Netherlands-Vietnam Chamber of Commerce (NVCC)

CNBC: Vietnam shines despite Southeast Asia’s struggles with trade and emerging market pressures

  • Vietnam is defying the stress in emerging markets as its Southeast Asian rivals face an uncertain outlook driven by trade war risks and a stronger dollar.
  • Vietnam received an estimated $11.25 billion in foreign direct investment in the January to August period of 2018, up 9.2 percent from the same period a year earlier, the investment ministry said last month.
  • But policymakers must ensure the country’s budget deficit doesn’t blow out and the economy doesn’t overheat, one expert says.

Vietnam — with its economy growing at its fastest pace in eight years in the first half of 2018 — is defying the stress in emerging markets as its Southeast Asian rivals face an uncertain outlook driven by trade war risks and a stronger dollar.

The threat of an escalating global trade conflict is weighing on prospects for export-dependent economies like Singapore and Malaysia, while Indonesia and the Philippines face challenges funding their high levels of external debt as their currencies come under pressure from a rising U.S. dollar.

Despite the spillover into Asia, Vietnam’s geographical proximity to China and its historically strong political and economic links with Beijing are paying dividends. Facing cost pressures created by U.S. trade tariffs, Chinese manufacturers are starting to shift production away from the mainland into cheaper Asian locations such as Vietnam and Bangladesh. South Korean, Japanese and Taiwanese firms are already invested in Vietnam.

Many of the countries in ASEAN — the Association of Southeast Asian Nations — are in a far stronger economic position than during the financial crisis of the late 1990s. But the latest fluctuations from emerging market worries, together with global trade frictions, raise questions about who will be impacted the hardest, what the contagion risk for the region will be like, and how best to limit the impact of outflows and currency weakness.

Policymakers and business leaders meeting in Hanoi at the World Economic Forum on ASEAN will attempt to discuss ways to mitigate what Mizuho strategists call a “double-barrelled U.S. shotgun” of a more hawkish Federal Reserve and U.S. President Donald Trump“upping the ante on trade war risks.”

“What we are looking at now is a sign of regional EM (emerging markets) differentiation, because certain markets don’t warrant the negativity,” said Dwyfor Evans, the head of Asia Pacific macro strategy at State Street Global Markets.

“If the U.S. is unable to offset lower Chinese imports by reshoring manufacturing, then continued strong demand conditions in the U.S. will have to be met from alternative sources,” he said. “I will not import toys from China. Instead, I will import from Vietnam, so trade wars and protectionism actually end up as a positive for Vietnam.”

Foreign investors

Vietnam received an estimated $11.25 billion in foreign direct investment (FDI) in the January to August period, up 9.2 percent from the same period a year earlier, the investment ministry said last month. In 2017, Vietnam received a record $17.5 billion in FDI.

“A lot of companies are relocating,” said Robert Subbaraman, head of emerging markets economics at Nomura told CNBC on Monday. “FDI inflows in particular have been very strong and have been providing good balance of payment support for Vietnam.”

Though current fundamentals look “pretty good,” Subbaraman said Vietnam must exercise caution on the fiscal front. Policymakers must ensure the budget deficit doesn’t blow out and the economy doesn’t overheat. “That often happens when you get the very strong inflows and companies moving in.”

Michael Langford, executive director at Airguide, a corporate advisory and consultancy, said Sino-U.S. trade tensions “politically will tighten the relationship between China and Vietnam.”

“Many Chinese firms have factories located in Vietnam now. Companies from battery manufacturers like Vision, through to furniture and textile manufacturing,” he added.

Vietnam may yet be a victim of its own success as it moves up the value chain from low-margin textiles to high-tech products.

“Binary risks around growth are intensifying as a protectionist U.S. puts the key exports engine at the risk of sputtering abruptly,” said Mizuho’s Vishnu Varathan in regional economic quarterly research published on Aug. 7. “We expect that longer term boost to inward investments into Vietnam remains a compelling proposition; as the natural ‘flow down’ of industries from China is hastened by trade war risks.”

