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VIETNAM


  
   

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 35,110 32,700 31,200 56
         
GNI per capita
 US $ 430 410 390 167
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km)
329,560

Population
79,939,000

Capital
Hanoi

Currency
dong

President
Tran Duc Luong

 


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Background:
France occupied all of Vietnam by 1884. Independence was declared after World War II, but the French continued to rule until 1954 when they were defeated by communist forces under Ho Chi MINH, who took control of the north. US economic and military aid to South Vietnam grew through the 1960s in an attempt to bolster the government, but US armed forces were withdrawn following a cease-fire agreement in 1973. Two years later North Vietnamese forces overran the south. Economic reconstruction of the reunited country has proven difficult as aging Communist Party leaders have only grudgingly initiated reforms necessary for a free market.
One of the most important recent political events to happen in Vietnam in 2002 was the election held in May 2002 of the country's new National Assembly (NA), the highest legislative body, for the 2002-2007 term. 498 individuals were elected as parliament members, including 118 permanent members, who will work on NA committees during their term, unlike the majority of members, who usually operate in local areas and only attend regular meetings of the NA when they are arranged.
The NA has decided on the new government cabinet, whose working term will also extend from 2002 to 2007. Prime Minister Phan Van Khai was re-elected and the number of deputy prime ministers cut to three for the next five years from four in the previous term. 
Minister of Trade Vu Khoan, was elected deputy PM in charge of trade and foreign affairs, replacing Nguyen Manh Cam. Khoan is respected for his contribution in signing a landmark trade deal between Vietnam and its former enemy the United States.
Deputy PMs Nguyen Tan Dzung and Pham Gia Khiem continue in their posts for the next five-year term.
The NA approved the setting up of 26 ministries and ministerial committees, up from 23 in the previous term. The new formation aims to help ministries to focus more on their responsibilities and to work more effectively. Stagnation, overlapping functions and the bulky structure of the government's administrative bodies was one of the major causes of the ineffectiveness of government in its previous terms.
Fourteen new ministers and committee heads or 50% of the government's cabinet have been appointed for this new term, including ministers of police, justice, trade, transport, construction, industry, planning and investment, home affairs, science and technology, natural resources and environment, post and telecommunication, state inspectorate, ethnic minority people, and population, family and children. Two newly-created ministries included the Ministry for Natural Resources and Environment and Ministry of Post and Telecommunication.
The government firmly pledged to implement changes to provide a more favourable and equal environment to support private enterprises during the term of the 11th National Assembly, in addition to imposing tougher conditions for state owned enterprises (SOEs). In practice, the new-found commitment to the private sector remains to be tested. The government has, however, moved ahead with economic reforms related to its pursuit of World Trade Organization (WTO) membership, and its commitments under the bilateral trade agreement with the US.
In an effort to ease the public's increasing discontent with corruption and other social ills, the Communist Party general secretary, Nong Duc Manh, promised to pursue a tough campaign to crack down on corruption and wrong-doings of party members. Manh has also attempted to breathe new life into the economic renovation (doi moi) process, but the pace and progress of economic reform is unlikely to quicken significantly in 2002-03. 

