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Vietnam has been in transition from a centrally-planned to a 'socialist oriented market economy' since the introduction of the doi moi reforms in 1986. In the early-to-mid 1990s, liberalisation measures resulted in rapidly expanding exports and high economic growth, with real GDP growth averaging 9 per cent per year. Poverty rates are now less than 20 per cent, down from almost 60 per cent in the early 1990s.
Since 2000 the Government initiated rapid economic and corporate reforms. As part of its effort to improve the competitiveness of the state corporate sector and maintain the momentum in foreign direct investment, Vietnam has undertaken a program to equitise (semi-privatise) around 1600 state-owned enterprises (SOEs) between 2007 and 2010. The Vietnamese Government also has an ambitious plan to extend the equitisation process to major state-owned conglomerates in sectors such as banking, insurance, aviation, cement, steel and textiles.
Key to economic growth is the recently signed ASEAN-Australian-New Zealand Free Trade Agreement (AANZFTA) which sees Vietnam commit to a range of liberalising reforms, including removing tariffs on 29 per cent of tariff lines by 2010 and on almost 90 per cent by 2025. It also includes commitments to develop regional rules of origin and improve conditions on business entry and stay, and establish an enhanced regime of investment protections, providing an important vehicle for facilitating trade and investment among Agreement members, including between Australia and Vietnam.
Real GDP grew by over 5 per cent in 2009 and the Vietnamese Government has projected 6.5 per cent growth in 2010. An export-oriented economy, Vietnam saw demand from key export markets decline during the economic slowdown. At the same time, FDI inflows were slowing with tightening global credit conditions.
In response to the economic slowdown, the Government introduced a range of measures to loosen monetary policy and stimulate the economy. This included a 4 per cent subsidy on commercial loans. The capacity of the Government to deliver a large fiscal stimulus to the economy, however, was limited by a large trade deficit and low foreign exchange reserves.
Vietnam has many economic strengths, not least the skills and entrepreneurial bent of its youthful workforce. It is also a member of a growing network of free trade agreements, both individually and as part of ASEAN, and is located in the most dynamic part of the globe. However, the country faces challenges in maintaining its growth and development trajectory over the longer term. Vietnam's ability to deal with recent economic developments will be a key test for the Government.
Australia – Vietnam Trade
International trade, in goods and services exports now constitute around 70 per cent of Vietnam's GDP up from a 30 per cent share recorded in the mid 1990s.
Two-way trade between Australia and Vietnam registered encouraging growth over the last five years to reach $6 billion in 2009.
Vietnam's share represents $8 billion or 10% of the total Australian - ASEAN trade. Intelligence suggests that there is a strong market for sustainable urbanisation services in Vietnam as it is an economy developing rapidly with a population of 86 million with a growth rate of 7.5-8% per annum where infrastructure development has been identified as a sector of national priority encouraging both investment and external expertise.
Two-way services trade between Australia and Vietnam performed well in 2009, growing by 15 per cent to reach A$1.5 billion. Services exports to Vietnam during this period were worth A$865 million, triple that of 2005. Education-related exports remain Australia's single largest services export, worth A$713 million in 2009. Services imports from Vietnam in the same period were valued at A$608 million, dominated by recreational travel (A$446m).
Bilateral economic relationship
As at April 2010 there were 224 currently valid Australian-funded projects with disbursed FDI valued at US$224 million. Over the past five years, the most significant Australian investments have involved expansions by established Australian companies, which continue to diversify their operations. Prominent examples include ANZ Bank, QBE, Santos, Qantas and the Commonwealth Bank.
The Ministerial level Australia-Vietnam Joint Trade and Economic Cooperation Committee (JTECC) is the primary government-to-government mechanism to take the bilateral trade and investment relationship forward, and address any problem areas. JTECC met for the ninth time on 25 June 2010 in Melbourne. The meeting provided an opportunity to discuss key areas of potential for increased bilateral trade and investment, including education and training; infrastructure; and resources and environment. Multilateral and regional issues of mutual interest were also discussed.
Australia and Vietnam are parties to the ASEAN-Australia-New Zealand Free Trade Agreement which entered into force on 1 January 2010. Vietnam ratified the agreement on 24 June 2009.
Vietnam's major goods exports are crude oil, textiles, footwear, seafood, timber products, rice, rubber, coffee, cashews, pepper and coal. Its major export destinations in 2008 were the United States, Japan, China and Australia (Rank 5).
Export opportunities for Australian companies
While the global economic slowdown presented challenges, the long term outlook for Australia-Vietnam trade and business relationships remains positive.
Tourism and tourism infrastructure developments
Over the past 15 years, tourist arrivals to Vietnam have increased by 20% each year on average. In 2010, Vietnam should attract 6 million foreign visitors and 25 million domestic tourists, earning revenues of USD$4-$5 billion. Many resorts have been developed and many more planned, especially those on the coast from the central region down to the south. Vietnam is witnessing a lot of foreign investment in large tourism projects including hotels, entertainment parks, resorts and golf courses, according to the Ministry of Culture, Sports and Tourism. Prominent areas that have been targeted for tourism development include Da Nang City, Nha Trang City, Ba Ria-Vung Tau province, Phu Quoc Island, and Quang Ninh province. City planners in these areas also cite the need for accompanying airports, roads and other tourism infrastructure as priorities
Education and Training
The continuing shift towards a more market-based economy and strong economic growth in Vietnam have increased demand for education and training services. Education sector reforms are also under way with support from the Government of Vietnam and donors including the World Bank and Asian Development Bank. The need for training in areas such as English language, business and management and information technology remains high, especially in the major urban centres of Hanoi and Ho Chi Minh City.
Oil and Gas
Vietnam has large deposits of oil and gas, and a wide range of exploitable mineral deposits. Many Australian companies have expressed interest in minerals development in Vietnam, but remain concerned by uncertainty in the regulatory environment and the fiscal regime.
According to UNDP, Vietnam is a country of enormous potential for CDM projects. Since 2003, more than 100 CDM projects have been developed by the DNA. At the 13th International CDM Conference (COP 13) held in Bali, Indonesia in December 2007, MONRE announced that Vietnam expected to receive about US$250 million in 2008-2012 from CDM projects. This means that CDM projects in Vietnam must reduce an additional 40 million tons of CO2 or its equivalents (CO2e) during that period. To fulfill this target, there will be a high demand for the transfer of clean technologies from developed countries into Vietnam.
Australian companies are generally well received in Vietnam. Australia is regarded as a modern, technologically advanced and friendly country located within Vietnam's immediate sphere of interest. Long-term trade and investment opportunities should increase in line with Vietnam's progress in implementing its legislative and administrative reform program.