by the Chinese Communist Party have warned India against co-operating with Vietnam in exploring for oil in the area.

• The State Bank of Vietnam (SBV, the central bank) has submitted an assertive set of proposals to the government that would give it greater autonomy to tackle the country's rapid rate of inflation.

• The SBV has indicated that it will attempt to restructure the country�s banking system by encouraging a series of mergers and acquisitions over the next five years. The health of the banking sector is questionable, with bad loans rising.

• According to the General Statistics Office (GSO), consumer price inflation stood at 21.6% year on year in October, representing a slight moderation from the 22.4% in September and 23% in August�the peak for the year so far.

• The GSO reported that the trade deficit had reached US$800m in October, compared with a revised deficit of US$1.5bn in September.

Outlook for 2012-16

Monthly review

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Outlook for 2012-16 Political outlook

The ruling Communist Party of Vietnam (CPV) will maintain a firm grip on power in the next five years. Despite signs of factional splits between con-servative hardliners and relatively reformist moderates, there is no prospect of major instability within the party. At its 11th national congress in January there were displays of unity as the CPV insisted on the maintenance of one-party rule in Vietnam. The congress provided a chance for various party factions to stake their claims to greater influence, and the new leadership that emerged appears to be evenly balanced. In July the prime minister, Nguyen Tan Dung, was formally re-elected to his post by the National Assembly (NA, the legislature), while two of his main rivals were chosen for other important positions: Truong Tan Sang, formerly the head of the CPV secretariat, is the country's new president, while an outgoing deputy prime minister, Nguyen Sinh Hung, has become the NA chairman.

Although the presidency is a largely ceremonial post, Mr Sang is regarded as a highly influential member of the CPV�s conservative bloc. The NA, meanwhile, is usually seen as existing merely to rubber-stamp government policy, but it has become increasingly assertive in the past few years, and this trend could continue under Mr Hung's stewardship. The legislature recently blocked govern-ment plans to build an expensive high-speed rail project, and it has also questioned Mr Dung over his role in the near-collapse of one of the largest state-owned enterprises, the Vietnam Shipbuilding Industry Group (Vinashin). Thus, although he appears to hold a strong hand and has chosen close allies for important positions in the new cabinet, Mr Dung will need to pursue consensual policies over the next five years.

In addition to the risk that emerging internal power struggles will escalate to the point where the CPV's cohesion is undermined, the leadership, including the party's general secretary, Nguyen Phu Trong, could face stronger challenges to the CPV's long-standing claim that it has the right to govern unchallenged. But there is little likelihood that any opposition movement will gain traction in 2012-16. This is a reflection of both the extent of political apathy in Vietnam and the regime�s determination to continue to crack down on activists who advocate genuine democratic reform. The risk that Vietnam will suffer an upheaval similar to the "Arab spring" protests that have taken place this year in several countries in the Middle East and North Africa is very low.

However, concerns about soaring prices could create the conditions for social unrest in the short term, while protests over land seizures may become more common in 2012-16. The fast pace of industrial development in Vietnam has entailed the increasingly rapid construction of factories, plants and major infrastructure, such as roads and dams. As a result, the number of displaced residents has risen, and some have complained vociferously about what they perceive as inadequate government compensation for the loss of their land. Meanwhile, corruption in local bureaucracies occasionally results in the

Political stability

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embezzlement of funds earmarked to compensate people who have been evicted from their land, leaving them destitute and with inadequate resources to rebuild their livelihoods. Public anger over such issues will intensify unless the authorities are seen to be becoming more accountable, for example by punishing corrupt local officials.

Tensions between the government on one side and religious and ethnic-minority groups on the other could come to the fore again in the next five years, with the state taking a harder line against minorities. The CPV tolerates religious activity as long as it does not pose a threat to the regime, but there have been flashpoints recently in the party's dealings with the Roman Catholic church. The party has warned that "social disorder" arising from land disputes over religious property will be strictly punished. The confiscation of property belonging to the Catholic church between the 1950s and the 1970s remains a sore point in relations between the Vietnamese government, the church and the Vatican. There are 6m Catholics in Vietnam, making the Catholic church the largest organisation in the country outside the orbit of the CPV. The party leadership will also remain concerned about the potential for social unrest in the Central Highlands. The region is largely populated by ethnic-minority groups, and, owing to the fact that party membership is not common there, official control is relatively weak.

Vietnam is a one-party communist state, and elections do not play a major role in its political life. Appointments to CPV posts take place behind closed doors, with votes conducted merely to confirm decisions that have already been made. NA delegates are chosen by popular vote; the most recent election took place in May 2011, and the next poll is due to be held in 2015. Candidates are carefully vetted by the Vietnam Fatherland Front, a CPV-controlled umbrella body that includes all of the country's "mass organisations", and only those deemed suitable are allowed to stand. At this year's election only 42 of the 500 people elected to the NA were non-CPV members.

Vietnam will continue to make strides in strengthening its ties with the West, and particularly with the US. Vietnamese-US diplomatic relations have been bolstered by high-level exchanges in recent years, and the economic relation-ship between the two countries has developed rapidly. Military links have also become much closer, as highlighted by recent joint military exercises in the South China Sea and by the signing of an agreement on formal military ties in August. Despite these trends, US concerns over human rights and religious freedom in Vietnam will remain a source of bilateral tension. However, such stress will not cause anything more serious than the occasional diplomatic spat. The US views Vietnam as an important ally in Asia, while Vietnam has both an economic and a security interest in maintaining close ties with the US. Although it is keen to become closer to the US, the Vietnamese leadership will also seek to maintain warm relations with China.

Ties with China will remain strained over competing claims to the Spratly and Paracel islands in the South China Sea (also known as the East Sea). In addition to claims by Vietnam and China to full sovereignty over the islands, the Philippines, Brunei, Malaysia and Taiwan have also made full or partial claims.