The Communist Party:
The Communist Party, easily the most powerful organization in Vietnam with around two million members, has set targets to consolidate control and leadership in grassroots groups. The Party says it will clarify the responsibilities of commune authorities and other social organizations, make them work under local Party organizations' management, and to consult citizens regarding their decisions. 
For many years, Party organizations have had little effect on people since the tasks and responsibilities of Party organizations and local governments have not been clearly defined. 
In urban areas, local Party organizations just assemble some retired Party members for impractical gossip sessions and rarely admit new Party members, because most Party members are drawn from their offices' organizations. 
In rural areas, Party members are also commune authorities, so they have unchallenged power to decide on local issues, which is the root of increasing corruption and abuse of power, illustrated by the mounting number of complaints and criticisms. 
The Party only has groups in State-owned enterprises and administrative offices. While private and foreign invested enterprises keep expanding and increasing their contribution to the economy, the Party has not yet set up organizations in those sectors because it still prevents Party members from operating businesses. The NA's final announcement, however, did not make it clear if the Party would admit business people into its organization in a bid to increase its influence in the private sector. 
However, not wanting to evade the increasingly important role of private businesses, the party this year made an historical decision allowing businessmen to be members and will permit current members to operate private enterprises. Party members can run private enterprises if they do not violate laws and have the support of their staff and neighbours. They can maintain their Party membership if they wish. The Politburo, the country's political elite, hopes that Party members working in the production sectors will be excellent businessmen who can make legal fortunes and encourage other people to make fortunes but do not explain how these objectives may be realised. 
In the Party's previous regulations, Party members could not practice labour exploitation, because it is contradictory to old Russian socialist theory, which the Party adopted as a bible. But the Party never clarified what "labour exploitation" was, resulting in an implicit understanding that Party members could not run private businesses that employ workers. 
In fact, no Party members are directors of private companies and few are working in private companies. The permission to do so came along with the Party's resolutions on boosting the private sector's role in the economy and on improving the Party's leadership in grassroots organizations. 
The Party now has to admit the existence and increasing role of the private sector. Despite much discrimination and repression, the private sector now contributes around 60% of GDP. The Party also realizes that it has lost control, along with its image and prestige at the grassroots level, in rejecting the private sector, the largest and fastest emerging part of society.  

Politics:
The political scene in Vietnam is expected to remain stable in the period 2004-2005 with little change in the leadership of the Communist party and the government, of the current ruling triumvirate, only the Prime Minister, Pha Van Khai is affected by speculation over personnel change in the near future. The party chief Nong Duc Manh and the president Tran Duc Luong are likely to remain firmly in place. Mr. Khai has served since 1997 and has avoided any serious criticism. However, as he is 70 year-old and nearing retirement, he could step down in a possible mid-term reshuffle (between party congresses) in early 2004. Mr. Khai could still see out his full term however, partly because he appears to be keen to stay on, but more importantly because there is no obvious successor. One potential replacement is the first deputy prime minister with responsibility for economic and internal affairs, Nguyen Tan Dung. However, his recent performance has been regarded as disappointing. Another possible successor is Truong Tan Sang who heads the party's economic commission and headed the Ho Chi Minh city people's committee from 1996 to 1999. However, he may not yet be close enough to the centre of power and could instead be made a deputy prime minister and groomed to succeed to the premiership at a later date. 
Despite the likely secrecy that will surround any leadership changes, such moves will be undertaken with a minimum of fuss and fanfare and will herald little significant change in policy direction. 
There is little risk that Mr. Manh will not serve his full term in office. His determination to clamp down hard on official corruption is being fairly well received by the public, although there is some cynicism as to whether the most serious high-ranking offenders will be dealt with. However, several prominent government figures received prison sentences earlier this year for their part in the widely publicised scandal surrounding a Ho Chi Minh city gangster.
Relatively senior officials have thus been put on notice that contrary to what they might once have thought, they are not beyond the reach of law. But the age-old underlying cause of official corruption, a bureaucratic administration in which salaries are low and opportunities for bribery are widespread- also needs to be addressed. 
The process of dealing with corruption still remains high on the official agenda. The justice system has not been running smoothly, owing to corruption and a shortage of lawyers. A "cyber dissident" has had his sentence reduced, but the government harsh crackdown on dissidents continues. 
The extent of corruption in Vietnam is reflected in its poor performance in regional ranking. The Hong Kong based Political and Economic Risk Consultancy has been polling business people since 1995 on their perceptions of corruption. The most recent regional survey, carried out this year, ranks Vietnam as the third most corrupt country with a score of 8.83, the most corrupt countries were considered to be Indonesia (9.33) and India (9.30), China was not far behind Vietnam with a score of 8.33. 
The government has sent out firm messages on religious freedom. The US and the EU have been critical of Vietnam's recent human rights record. However, the country strongly rejected that accusation. The government has moved to prevent future demonstrations over land expropriation.

