Winter 2012 Update: Vietnam’s Mixed Messages Sideline Foreign Investors


Courtesy of Vietnomics

This winter 2012 update is from Vietnomics, a global sourcing consultancy that links US and Vietnamese investors and companies.  Thanks, Jeff! 

Summary

Vietnam begins 2012 at a crossroads and needs meaningful reforms to complete the transition to a market economy that it started a generation ago.  At times, the country seems to be moving decisively toward restructuring and consolidating its banking system, controlling public spending, and privatizing inefficient state-owned corporations.  Even so, as one of the world’s most promising economies, Vietnam also faces stagnation unless the government can convince global investors it is ready to control the power of state-owned companies, private conglomerates, and institutions that are content with the status quo.  Optimists contend that now is the time to invest in Vietnam, partly because many investors have lost patience just when Vietnam offers exceptional value.  Supporting that view are surging exports, a modest 5% budget deficit, and less foreign debt.  The question for 2012 is whether Vietnam’s homeostatic forces will allow reform needed for the country to realize its economic potential.

Optimism, Pessimism, and Opportunity

Vietnam enters 2012 with mixed messages that defy efforts to discern trends. 

Most discouraging:

  • Vietnam has been losing its battle to gain credibility with foreign investors.  The World Bank lowered Vietnam’s business climate ranking from 90th to 98th among 183 world economies.  A European Chamber of Commerce survey finds its members are disappointed with Vietnam.
  • Businesses within Vietnam are discouraged too.   Grant Thornton’s new global survey finds optimists among Vietnamese businesses went from 80% early last year to 34% by year’s end.
  • An HSBC economist calls Vietnam the most exposed major country in Southeast Asia to an economic downturn because of its budget deficit, low reserves, and high inflation. 
  • Vietnam is the province of a small group of international investors, with 15,588 foreigners permitted to trade in Vietnam.  Active traders are a shrinking fraction as the VN Index declined 27% in 2011.  
  • 43% of Vietnam’s biggest corporate taxpayers are owned by the government, while private firms slid from 21% to 18% of the total.  This suggests backsliding in the transition to a free market economy.

More encouraging signs:

  • Rising tourism.  Vietnam set a record with six million international visitors in 2011, 19% more than 2010, including 71% more foreigners making visits to relatives in Vietnam.
  • Surging exports.  Vietnam’s trade deficit is much lower than expected as exports exceed the government’s target by 10% and outpaced imports.
  • Improving infrastructure.  Vietnam opened its first modern deep-water harbor near Saigon.  The $250 million project with a one-third-mile-long wharf receives container ships anchored up to 45 feet deep

Click here to read the rest (PDF).

Key Data:  2011 vs. 2010 from government monthly statistical reports

Gross Domestic Product – $120 billion, up 5.9%
Consumer Prices – up 18.6%
Exports –$96 billion, up 33%
Imports — $106 billion, up 25%
International Visitors – 6,014,000, up 19%
Foreign Investment –$11 billion, unchanged
VN Dong Exchange Rate – 20,940, up 8%
Stocks — Closed at 437.47, down 3.7%

Jeff Browne, President – Email:  jbrowneATvietnomics.com – Website: www.vietnomics.com

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