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Update No: 05 - (07/05/02)

The economic performance of Vietnam in 2001 and the first quarter of 2002 was lower than expected. However, this is attributed largely to external factors beyond Vietnam's control. According to the General Department of Statistics, the economy growth rate reached a lower-than-expected 6.6 per cent in the first quarter of 2002, down from 6.8 per cent for the whole of 2001, lower than the planned annual target of 7 per cent for 2002. 
Export turnover in March was just $1.25bn, contributing to $3.2bn for the first quarter, a 12 per cent year-on-year drop. The World Bank envisages that it is unlikely that export earnings growth will exceed 5 per cent in 2002, since oil-export earnings are likely to fall by nearly 20% due to weaken oil prices.
Commodity prices (including rice and coffee) are not expected to recover in 2002, because supply will remain strong while demand will stay depressed or even weakened due to the global slowdown. The total value of imports in March reached $1.35bn, $3.7bn during the first quarter, a 2.5 per cent year-on-year increase and equal to some 21.2 per cent of the annual target. 
Despite the negative indicators of the first quarter, Vietnam's major donors and investors are still making positive assessments, lifting hopes of a recovery in the remaining three quarters of this year. Foreign think-tanks remain optimistic on the mid and long-term outlook for Vietnam's economy.

World Bank report
The World Bank (WB) country director, Andrew Steer, enthused: "We have never seen a moment like this, in which foreign donors are showing a high level of optimism regarding the country's prospects." The rosy assessment paves the way for a successful mid-term Consultative Group Meeting due for Can Tho province in June. 
Investors have tried to find a sound excuse for slow growth by explaining that the fall-off in exports in the fourth quarter of 2001 and substantial negative growth in the first quarter of 2002 was put down to the impact of downsizing world markets on domestic exporters and manufacturers.
"The worst global recession in nearly 40 years has depressed Vietnam's export growth and real GDP growth in 2001 and in the first quarter." However, there will be a modest recovery in the remaining three quarters of this year," a report of WB reads. However, external demand for Vietnamese exports are projected to increase in 2002, with recovery taking hold in the US and in the region.
Meanwhile, as the main force behind GDP growth in 2001 and the first quarter of 2002, domestic consumption, remained buoyant with first quarter figures showing a significant rise in retail sales growth.
One of the main reasons for increasing confidence from investors and international donors is that the climate for private investment was significantly improved with the approval in December by the National Assembly, of a constitutional amendment guaranteeing for the first time equal treatment of the private sector. The private sector, fueled by the recent resolution of the fifth Party Plenum, spear-headed growth with three-month output rising by 21.2 per cent. 

Concentrating on the private sector
Vietnam is on the right track with its new policy of developing a strong private sector accounting for an increasing part of the total pie.The increased contribution of the private sector to labour-intensive and export-oriented industries is a good sign, proving that Vietnam's economy and workers will continue to benefit from trade liberalisation and further integration into the global economy. In addition, the potential for exports to the US market under the Bilateral Trade Agreement (BTA) was an important reason for the renewed interest among foreign investors.
Vietnam has not only continued to implement the reform agenda it adopted in early 2001 but it has also developed reform programmes in public administration and legal system development. Except for slippages in state-owned enterprises (SOEs) reform, much progress was made in trade implementation, the private sector, banking and public expenditure management with financial assistance from foreign donors. 

WTO membership
Investors in Vietnam currently are watching closely Vietnam's efforts to attain WTO membership, to comply with the Asean Free Tariff Agreement (AFTA) by 2006 and to meet the obligations of the BTA. Spurred by the long-awaited signing of the Vietnam-US BTA which came into effect last December, Vietnam is now eager to gain WTO membership. 
For the first three months of 2002, 101 foreign direct invested (FDI) projects were licensed, a decline of 5.6 per cent on the number of FDI projects licensed on the same period last year. Newly-licensed projects registered a total investment capital of $215m, a fall of 17.4 per cent on the same period last year.
Foreign invested investment (FDI) is expected to take off during 2002, to reach approximately $1.2bn. 

