Section 2 Vietnam, India and Iran 1. Vietnam (1) Expected economic growth Expectations are high for Vietnam’s economic growth for reasons such as: the country has the third- largest population in the ASEAN region and the population is expected to continue growing164; intra- regional trade is becoming more and more active due to the deepening of the ASEAN Economic Community; and Vietnam has signed the TPP. According to an estimate by the IMF,165 Vietnam will register economic growth of 6.3% in 2016 and 6.2% in 2017. Regarding Vietnam’s population mix by age, the share of people in their 20s is large, as it was in Japan during the period of high economic growth in the 1970s. In addition, per-capita nominal GDP is higher than 2,000 dollars166, a level above which the expansion of the consumption market is assumed to accelerate, so the middle class in Vietnam is expected to grow in the future (Figure II-4-2-1). Figure II-4-2-1 Population mix by age in Vietnam (2015) and Japan (1970) 12,000 9,000 6,000 3,000 0 (Age) 80+ Japan (1970) Vietnam (2015) 70-74 60-64 50-54 The share of people in their 20s is large 40-44 30-34 20-24 10-14 0-4 0 3,000 6,000 9,000 12,000 (Thousand) Source: "World Population Prospects: The 2015 Revision" (United Nations) While the growth of ASEAN countries that achieved economic development early has been slowing, Vietnam’s GDP recorded a high growth rate of 6.7% in real terms in 2015. Among major factors behind the high growth are increases in production and exports due to foreign companies’ expansion into the country and the ensuing employment growth and income increase. As a result of economic stimulus 164 According to a medium-variant projection of the World Bank’s World Population Prospects: The 2015 Revision, Vietnam’s working-age population will peak in 2035 while its total population will peak in 2055. 165 An estimated published in April 2016. 166 According to the World Bank, Vietnam’s per-capita nominal GDP in 2014 was 2,052 dollars. 631 measures taken after the Lehman Shock, Vietnam experienced an expansion of the current account deficit (the ratio of the current account deficit to GDP was 11% in 2008) and high inflation (the inflation rate peaked at 23.1% in 2008). As the government implemented austerity measures in 2011, the growth rate slowed down to between 5% and 6% in 2012 and 2013. However, foreign companies 167 significantly expanded production lines of mobile phones in the same year, leading to an increase in exports. Employment growth caused by foreign companies’ increased investment and a rise in households’ purchasing power due to a decline in the inflation rate are considered to have contributed to the high growth since 2012 (Figures II-4-2-2, II-4-2-3 and II-4-2-4).168 Figure II-4-2-2 Changes in the growth rate of real GDP in Vietnam and contributions by demand components to the growth (Year-on-year, %) 12 10 8 6.4 6.2 6.7 5.4 6.0 6 5.2 4 2 0 -2 -4 -6 2010 2011 2012 2013 2014 2015 (Year) Private consumption Government consumption Gross fixed capital formation Inventory changes Net export Errors Real GDP growth rate Note: The breakdown of 2015 has not been announced yet (as of the end of April 2016). Source: General Statistics Office of Vietnam and CEIC Database 167 Currently, Samsung Electronics and LG Electronics of the Republic of Korea, Nokia of Finland and Microsoft of the United States are operating factories manufacturing mobile phones and parts. In particular, Samsung Electronics is making significant contributions to Vietnam’s production and exports. 168 In Vietnam, spillover effects from foreign companies to domestic companies in Vietnam in terms of production are considered to be small because of the low local procurement rate. Growing as a production base of foreign companies brings substantial benefits in terms of employment, leading to growth in domestic demand, but developing Vietnam’s domestic industries is a major challenge. Therefore, there are hopes that foreign companies’ investments in small and medium-sized enterprises in upstream processes, as well as investments in large enterprises, will have spillover effects on the development of domestic industries. 