[Vnbiz] EIU Vietnam WTO Boost

[Craig Stevenson]

Vietnam economy: WTO boost
   September 20th 2006
 Printer version<http://www.viewswire.com.ezproxy.umuc.edu/index.asp?layout=VWPrintVW3&article_id=1591114944&printer=printer>

   COUNTRY BRIEFING

FROM THE ECONOMIST INTELLIGENCE UNIT

Vietnam's economy continues to expand at a rapid pace. Growth is forecast to
reach 7.8% in 2006 and 7.3% in 2007, following an expansion of 8.4% in 2005.
Despite some concerns over the quality of Vietnam's business environment,
investors are generally upbeat and keen to grab a piece of the action.
Foreign investors appear particularly optimistic, with commitments of
foreign direct investment (both for new and existing projects) reaching
US$3.4bn in January-July, following commitments of US$5.8bn in 2005.

Much of this optimism centres on the potential opportunities and benefits
that will follow Vietnam's accession to the World Trade Organisation (WTO),
on which an agreement is expected to be reached by end-2006. In order to
gain entry into the WTO the government has been busy preparing and passing
legislation that will level the playing field for all investors and give
foreign investors greater access to a number of sectors. Bilateral
negotiations with all 28 WTO members that requested such talks have now been
completed—the most difficult and protracted negotiations were with the US,
but an agreement was finally signed in June 2006. Vietnam also held another
round of multilateral negotiations in July 2006, during which the head of
the accession working party, Eirik Glenne, stated that he aimed to wrap up
multilateral negotiations by October.

Buoyant private consumption is also supporting GDP growth. A number of
factors are contributing to this trend, most notably the expansion in
employment in manufacturing and services, and rapid growth in the number of
private enterprises, both of which are creating greater wealth in urban
areas. International remittances also remain high, while the development of
the financial services industry will see an improvement in the availability
of consumer credit.

Offsetting this upbeat picture, the State Bank of Vietnam (the central bank)
has been moving gradually to tighten monetary policy to contain inflation
and domestic credit growth. This could result in a slight slowdown in
consumption growth in 2006.

For better

   - Continuity. There were major changes in government personnel
   following the ruling Communist Party's tenth congress in April. Both the
   prime minister, Phan Van Khai, and the president, Tran Duc Luong, resigned
   from the party's Politburo, effectively bringing to an end their terms in
   office. Mr Khai was succeeded by his first deputy, Nguyen Tan Dung, 56,
   while the party's secretary in Ho Chi Minh City, Nguyen Minh Triet, 64, was
   chosen to succeed Mr Luong. Both men are regarded as being pro-reform, and
   as such there is unlikely to be any major change in the direction of
   economic policy. If there is to be any change, it will probably be on the
   upside, with a gradual acceleration in the pace of reform.
   - Intel invests. Vietnam's manufacturing base is no longer just
   labour-intensive; its high-tech sector is primed for expansion. In early
   2006 the world's leading producer of microchips, Intel, received a licence
   to build a US$605m plant to produce chips and computer parts. Intel's
   operations in the country, with a plant located in the Saigon High-Tech Park
   in Ho Chi Minh City, should encourage other large technology firms to
   establish a presence in the country. Intel's project represents the largest
   investment by any US company in Vietnam.
   - Stockmarket swells. The Ho Chi Minh City Stock Trading Centre (HSTC)
   has been expanding at a rapid pace. Following the listing in July of around
   US$1bn shares in the largest joint-stock commercial bank, Sacombank, the
   HSTC's market capitalisation reached around US$2.9bn (equivalent to around
   5% of GDP), up from around US$500m at end-2005. On a negative note, however,
   in the first half of 2006 the market was subject to a short-lived
   speculative boom, partly reflecting the lack of an experienced investor
   base.
   - A trade surplus. Owing to strong growth in exports and relatively
   slow (though still rapid) growth in imports in 2006, the merchandise trade
   account (fob-fob) will record its first surplus since 2001. In the first
   seven months of 2006, export revenue surged by nearly 26% year on year,
   driven up by sharp growth in sales of crude oil, garments, footwear and
   seafood.

For worse

   - A victim of its success. As Vietnam becomes an increasingly
   important exporter, it is discovering that the global trading environment
   can be difficult to master. Its footwear manufacturers are the latest to be
   subjected to anti-dumping duties. In April the EU, claiming to have found
   "compelling evidence of state intervention, dumping and injury", imposed a
   temporary levy at a rate of 4%. A 10% duty could come into effect in late
   2006 for a period of five years. The US has already imposed anti-dumping
   duties on Vietnam's catfish and shrimp exports. WTO membership, however,
   should give Vietnam's exporters a stronger platform to argue their case.
   - Hard graft. The Communist Party leadership continues to focus on
   tackling corruption within its ranks. However, much to the concern of
   foreign donors and investors, corruption remains entrenched.

  Key economic indicators, Vietnam   2006a 2007a 2008a Real GDP growth, %
7.8 7.3 7.5 Private consumption, % chg 5.9 6.3 6.8 Gross fixed investment, %
chg 10.2 10.5 10.5 Exports of goods & services, % chg 12.7 11.5 8.8 Imports
of goods & services, % chg 11.6 12.0 9.4 GDP, US$ bn 60.9 67.1 72.7 GDP per
head, US$ 720 790 840 Consumer price inflation, % (av) 7.5 5.5 4.9 Trade
balance, US$ bn 0.8 -1.0 -2.5 Current-account balance, US$ bn 1.0 -0.8
-2.1 Exchange
rate D:US$ (av) 16,037 16,410 16,850 a forecasts Source: EIU Country
Forecast
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