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BONDS

Foreign Bond Issue to Test International Waters

The finance ministry is planning to raise funds offshore by issuing its first international sovereign bond, taking advantage of low US-dollar interest rates and strong capital flows into emerging markets. 
The bond issue is a litmus test of Vietnam's ability to tap the international capital markets and give foreign investors their first opportunity to assess the country's creditworthiness, Vietnam News has reported. 
Deputy Prime Minister Nguyen Tan Dung gave his views: "This is the first time Vietnam has offered bonds overseas, so we'll start with an issue of US$300m. At present, many projects are in need of foreign currency, including the Dung Quat and Thanh Hoa oil refineries, the Phu My and Ca Mau gas-electricity-fertiliser plants, and numerous other power plants. The capital raised via the bond issue with help fund these projects. We intend to issue the bonds on the international capital markets probably through an intermediary financial institution. Vietnam is searching for an institution with a good reputation and low fees. Many financial institutions have already offered their services but we have not chosen one yet. 
"In 1997, the government considered issuing bonds overseas, but the regional financial crisis prevented us from doing so. I believe this bond issue will be successful, because Vietnam is now recognised as having political stability and a good investment environment. Vietnam's economy has achieved steady and high growth for the past decade. In the context of a slowing world economy, Vietnam's gross domestic product still expanded 6.8% last year. These are the kinds of considerations that influence international investors. Strong growth and efficiency are the signs of an economy that has the capacity to repay its debts. I think these positive factors will drive the success of the bond issue."

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ENERGY 

Russia grants $100m loan to build hydroelectric power plants in Vietnam

The Russian government has endorsed a draft inter-governmental agreement that envisions Russia's allocation of a $100m loan for the construction of hydroelectric power plants in Vietnam. 
The loan will be spent on Russian machinery and goods that will be used to build the Pleikrong and Se San 3 hydroelectric power plants and related services. 
Prime Minister Mikhail Kasyanov signed a resolution to this effect. 
The government tasked the Finance Ministry and Vneshekonombank with finalizing a pertinent agreement with the Vietnamese side. 

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FINANCIAL NEWS 

US Eximbank to boost credit in Vietnam

The US Export Import Bank, Eximbank plans to expand credit to private small and medium-sized companies in Vietnam to import commodities from the US, according to Vanessa Weaver, a member of the bank's board of directors, on a visit in HCM City, Tuoi Tre Newspapers has reported. 
Weaver said that credit seekers can now apply to four Vietnamese state-run banks: Vietcombank; Bank for Investment and Development (Bidv); Bank for Agriculture and Rural Development (Bard); and the Industrial and Commercial Bank of Vietnam (Icbv). Borrowers can also apply directly to Eximbank through the website www.eximbank.gov. 
Eximbank says it takes several weeks for Eximbank to examine applications. Interest rates for the loans will be adjusted by Eximbank to correspond with the situation in Vietnam. According to Weaver, about twenty US companies involved mostly in energy, mining and service industries have applied to Eximbank to export to Vietnam. 