Election watch

International relations

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The dispute is unlikely to be resolved in 2012-16, but all the claimants have signed the Declaration on the Code of Conduct in the East Sea, which was initiated by the Association of South-East Asian Nations (ASEAN) and commits its signatories to resolving all disputes through peaceful negotiation in accordance with international laws and practices. At the recent ASEAN Regional Forum (an annual meeting of 27 Asian, US and EU ministers to discuss regional security issues), China and ASEAN stated that they had made progress in talks on implementing the code of conduct. However, the document is vague, and a lasting agreement that will allow the full potential of the oil and gas resources in the South China Sea to be realised remains a long way off. In the mean-time China will continue to complain about exploration projects instigated by the Vietnamese government and the involvement of companies from third countries, such as India. China will also maintain its policy of negotiating with fellow claimants on a bilateral basis in order to use its diplomatic might to the best effect, whereas Vietnam and the Philippines will try to use the support of the US and Japan to work towards a multilateral solution.

Economic policy outlook

Policymakers have taken much-needed steps to tighten fiscal and monetary policy since the start of 2011 in response to a rapid acceleration in the rate of inflation. However, concerns persist as to whether there is the political will in Vietnam to implement the tougher measures that may be needed to stabilise the economy, particularly if such moves risk compromising growth. The State Bank of Vietnam (SBV, the central bank) has pushed up its policy interest rates sharply this year, but in July it surprisingly lowered the reverse repurchase (repo) rate by 100 basis points, despite the fact that annual inflation was above 20%. The government's general policy bias prioritises rapid GDP growth over price stability. This means that there is a risk that if the pace of economic expansion does not pick up in the next few quarters the authorities will loosen monetary policy further (GDP growth slowed to 5.8% year on year on average in the first three quarters of 2011). If they do so before inflationary expectations have been anchored, the population will struggle with increases in the cost of living and confidence in the government's policymaking ability will be undermined.

There is a need for the government to rein in the fiscal deficit, both to prevent the economy from overheating and also to avoid financing problems (outstanding public debt is estimated to have reached 57% of annual GDP by the end of 2010). However, the authorities will make only limited progress in reducing the deficit in 2012-16. The government's planned level of investment spending in 2011 has been reduced by D50trn (US$2.4bn), or around 7.4%, compared with projected investment expenditure in the original budget for the year. If the government is successful in implementing this reduction it will help to reduce the deficit, but administering such cuts in spending could prove difficult. In 2012 the Economist Intelligence Unit expects the deficit to widen, to 5.7% of GDP, from an estimated 5.1% in 2011, as slowing growth in exports and a fall in international oil prices will reduce the amount of tax collected (the

Policy trends

Fiscal policy

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Vietnamese authorities receive substantial tax and royalty revenue from the oil and gas sector). Thereafter, continued heavy spending on infrastructure and social welfare programmes will keep the budget deficit at an average of 5.3% of GDP in 2013-16, despite strong economic growth and high prices for crude oil.

Following a period in which the SBV took forceful steps to tighten monetary policy�it raised its main policy rates by up to 8 percentage points between late 2010 and mid-2011�the central bank has denied that its July cut to the reverse repo rate signals the start of a phase of policy loosening. In October it reiterated its commitment to taming inflation and suggested that it was considering cutting annual credit growth targets to between 15% and 17%, from the current level of 20%. However, as it is not operationally independent, it is possible that the central bank will come under pressure to ensure that the cost of credit does not exert a significant drag on economic growth in the next year; it may therefore encounter difficulties in meeting its targets, particularly as credit growth in the first half of 2011 stood at just 7% year on year. Although the SBV could yet give in to political pressure to cut interest rates further, it is expected to continue to focus on ensuring that credit is allocated efficiently, and has threatened to double reserve requirements for banks that fail to reduce to prescribed levels the ratio of lending to non-productive activities.

Economic forecast

2011 2012 2013 2014 2015 2016

Economic growth (%) US GDP 1.6 1.3 1.9 2.2 2.4 2.3

OECD GDP 1.7 0.9 1.9 2.1 2.3 2.3

World GDP 2.5 2.1 2.8 2.9 3.1 3.1

World trade 6.8 5.2 6.1 6.4 6.6 6.6

Inflation indicators (% unless otherwise indicated) US CPI 3.1 2.1 2.3 2.1 2.2 2.2

OECD CPI 2.8 1.9 2.1 2.1 2.1 2.2

Manufactures (measured in US$) 7.0 0.4 -0.7 0.3 2.0 2.1

Oil (Brent; US$/b) 110.0 90.0 95.0 100.0 104.0 110.0

Non-oil commodities (measured in US$) 27.9 -10.9 -4.0 -1.3 2.0 2.6

Financial variables US$ 3-month commercial paper

rate (av; %) 0.2 0.2 0.4 1.2 2.2 2.9

¥ 3-month money market rate (av; %) 0.1 0.2 0.3 0.7 1.0 1.1

¥:US$ (av) 79.64 76.83 80.00 82.00 84.00 82.00

A period of interest rate rises and rising inflation has weakened private con-sumption and investment growth, and as a result we estimate real GDP growth this year at a relatively sluggish 6%. A subdued year for the global economy will also put pressure on Vietnamese growth in 2012, but a more benign climate from 2013 will lead to a healthy average growth rate of 7.3% a year in 2013-16. Ambiguous policymaking, a rapid rate of inflation and a depreciating currency have caused investor sentiment towards Vietnam to weaken this year, leading to a fall in inward foreign investment�previously one of the main drivers of

International assumptions

Monetary policy

Economic growth

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economic growth. We expect this cloud to continue to hang over the country until inflation has stabilised and global economic conditions improve; this is the rationale behind our growth forecast of 6.2% in 2012, which is in the middle of the government's target range of 6-6.5%. However, we expect remittances from overseas Vietnamese to remain healthy throughout the forecast period, boosting private consumption. Meanwhile, continued double-digit annual rates of growth in export demand will support the expansion of the manufacturing sector, which in turn will sustain investment in capital goods and support employment growth.

There are, however, a number of major downside risks to our GDP growth forecast. On the domestic front, the government still has much to do in terms of stabilising the economy and restoring consumer and investor confidence. Partly because of a surge in inflation and the wide current-account deficit, the dong has fallen sharply in value in the past two years, and there has consequently been strong demand for locally available safe havens in the form of US dollars and gold. On the international front, there is a sizeable risk that the global economy could return to recession, triggered by sovereign debt defaults in the euro zone. This would not only hit Vietnam's export performance but would also have a knock-on effect on local consumer and business spending, thereby inhibiting economic growth.