Economic policy:
The slow pace of reform remains a major risk to high economic growth. The private sector has continued to boom, but its development has been hampered. The pace of privatization of state owned enterprises has been slow.
The government has tried to create a more investor-friendly environment, primarily in response to demands from foreign investors. The US and the EU have been supportive of Vietnam's bid to join the World Trade Organisation but have called for greater protection of intellectual property rights. Tariff levels have fallen in accordance with commitments to the ASEAN (Association of South East Asia Nations) free trade area (AFTA).
Real GDP has grown by close to 7 percent so far this year. It is unlikely that Vietnam will be able to push its economic growth rate above 8 percent as planned in the next two years if the government does not speed up its economic reforms. The Prime Minister Phan Van Khai has acknowledged that there are problems that need to be surmounted. Although GDP growth is high, it is of poor quality because of the unduly high investment rate that is needed to achieve such rates. The trade deficit has widened rapidly, budget revenue is unstable and the administrative system is bulky and obstructive.
Industrial output, especially in the private sector has been driving the economy. Consumer price inflation has fallen below 3 percent and the dong has depreciated slowly against the US dollar. Rice exports have been robust despite problems in Iraq, a major export market. Sales of locally made cars have boomed in recent months ahead of tax increases. The US textile quota regime has constrained domestic production. The tourism sector has been picking up. 

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Update No: 027 - (02/03/04)

Although the Communist Party continues to benefit from a fairly stable political environment, leading officials remain concerned about the incidence of official corruption and the impact that is having on the public confidence in the party. In the most recent ratings, Vietnam ranked 100th of out 133 in a global corruption survey. The survey gave Vietnam a "corruption perception rating" of 2.4, on a scale that runs from 0 (endemic corruption) to 10 (little or no corruption). In 1999, Vietnam received a rating of 2.6 and ranked 75th out of 99 countries surveyed. The government is aware of the problem and the Prime Minister, Phan Van Khai, has spoken out against the wastefulness of corruption, while also saying that it is difficult to fight corruption successfully. 
In December 2003, La Thi Kim Oanh, the director of a state-owned company, was sentenced to death for misappropriating US$4.7 million. Two former deputy ministers of Agriculture and Rural Development, Nguyen Thien Luan and Nguyen Quang Ha, were each sentenced to prison terms of three years for their part in the corruption scandal. Prior to this, the two top executives of the state-run Vietnam National Coffee Corporation (Vinacafe) were suspended for "misusing state funds". 
Besides corruption, high-ranking state officials have recently been condemned for losing their moralities, influencing negatively on the image of Communist Party. Deputy Head of Vietnam Sport Committee, Luong Quoc Dung, was accused recently of raping a child at the age of 13 in Hanoi, raising alarm about a trend of deterioration in morality of top state cadres.

Economic Policy 
International donors praised the government for its achievements in boosting economic growth and efforts for poverty reduction. However, they warned Vietnam against complacency and expressed disappointment with the slow pace of reforms of state-owned enterprises (SOEs) and the financial sector. Japan especially warned Vietnam that it had to speed up the pace at which it spends its official development assistance. Currently, less than half of pledged aid is disbursed each year. 
The government has set out an ambitious economic plan for 2004, in which it hopes to achieve GDP growth of 7.5 to 8 per cent. Prime Minister Phan Van Khai has now set the bar even higher for 2004, calling for an average of 8.2 per cent annual increase in GDP in 2004-05. This goal is barely realistic, but it provides a way for Mr. Khai to spur his colleagues on to undertake economic reforms, including the creation of a level playing field for all firms. 
The government's progress in reforming and privatising SOEs has been slow. According to the plans of the National Steering Committee for Enterprise Reform and Development, a total of 1,459 SOEs were supposed to have been reformed last year, followed by a further 890 in 2004 and 431 in 2005. The total number of SOEs would therefore drop to around 2,300 by end 2005 from the current 5,000 or so in operation. 
The government is trying to scale back its role as an investor in business enterprises. The Ministry of Finance has proposed that the government cease providing subsidised loans for projects in several industries, including electricity generation, fertilisers, software, bicycles, and motorcycle and car parts. Most of the financing is channelled through Development Assistance Fund, which was designed as "policy lender" and will eventually be changed into a state-owned bank

