Vietnam Market – Overview
Vietnam: Pushing the tempo. The year of 2015 began on a positive note for Vietnam.
Economic activity was strong in Q1, setting the stage for acceleration in annual GDP growth.
The economy is benefitting from a recovery in domestic demand and foreign direct investment (FDI) inflows that continue to support investments and exports. Besides, low global oil prices have pushed consumer price pressures lower. With inflation below the central bank’s target, monetary policy is likely to remain accommodative. The economy will also benefit from reforms aimed at improving the health and efficiency of banks and state-owned enterprises. Policymakers are also trying to deepen economic engagement with key trading partners, a move that is likely to reap dividends in the medium to long term.
Vietnam’s economy has been quick off the blocks in 2015, growing 6.0% year-over-year in Q1 2015. This is the fastest pace of growth for the first quarter in the last five years. Usually GDP growth in Vietnam accelerates through the year. Consequently, strong growth in Q1 2015 augurs well for the coming quarters. In Q1, industry and construction had the largest impact on GDP growth, contributing 2.8 percentage points. Services and agriculture contributed 2.4 and 0.3 percentage points, respectively.³
Vietnam has been one of the fastest growing emerging markets in the world for more than a decade. It is a rapidly developing country with a young population of more than 89.71 million, with the median age of 29.2, and a per capita GDP of USD 1,902, as of 2013. It has also been a major attraction for foreign direct investment (FDI) from around the word .
Regarding economic developments, Vietnam’s growth rate has averaged 6.4% per year for the last decade, but it has begun to slow recently. In 2013, the nominal GDP reached US$174.4 billion, growing at 5.4% and is projected to flatten in 2014. Although the economic growth remains moderate and below its potential, Vietnam managed to improve its macroeconomic stabilization. Headline inflation fell from a peak of 23% in August 2011 to about 4.2% in August 2014.
*Source: WorldBank, reported on a fiscal year basis (Note: f=forecast)
The nation boasts a young, dynamic, forward-looking consumer population with increasing amounts of disposable income. According to recent statistics, 43.9% of the population has access to and uses the internet, and mobile phone subscriptions are equal to 137% of the population, which indicates a promising market for high-tech products and services in all sectors.
However, like many other developed and emerging countries, Vietnam has suffered economic setbacks due to the global financial crisis of the past few years. The country is experiencing its longest spell of slow growth since the onset of economic reforms in the late 1980s. Foreign investors also face many challenges doing business in Vietnam, including language barriers, different business cultures, inadequate and inaccurate information, and an economy dominated by state-owned enterprises. Convoluted administrative procedures, corruption, bureaucratic “red tape”, and very long sales cycles (often more than two years) are other factors that frequently hinder investors in the country.
Despite these negative elements, however, the potential of the Vietnamese market remains strong and the country is predicted to continue growing at an annual rate of about 5% in the coming years. According to the 2012/13 ASEAN Business Outlook Survey by AmCham Singapore and US Chamber of Commerce, Vietnam remains the most popular location for expansion within the ASEAN region by a wide margin. Thailand is ranked second, followed by Singapore and the Philippines.
*Worldbank report: An update on Vietnam’s recent economic developments
Vietnam’s economic development outlook in the next decade will depend crucially on how the government tackles its huge reform agenda with regard to public investment; restructuring of the financial sector, with a particular priority focus on the banking sector; and long-overdue reform of the State-Owned Enterprises. The effect of these reforms still remains to be seen and the future is not certain. However, the SBV’s initiatives have produced positive results in 2012 and inflation is predicted to be in single digits by the end of the year. A number of banks have already merged and are beginning to function successfully in their new formats, and more investment is being poured into information technology and telecommunications to modernize administration and management.
Numerous opportunities for investment will present themselves as Vietnam progresses through its economic restructuring, and smart investors will be on the lookout for any chances to get in at the beginning of a new cycle of growth in this burgeoning Southeast Asian economy.
Challenges of doing business in Vietnam
• Government type: Communist state
• Dominated by state owned enterprises
• Language & Culture
• Timelines (very long sales cycles going beyond 2 years)
• Lack of local implementation/references
• Banks asking for source codes/flexibility to change product workflows
• Banks combining requirements for retail and corporate for e.g. e-banking
• Each bank having its own preferred local SI, difficult to work with all the SIs/accommodate multiple partners in a single deal
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Ho Chi Minh Vietnam
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