Given the precarious nature of the country's foreign-exchange reserves (as indicated by the difficulty that the SBV has had in managing the value of the dong against the US dollar), there is also cause for concern regarding Vietnam's ability to finance a widening trade deficit. Citing concerns about the possibility of an external-payments crisis (partly owing to the sharp fall in the country's foreign reserves that has occurred in the past year or so), international credit-rating agencies have downgraded Vietnam�s sovereign debt rating. Together with growing fears about economic stability and the country's diminished international reserves, this has triggered speculation that a support package from the IMF may be needed within the next year or so.

Economic growth % 2011a 2012b 2013 b 2014 b 2015b 2016b

GDP 6.0 6.2 6.9 7.2 7.3 7.6

Private consumption 3.8 5.2 6.7 7.2 7.0 6.0

Government consumption 7.8 7.8 7.7 7.0 7.2 7.5

Gross fixed investment 5.1 7.2 8.2 9.1 10.1 10.3

Exports of goods & services 15.1 13.4 15.2 15.3 15.5 15.4

Imports of goods & services 12.1 10.6 14.2 15.0 14.8 14.6

Domestic demand 4.2 4.5 7.1 7.7 7.9 7.5

Agriculture 3.5 3.4 3.2 3.1 3.3 3.3

Industry 7.0 8.0 9.0 8.0 8.0 8.0

Services 6.1 5.4 6.0 7.8 8.0 8.6

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

We estimate average consumer price inflation in 2011 at 18.7%, representing a rapid acceleration from 9% in 2010. The rise in inflation this year will be largely a result of supply-side pressures stemming from high international commodity prices. Recent sharp growth in domestic credit has also contributed to rising

Inflation

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inflation, as has the weakness of the dong. However, annual inflation slowed for the first time in a year in September, suggesting that the rate of price increases may now have peaked, although if the government loosens monetary policy inflation is likely to soar again. Inflation will remain elevated at 11.7% in 2012, but it should then slow to an average of 8.1% a year in 2013-16. Until mid-2014 this trend will mainly reflect a forecast steady fall in global commodity prices. But we expect international oil prices (dated Brent Blend) to break the US$100/barrel mark again in that year and to continue to rise in 2015-16, owing to firm demand and an increasing need to source oil from less accessible (and therefore more expensive) locations. This will cause the rate of inflation to accelerate again from mid-2014.

The dong had enjoyed a period of greater stability against the US dollar in March-September, but the depreciation of the currency accelerated in October, breaking the D21,000:US$1 barrier. In reaction to strong downward pressure on the dong, the SBV devalued the currency on four occasions between November 2009 and February 2011, resulting in a cumulative drop of almost 13% in its value against the US dollar. We expect the dong to remain under pressure owing to rapid inflation and the prospect of a persistent deficit on the current account. Moreover, Vietnam's meagre foreign reserves mean that the SBV will not be able to counteract downward pressure by intervening in the currency markets. According to the Asian Development Bank, foreign-exchange reserves stood at US$15.2bn (sufficient to cover just over two months of imports) in June, down from a high of US$26.4bn in March 2008. As a result of these factors, we consider it likely that the central bank will devalue the currency again within the next six months.

The current account will continue to record a deficit in the next five years, equivalent to 3.5% of GDP on average. An unexpectedly weak import performance, exacerbated by low levels of foreign investment and a weakening dong mean that the deficit will be relatively narrow in 2011, at an estimated 1.6% of GDP. The rate of growth in both imports and exports will rise from 2013, when we expect a more favourable global economic environment and manageable inflation to entice foreign investment back to Vietnam, entailing higher imports of capital goods. Having narrowed sharply in 2011, the trade deficit will widen steadily until 2016. The services and income accounts will remain in the red throughout the forecast period. Tourism receipts are expected to rise steadily in 2012-16, boosting services exports. However, Vietnam will remain reliant on a host of imported services, and there will be particularly strong growth in payments for trade-related services. The combined deficit on the services and income accounts will continue to be offset by the large surplus on the current transfers account, underpinned by remittances from overseas Vietnamese. Although foreign direct investment inflows will remain fairly low in 2012, there will be an improvement from 2013 onwards.

Exchange rates

External sector

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Forecast summary (% unless otherwise indicated)

2011a 2012b 2013 b 2014 b 2015b 2016b

Real GDP growth 6.0 6.2 6.9 7.2 7.3 7.6

Industrial production growth 14.0 15.5 15.5 14.0 14.0 14.0

Gross agricultural production growth 3.5 3.4 3.2 3.1 3.3 3.3

Consumer price inflation (av) 18.7 11.7 8.3 7.6 7.9 8.4

Consumer price inflation (end-period) 18.0 9.5 7.8 8.0 8.8 9.8

Lending rate 18.0 17.5 14.0 11.5 11.0 10.3

Government balance (% of GDP) -5.1 -5.7 -5.5 -5.1 -5.2 -5.2

Exports of goods fob (US$ bn) 94.6 104.0 120.7 141.5 164.7 195.3

Imports of goods fob (US$ bn) 97.1 108.5 127.0 148.5 173.7 202.5

Current-account balance (US$ bn) -1.9 -4.1 -5.5 -6.1 -7.3 -4.3

Current-account balance (% of GDP) -1.6 -3.3 -4.0 -3.9 -4.1 -2.1

External debt (end-period; US$ bn) 37.6 40.5 43.7 48.5 54.8 61.6

Exchange rate D:US$ (av) 20,656 21,901 22,420 22,866 23,352 23,848

Exchange rate D:US$ (end-period) 21,279 22,156 22,643 23,109 23,600 24,096

Exchange rate D:¥100 (av) 23,409 24,959 25,844 26,588 27,153 27,940

Exchange rate D:¥100 (av)(end-period) 26,173 25,591 25,926 26,344 26,991 27,725

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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Monthly review: November 2011