WTO and foreign investors call for faster trade reforms 
The chairman of World Trade Organisation (WTO) working party on Vietnamese accession, Seung Ho, has urged Vietnam to accelerate its trade policy reforms. Vietnam has been seeking WTO membership since 1994 and hopes to join by 2005. However, its initial offer of reforms was rejected, and there are signs that the country's leaders are divided on the importance of WTO membership. Vietnam has responded to 1,700 questions from WTO members and began its seventh round of negotiations last December. Investors were generally encouraging about the progress the government has made, but pointed out that at the current pace of reforms the government would struggle to achieve its ambitious goal of joining the WTO by 2005. 

Changes in Land Law Will Help Overseas Vietnamese 
The National Assembly has approved a number of changes to the Land Law, which was last revised in 1993. The new law, which comes into effect in mid 2004, makes it easier for overseas Vietnamese (VietKieu) to acquire land use rights. The most important change may be in the way that land is valued for the purposes of taxation, collateral, and the valuation of enterprises. Until now, an arbitrary and low land rental tariff has been used. 

Personal Income Tax Brackets Remain Unchanged 
Much to the chagrin of businesses that had hoped that the personal income tax thresholds would be raised, significant changes in the tax code have not been forthcoming. Under current rules, employees begin to pay income tax, at 10 per cent, when their monthly income exceeds VND3 million (US$194), they reach the 50 per cent bracket when their monthly income reaches VND15 million. The thresholds for foreigners are more generous, the 10 per cent rate begins when the monthly income reaches VND8 million and the 50 per cent bracket at VND120 million. This actually creates an incentive to hire foreigners over Vietnamese. However, a recent decree issued by prime minister stipulates that no more than 3 per cent of the workforce of an enterprise in Vietnam may consist of foreigners. Most foreign workers must obtain a work permit when they are employed for more than 3 months. The change has been heavily criticised by foreign businesspeople and foreign invested enterprises in Vietnam. 

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FINANCIAL NEWS

ADB directors highlight Viet Nam's achievements and challenges 

Five members from the Asian Development Bank (ADB)'s Board of Directors were impressed with Viet Nam's poverty reduction and economic growth, an ADB senior official said. 
Speaking on behalf of the ADB delegation before departing Viet Nam, United States Executive Director Paul Speltz said: "We found the leaders of the State Bank, Ministry of Finance, and Ministry of Planning and Investment fully aware of the need to speed up the implementation of the existing official development assistance (ODA) investment, and were informed by the Government that they have a strong intention to achieve a breakthrough on the rate of disbursement in 2004." 
Speltz added that the delegation was encouraged by the Government's intentions to advance towards WTO accession, and by plans to proceed in the equalization of state-owned enterprises, including the resolution of non-performing loans owed to state commercial banks. 
For its part, the Government requested the ADB focus grant assistance on preparations for quality investments and financial sector reform, including governance, tax practices, and requirements for international markets. 
The ADB delegation concluded a five-day visit to Viet Nam on Tuesday. During their stay in Viet Nam, they met with political leaders and senior government officials, including Le Duc Thuy, Governor of the State Bank of Viet Nam; Nguyen Sinh Hung, Minister of Finance; and the Vice Ministers of Transport, Planning and Investment, and Home Affairs. 
They also visited several ADB-financed projects, including the Rural Infrastructure Sector Project and Lower Secondary Education Development Project in Quang Nam province, the Central Region Urban Environment Improvement Project in Tam Ky town, the Greater Mekong Subregion Phnom Penh - Ho Chi Minh City Highway Project, as well as some private sector projects, for example as the Mekong Enterprise Fund and RMIT University in HCM City, Bvom.com reported.

