Vietnam Overview

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Vietnam is the easternmost country on the Indochina Peninsula in Southeast Asia. With an estimated 90.5 million inhabitants as of 2014, it is the world's 13th most populous country, and the 8th most populous Asian country. Geographically, Vietnam is a long, narrow country that extends over 1,600 km (1,000 miles) from north to south, has a coastline excluding islands of over 3,300 km (2,000 miles) and is only 50 km (30 miles) wide at its narrowest point. The country is bordered by China to the north, Laos and Cambodia to the west and Malaysia across the Gulf of Thailand to the southwest.  To the east along what the Vietnamese call the "East Sea" ("South China Sea"), lie the Chinese island of Hainan at a distance of only 200 km (124 miles), the Philippines at distance of 1,400 km (870 miles) as well as numerous islands claimed by Vietnam, China and the Philippines.

Vietnam was part of Imperial China for over a millennium, from 111 BC to 938 AD. In that year, the Vietnamese gained independence, following victory in the Battle of Bạch Đằng River. Successive Vietnamese royal dynasties flourished as the nation expanded geographically and politically into Southeast Asia, until the Indochina Peninsula was colonized by the French in the mid-19th century. Following Japanese occupation in the 1940s, the Vietnamese fought French rule in the First Indochina War, eventually expelling the French in 1954. Thereafter, Vietnam was divided politically into two rival states in the north and south, then was unified in 1976 as the Socialist Republic of Vietnam (Cộng hòa Xã hội chủ nghĩa Việt Nam)

Following reunification, Vietnam was relatively isolated for the next decade, most noticeably from the United States. Then in 1986, the government set out on a program of broad external engagement. By 1995, it had restored full diplomatic relations with the U.S. and become a permanent member of the Association of Southeast Asian Nations (ASEAN). Today Vietnam has diplomatic relations with nearly 200 countries.

Economy

Over the 24 years from 1990 to 2014, Vietnam’s real GDP has grown on at a robust annual rate of 7%. The main factors of growth are both external and domestic—trade on the one hand and personal consumption, private enterprises and the state sector on the other. Externally, the opening of Vietnam to the world has resulted in a dramatic impact on the economy. From 1990 to 2014, the ratio of total trade (exports plus imports) to GDP more than doubled from 81% to 170%, making Vietnam one of the most internationalized economies in the world. Unlike many other emerging economies, Vietnam has consistently registered an equilibrium in its balance of trade. In the 1990’s, exports consisted primarily of commodities such as rice (world’s largest exporter), coffee (2nd largest) and seafood. Since 2000, while these sectors have continued to grow, manufacturing has advanced even more quickly, driven not only by textiles and clothing, but also electronics. Global technology leaders such as Samsung and Intel have made major investments in production and assembly facilities in both the north and south of the country. From 1990 to 2014, net foreign direct investment inflows have propelled forward from $180 million to $12.4 billion. As of late 2015, Vietnam has a very strong external economic posture, as evidenced by some $20 billion in hard currency reserves and a current account of $9.1 billion.

Against this backdrop of rapid externalization, the domestic economy, driven by personal consumption, grew at a rate just below real GDP. Inflation (Consumer Price Index) fluctuated dramatically at times--going as high as 23.8% in 2008, but since that time saw a steady decline, accompanied by stabilization of the bubbles in the real estate sector and the young stock market. Real GDP growth in 2015 was 6.7% for the full year, with a very strong 7.1% in the fourth quarter. Inflation was only 0.6%, not just the result of lower global oil prices, but also stable food and other domestic core expenses.

Going forward into 2016, the government has set a target of 6.7% for all of 2016, even with slowing global economic activity, as domestic growth continues and provides a health counter-balance. Many analysts concur while forecasting an uptick in inflation in the second half of the year. Over the medium-term positive factors are an increasingly competitive workforce—lower cost and fairly well-educated—versus neighbors such as China, not to mention the impact of the Trans Pacific Partnership. Challenges remain, however, especially in a still weak banking sector and the large role of state-owned enterprises in the economy.

Business & Finance

Both the business sector (manufacturing and services) and the finance sector (banking and securities) in Vietnam are evolving rapidly, driven by the quite different development of state-owned and privately held enterprises and financial institutions. At a macro level, privatization is advancing noticeably. Looking at subcomponents, the dynamics of this trend are quite different and complex.