The political scene

In recent weeks the challenge facing Vietnam if it wishes to participate in a new trade project, the Trans-Pacific Partnership (TPP), has become clearer. It is likely that the US, which is driving the TPP, will put intense pressure on Vietnam's government to clean up its heavily subsidised and inefficient state sector. The US president, Barack Obama, is reconfiguring the focus of his administration�s foreign policy around trade, and the TPP is a key part of this reorientation. The partnership is a bid to establish a new free-trade bloc that spans the Pacific Ocean and that will rival the Chinese government's efforts to create a narrower trade group based around China, Japan, South Korea and the ten members of the Association of South-East Asian Nations (ASEAN). The idea, which began with the Trans-Pacific Strategic Economic Partnership that was signed by Singapore, Chile, New Zealand and Brunei in 2005, has also attracted interest from Malaysia, Australia and Peru. US diplomats and trade officials expect an agreement that finalises the layout of the TPP to be set within the next 12 months, and that such details could spur many more countries to join. In October the US trade representative, Ron Kirk, said that the broad outlines of such an agreement could be reached at the annual summit of the Asia-Pacific Economic Cooperation (APEC) forum in Hawaii in November, and stated that the proposed pact could become the core of a much larger free-trade group that fulfils the US�s policy goal of becoming more engaged in Asia.

However, the US is trying to use negotiations on the TPP to curb the com-petitive advantage that some Asian countries confer on their state-owned enterprises (SOEs). Although China could be the US�s ultimate target, it is Vietnam that is currently in its sights. The recent plight of one such SOE, the Vietnam Shipbuilding Industry Group (Vinashin), adds weight to the US's argument. Vinashin almost collapsed under the weight of debts of around US$4.4bn in 2010, and it defaulted on some of its foreign obligations in December. There are also widespread problems at other SOEs, which have often depended on government-directed lending from state-owned banks to pay for their rapid diversification into non-core and often unprofitable businesses. Such SOEs make up more than 30 of Vietnam�s 50 largest firms. According to the Ministry of Planning and investment, SOEs absorbed 37% of total capital in 2009, but created only 25% of total revenue in that year. State-mandated lending to SOEs has also reduced the volume of credit available to more efficient private firms, potentially setting back the country�s economic development. In addition, SOEs often choose to procure supplies or do business with other SOEs, instead of with the private sector.

The US would like to see the Vietnamese government strip away preferential lending policies and make procurement more transparent. This leaves officials in the capital, Hanoi, with a difficult policy dilemma: comply and endanger some of the poorly run SOEs, or refuse and run the risk of being shut out of a deal with an increasingly important economic and military ally. It is unclear

The US takes aim at Vietnam's ailing state sector

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how far Vietnam's prime minister, Nguyen Tan Dung, will go towards cleaning up the country�s state sector. In some ways, the process has already begun. After the Vinashin debacle, Mr Dung ordered SOEs to get their houses in order by trimming costs and ending their expansion into new areas where they lack experience. That said, Mr Dung�s power is in large part attributable to his own involvement with Vietnam�s SOEs. It was under his tutelage that Vinashin and other companies rapidly expanded, with the goal of dominating key industries instead of foreign-owned groups. In the case of Vinashin, the prime minister encouraged the firm to move forward quickly in order to become a major player in the global shipbuilding industry�a move that backfired when its order book and revenue was decimated by the 2008-09 global financial crisis. It is unlikely that Mr Dung would allow a major SOE to fail, and a protracted period of negotiation with the US and other countries is likely to ensue as the TPP talks gain momentum.

Tensions between the competing claimants to parts of the South China Sea continued to simmer in October, with newspapers run by the Chinese Communist Party warning India not to co-operate with Vietnam in exploring for oil in the disputed region. Earlier in the month the overseas investment arm of an Indian state-owned company, Oil and Natural Gas Corporation (ONGC), signed a three-year agreement with a Vietnamese SOE, PetroVietnam, to step up their long-term development of energy prospects. India�s growing interest in tapping the region to fuel its own growing energy needs is making China increasingly tetchy. Although UN agreements give Vietnam the right to extract oil within a 200-nautical-mile boundary, China has been trying to dissuade foreign firms from linking up with Vietnam to explore potential resources.

An announcement in late October by a US energy giant, ExxonMobil, that it had found oil and gas in an area off the east coast of Vietnam is also likely to have irritated China. Exxon reported that data from a well revealed the presence of hydrocarbons in the South China Sea adjacent to Vietnam's major port city of Danang. The news is a potential boost for Vietnam as existing wells in its territorial waters begin to deplete. But it may also add to the tension between Vietnam and China over how best to exploit the energy potential in the disputed waters. The Exxon claim, like that of PetroVietnam�s planned project with ONGC, is well within Vietnam�s 200-mile economic zone, but China will argue that this is irrelevant, as it claims the whole sea as its own. Another big foreign-invested development in the area will also further inter-nationalise the development of the South China Sea dispute�something which China is keen to discourage. Previously, the Chinese government has reacted angrily to US offers to help to broker a multilateral agreement among the various claimants to parts of the South China Sea, which include Taiwan, the Philippines, Brunei and Malaysia, in addition to China and Vietnam.

Economic policy

As consumer price inflation has stubbornly remained in excess of 20% on a year-on-year basis since June 2011, the State Bank of Vietnam (SBV, the central bank) is now attempting to carve out a broader role for itself in stabilising the

Further energy discoveries fuel tension in the South China Sea

The central bank attempts to win greater independence

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country�s volatile economy. Traditionally, the SBV has been one of the least independent central banks in Asia. Its officials privately complain about being required to follow directives from political leaders, in sharp contrast to the practice at central banks in neighbouring countries, such as Thailand and the Philippines. But with a new governor at the helm, Nguyen Van Binh, who took charge in August, the SBV now appears more determined to widen the range of tools at its disposal. On October 28th it submitted a proposal to the government to allow it to take broader control of Vietnam�s gold market, including measures that, if approved, would allow the SBV to limit imports and exports of gold as well as the production and trade of bullion.