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FOOD & DRINK

Vietnam won the contract to ship 410,000 tonnes of rice to the Philippines 

The Philippines' National Food Authority (NFA) has decided to buy a total of 460,000 tonnes of rice of which 410,000 tonnes will be sourced from Vietnam and 50,000 tonnes from Thailand.
NFA will buy 452,000 tonnes of 25%-broken rice from the two above-said importers and 8,000 tonnes of 15%-broken rice from Vietnam.
Out of 410,000 tonnes of rice, the Vietnam's Southern Food Company (Vinafood 2) will provide 200,000 tonnes and six other local rice-exporting companies will supply the rest, Bvom.com reported

Rice producers export 50% less than last year 

Food companies in January exported 100,000 tonnes of rice, half the amount during the same month last year, said the trade ministry, bvom.com reported recently.
Southern Food Corporation (Vinafood 2) General Director, Truong Thanh Phong, attributes the low export numbers to an exceptionally large amount of rice exports in the last months of 2003, leaving a small quantity for export in the first months of this year.
The world market usually demands a large supply of rice at the year's end, and rice exports in January are typically lower than other months of the year.
Phong also said news that Indonesia will not import rice from Vietnam in the first half of this year should not worry domestic exporters.
He said last year, even though Vietnam exported just 200,000 tonnes to Indonesia, only half the sales contract, it still reached the annual export target of four million tonnes of rice.
This is attributed to food companies finding new export markets in the Philippines, Brazil, Africa and the Middle East. Russia is expected to help Vietnam export 100,000 tonnes of rice to Russian and Eastern European markets this year.
Also worth noting, the country's biggest rice basket in the Cuu Long (Mekong) River Delta, is harvesting 230,000ha of winter-spring crop, a bumper crop this year.
Director of An Giang Province's Department of Agriculture and Rural Development, Nguyen Van Phuong, said local farmers obtained a rice output of 6.5 tonnes per hectare, 0.5 tonne more than the same crop last year.
Provincial authorities are not only concerned with crop output but are looking for ways to ensure food security for areas hit by natural disasters. Since early this year, the northern part of the country has been hit by severe drought which is forecast to spread to the central region, Tay Nguyen (Central Highlands) and southeastern provinces in the coming months.
The situation requires the Cuu Long region to reserve up to one million tonnes of rice a year to transport foods to the north, the central part and Tay Nguyen if necessary.

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MINERALS & METALS

Joint venture licensed to mine in northern province 

The Nui Phao mining joint venture company has been permitted to conduct mining and processing activities in Dai Tu district of northern Thai Nguyen province. 
Under a licence granted by the Ministry of Planning and Investment on Wednesday, the company, a joint venture between Viet Nam's Thai Nguyen Minerals Company and Thai Nguyen Investment Company and Canada's Tiberon Minerals Ltd., has an operational period of 30 years. 
The joint venture plans to tap 3.5 million tonnes of ore per year from an open-cast mine and to export 80 percent of products. Construction of facilities for the project will cost 147 million USD, Bvom.com reported.

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TOURISM

Hue posts 2 per cent tourist arrivals growth 

Over 65,650 tourists arrived in the former imperial city of Hue in January this year, including 28,000 foreigners, a 2 per cent year-on-year rise, Vietnam News Agency reported.
As a result, hotels in Thua Thien-Hue Province - home to Hue - averaged an occupancy rate of 67 per cent with almost all three- and four-star hotels posting growth of between 75 and 80 per cent.
Its tourism industry recorded a turnover of VND24.5bn (US$1.57m) in the period. Just during January 21-24, on the occasion of Tet (lunar new year), 9,132 foreign and 2,228 domestic tourists visited Hue.

Tourism Administration promotes international cooperation 

The Vietnam Administration of Tourism (VNAT) has inked a memorandum of understanding on tourism cooperation with Germany, bringing its signed bilateral cooperation agreements to 20.
The other signatories include Singapore, Laos, Spain, France, the UK, Germany, China and Japan.
VNAT has planned to organise a series of road shows in such countries as to expand tourism markets. It also put forth many initiatives to promote tourism at multilateral cooperation forums of the Greater Mekong Sub-region, the Asia-Pacific Economic Cooperation forum and the Asia-Pacific Tourism Association.
In 2003, the tourism service won technical assistance and non-refundable loans totalling US$25 million from various governments and international organisations. Also in 2003, 13 foreign-invested projects capitalised at US$64.7 million were licensed, bringing the total number of projects in tourism to 239 with a combined capital of US$6,112 million, Bvom.com reported recently.

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