Doing business and investing in Vietnam: challenges and opportunities

February 18, 2011


With economic reform and growing affluence, Vietnam is one of the key emerging economies in the medium and long term. The country's business environment presents numerous opportunities for investment, despite challenges such as a burdensome Communist state apparatus and inadequate infrastructure.


•A young population (in 2010, 52.4% of the 87 million population was under the age of 30) with growing disposable incomes, a large supply of cheap labour and the gradual liberalisation of the economy are attracting investors to Vietnam;

•Vietnam's economy maintained healthy growth even during the global economic crisis in 2008-2009, growing by 6.5% in real terms in 2010. However, the single-party political regime, corruption and bureaucracy present challenges for businesses;

•Euromonitor International forecasts a growing role for Vietnam in the global economy as one of the Future 7 (F7) – developing countries with growing economies who together account for one in 10 global consumers. The other F7 economies are Argentina, Egypt, Indonesia, Mexico, South Africa and Turkey. In the World Bank's Ease of Doing Business report 2011, Vietnam ranked 78th out of 183 countries, compared to the 2010 ranking of 88th.

Doing Business rankings in 2010 and 2011: Vietnam and the other F7 economies Ranking out of 183 countries

Source: Euromonitor International from World Bank.


Implications

•Foreign direct investment (FDI) has become more important to Vietnam's economy, as the government began liberalising the economy. FDI inflows peaked at 9.5% of GDP in 2007, falling to 4.7% of GDP in 2009 as a result of the global economic crisis. However, prospects for recovery are good and Vietnam's joining of the World Trade Organisation in 2007 provides reassurance for foreign companies;

•Although Vietnam had the lowest FDI inflows of the F7 in 2009 at US$4.5 billion, at 4.7% of GDP in 2009, FDI intensity in Vietnam was the highest of the F7, representing how important investment is for its economy. Vietnam benefits from low labour costs, making it particularly attractive for investors;

•Vietnam's improvement in the 2011 World Bank Doing business ranking reflects a simplification of the business start-up procedure, a price cut in construction permits, and improved credit information systems. South Africa, Mexico and Turkey fared better than Vietnam but Vietnam's jump of 10 places was the greatest improvement among the F7;

•However, underemployment (employees dependent on seasonal work or working less than a full-time week) undermines social stability and creates a need for the government to focus on social spending. The official unemployment rate stood at 2.4% of the economically active population in 2010, but with over half of the population employed in the agricultural sector, low skills and low pay are widespread;

•Large government spending has led to a general government budget deficit of 6.0% of GDP in 2010 according to the IMF and inflation of 9.2% in the same year. This poses a risk for the stability of the economy;

•Corruption remains another impediment for the business environment. In the 2010 Corruption Perceptions Index by Transparency International, Vietnam ranked 116th out of 178 countries, making it the most corrupt of the F7 economies.

Prospects

•Vietnam's economic growth is expected to reach 6.8% in real terms in 2011 and 7.0% in 2012;

•The large, young and increasingly affluent population represents a large workforce and an under-served consumer market. The total population is forecast to grow from 87.0 million in 2010 to 94.0 million in 2020. Annual disposable income per capita is forecast to grow from VND15.2 million (US$819) in 2010 to VND29.0 million (US$1,556) in 2020 in constant terms;

Real GDP growth and disposable income per capita in Vietnam: 2010-2020 % / VND million per capita in constant 2010 prices

Source: Euromonitor International from IMF, International Financial Statistics and World Economic Outlook/UN/national statistics. Note: Data for 2011-2020 refers to forecasts.

•Vietnam's government has committed to liberalisation and opening up to foreign investment. Plans for the privatisation of large state enterprises, including the country's main airline, were announced in January 2011.

Posted on February 18, 2011 at 09:31:59 AM in Asia, Consumer and Economic Trends

Quoted from: http://blog.euromonitor.com/2011/02/doing-business-and-investing-in-vietnam-challenges-and-opportunities.html
 

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