The moves are designed to give the central bank more effective ways to stabilise the country�s gold and foreign-exchange markets. The local currency, the dong, has suffered a series of devaluations in the past few years, losing around one-fifth of its value against the US dollar since mid-2008. US dollars and gold are frequently used as local-currency alternatives in Vietnam, which further pushes down the value of the dong and complicates local authorities� efforts to slow the rate of inflation, which reached an estimated 21.6% year on year in October. Around US$30bn in gold is traded each year in Vietnam, a sum equivalent to almost one-third of the country's entire economic output. Exercising greater control over the local gold market could, in theory, reduce some of the chronic instability that plagues the Vietnamese economy.

The main thrust of the central bank�s application appears to be to control the flow of gold into and out of the country in order to smooth out any price volatility, while also attempting to deter the use of gold to settle transactions. It is commonplace for Vietnamese to use gold to buy land, property or cars. There have been indications that the government might agree to the SBV's proposal. In late October the authorities issued Decree 95, raising the maximum fine on illegal currency trading to D500m (US$24,000), from D70m previously, in a fresh effort to deter the use of US dollars, which, although technically illegal, has long been overlooked. Earlier this year the SBV issued new rules prohibiting commercial banks from accepting gold deposits and lending gold to clients.

The timing of the central bank�s move could prove appropriate. The dong is likely to come under further pressure over the next few months as a series of foreign-currency loans fall due. Many companies borrowed heavily earlier in the year, with foreign currency borrowing expanding by 23% year on year in January-June, according to the Asian Development Bank. Many of these loans were short-term, six-month loans that mature towards the end of 2011. As firms scramble to secure sufficient foreign currency to pay their obligations, the dong could face a further series of declines, unnerving both investors and the wider population.

Meanwhile, with questions remaining about the authorities' commitment to taming inflation, on October 18th the central bank made a new pledge to keep monetary policy tight. It said that it would maintain a bias towards keeping inflation moderate during 2012-15, apparently in an effort shake off investor concerns about whether it will persevere in its efforts. On several occasions in the past few years, the SBV has loosened monetary policy quickly in order to

The SBV reveals its latest strategy to tame inflation

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maintain economic growth, but this has also allowed the rate of inflation to accelerate again. As part of its latest measures, the SBV suggested that it was considering cutting annual credit growth targets to between 15% and 17%, from the current level of 20%, while projecting money supply to expand by 14% to 16% a year over the next four years. If the central bank sticks to those targets it would mark a continuation of recent trends; credit growth hit 54% year on year in 2007, before slowing to 38% in 2009 and 28% in 2010.

The SBV also said on October 18th that it would move to restructure the country�s banking system by encouraging a series of mergers and acquisitions over the next five years. Bad loans are growing sharply, reaching 3% of loans at the end of July, compared with 2.2% at the end of 2010, according to govern-ment statistics. Those figures are unreliable and do not conform to international accounting standards, and the true picture is likely to be far worse. Smaller banks, in particular, are struggling, especially after the SBV introduced a new rule that capped their top deposit rate at 14%, which encouraged customers to withdraw funds and put them elsewhere. To help the smaller banks through the merger and acquisition process, the SBV said that it would help to provide them with sufficient liquidity for them to function.

Despite the plans unveiled by the SBV, it is unclear whether Mr Dung will look favourably on the central bank�s plans. In the past he has prioritised growth before inflationary pressures had been reduced, most notably in mid-2010. More recently, he has appeared more committed to the anti-inflationary cause. Speaking at the opening of the National Assembly (NA, the legislature) on October 20th, Mr Dung told delegates that he expects inflation to stand at 18% year on year at the end of 2011, compared with a recent high of 23% in August. The government then hopes that inflation can be brought into single digits on an annual average basis in 2012. Mr Dung also updated several of the govern-ment's other economic forecasts. Officials now expect a narrower budget deficit for 2011, of 4.9%, from 5.3% previously. He also said that the government was forecasting economic growth of 6% this year, and growth to accelerate to 6-6.5% in 2012. Growth is then expected to continue to accelerate, as the government forecasts an average expansion of 6.5-7% between 2011 and 2015, although this has been cut from a previous target of 7-7.5%. However, as the economic outlook is weakening in many of Vietnam's major export markets, the government's expansion targets will become harder to meet. This, in turn, will increase the temptation for the government to loosen monetary policy before inflation has been brought under control.

Economic performance

The crucial economic indicator in Vietnam continues to be the rate of consumer price inflation. The General Statistics Office (GSO) estimated that inflation stood at 21.6% year on year in October, representing a slight modera-tion from the rate of 22.4% in September and 23% in August, the latter of which was the peak for the year so far. Inflation is also slowing on a monthly basis, lending some credence to the government�s end-of-year target of 18%, and the deceleration is likely to be assisted by another round of government-

The rate of inflation slows, while the trade deficit shrinks

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mandated cuts to diesel and kerosene prices in early October, following a previous round of cuts in August. On a month-on-month basis prices rose by 0.4% in October, compared with 0.8% in September and 0.9% in August.

Consumer price inflation (%)

Source: General Statistics Office.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

OctJulAprJan11

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulAprJan2007

The other big problem in Vietnam, and another significant contributor to the downward pressure on its struggling currency, is the trade deficit. According to the GSO, in October the deficit reached US$800m, compared with a revised deficit of US$1.5bn for September. Export revenue in October stood at US$8.3bn (compared with US$7.9bn in September) and import revenue at US$9.1bn (compared with US$9.4bn in September). These new figures mean that the cumulative trade deficit for the first ten months of 2011 stood at US$8.3bn, compared with US$7.6bn in January-September and US$9.5bn in the year-earlier period.

The main contributors to the narrowing of the trade deficit on a year-on-year basis were exports of garments, which grew by 28% to US$11.7bn, crude oil, which expanded by 34% to US$6.1bn, and footwear, which rose by 26% to US$5.1bn. Although there are no data available on the volumes of garments and footwear exports, the rise in crude oil exports is almost entirely owing to price effects. The volume of crude oil exported grew only fractionally to 7m tonnes in January-October this year, from 6.7m tonnes a year earlier. Such growth in value terms cannot be relied on�the Economist Intelligence Unit expects oil prices (dated Brent Blend) to fall from an annual average of US$110/barrel in 2011 to US$90/b in 2012. In mid-October Mr Dung told the NA that he expected Vietnam's trade account to post a deficit of US$10bn in 2011 as a whole.

