Vietnam country risk assessment

07 January 2020

Vietnam country risk assessmentVietnam will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.

As Vietnam gradually moves towards a market-oriented economy, it is likely to offer an improved risk environment for businesses.

As the US-China trade dispute continues to generate global economic uncertainty during 2020, Vietnam will continue to position itself as a stable, lowcost manufacturing hub.

Security Environment

The approval of a new labor code on November 20, 2019, is expected to reduce the likelihood of strikes in Vietnam’s labor-intensive industries in the coming quarters.

The legislation will allow the establishment of independent labor unions from January 1, 2021.

In the absence of independent unions, workers typically stage non-violent strikes lasting between two and three days, which can cause disruption to business operations.

Vietnam country risk assessmentHowever, legalizing the formation of independent labor unions should create a mechanism for dialogue between management and employees, reducing the likelihood of labor strikes over the medium-term outlook.

The new legislation is also likely to facilitate ratification of a free trade agreement with the European Union in 2020, opening up the potential of further foreign investment in Vietnam’s manufacturing industries.

Trading Environment

Vietnam has capitalized on the shifting of supply chains away from China, as investors seek a stable manufacturing base amid the US-China trade war.

In the last 12 months, Vietnam has risen from the 12th to the 7th largest exporter of goods to the US, with a record trade surplus of US$35.6 billion, a 38% year-on-year increase.

Foreign direct investment (FDI) in Vietnam has already increased by 7.4%, in the first eight months of 2019, reaching US$22.6 billion compared to US$35.5 billion during the whole of 2018.

A particularly positive indicator is that 60% of investment within pledged FDI targeted the manufacturing and processing industries. This should provide Vietnam with growth momentum in its core economic sectors.

With comprehensive agreement on the US-China trade dispute unlikely in the one-year outlook, it is expected that FDI inflows into Vietnam will remain strong and underpin a robust real GDP growth forecast of 6.9% for 2020.

If a ‘phase one’ deal can be agreed between the US and China, risks are tilted to the upside. Despite Vietnam being criticized by the Trump administration as a potential currency manipulator, the US is unlikely to want to engage in trade disputes on multiple fronts during an election year.

The US also views China’s growing economic influence in Vietnam as a threat, which is likely to lead to more cordial US-Vietnam trade relations, at least in the near-term outlook.

The main challenge for Vietnam will be managing the bottlenecks that this additional demand places on an aging infrastructure system.

Logistics costs are high in Vietnam, given a lack of integrated services and automation.

According to the World Bank, Vietnam will require infrastructure investment of up to US$25 billion a year in order to keep pace with the rapidly growing economy.

Whilst the surge in foreign investment has boosted short-term growth prospects, it has also highlighted Vietnam’s infrastructure deficit.

Business disruption has become more commonplace in 2019, it has been reported that delivery trucks occasionally have to wait between four and five days to unload containers at Ho Chi Minh City Port.

Structural factors, such as close proximity to China and the competitiveness of domestic wages, are likely to attract foreign investment in 2020.

The Vietnamese government has made macroeconomic stability, combined with economic reform, a central part of its long-term growth strategy.

In that regard, price stability has been achieved by bringing down inflation from a double-digit high of 23% in 2011 to 2.1% in 2019.

The State Bank of Vietnam (SBV) has also been tasked by the government to implement banking sector reform, in a bid to improve risk management and credit quality.

Having built up a strong foreign reserve position of US$63.9 billion, the SBV is well placed to intervene and ensure currency stability over the medium-term outlook.

Investment Environment

Pricing Outlook VietnamThe risk of expropriation or nationalization of foreign investments in Vietnam is low, reflecting the government’s desire to attract investment.

Investment in the power and renewable sector is particularly viewed by the government as crucial to powering the manufacturing sector, which accounts for 17% of GDP.

However, businesses will still be exposed to risks presented by the regulatory environment. Inconsistent regulation will remain a major challenge for businesses, particularly in the case of public-private partnerships (PPPs).

Risks associated with PPPs can be seen in the largest project in the Vietnamese road sector, the North-South Expressway, which faces downside risks after the Ministry of Transport excluded bids by foreign investors in September 2019.

Although the new tender rules allow the participation of Vietnamese companies with up to 51% foreign ownership, the exclusion of foreign investors in the contracting process will limit the possibility of more competitive tenders.

5 Key Takeaways

  • Vietnam is set to become one of the fastest growing countries in southeast Asia, with real GDP growth forecast at 6.9% in 2020.
  • Foreign direct investment (FDI) in Vietnam increased by 7.4%, in the first eight months of 2019, reaching US$22.6 billion.
  • 60% of pledged FDI targeted the manufacturing and processing industries.
  • A new labor code introduced in November 2019 is expected reduce the likelihood of strikes in Vietnam’s labor-intensive industries.
  • Inconsistent regulation will present risks to public private partnerships (PPPs). The Ministry of Transport excluded bids by foreign investors for the tender of a major road project.

The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Egypt, Senegal, Colombia and Malaysia and all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.


    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)20 8108 9544.

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