Vietnam Economic Outlook 2012 - 2013

October 2012
Lam Phi Yen
Head of Corporate Sales HCM Global Markets, Vietnam
yenphilam@hsbc.com.vn
+84-8-3520 4113

Agenda

Vietnam Economic Update

Reform
Doing business in Vietnam
Q&A

Vietnam Economic Update

Vietnam at a glance
Key data
Vietnam
GDP (USD bln)

GDP per head (USD 000)

Macro-economic performance
2011
123.6

1.4

Population (m)

86.9

CPI (%)

18.1

Trade balance (USD bln)

-9.8

International reserves (USD bln)

11.5

Average GDP growth rate in the past 10 years:

7.3%
Demographic: 87 million people, with 70% of the
population in working age (from 15 to 65 years old)
Savings and investment rates are 29.2% and
34.2% in 2011
Average domestic credit growth of 33.7% far
exceed average annual nominal GDP growth of
21.3% and average annual real GDP growth of
6.6% in the past 5 years
Average inflation in the past 10 years: 7.8%
The dong lost 30% of its value versus the
greenback in the past 5 years
Heavily dollarised economy

Year to date Sep: key economic indicators

GDP growth :

+ 4.73% (versus 6% target)

Inflation :

+ 6.48% (versus one-digit target)

Trade balance :

+ $0.03bio

Export growth :

+ 18.9% ($83.79bio)

Import growth :

+ 6.6% ($83.76bio)

Retails sales :

+ 17.15%

Industrial production growth(y-y): + 9.7%

FDI disbursement :

- 1.2% ($8.1bio)

FDI pledges :

- 27.9% ($9.5bio)

Credit growth :

+ 2.2%

FEX reserve :

+ 100% ($23bio)

Stock market :

+ 11%

Source: CEIC, HSBC

Whats Behind Vietnams Growth?

Private consumption makes up about 68% of GDP in Vietnam
Government consumption usually constitutes around 7% of GDP
Investment represents about 39% of GDP
Exports make up around 70% of GDP (in 2010 it was 77.5% of GDP)
Credit expansion
Labor force
%

Contribution to GDP has changed

45.00

Agriculture,
16%

40.00
35.00
30.00

Service, 42%

25.00
20.00

Industry, 42%

15.00
1985

1990

1995

Agriculture
Source: CEIC, HSBC

2000

2005

Industry

Service

2010

Year

Average growth rate in working age population (% y-o-y)

3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
-0.50
-1.00
AU

CH

HK

IN

ID

JP
1990s

SK

MY
2000s

NZ
2010s

PH

SG

SL

TW

TH

VN

2020s

Source: UNPD, HSBC

7

The economy is reliant on credit growth

9
50

8.5

45

40

7.5

35

30

6.5

25
20

15

5.5

10

5
2003

2004

2005

2006

2007

2008

Credit grow th

2009

2010

2011

2012f

2013f

GDP grow th

Source: CEIC, HSBC

8

Growth is affected by low demand, both internal and external

HSBC PMI
60
55
50
45
40
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12
New Orders
New Ex port Orders

Though contracted, the pace of

contraction of both new orders
and new export orders has been
much slower than previous
month
Externally, growth is affected by
Euro zone crisis, sluggish US
recovery process and slowing
China growth. The prospect for
exports in coming months is not
really positive

Retail sales still hold up, boosting the service sector

23

75

18

65

13

55
45

35

25

-2

15

-7

Apr-08

Feb-09 Dec-09 Oct-10 Aug-11

Retail Sales (% y --o-y )
Retail Sales (%3m/3m sa RHS)

Source: HSBC, CEIC

Jun-12

Investment by sector

Investment by value

State makes up 51% of total

investment (average figure of
the last 10 years)
Contributes about 40% GDP
Inefficient but requires
continued support to exist

55
45
35
25
15
1995 1997 1999 2001 2003 2005 2007 2009 2011
State
Non State
Foreign Inv ested Sector

Service sector recovers and leads the growth, followed by the industry

12

A closer look at the industry

Construction sector contracted, little

recovery seen but still remains in
negative zone

13

Inflation slowed to single digits but would accelerate slowly

27
HSBC

22

Forecasts

17
12
7
2
Nov -07 Oct-08 Sep-09 Aug-10 Jul-11 Jun-12 May -13
Headline CPI (% y -o-y )
Source: HSBC, CEIC

Core CPI (% y -o-y )

But the outlook may be less optimistic

Input price is rising

The trend is turning on inflation

Source: CEIC, HSBC

15

FDI is so far impacted by the economic slowdown

12.00

8.00

4.00

0.00
2007

2008

2009

2010

2011

2012f

-4.00

-8.00

-12.00
Net FDI (USDbio)

Current account balance (USDbn)

Current account balance plus FDI (% GDP)

FDI registration as of Sep reaches $9.53 billion, equivalent to 72.10% vs last year. Disbursement:
$8.1billion, contracted by 1.2% vs last year
FDI by sector: Manufacturing 65.5%, real estate: 19%
The largest sources of FDI pledges were: Japan (60.9%), Korea (7.1%), Hongkong (7.1%),
Singapore (7.0%)
Source: CEIC, HSBC, GSO