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Data and charts Annual data and forecast

Pl ea se se e g ra p hi c b el ow

2007a 2008a 2009a 2010b 2011 b 2012c 2013c

GDP

Nominal GDP (US$ bn) 71.1 90.3 93.2 103.5a 115.9 124.8 139.1

Nominal GDP (D trn) 1,143.7 1,485.0 1,658.4 1,980.9a 2,393.8 2,733.7 3,119.2

Real GDP growth (%) 8.5 6.3 5.3 6.8a 6.0 6.2 6.9

Expenditure on GDP (% real change)

Private consumption 10.8 9.3 3.7 8.5 3.8 5.2 6.7

Government consumption 8.9 7.5 7.6 8.0 7.8 7.8 7.7

Gross fixed investment 24.2 3.8 8.7 8.5 5.1 7.2 8.2

Exports of goods & services 16.1b 15.0b -5.9b 15.8 15.1 13.4 15.2

Imports of goods & services 28.2b 15.3b -6.3b 18.1 12.1 10.6 14.2

Origin of GDP (% real change)

Agriculture 3.7 4.4 2.4 2.8a 3.5 3.4 3.2

Industry 10.6 5.7 5.4 7.7a 7.0 8.0 9.0

Services 8.7 7.3 6.8 7.5a 6.1 5.4 6.0

Population and income

Population (m) 85.3b 86.1b 87.0b 87.8 88.7 89.5 90.4

GDP per head (US$ at PPP) 2,604b 2,802b 2,953b 3,159 3,378 3,640 3,946

Recorded unemployment (av; %) 4.6 4.7 4.6 4.4a 4.1 4.1 4.0

Fiscal indicators (% of GDP)

Central government balance -7.3 -5.2 -7.0 -5.5a -5.1 -5.7 -5.5

Net public debt 45.6b 43.9b 49.8b 57.1 54.4 54.2 53.0

Prices and financial indicators

Exchange rate D:US$ (end-period) 16,010 17,433 18,472 19,498a 21,279 22,156 22,643

Exchange rate D:� (end-period) 23,379 24,265 26,474 26,111a 28,620 29,136 27,850

Consumer prices (end-period; %) 12.6 20.0 6.5 11.8a 18.0 9.5 7.8

Stock of money M1 (% change) 48.9 -0.4 30.4 10.7a 1.7 6.3 14.1

Stock of money M2 (% change) 49.1 20.7 26.2 29.7a 1.7 27.7 22.6

Lending interest rate (av; %) 11.2 15.8 10.1 13.1a 18.0 17.5 14.0

Current account (US$ m)

Trade balance -10,438 -12,783 -7,607 -5,147 -2,465 -4,524 -6,318

Goods: exports fob 48,561 62,685 57,096 72,192 94,614 103,951 120,699

Goods: imports fob -58,999 -75,468 -64,703 -77,339 -97,079 -108,475 -127,017

Services balance -755 -950 -2,421 -2,461 -3,060 -3,318 -3,456

Income balance -2,190 -4,401 -3,028 -4,564 -4,919 -5,278 -5,847

Current transfers balance 6,430 7,311 6,448 7,885 8,593 9,006 10,108

Current-account balance -6,953 -10,823 -6,608 -4,287 -1,851 -4,115 -5,513

External debt (US$ m)

Debt stock 22,737 24,964 28,674 32,887 37,649 40,521 43,750

Debt service paid 1,255 1,338 1,140 1,181 1,375 1,540 1,666

Principal repayments 646 771 704 714 773 812 838

Interest 608 567 436 466 602 727 827

International reserves (US$ m)

Total international reserves 23,748 24,176 16,803 12,926a 15,774 16,716 21,313

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: IMF, International Financial Statistics.

Page 19: McKinsey Vietnam Report 2011

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Quarterly data Pl ea se se e g ra p hi c b el ow

2009 2010 2011

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Prices

Consumer prices (2005=100) 153.6 156.2 162.6 165.1 166.6 173.2 183.4 197.1

Consumer prices (% change, year on year) 2.6 4.6 7.5 9.0 8.4 10.8 12.8 19.4

Financial indicators

Exchange rate D:US$ (av) 17,820 18,094 18,756 18,993 19,278 19,495 20,234 20,683

Exchange rate D:US$ (end-period) 17,841 18,472 19,080 19,065 19,485 19,498 20,908 20,565

Deposit rate (av; %) 7.9 9.5 10.3 11.1 11.1 12.3 14.0 14.0

Lending rate (av; %) 10.2 11.0 12.0 13.4 13.2 13.9 16.0 18.0

Refinancing rate (end-period; %) 7.0 8.0 8.0 8.0 8.0 9.0 12.0 14.0

Treasury bill rate (av; %) 8.4 9.4 11.2 n/a n/a n/a n/a n/a

M1 (end-period; D trn) 515.5 565.2 520.5 548.3 563.5 625.5 599.5 n/a

M1 (% change, year on year) 60.2 30.4 12.6 8.0 9.3 10.7 15.2 n/a

M2 (end-period; D trn) 1,842.3 1,910.6 1,982.4 2,166.6 2,325.0 2,478.3 2,495.7 n/a

M2 (% change, year on year) 36.7 26.2 20.5 22.0 26.2 29.7 25.9 n/a

Foreign trade (US$ m)

Exports fob 14,026 15,214 14,345 17,961 18,984 20,366 19,386 23,130

Imports cif -18,813 -20,865 -17,775 -20,736 -21,232 -24,037 -22,784 -26,204

Trade balance -4,787 -5,651 -3,430 -2,775 -2,248 -3,671 -3,398 -3,074

Foreign payments (US$ m)

Merchandise trade balance -3464.0 -4118.0 -2009.0 -873.0 -246.0 -2019.0 -1461.0 n/a

Services balance -1,002 -728 -573 -485 -521 -882 -780 n/a

Income balance -575 -621 -1,281 -603 -1,017 -1,663 -1,308 n/a

Net transfer payments 1,618 1,721 1,847 1,630 1,965 2,443 2,455 n/a

Current-account balance -3,423 -3,746 -2,016 -331 181 -2,121 -1,094 n/a

Reserves excl gold (end-period) 18,769 16,447 13,854 14,121 14,111 12,467 12,220 n/a

Sources: IMF, International Financial Statistics.