Vietnam is a heavily trade-dependent economy with a trade-to-GDP ratio of approximately 200 percent “and rising,” according to Standard Chartered Bank economist, Chidu Narayanan.

Still, FDI inflows are set to remain high in 2018, led by manufacturing which makes up close to 50 percent of inflows, Narayanan said in research published in late June.

Standard Chartered expects both registered and implemented FDI to be close to $15 billion in 2018, moderating from $21 billion in 2017, he said.

“Vietnam has benefited from its participation in regional trade pacts, a young and educated population, a still-cheap and growing labour force, and geographical proximity to China,” he said.

“This should continue to attract strong FDI inflows in the coming years.”

Ambassador Elsbeth Akkerman’s first weeks in Vietnam

source: Ministry of Foreign Affairs

“In my first working weeks in Vietnam I experienced a very diverse palette of official engagements, which gave me the opportunity to familiarize myself with the multiple dimensions of my responsibility: fostering the warm relations and good co-operation between the Netherlands and Vietnam.

The celebration of Vietnam’s 73rd National Day.

National Day in Vietnam

On the occasion of Vietnam’s 73rd National Day, me and my husband had the honor to be invited to a reception hosted by Prime Minister Phuc. In his speech the Prime Minister elaborated on Vietnam’s robust economic growth, its ambition to engage in international relations and its commitment to the Sustainable Development Goals.

The evening also offered me a first unofficial introduction with many relevant members of the Vietnamese government whom I look forward to get to know better (in person) after my official installment. The commemorations continued on Friday the 31st of August (the next day) when I paid tribute to late President Ho Chi Minh together with the rest of the diplomatic corps.

“I found the firm belief of Dutch companies in the economic potential of Vietnam truly inspiring”

Visit to Nedspice Processing Vietnam Ltd: a company specialized in producing and exporting spices all over the world.

Visit to Ho Chi Minh City

After these first work experiences in Hanoi I was invited by the Dutch Consul General Carel Richter and his team in Ho Chi Minh City for a two day program during which I was able to meet representatives of Dutch companies that are active in Vietnam, several of them being social entrepreneurs who ‘while doing business give back to society’. I found their commitment and drive as well as their firm belief in the economic potential of Vietnam truly inspiring.

The latter also goes for the Re-think Plastic Initiative that was launched by the Dutch Community in Ho Chi Minh City that aims to increase the awareness on plastic production and consumption; not only shedding light on what a pollution problem plastic is, but also to what solutions might be found from very easy to very high-tech.

Vietnamese students

Very easy to join is the ‘plastic diet challenge’ that helps to reduce our unhealthy ‘intake of plastic’ at the super market (bags) and in the café (straws). Of a more complex nature is Dutch scientist Bojan Slat’s initiative to clean up the Great Pacific Garbage Patch that started last weekend by launching a 600m-long floating barrier off the coast of San Francisco. Even more inspiration I got from a meeting with the Nuffic Neso team that links Vietnamese students with an ambition to educate themselves abroad with Dutch Universities. Based on the number of student visa our consular department issued over the summer period one can conclude that studying in the Netherlands is quite popular.

World Economic Forum

From 11- 13 September Vietnam hosted the WEF on Asean Forum that was dedicated to entrepreneurship and the 4th Industrial Revolution. As a participant to the session on Accelerating Trade and Investment in Asia Pacific, I also had the opportunity to listen in to the speeches of amongst others Klaus Schwab and PM Phuc. Both referred to the current global political and economic dynamism, the economic potential of the ASEAN region and Vietnam in particular. Also they underlined the opportunities and challenges of Industry 4.0 for economies, businesses and societies. With over 1000 participants and numerous exchanges between representatives of governments, companies and civil society organizations was a very impressive event.