But capital flow picture remains healthy

FDI keeps basic balance positive

Equity flows have shown some upside too

2.85

USDbn, 3mma
3

2.80

2.75

1
0

2.70

-1

2.65

-2

2.60

-3

2.55

Jan-09

USDbn

Oct-09
FDI

Jul-10

Apr-11

Trade bal

Jan-12
Net

Jan-11

Jul-11

Jan-12

Jul-12

VN foreign equity flow s, cumulativ e

Trade deficit turns surplus

Trade deficit
20

YTD Sep trade balance is USD 30m

surplus

18
16

bio US D

14

Robust export performance

12
10

Trade deficit (bio USD)

Import number is steady

8
6
4
2
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(e)
Year

Source: CEIC, HSBC

18

Vietnams top trade partners

Top export locations
2010 USDb

2011 USDb

% Growth (YoY)

H1-2012
USDb

% Growth (YoY)

US 14.2

US 16.7

17.5

US

9.3

19.8

EU 11.3

EU 16.5

45.4

EU

9.1

22.4

3 ASEAN

9.1 ASEAN 13.6

31.5

ASEAN

7.7

22.8

JAPAN

7.7

CHINA 10.8

47.6

JAPAN

6.4

42.3

CHINA

7.3

JAPAN 10.6

37.8

CHINA

6.3

31.9

Top import locations

H1-2012
USDb

2010 USDb

2011 USDb

% Growth (YoY)

CHINA 17.9

CHINA 24.6

37.4

CHINA

13.2

16.9

ASEAN 14.5

ASEAN 20.9

44.1

ASEAN

10.4

13

49.4

KOREA

7.2

18.1

JAPAN 10.2

25.9

JAPAN

5.3

12.7

36.36

EU

3.8

3 KOREA

8.7 KOREA

JAPAN

8.1

EU

5.5

EU

7.5

% Growth (YoY)

19

Near-term outlook, stabilization of activity

Av erage Grow th Rate = 7%

9.0

HSBC

8.0

forecasts

7.0
6.0
5.0
4.0
3.0
2000

2001

2002

2003

2004

2005

2006

GDP (% y -o-y )

Source: Markit, HSBC

2007

2008

2009

2011

2012

2013

Medium-term outlook, the debt burden will weigh on the economy

5
4
3
2
1
0
2010

2011
2012 y td
Non performing loan ratio

Reform?

Stress

Vietnam has broken the booming period

Heavily-debted SOEs

Banking system weakness

Real estate market is frozen

Slowing GDP growth with higher inflation has been hurting our workers and farmers

Last but not least, the whole market is lack of TRUST

Hmmmm!!!

23

What has been going on here?

Banking system and SOE reforms

Growth with stability

Inflation has been whipped, markets are stable and the currency restores

Some local banks have been forced to merge; and more to come

SOEs are requested to restructure their businesses

TRUST is being building up slowly; yet a lot of things MUST be done more

People are still reluctant to spend

Companies are still waiting for a clearer picture to expand their business

Sharply wider budget deficit in the first nine months

24

Step by step starting with Phase 1

Policy discipline is required, and this is a challenge because reform likely needs two phases

Phase 1: sorting out macro problemsmay be the easier part

Phase 2: solving these problems, especially in banking system and SOEs regimemay be
much more difficult

25

Phase 2
The Government has made significant progress in consolidating banks and SOEs, but that is not
enough
Real number on NPLs: ?% on $135bn of outstanding loans
The SBV has a reasonable work-out program involving bank consolidations, bad debts reduction
The shortfall of recoverable collateral against loans is estimated at $5bio
How to resolve?

26

Vietnam Economics Reform : Will History Repeat ?

2500

trn VND

'000 tons

1986 Economics Reform

Focusing on Argriculture

2011 Economics Reform

SOEs, Financial Sectors

1999 Economics Reform

Enterprise Law

2000

140

120

100
1500

1000

Barely have
enough food to
avoid famine

80

Rice Export
(LHS)

500

60

Private Sector
Industrial
Production

???
40

20
1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

Doing business in Vietnam

Beverage industry ???

29

Other good businesses

Vietnam ranks the first in consuming beer in ASEAN and the fourth globally

Vietnam is among top 10 cigarette consumption; around 80 bio cigarettes per annum

Vietnam ranks No.4 in consuming instant noodle

Vietnam ranks No.4 in consuming motor bikes in the world

Vietnamese always love physical GOLDstay at position No.8 globally

Vietnamese young generation adore high-tech products

And what will follow these appetites and habits ???

Retails sales industry

Healthcare service

30

Key economic forecasts

HSBC's key Vietnam Economic
Forecast
GDP (%)

2010

2011

2012F

2013F

6.8

5.9

5.0

5.8

1,156

1,382

1,546

1,751

14

14.7

14

N/A

CPI (year end, %)

11.8

18.58

9.2

10.7

Export, value (% y-o-y)

26.4

33.3

15.5

28.5

Import, value (% y-o-y)

21.2

24.7

6.5

28.8

Trade deficit (USD bn)

-12.6

-9.8

-2.0

-4.5

12.9

11.5

18

18

GDP per capital (USD)

Industrial production (%)

International FX reserves (USD bn)

USD/VND (end of period)

19,498

21,036

21,500

21,500

Source: HSBC
31

HSBC Vietnam Extending Vietnam presence and growing network

Largest foreign bank in terms of investments, staff and network
Long-term commitment
Established in 1870
One of the first foreign banks to locally incorporate in
2009

Fast-growing presence
18 outlets in key cities
150 ATMs
Over 1,600 deposit outlets via Vietnam Post
Over PCM 1,145 cash collection points