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18 Vietnam

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Monthly data Pl ea se se e g ra p hi c b el ow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate D:US$ (av) 2009 17,463 17,482 17,553 17,776 17,785 17,796 17,809 17,816 17,834 17,852 17,960 18,472

2010 18,472 18,721 19,077 19,011 18,987 18,981 19,086 19,262 19,485 19,491 19,498 19,498

2011 19,498 20,329 20,877 20,845 20,629 20,577 20,560 20,743 20,822 n/a n/a n/a

Exchange rate D:US$ (end-period) 2009 17,475 17,475 17,756 17,784 17,784 17,801 17,815 17,823 17,841 17,862 18,485 18,472

2010 18,472 18,925 19,080 18,960 18,980 19,065 19,095 19,485 19,485 19,495 19,498 19,498

2011 19,498 20,875 20,908 20,625 20,535 20,565 20,555 20,782 20,822 n/a n/a n/a

Money supply M1 (% change, year on year) 2009 -3.8 5.2 16.7 27.1 34.7 48.5 54.9 58.4 60.2 59.2 57.5 30.4

2010 22.8 23.8 12.6 7.7 8.4 8.0 8.1 9.6 9.3 9.0 10.3 10.7

2011 20.3 14.8 15.1 13.3 n/a n/a n/a n/a n/a n/a n/a n/a

Money supply M2 (% change, year on year) 2009 20.8 24.1 26.5 32.5 33.9 37.1 38.5 38.6 36.7 36.5 35.1 26.2

2010 22.5 22.6 20.5 19.4 19.5 22.0 20.7 25.0 26.2 25.4 25.2 29.7

2011 29.9 29.0 25.9 22.8 n/a n/a n/a n/a n/a n/a n/a n/a

Deposit rate (av; %) 2009 7.0 6.5 7.1 7.2 7.3 7.5 7.6 8.0 8.1 8.4 10.0 10.2

2010 10.2 10.2 10.3 11.0 11.2 11.2 11.1 11.1 11.1 11.0 12.0 13.9

2011 13.9 14.0 14.0 14.0 14.0 14.0 n/a n/a n/a n/a n/a n/a

Lending rate (av; %) 2009 10.1 9.4 9.2 9.2 9.6 10.0 10.0 10.3 10.4 10.5 10.5 12.0

2010 12.0 12.0 12.0 13.9 13.2 13.2 13.3 13.0 13.3 13.3 13.3 15.3

2011 15.3 16.4 16.4 17.9 18.1 18.1 n/a n/a n/a n/a n/a n/a

Consumer prices (av; % change, year on year) 2009 19.4 15.5 12.0 9.2 5.6 3.9 3.3 2.0 2.4 3.0 4.3 6.5

2010 5.9 7.8 8.7 9.2 9.0 8.7 8.2 8.2 8.9 9.7 11.1 11.8

2011 12.2 12.3 13.9 17.5 19.8 20.8 22.2 23.0 22.4 21.6 n/a n/a

Goods exports fob (US$ m) 2009 3,842 5,097 5,346 4,287 4,454 4,831 4,825 4,639 4,562 5,043 4,704 5,467

2010 5,013 3,740 5,592 5,332 6,312 6,317 6,029 6,857 6,098 6,227 6,641 7,498

2011 7,091 4,848 7,447 7,437 7,233 8,460 9,323 9,247 8,300 n/a n/a n/a

Goods imports cif (US$ m) 2009 3,456 4,257 5,141 5,600 5,796 6,020 6,415 5,982 6,416 6,664 6,806 7,395

2010 5,958 5,070 6,747 6,494 7,183 7,059 7,007 7,252 6,973 7,304 7,941 8,792

2011 7,968 5,960 8,856 8,929 8,654 8,620 8,221 9,643 9,300 n/a n/a n/a

Trade balance fob-cif (US$ m) 2009 386 840 205 -1,313 -1,342 -1,189 -1,590 -1,343 -1,854 -1,621 -2,102 -1,928

2010 -945 -1,330 -1,155 -1,162 -871 -742 -978 -395 -875 -1,077 -1,300 -1,294

2011 -877 -1,112 -1,409 -1,492 -1,421 -160 1,102 -396 -1,000 n/a n/a n/a

Foreign-exchange reserves excl gold (US$ m) 2009 22,830 22,653 23,008 20,931 20,790 20,260 19,072 18,802 18,769 18,320 17,400 16,447

2010 15,735 15,492 13,854 14,332 13,936 14,121 13,917 13,727 14,111 14,098 13,298 12,467

2011 12,158 11,964 12,220 12,609 n/a n/a n/a n/a n/a n/a n/a n/a

Sources: IMF, International Financial Statistics; Haver Analytics.

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Annual trends charts Pl ea se se e g ra p hi c b el ow

Annual trends charts

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

GDP per head

(US$; PPP)

Trade balance (% of GDP)

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Real GDP growth(% change)

Consumer price inflation(av; %)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0 World Asia (excl Japan) Vietnam

13121110090820070.0

5.0

10.0

15.0

20.0

25.0 World Asia (excl Japan) Vietnam

1312111009082007

-20.0

-15.0

-10.0

-5.0

0.0

5.0 Asia (excl Japan) Vietnam

13121110090820070

2,000

4,000

6,000

8,000

10,000

12,000

14,000 World Asia (excl Japan) Vietnam

1312111009082007

Rice4.6

Others 41.4

Wood products 4.5

Garments16.0

Crude oil10.9

Footwear7.2

Electronics & computers

4.8

Fisheries7.5

Coffee 3.0

Vehicles4.4

Others 49.6

Machinery &equipment

17.6

Petroleum8.9

Steel7.7

Fabrics6.1

Electronics & computers

5.7

Main exports, 2009(% of total) (% of total)