Vietnam economy sees bright outlook for 2018

Source: 07-Sep-2018 Intellasia | Hanoi Times | 6:00 AMPrint This Post

In addition to a bright outlook for the economy, the Ministry of Planning and Investment (MPI) pointed to a number of challenges to the economy, including trade wars between nations, geopolitical risks, growing trend of protectionism and nationalism.

Vietnam is expected to maintain its growth momentum from last year, posting a bright economic outlook for 2018, stated the MPI.

12 economic targets within reach

According to the MPI’s recent report, all 12 economic targets set by the National Assembly for 2018 could be achieved, eight of which may exceed expectations.

Specifically, the GDP growth rate for 2018 is set to reach 6.7 percent, while the MPI predicted the agricultureforestryfishery sector to reach growth rate of 3.3 percent this year, thanks to marked improvements recently.

Additionally, the industryconstruction and services sectors are expected to reach growth rate of 7.59 percent and 7.35 percent, respectively.

Vietnam’s nominal GDP in 2018 is forecast to stand at nearly VND5,555 trillion (US$240.5 billion), leading to GDP per capita of $2,540, up 6.3 percent year-on-year.

The consumer price index (CPI), a gauge of inflation, expanded 3.52 percent year-on-year in the first eight months of 2018, against the government target of 4 percent. This resulted in an increase by 1.38 percent year-on-year of the inflation rate during the JanuaryAugust period.

The MPI added that the economy is on track to keep the CPI below the 4 percent target this year.

Notably, Vietnam’s trade turnover in 2018 is estimated to reach $475 billion, up 11 percent year-on-year, of which, export turnover would be $238 billion, up 11.2 percent year-on-year and exceed the target of 78 percent set by the National Assembly and 810 percent of the government. Meanwhile, Vietnam is expected to import $237 billion worth of goods, up 12.3 percent year-on-year, leading to a trade surplus of $1 billion, exceeding the target of having trade deficit below 3 percent of total trade value.

Total capital investment in the first six months stood at VND747.6 trillion (US$32.19 billion), up 10.1 percent year-on-year. The figure for 2018 is estimated at VND1,890 trillion (US$81.41 billion), up 13.3 percent year-on-year and equivalent to 34 percent of GDP, which is also at the upper half of the target range set by the National Assembly (3334 percent).

Moreover, in the first eight months of 2018, Vietnam has 87,448 newly established enterprises with registered capital of VND878.6 trillion (US$37.84 billion), up 6.9 percent in registered capital and 2.4 percent in quantity year-on-year.

There were also 20,942 enterprises resuming operations during the period, up 0.3 percent year-on-year, resulting in a total of 108,400 enterprises starting or resuming operations in the first eight months this year.

The MPI expected Vietnam to have a total of 130,000 newly established enterprises in 2018, up 2.5 percent year-on-year.

GDP growth rate of 6.66.8 percent in 2019

Based on the socio-economic conditions in 2018, the MPI predicted Vietnam’s GDP in 2019 to reach 6.6-6.8 percent, while export growth target is expected to reach 7-8 percent and CPI growth of 45 percent.

Vietnam is expected to mobilise investment capital of around VND2,0362,097 trillion (US$87.6890.31 billion), up 7.711 percent year-on-year or 3334 percent of GDP.

Export turnover is set to reach $256 billion, up 78 percent year-on-year, while imports targets $261 billion, up 10 percent, leading to a trade deficit of $5 billion, below 3 percent of total trade turnover.

In addition to a bright outlook for the economy in 2019, the MPI pointed to a number of challenges to the economy, including trade wars between nations, geopolitical risks, growing trend of protectionism and nationalism.

Moreover, the Vietnamese economy also faces internal shortcomings, such as low technological and economic development level, depleting land and natural resources. There is also significant gap between the domestic and foreign invested sector, especially in trade activities.

Meanwhile, traditional driving forces of the economy such as investment capital and mining industry are fading and gradually replaced by manufacturing and processing.

However, most of Vietnam’s manufacturing and processing is found at the lower end of the global value chain, while there has not been any foreign-invested large scale project registered in the 20192020 period as in previous years.