2006 COMMERCIAL COUNSELLORS REPORT ON VIETNAM 2006 COMMERCIAL COUNSELLORS REPORT ON VIETNAM EUROPEAN UNION ECONOMIC AND COMMERCIAL COUNSELLORS 2 4 Each year the Working Group of Economic and Commercial Counselors of the European Union publishes a Report on the economy of Vietnam. This “Green Book” aims to provide the private sector as well as European institutions and governments with an analysis of the recent economic performance of Vietnam as well as an overview of the development in certain sectors of the Vietnamese economy. The “Green Book” is not an official publication of the EU. It is a joint initiative of the EU Embassies and the Delegation of the European Commission in Vietnam. The publication is covering a wide range of issues and consists of two parts: The first part is dedicated to a general overview of the most important economic developments in Vietnam in 2005. Section I features an overview over the economic performance of Vietnam as well as an analysis of major economic indicators such as foreign trade, investment, employment as well as sectoral and monetary policies. Section II covers legal developments while Section III presents the EU at a Glance. The second part of the report provides eleven Sections packed with abundant information on the development of important sectors of the Vietnamese economy: Garments and Textiles, Footwear, Fishery Products, Agro-Industry, Transport, ICT, Pharmaceuticals, Alcoholic Beverages, Energy, Machinery and tools and Financial Services. In the year 2005, Vietnamese and EU economies have again moved closer to each other and have become a mainstay of the overall relationship. The “Green Book” provides ample information in this respect and we trust that it will be supportive in the continuing improvement of relations between Vietnam and Europe. 5 PAGE Foreword 5 GENERAL OVERVIEW 12 I. Overall economic performance in 2005 13 Main growth drivers and components 16 Foreign trade 17 Investment 19 International integration – WTO and AFTA 22 Primary sector 23 Industry and services 24 Employment 25 Monetary Policy and Financial Sector 26 Currency 27 Economic Reforms 28 II. Legal developments 29 III. European Union at a Glance 31 6 PAGE ANALYSIS BY SECTOR 41 I. Garments and textiles 42 II. Footwear 51 III. Fishery Products 58 IV. Agro-industry 63 V. Transport 66 VI. Information and Communication Technology (ICT) 70 VII. Pharmaceuticals 79 VIII. Alcoholic beverages 84 IX. Energy 90 X. Machinery and tools in other sectors 95 XI. Financial Service 100 7 PAGE 2006-2010 Socioeconomic Development Plan – Key targets Poverty among Kinh and Ethnic Minority Population 15 GDP growth by sector – GDP share by sector – GDP share by ownership 16 Vietnam’s foreign trade 17 Share in VN exports – Share in VN imports 18 EU-Vietnam trade 19 Structure of investment 2001-2005 20 FDI commitments and disbursements 20 EU FDI commitments 2000-2005 21 Registration and licensing 30 EU trade with Vietnam – EU Imports – EU Exports – Total Trade 33-34 Vietnam’s trade with major partners - Vietnam’s Imports – Vietnam’s Exports – Total Trade 34-35 FDI in Vietnam 36 Table 1.1. Vietnam Textile and Garment Export Turnover 43 Table 1.2. Vietnam Current Production Capacity 48 Table 1.3. Vietnam Current Textile and Garment Machinery and Equipment 48 Table 1.4. Vietnam Garment & Textiles Machinery and Equipment Import 49 Table 1.5. Vietnam Textile and Garment Export Markets 49 Table 1.6. Vietnam and VINATEX Total Investment Capital 2005 – 2010 50 Table 1.7. Vietnam Textile & Garment Export Value by Markets 50 Table 1.8. Key Textile & Garment Projects Calling for Foreign Investments 50 Chart 2.1. Vietnamese Footwear Export Turnover 52 Table 2.2. Production of Vietnam footwear industry 53 Chart 2.3. Top ten export markets 54 Table 2.4. Export turnover of Vietnam footwear industry by economic sectors 57 Table 3.1. Vietnam’s Export of Seafood 1996-2005 59 Chart 3.2. Vietnam’s Export of Seafood in 2005 59 Chart 3.3. Vietnam Pangasius Export 60 Table 4.1. Statistic on the export of agricultural products in 2005 64 Table 6.1. Number of telecom service providers 71 Chart 6.2. Mobile communication service market share (Dec 2005) 72 Table 6.3. Vietnam’s Internet subscription 73 8 Chart 6.4. Internet market share (Dec. 2005) 73 Table 8.1. Alcoholic beverages - Export to Vietnam between 2000 and 2005 87 Table 8.2. Wines - Export to Vietnam between 2000 and 2005 87 Table 8.3. Spirits - Exports to Vietnam between 2000 and 2005 88 Table 10.1. Vietnam’s production of machinery 96 Table 10.2. Leading mechanical engineering companies of Vietnam 97 Table 10.3. Vietnam import of machinery 97 9 ADB Asian Development Bank ADSL Advanced Digital Subscriber Line AFTA Asean Free Trade Area AIA American Insurance Association ASEAN Association of South East Asian Nations BCC Business Cooperation Contract BOT Build-Operate-Transfer BP British Petroleum BTA Bilateral Trade Agreement C/O Certificate of Origin CDMA Code Division Multiple Access CEPT Common Effective Preferential Tariff CIEM Centre for Institutional and Economic