Vietnam industry/market analysis

Strengths

Low wages but skilled workforce

Relatively open economy with growth model based on trade
Ongoing shift towards higher value-added sectors
Member of the Trans-Pacific Partnership

Weaknesses

Lack of transparency
A fragile and opaque banking system
Infrastructure to be improved
A complicated business environment
High regional disparities in terms of development and rising inequalities
Low external reserves
Recurrent tensions with China

Economy analysis
Vietnam's economy has expanded rapidly since the Communist Party of Vietnam turned
away from the communist economic policies in the 1980s. A sustained growth rate of around
8% for over 15 years shows great progression and has increasingly attract numbers of
foreign investors. Vietnam received over US$20 billion of foreign direct investment in 2007,
and there are almost 1,500 new projects licensed in the same year. Although the economy is
developing at a rapid rate, entry costs for investors are still low, and cheap labor costs
coupled with a young, literate workforce make business investment a very attractive and
lucrative prospect.
The Vietnamese government has shown their commitment to economic liberalization and
international integration. Structural reforms needed to modernize the economy have been
implemented, helping to produce more competitive, export-driven industries. Vietnam joined
the WTO in January 2007. This should give a major boost to Vietnam's export led economy
and should spur on the country's economic liberalizing reforms.
However the recent global recession has hurt Vietnam's export-oriented economy with GDP
growing less than the 7% per annum average achieved during the last decade. In 2009
exports fell nearly 10% year-on-year, prompting the government to consider adjustments to
tariffs to limit the trade deficit. The government has used stimulus spending, including a
subsidized lending program, to help the economy through the global financial crisis, and
foreign donors have pledged $8 billion in new development assistance for 2010. Domestic
investment grew 16% while committed foreign direct investment fell 70%, a steep reduction
after 5 years of growth. Nevertheless, the weaker economy, current account deficit, and
subdued foreign investment environment means Vietnam's managed currency, the dong,
faced downward pressure through 2009, leading the government to devalue it by more than
5% in December. Initially from 2003 to 2006 Vietnam GDP real growth rate had gradually
increased, which is 6%, 7.2%, 7.7%, 8.5%, respectively. However until 2009, the growth rate
was fell dramatically from 8.5%(2008) to 6.2%.
Economic Opportunities
Foreign Affairs
At present, Vietnam has established diplomatic relations with 168 countries, and it has
economic and trading relations with about 165 countries. Vietnam joined the United Nations
in 1977.
Vietnam became an official member of the Association of South East Asian Nations (ASEAN)
in 1995, and has concluded a cooperation agreement with the European Community.

Relationships with multi-national financial institutions such as the World Bank (WB), the
International Monetary Fund (IMF) and the Asian Development Bank (ADB) have been reestablished. Viet Nam has been participating in the ASEAN Free Trade Area ("AFTA") since
1996 and became a member of the Asia Pacific Economic Cooperation Forum (APEC) in
1998. Vietnam became an official member of the World Trade Organization (WTO) on 11
January 2007. In January 2008, the country started a two year term as an elected nonpermanent member of the UN Security Council.
Vietnam signed the bilateral trade agreement (BTA) with the United States in 2000. Besides
aspects of international trade, the BTA covers a variety of other areas, including intellectual
property rights, trade in services, development of investment relations, business facilitation
and the obligation to ensure transparency of laws and regulations. The BTA essentially
constitutes a commitment by both countries to open their markets to each other.
Intellectual Property
In recent years, the Government has taken various measures to increase the legal protection
of intellectual property and has created an environment of respect for intellectual property as
compared to other neighboring countries. Intellectual property rights are protected by the
Civil Code (1995 and 2005), the Law on Intellectual Property (2005) and a host of
subordinate legislation.
Vietnam is a long-time signatory to the Paris Convention, the Madrid Agreement on
International Trademark Registration, and the Patent Cooperation Treaty ("PCT") and
became a member of the World Intellectual Property Organization in 1976. On 27 June 1997,
Vietnam entered into an Agreement on copyrights with the US. According to the Viet Nam-US
Bilateral Trade Agreement, Vietnam is under the obligation to adhere to the Berne
Convention.
The National Office of Intellectual Property ("NOIP") is the authority responsible for the
registration of industrial property and for the resolution of disputes with regard to industrial
property in the first instance. Foreign organizations and individuals seeking to register their
industrial ownership should file their applications through an authorized agent, who will
transfer their application to the NOIP. The Office of Copyright Protection under the Ministry of
Culture, Sport and Tourism has also been established and is responsible for the protection of
copyright. Works may be registered with the Office of Copyright Protection; however,
registration is not a prerequisite for copyright protection.
Currently, patents are protected for a period of 20 years. A certificate of utility solutions may
be granted for 10 years. A certificate of industrial design is granted for 5 years and may be
renewed every 5 years. However, the total effective period of a certificate cannot exceed 15
years. Certificates of trademarks are granted for 10 years with no restrictions on the number
of renewals.
Investment Guarantees
The Government of Vietnam guarantees fair treatment for investors. Capital and other legal
assets of investors will not be expropriated or confiscated by law or administrative measures
and businesses with foreign-invested capital will not be nationalized. Foreign investors are
allowed to remit abroad investment capital and profits, loan principal and interest, and other
legal proceeds and assets.
Expatriates working for businesses with foreign-invested capital or for a business
cooperation contract are permitted to remit their income abroad. The Vietnam government
respects intellectual and industrial property rights and the interests of foreign investors
relating to technology transfers into Vietnam.

Economic Risks

Global Finance Crisis is the hottest issues that people discuss most in this few years. The
global financial crisis that started from the United States raises a very broad impact to
Vietnam.
Inflation
Inflation has been in double digits since 2007 and peaking at 28% in August 2008. The fiscal
deficit accounted for 4.5-5% GDP in 2008 while trade deficit reached US$17.5 billion (or over
20% of GDP), a level that signals vulnerability to a sudden drop in external demand (Figure
2). A high rate of investment combined with a sizeable fiscal deficit resulted in rapid growth in
aggregate demand in the first half of 2008. Massive capital inflows generated asset price
inflation, especially in real estate and land prices.
Export Decline
Vietnamese exports have suffered the strongest negative impact. With economic problems in
the US, EU and Japan, which together account for more than 60% of Vietnamese exports,
Vietnam saw a significant decline in export revenues. Vietnam's export revenues fell 6.5% in
November 2008 and a further 24% drop in January 2009 (year-on-year) (Figure 3). Orders
for manufactured exports including garments, footwear and furniture dropped quickly, while
seafood5 producers are also under pressure. The decline of orders has caused great
difficulties for exporting companies, many of them are at risk of closing down.6 Vietnamese
exports' growth is forecasted to decline from 30% in 2008 to 13% in 2009.
Unemployment
Unemployment has worsened. At February 28, 2009, 66,700 workers (out of 45 million
workers) lost their jobs in 2008 with national unemployment rate of 4.65%. Thus, it is
estimated that over 80,000 workers lost their jobs nationwide in 2008. The latest forecast of
Vietnam Labor and Employment Agency estimates the figure to hit 400,000 nationwide in
2009. Job cuts are rising especially in big cities11 with industrial, processing and exporting
zones. The situation may worsen in 2009 with an unemployment rate of 5% and at a
projected economic growth of 6.5%. High unemployment has already affected domestic
demand and consumers' sentiment in Vietnam, which are bearish in recent months.