Main imports, 2009

Page 22: McKinsey Vietnam Report 2011

20 Vietnam

Country Report November 2011 www.eiu.com © The Economist Intelligence Unit Limited 2011

Monthly trends charts Pl ea se se e g ra p hi c b el ow

Monthly trends charts

Consumer price inflation (% change, year on year)

Exchange rate (D:US$; av; inverted scale)

Monetary aggregates (% change, year on year)

Foreign-exchange reserves(US$ m)

Foreign trade (US$ m; goods only)

Oil: Brent crude price (US$/b; av)

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

22,000

21,000

20,000

19,000

18,000

17,000

16,000

15,000

JulAprJan11

OctJulAprJan10

OctJulAprJan09

OctJulAprJan2008

20

40

60

80

100

120

140

JulAprJan11

OctJulAprJan10

OctJulAprJan09

OctJulAprJan2008

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

AprJan11

OctJulAprJan10

OctJulAprJan09

OctJulAprJan2008

0.0

5.0

10.0

15.0

20.0

25.0

30.0

JulAprJan11

OctJulAprJan10

OctJulAprJan09

OctJulAprJan2008

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0 M2 M1

AprJan11

OctJulAprJan10

OctJulAprJan09

OctJulAprJan2008

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000 Balance Imports Exports

JulAprJan11

OctJulAprJan10

OctJulAprJan09

OctJulAprJan2008

Page 23: McKinsey Vietnam Report 2011

Vietnam 21

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Comparative economic indicators Pl ea se se e g ra p hi c b el ow

Comparative economic indicators, 2010

Gross domestic product(US$ bn; market exchange rates)

Gross domestic product(% change, year on year)

Consumer prices(% change, year on year)

Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product per head(US$ '000; market exchange rates)

0 200 400 600 800 1,000 1,200 1,400

Laos

Papua New Guinea

Cambodia

Myanmar

Sri Lanka

Bangladesh

Vietnam

New Zealand

Pakistan

Philippines

Singapore

Hong Kong

Malaysia

Thailand

Taiwan

Indonesia

South Korea

Australia

India

Japan

China

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Bangladesh

Myanmar

Cambodia

Pakistan

Laos

Vietnam

Papua New Guinea

India

Philippines

Sri Lanka

Indonesia

China

Thailand

Malaysia

Taiwan

South Korea

Hong Kong

New Zealand

Japan

Singapore

Australia

-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Japan

Taiwan

Malaysia

New Zealand

Hong Kong

Singapore

Australia

South Korea

China

Thailand

Philippines

Cambodia

Indonesia

Laos

Sri Lanka

Papua New Guinea

Myanmar

Bangladesh

Vietnam

India

Pakistan

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

New Zealand

Australia

Myanmar

Japan

Pakistan

Cambodia

Bangladesh

Indonesia

South Korea

Vietnam

Hong Kong

Papua New Guinea

Malaysia

Philippines

Thailand

Laos

Sri Lanka

India

China

Taiwan

Singapore

5,926.0

5,460.2

1,720.9

55.6

43.9

43.1

103.5

1.2

Page 24: McKinsey Vietnam Report 2011

22 Vietnam

Country Report November 2011 www.eiu.com © The Economist Intelligence Unit Limited 2011

Country snapshot

Basic data

331,051 sq km

86m (2009, General Statistics Office estimate)

Population (of province) in �000 (2009)

Ho Chi Minh City 7,165 Hanoi (capital) 6,472 Haiphong 1,842

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 more remote 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 2010: D19,127:US$1

7 hours ahead of GMT

January 1st (New Year�s Day; holiday taken on January 3rd); February 2nd-7th (Tet, Lunar New Year); April 12th (Gio To Hung Vuong Day); April 30th (Liberation of Saigon; holiday taken on May 2nd); May 1st (Labour Day; holiday taken on May 3rd); September 2nd (National Day)

Land area

Climate

Weights and measures

Currency

Time

Public holidays

Population

Main towns

Weather in Hanoi (altitude 216 metres)

Weather in Ho Chi Minh City (altitude 9 metres)

Language

Page 25: McKinsey Vietnam Report 2011

Vietnam 23

Country Report November 2011 www.eiu.com © The Economist Intelligence Unit Limited 2011

Political structure

Socialist Republic of Vietnam

One-party rule

The cabinet is constitutionally responsible to the National Assembly, which is elected for a five-year term

The president, Truong Tan Sang

The unicameral 493-member Quoc Hoi (National Assembly) meets biannually and typically serves a five-year term. The current chairman is Nguyen Sinh Hung. The assembly appoints the president and the cabinet

Centrally controlled provinces and municipalities are subdivided into towns, districts and villages, which have a degree of local accountability through elected People�s Councils

The regional people�s courts and military courts operate as courts of first and second instance, with the Supreme Court at the apex of the system

Elections for the National Assembly took place in May 2011; the next are due in 2015

The Communist Party of Vietnam, and in particular its politburo, controls both the electoral process and the executive

The Communist Party of Vietnam (general secretary: Nguyen Phu Trong); the Vietnam Fatherland Front

Prime minister Nguyen Tan Dung Deputy prime ministers Nguyen Xuan Phuc Hoang Trung Hai Nguyen Thien Nhan Vu Van Ninh

Agriculture & rural development Cao Duc Phat Construction Trinh Dinh Hue Culture, sports & tourism Hoang Tuan Anh Education & training Pham Vu Luan Finance Vuong Dinh Hue Foreign affairs Pham Binh Minh Industry & trade Vu Huy Hoang Information & communications Nguyen Bac Son Justice Ha Hung Cuong Labour, war invalids & social affairs Pham Thi Hai Chuyen National defence Phung Quang Thanh Natural resources & environment Nguyen Minh Quang Planning & investment Bui Quang Vinh Public health Nguyen Thi Kim Tien Public security Tran Dai Quang Transport Dinh La Thang

Nguyen Van Binh

Official name

The executive

Head of state

National legislature

Local government

National elections

National government

Main political organisations

Main members of the cabinet

Key ministers

Central bank governor

Legal system

Form of state