Overview
Vietnam has one of the fastest growing economies in Asia. Since embarking on a path of economic reform, GDP has increased from €5 billion in 1986 to approximately €54.45 billion in 2008. Vietnam’s GDP growth in 2008 was 6.18%. Vietnam has been undergoing a transition from a centrally-planned agrarian economy to a diversified market economy with growing industrial and services sectors. Vietnam produces and exports a wide range of primary commodities and manufactured goods including oil and gas, rice, coffee, aquatic products, garments, footwear, electronics and handicrafts. Tourism, telecommunications, construction, infrastructure, trade, transportation, finance and other services are increasingly contributing to the growth of the Vietnamese economy.
The participants in Vietnam’s economy can be categorized into the State, non-State, and foreign investment sectors. The overall growth in Vietnam’s GDP based on constant 1994 prices has been largely attributable to non-State sector, which contributed 48.2% to the total change in GDP at constant 1994 prices from 2000 to 2006. In the same period, the State and foreign investment sectors contributed 42% and 16% to GDP growth, respectively. While increasing in absolute value terms, both State and non-State contribution to GDP at current prices decreased from 38.5% and 48.2% in 2000 to 34% and 47% in 2008, respectively. In contrast, the foreign investment sector’s contribution to GDP at current prices rose from 13.3% in 2000 to 18.6% in 2008.
Vietnam has been one of the fastest growing economies in Asia with an average real GDP growth rate of about 7.5% per annum from 2001 to 2008. The main drivers of GDP growth over the last eight years have been private consumption and investment. Furthermore, exports at current prices in 2008 increased by 3328% over exports at current prices in 2000. This economic growth has begun to attract attention from the global media and investment community. Standard & Poor’s recently upgraded the long-term foreign and local currency sovereign credit ratings of Vietnam to BB from BB- and to BB+ from BB, respectively. The Directors believe Vietnam’s full economic potential and considerable number of investment opportunities remain largely undiscovered.
Trade liberalization
As a key component of its reform policy, the Government has been gradually opening Vietnam to foreign investment and promoting the development of foreign trade over the past two decades. Foreign trade has increased significantly over the past few years in both absolute value and the range of products traded. Exports and imports have increased from 55.0% and 57.5%, respectively, of GDP at current prices in 2000 to 72% and 93%, respectively, of GDP at current prices in 2008.
In order to promote international trade, Vietnam has recently implemented a number of trade liberalization measures including a series of tariff reductions and other measures designed to relax import restrictions. The import and export of the majority of goods, including imports of fertilizers and exports of rice, no longer required import/export licenses form the Ministry of Trade or other ministries, while restrictions and conditions applying to the import and export of specified goods are set forth more clearly than previously. The effect has been to reduce non-tariff barriers to trade (including the reform of customs laws and procedures, the abolition of import-export licenses and the reduction of a number of goods subject to quotas), thereby making Vietnam’s import and export restrictions more transparent. In addition, tariffs are not computed based on actual costs rather than imputed costs.
To encourage investment in certain sector and designated regions, Vietnam grants investors in such sector and/or region, an exception from import duties for goods imported to form fixed assets or a five year exemption from import duty for raw materials, components, and spare parts.
Major global exporter
Vietnam has proven competitiveness as a global exporter across a range of products. Through a combination of market access events in the international trading community and various domestic legal and market infrastructure reforms, we believe Vietnam has substantial potential to gain further market share in export industries where it is already a leader and to break into new industries through sector and product expansion.
Private sector reform
Vietnam is undergoing significant legal and regulatory reforms intended to further open its domestic capital markets, including passage in 2005 of the new Enterprise Law and Common Investment Law, and the passage of the Securities Law in 2006. The Directors believe that these new laws will both improve access to domestic capital markets by foreign investors, and clarify investor and investors’ rights. Furthermore Vietnam has also been undertaking a campaign over the past several years to reform and equitize SOEs. From 1992 to 2008, more than 3,800 SOEs were equitized.
In addition, Vietnam is taking steps to further integrate into the global economy, which we believe will enhance the economic prospects for companies in which the Company intends to invest. WTO membership will bring several benefits to Vietnam, including greater access to foreign markets, removal of existing quotas on key sectors such as garments and textiles, increased attractiveness of Vietnam for foreign investors and access to an international forum to resolve trade disputes. Finally, the Directors believe that WTO membership will also provide additional motivation for the government to accelerate domestic reforms and require Vietnamese enterprises to become more competitive as tariff and non-tariff trade barriers are further reduced.
A key aspect of Vietnam’s plans for continued liberalization of the economy is to encourage the development of a robust private sector. In 2008, the private sector contributed 47% of GDP at current prices. Development of the private sector is intended to facilitate broad-based economic growth, primarily through increasing export capacity, and to reduce dependence of the economy on the State sector.
The Government’s reform efforts have been designed to accelerate private sector development by providing incentives for domestic private investment. The Enterprise Law, which became effective on January 1, 2000, created a modern legal regime for the establishment and operation of private enterprises. A principal change introduced under the Enterprise Law was to allow the establishment of companies under registration, rather than by discretionary Government licensing. This change has reduced the cost of, and the bureaucratic impediment to, establishing private companies and has resulted in the creation of a significant number of new businesses. Minimum capital requirement for private enterprises other than financial institutions have been eliminated.
On November 29, 2005, the National Assembly of Vietnam passed the Common Investment Law and the New Law on Enterprises. These laws aim to simplify administrative procedures and provide more equal treatment for local and foreign businesses.
The intent of the Common Investment Law is to create a unified legal regime for investment activities and promote investments by allowing all participants in the Vietnam economy to invest and conduct business on the basis of equality, fair competition, transparency and order. Despite this stated goal, the Common Investment Law still provides a somewhat bifurcated foreign/domestic investment registration and evaluation process based upon sector regulation and investment value.
The degree of sector regulation depends on the Government’s desire to attract investments into a certain sector. Incentives are, for instance, offered for investments into the biotechnology and technology sector. Investments into other sectors including banking and finance, public health and medicine, are subject to condition.
The New Law on Enterprises allows foreign organizations and individuals to establish and manage enterprises in Vietnam on the same legal basis as domestic organizations and individuals. Investors can freely choose the appropriate business form. The New Law on Enterprises also recognizes the ownership rights of companies and their owners with respect to assets, invested capital, revenues and other legitimate interests, as the case may be. Accordingly, companies whose assets are expropriated for defense or for reasons of national security or national interest are entitled to receive compensation based upon market prices prevailing at the time of expropriation.
Favorable demographic characteristics
Vietnam’s population and workforce is large, growing, young, highly literate, and experiencing rising income. Vietnam’s population is the thirteenth largest in the world, with an estimated 86 million people in 2009, up from 77.6 million in 2000, an increase of 11%. Its workforce was estimated to be 47 million in 2008, up from 37.6 million in 2000, an increase of 26%. More than half its population is under the age of 30. Vietnam enjoys high literacy rates in excess of 95%. In addition, university and college attendance rates in 2005 increased 56.2% over attendance rates in 2000. In term of wealth, per capita GDP as measured at constant 1994 prices has risen 62% from 2000 to 2008.
The Directors believe that these favorable demographic characteristics have contributed to the growth of private consumption in Vietnam. Private consumption based on constant 1994 prices has increased by 45% from 2000 to 2008. The Directors also believe that Vietnam’s favorable demographic characteristics will continue to fuel domestic consumption-related economic growth and produce investment opportunities for investors.