Management CIF Cost, Insurance, Freight CNC Centre of Numeric Control CPI Consumer Price Index DANIDA Danish Agency for Development Assistance DGPT Department General of Post and Telecommunications DSL Digital Subscriber Line EC European Commission ETC Electricity of Vietnam (EVN) EU European Union FAO Food and Agriculture Organization FDI Foreign Direct Investment FIE Foreign-Invested Enterprise GDP Gross Domestic Product GoV Government GSO General Statistics Office GSP Generalised Scheme of Preferences HCMC Ho Chi Minh City HSBC Hongkong Shanghai Banking Corporation HP Horse Power IAP Internet Access Provider IDA International Development Association IEP Internet Exchange Provider IFI International Financial Institution IL Inclusion List IMF International Monetary Fund IMI Institute of Machinery and Industrial Instruments IP International Post IPR Intellectual Property Rights ISP Internet Services Provider IT Information Technology JV Joint Venture KT Korea Telecom LDC Less Developed Country LEFASO Vietnam Leather and Footwear Association 10 MFN Most Favoured Nation MPI Ministry of Planning and Investment MPTIT Ministry of Post, Telecommunications and Information Technology NGN Next Generation Network NGO Non-Governmental Organization NPL Non-Performing Loan NRP Normal Rate of Protection NTB Non-Tariff Barriers ODA Official Development Assistance OLAF European Anti-Fraud Office PLC Programmable Logic Controller PNTR Permanent Normal Trade Relations PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit R&D Research and Development ROK Republic of Korea SBV State Bank of Vietnam SCB Standard Chartered Bank SER Special Economic Region SME Small and Medium Enterprises SOCB State Owned Commercial Bank SOE State-owned Enterprise SPT Saigon Postel SRV Socialist Republic of Vietnam TBT Technical Barriers to Trade TEL Temporary Exclusion List TRIPS Trade Related Aspects of Intellectual Property Rights UCLAF Anti-Fraud Coordination Unit UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme US United States USBTA United States Bilateral Trade Agreement VAT Value Added Tax WB World Bank VINATEX Vietnam Garment and Textile Corporation VITAS Vietnam Textile and Apparel Association VINACOAL Vietnam Coal Corporation VNPT Vietnam Post and Telecommunications Corporation VIETTEL Vietnam Military Telecommunications Company WTO World Trade Organization YOY year-on-year Currencies: EUR or Euro USD United States Dollar VND Vietnam Dong 11 12 I. OVERALL ECONOMIC PERFORMANCE IN 2005 Vietnam’s economy performed well in 2005, despite the return of avian influenza in the autumn and unfavorable weather conditions (droughts in the North in the first semester, leading to lack of water for crop irrigation and power shortages, and 5 typhoons hitting the Central region in the second semester). According to the government, real GDP grew by 8.43%, up from 7.8% in 2004, the highest growth rate in the past 9 years and just below the official target of 8.5%. However, pressure to report success in reaching the 7.5% yearly average target of the 2001-05 Five-Year Plan at the 10th National Party Congress in April 2006, as well as anecdotic evidence on flagging demand and consumption in some economic sectors in the second semester, cast doubts on official statistics. International financial institutions estimates of GDP growth range from 7.5 to 8.1%, which remains very respectable, and is surpassed in the region only by China. Consumer price inflation (CPI) in 2005 was 8.4% at the end of the year, well above the 6.5% target, but below the 2004 peak of 9.5%. However, the CPI average over the period hovered around the 2004 mark of 7.7%. Avian influenza and the domestic knock-on effect of rising international commodity prices pushed up food prices, which account for 48% of Vietnam’s CPI basket, by 10.8%. Higher world market prices for petroleum products and other key products for which Vietnam is highly import-dependent (such as fertilizer, cement, and steel), as well as the announcement of another public sector payroll increase also contributed. Government measures to curb inflation, but also credit growth, yielded only limited effects. They included the lowering of import tariffs on petroleum products, efforts to reign in lending by state-owned banks, and price freezes for commodities such as power, coal and cement. The government aims to cap consumer inflation at 8% in 2006. Reaching this target will depend of the government’s willingness to temper its expansionary macroeconomic policies, now that the 5-year plan-related growth imperative is out of the way, and apply stronger monetary restraints. Most other macroeconomic variables remain stable. The budget deficit is projected at 3.8%, down from 4.5% in 2004, and below the official 5% cap. The government maintained a cautiously expansionary fiscal stance. Major deficit factors are heavy infrastructure investments, increased expenditure for public sector salaries, and the progressive reduction of customs revenues resulting from Vietnam’s AFTA and other international commitments.