Government Mulls New Measures to Revive Foreign Investment Inflows

Vietnam is working on several measures to further encourage foreign direct investment (FDI), which fell short of expectations in the first quarter of 2002 due to the world economic slowdown, Vietnam News has reported. By the end of March, 118 new foreign-invested projects from 20 countries and territories had been licensed, with a combined capital value of US$228.3m. The figure marked a 10 per cent increase in the number of projects but a 20 per cent decline in registered capital as against the same period last year. 
The quarterly result was only half of what was needed to keep Vietnam on course to meeting its target of $2.2bn in registered FDI this year. According to Deputy Planning and Investment Minister Vu Huy Hoang, the industrial sector attracted the greatest volume of foreign investment in the first quarter, accounting for around 80 per cent of the total number of projects and registered capital. This was followed by agriculture, forestry and fisheries, with 10 per cent of total prescribed capital. Among the primary industries, the largest of the seven licensed projects was a $12m rice processing plant in the Cuu Long (Mekong) Delta province of Can Tho. 
The inflow of foreign investment capital into primary industry fell short of expectations, with high risks and fragmented production deterring many investors. Sugar cane growing and cut flowers were the notable exceptions. Hoang said FDI was nevertheless a vital tool in accelerating agricultural restructuring, as it facilitated the acquisition of advanced technology, better management methods and high-yield crop varieties and animal stocks. To stimulate foreign investment in primary industries, the State has issued a range of preferential policies for foreign investors, including further simplification of administrative procedures. The Ministry of Planning and Investment (MPI) has worked with provincial authorities to draw up a list of projects in different areas of activity calling for foreign investment. Further policy incentives will be offered to projects in animal husbandry, crop farming and processing industries whose products target foreign markets, Hoang said. 

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FOREIGN ECONOMIC AFFAIRS

Exports of garment and textiles to US triple

The export turnover of Vietnam's garments and textiles to the US market in 2002 is likely to be triple that of 2001 according to trade ministry, Nguoi Lao Dong Newspapers has reported. 
Since early this year, exports of garments and textiles has amounted to about US$440m, of which US$50m worth went to the to the US market, equivalent to that of the whole 2001. 

Ministry proposes US subcommittee

The Ministry of Trade has proposed the government set up a Vietnam Subcommittee under the Vietnam-US Joint Committee. The subcommittee is aimed to manage Vietnam's efforts to monitor the implementation of the Vietnam-US trade agreement and to boost bilateral trade ties, Vietnam Media Watch has reported. 
The US subcommittee has been set up by the US government and was headed John Huntsman, deputy trade representative in Vietnam and Flena Bryan, in charge of Indochina and India market, was selected as subcommittee secretary. The first meeting of the Joint Committee is planned for May 6th to 10th . 

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FOREIGN INVESTMENT

Largest industrial park offers investment incentives

Local and foreign investors are to be encouraged to operate in Dung Quat Industrial Park (IP) as they will be offered attractive incentives. At a seminar on investment in Dung Quat in Hanoi, Tran Le Trung, Head of Dung Quat Industrial Zone Authority, said investors would enjoy attractive incentives such as 10% corporate income tax (foreign investors) and 15% (local investors), land rent reduction and exemption, and support for compensation costs. 
Foreign investors will pay annual land rent of US$150 for every hectare after 16 years of enjoying reduction and exemption. Local investors will pay VND500,000 per hectare until 2006 and receive financial assistance with site clearance. Investors can obtain a licence from the IP authority without having to go through any other agency.
Construction of main infrastructure works in Dung Quat, Vietnam's largest IP with an area of 14,000 hectares, has been completed. So far, the IP has 14 licensed projects totalling US$1.52bn and VND350bn. This year, the IP authority expects to attract 12-15 investment projects with a total investment of US$100-150m, nearly double the figure for last year.

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SHIPPING 

Vietnamese company to repair Russian ship

Representatives of Russia and Vietnam have signed a contract on repairing Russia's rescue ship, Igor Maksimov, in Vietnam. The contract is worth US$553,000.
The local press reports that work on servicing the ship assigned to Sakhalin's port will be carried out by the Vietnamese ship-repair company Songthu, ITAR-TASS News Agency has reported.
Igor Maksimov is one of the two rescue ships which are part of the fleet of the joint Russian-Vietnamese oil extracting enterprise, Vietsovpetro, situated in the south of Vietnam.
Before, repair works to the ships belonging to the joint venture were carried out in ship-yards of North Korea and other countries. Now an agreement reached with the Songthu company will make it possible to considerably lower the costs on maintaining its fleet, the press notes.

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