632 Figure II-4-2-3 Changes in exports by Vietnam (shares of the domestic sector and foreign sector) (Billion dollars) 180 160 Exports by the foreign sector 140 Exports by the domestic sector 120 100 Total export value 80 60 40 20 0 (Year) Note: Cellular phones and components are included in the survey items from 2010 onward. Source: General Statistics Office of Vietnam and CEIC Database Figure II-4-2-4 Changes in the value of exports by Vietnam (top 5 items) (Billion dollars) 35 Telephone equipment and components 30 Needlework Computers and components 25 Footwear 20 Lumber and wood products 15 10 5 0 (Year) Note: Cellular phones and components are included in the survey items from 2010 onward. Source: General Statistics Office of Vietnam and CEIC Database 633 (2) Vietnam’s growing attraction as an investment destination Until now, Vietnam has not concluded an FTA with the United States, Canada, Peru or Mexico, but the signing of the TPP means that it will conclude a trade agreement with these countries for the first time. The value of Vietnam’s exports to the TPP participant countries is approximately 62.3 billion dollars, or 41.5% of the country’s overall exports. Due to the elimination of tariffs and the introduction of a full-accumulation system concerning the rule of origin, Vietnam’s attraction as a base of production for the TPP region will grow. Although Vietnam has not participated in the WTO Agreement on Government Procurement up until now, rules concerning government procurement will be introduced under the TPP. As a result, rules concerning government procurement will also be introduced into Vietnam. Thus, access to the infrastructure market and the government procurement market will improve, resulting in the expansion of opportunities for Japanese companies to enter the Vietnamese government procurement market. Moreover, under the TPP, it is prescribed that the restriction on foreign investment in some retailers, including convenience stores, should be drastically eased and the restriction on foreign investment in a broad range of other fields, including theaters, live music clubs and other Cool Japan-related facilities, tourism-related businesses such as travel agencies, and other businesses like advertising agencies should also be eased. As a result, Vietnam is also attractive as a new business destination for a variety of Japanese service industries. (1) Enhancement of the economic relationship between Japan and Vietnam The bilateral relationship between Japan and Vietnam is very good, and the two countries recognize each other as an important partner. As for recent developments related to the two countries’ relationship, Prime Minister Nguyen Tan Dung visited Japan in July 2015 and agreed to continue to strengthen the two countries’ cooperative relationship under the Extensive Strategic Partnership. At that time, Prime Minister Shinzo Abe expressed Japan’s intention to support infrastructure development in terms of both quality and quantity under the Partnership for Quality Infrastructure, consider actively participating in urban development projects and provide cooperation in making further progress in the Vietnam Japan University program. Prime Minister Dung expressed a plan to improve the investment environment in order to promote investment by Japanese companies. In September 2015, General Secretary Nguyen Phu Trong of Vietnam’s Communist Party visited Japan as an official guest for the first time in six years. At the summit meeting, the Joint Vision Statement on Japan-Vietnam Relations, which forms the foundation of future development of the relationship, was announced. In March 2016, Minister of Economy, Trade and Industry Motoo Hayashi visited Vietnam and held meetings with senior government officials of Vietnam, including former Deputy Prime Minister Nguyen Xuan Phuc (who took office as prime minister on April 7 of the same year), mainly in order to further promote economic cooperation between the two countries with an eye to the TPP. In addition, Minister Hayashi held the first meeting of the Joint Committee between Japan and Vietnam on Cooperation in Industry, Trade and Energy with the Ministry of Industry and Trade of Vietnam and agreed on new 634 cooperation activities in such fields as the textile industry, countermeasures against counterfeit products and energy, including nuclear power and highly efficient coal-fired thermal power169 (Figure II-4-2-5). Figure II-4-2-5 First meeting of the Joint Committee between Japan and Vietnam on Cooperation in Industry, Trade and Energy Source: METI For Japan, it is important that SMEs and middle-sized enterprises manufacturing excellent products and the retail and distribution industry, including convenience stores, make the best use of the benefits of the TPP, such as the elimination of tariffs and the relaxation of the restriction in foreign investment in the retail and distribution sector. During this visit, Minister Hayashi attended the Vietnam Market Seminar, which was held in Ho Chi Minh City and was organized by JETRO. Minister Hayashi announced that special events called Japan Fairs were to be held in the autumn of this year at up to 200 Japanese convenience stores in Vietnam as the first round of support measures to be taken by the Council to Promote JETRO-Convenience Store Collaboration, which was established in January 2016, in order to increase sales of excellent, made-in-Japan goods on a trial basis.