Vietnam: Government restructuring state-owned enterprises

31 July 2017

Whilst terrorism risks are low, foreign investors in Vietnam will face a moderate risk of property damage during protests. Anti-China protests are most likely to lead to large-scale riots. Despite robust economic performance, downside sovereign credit risks stem from poor fiscal management. The Vietnamese government is keen to encourage foreign investment, particularly as it works to reduce the number of state-owned enterprises.

Security Environment

Disputed maritime claims in the South China Sea, in relation to the Spratly and Paracel islands, have the potential to strain relations with China. However, it is unlikely that that this will lead to full-scale conflict. Vietnam and China have been awarded oil and gas exploration licenses in the South China Sea, indicating that both countries are engaged in co-operating in the region. There are no known terrorist groups operating in Vietnam, although there is an elevated piracy risk, which typically involves stores from ships at anchor being robbed. Three incidents occurred between January and June 2016 in Hon Gai, Hon Cam and Vung Tau.

There has been an uptick in protests in response to environmental damage and controversial land acquisitions. Although protests are generally peaceful and localised, there is a risk of minor property damage and altercations with security forces as protests often involve thousands of individuals. Anti-China protests have led to large-scale riots and arson attacks against China-associated or Chinese facilities. In May 2014, around 20 foreign-owned factories in central Ha Tinh, Dong Nai and Binh Duong provinces were burned down. A further 1100 foreign-owned companies were impacted by looting and 140 individuals were injured.

Trading Environment

Whilst Vietnam will experience robust economic growth in 2017 of 6.1%, in  Q1 2017 real GDP expanded by 5.1% y-o-y, marking the slowest quarter of growth since Q1 2014. This was largely a result of a contracting mining sector and decelerating activity in manufacturing and construction. Vietnam’s external position will be supported by robust export performance. The country has benefited from a growing number of foreign firms relocating manufacturing operations to Vietnam, which will support a current account surplus of 0.8% by 2021.

Vietnam’s fiscal position is undermined by years of inefficient expenditure management, which has contributed to annual budget deficits above 4.0% since 2009. Whilst efforts have been made to improve fiscal policy, the budget deficit is expected to be 4.8% in 2017 and remain above 3.5% annually in the 10 year outlook.

This has also contributed to rising public debt as a share of GDP. Between 2008 and 2016 total government debt rose from 39.4% of GDP to 64.3%, close to a 65% limit. However, 40% of total government debt is concessional, moderating sovereign credit risks.

Investment Environment

The Vietnamese government is keen to enhance the country’s reputation with foreign investors, as it seeks to enhance the country’s integration into the global economy. This makes the risk of expropriation low. The rights of foreign investors are protected by bilateral treaties with a number of countries, including the United States, South Korea and the European Union. The state owns all land in Vietnam, with businesses granted land use rights certificates. Whilst this had led to some accusations by domestic landholders that provincial governments acquire land without adequate compensation, foreign investors are unlikely to face such treatment.

The government is also working to reduce the number of state-owned enterprises from 137 to 103 by the end of 2020. In September 2016, a number of firms were identified for restructuring, including insurance companies, a dairy company and trading firms. The sale of stakes in these firms has been approved, indicating Prime Minister Nguyen Xuan Phuc’s commitment to reducing government intervention in business. In May 2017, Nguyen also stated that mergers and acquisitions would be encouraged in a number of sectors, including agriculture, food and services.

Credit, Political and Security Risk update for Vietnam

** Pricing is dependent on industry, goods etc., with a preference for a three year tenor

*** A large deal was bound in the market for 9 years at close to 2.0% p.a. recently.

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, Mongolia, Algeria and Madagascar, all of which have been the subject of recent enquiries from JLT's client base.

Credit. Political, Security Risk update August 2017

The monthly Risk Outlook is supported by JLT’s 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.

Download August Risk Outlook

For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email


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