The business sector consists of three main segments: state-owned enterprises (SOEs), publicly traded companies and privately held small to medium-sized enterprises (SMEs). For several years, the government has declared a policy of reducing the large role of SOEs and set annual targets for listing on public exchanges. While results have fallen short of ambitious targets, the trend over the last ten years has moved steadily towards the private sector. In terms of GDP, SOEs now account for 35% and the private sector for 50%, with the balance of 15% going to rapidly rising foreign direct investment. Access to capital is quite different by segment, with the state sector still absorbing a disproportionate share of capital in comparison to the private sector. This is partly due to an underdeveloped banking sector that still relies strongly on asset-backed financing and less on cash flow financing. For companies whose trade-related business is growing rapidly, the challenge is to finance the longer cycle of export revenues. For foreign companies, the task is easier—they draw upon internal resources or obtain financing from their banks and equity providers outside of Vietnam.

The finance sector still faces significant challenges, in particular the quality of assets. Many analysts believe that the true level of non-performing loans is much higher than reported. The government has recognized the important role a healthy banking sector can play and has taken steps to improve the situation such as the establishment of an entity to absorb bad debt. The securities sector is still quite small, as indicated by a total market capitalization to GDP ratio of about 21% vs. much higher levels for its emerging market neighbors such as Malaysia (156%), Philippines (106%) and Thailand (105%). At the same time, the finance sector has substantial opportunities, particularly in the development of a well-managed trade finance business.

Politics

The politics of the Socialist Republic of Vietnam are defined by a single-party socialist republic framework, where the President of Vietnam is the head of state and the Prime Minister of Vietnam is the head of government, in a one-party system led by the Communist Party of Vietnam. Executive power is exercised by the government and the President of Vietnam. Legislative power is vested in the National Assembly of Vietnam (Vietnamese: Quốc hội). The Judiciary is independent of the executive. The parliament adopted the current Constitution of Vietnam; its fourth, on 15 April 1992, and it has been amended once since then.

The Communist Party of Vietnam is the ruling political party of the Socialist Republic of Vietnam according to the current Constitution (amended in 2013). The legitimacy of the Party is guaranteed by Article 4 of the Constitution, which states that “The Communist Party of Vietnam […] is the force assuming leadership of the State and society”.

Every five years, the Communist Party holds a National Congress, with the latest one taking place in January 2016. Participants include all members of the Central Committee and representatives from local levels. Important functions of the National Congress are:

  • Evaluate the results of past terms.
  • Set the guidelines and policies of the Party in the next 5-year term.
  • Elect the new Central Committee
  • Make additions and amendments to the Political Platform and Charter of the Party if necessary.

After decisions are ratified, the National Congress is dissolved and the new Central Committee implements the decisions of the National Congress for a 5-year term.

The Central Committee is the key authority within the Party, which currently has 180 full members and 20 alternate members. Membership of the Committee usually includes high ranking officials at both central and local levels such as President, Prime Minister, Chairman of the National Assembly, deputies to these positions, Ministers and the equivalent, Deputy Ministers of key Ministries such as Public Security and Defense, provincial Party Chiefs and all other important organs of the Party and the State.

The Committee implements the decisions made by the National Congress regarding important matters of the nation including both internal and external affairs.

The Central Committee elects the Politburo, the Party’s General Secretary and the Party’s Secretariat.

The Central Committee also nominates candidates for key positions, including Chairman of the National Assembly, President and Prime Minister, who are then approved by the National Assembly.

The President (Chủ tịch nước) serves for a five-year term and acts as the commander-in-chief of the Vietnam People's Armed Forces and Chairman of the Council for Defence and Security. The government (Chính phủ), the main executive state power of Vietnam, is headed by the Prime Minister, who has several Deputy Prime Ministers and several ministers in charge of particular activities. The executive branch is responsible for the implementation of political, economic, cultural, social, national defence, security and external activities of the state. The National Assembly is a unicameral legislative body. The National Assembly has 500 members, elected by popular vote to serve four-year terms. The legislature is, according to the Constitution, the highest organ of the state. Its powers include the enactment and amendment of the Constitution and laws; the adoption of the government budget; supervising the Government of Vietnam and other holders of public powers responsible to the National Assembly; and appointing members of the judiciary. The Vietnamese Constitution and legislation provide for regular elections for the office of the President of the Socialist Republic, the National Assembly and the People's Councils.

According to the Constitution, Vietnam has an independent judicial system and legislative branch under the National Assembly. The Supreme People's Court (Tòa án Nhân dân Tối cao) is the highest court of appeal in Vietnam. There are other special courts in Vietnam, including the Central Military Court, the Criminal Court, the Civil Court and the Appeal Court. The Supreme People's Procuracy monitors the implementation of state organs and ensures compliance with the law.