ietnam is a densely-populated, developing country that in the last 30 years has had to recover from the ravages of war,

the loss of financial support from the old Soviet Bloc, and the rigidities of a centrally-planned economy. After many years of protracted wars, political isolation and economic stagnation, Vietnam is now rapidly getting integrated with the global economic and political mainstream. Since 1986, Vietnam has embarked upon a policy of Doi Moi (Economic Renovation) to introduce market economy. In a liberal investment climate, investors from all parts of the world are evincing ever-growing interest in Vietnam. Vietnams annual GDP growth has been 8-9.5% over the decade till 1997. However due to the Asian economic crisis, the growth came down to 5.8% in 1998, 4.7% in 1999, after which it again started showing up, registering 6.7% in 2000, 7% in 2002, 7.7% in 2004, 8% in 2006 and 8.5% in 2007. Industrial growth has averaged 12-14% over the past decade or so. The 10th Party Congress held in 2005 formulated the following key economic targets for the 2006-2010 Five Year Socio-Economic Development Plan. GDP Industrial Agriculture, Industry & Services Export Economic Agriculture, Industry & Services turnover growth Agriculture, Industry & Services rate: from forestry & construction 7.5% fishery: to 8% p.a 3% 9.5% 7.7% growth & fishery 15.2% 11% rate: by fishery 15% 43% 40% to to to 16% 44% 41% to to 4.5% 15.5% 11.5% 16% to to to of 3.2% 10.2% 8.2% which: p.a. p.a. p.a. rate: p.a. p.a. p.a. p.a. 2010: GDP GDP GDP

output forestry construction

growth

structure forestry & construction

Vietnamese authorities have reaffirmed their commitment to economic liberalization and international integration. They have moved to implement the structural reforms needed to modernize the economy and to produce more competitive, export-driven industries. Vietnam's membership in the ASEAN Free Trade Area (AFTA) and entry into force of the US-Vietnam Bilateral Trade Agreement in December 2001 have led to even more rapid changes in Vietnam's trade and economic regime. Vietnam joined the WTO in January 2007, following over a decade long negotiation process. This should provide an important boost to the economy and should help to ensure the continuation of liberalizing reforms. Among other benefits, accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners on 1 January 2005. Deep poverty, defined as a percent of the population living under $1 per day, has declined significantly and is now smaller than that of China, India, and the Philippines. Vietnam is working to create jobs to meet the challenge of a labor force that is growing by more than one million people every year. Vietnam is targeting an economic growth rate of 7.5-8% during the next five years. Vietnams economy is significantly agricultural. The Red River basin in the North and the Mekong Delta in the South are the principal agricultural regions and their main agricultural products include rice, pepper, jute, rubber, sugarcane, coffee, tea, groundnut and tobacco. As a result of major reforms introduced in the agricultural sector with enforcement of the contract quota system, coupled with more direct investment, tax incentives, and higher purchase price of food by the State, there has been a significant boost in total food grain production since 1988. One impact of rapid industrial growth of Vietnam has been that agricultural land is being converted into industrial parks, which reflects the changing economic structure: agricultures share of GDP declined to 20.4% in 2006 from 24.5% in 2000. (The industry and services sectors contributed more than 90% of total GDP growth in 2007.) Production of tea, coffee, and natural rubber has driven the strong export performance in agriculture sector. Strong external demand also underpinned growth in the fisheries subsector. Currently Vietnam is the largest producer and exporter of pepper in the world, the second largest exporter of rice (after Thailand), coffee (after Brazil) and cashew nuts (after India), the fourth largest of rubber and seventh largest of tea. The Government is placing increasing emphasis on cash crops with export potential and on building of agro-based industries. With a view to encouraging farmers to make long term investments and increasing production, a new land law was adopted at the National Assembly Session in July 1993, wherein rights of farmers to exchange, transfer, rent and inherit allotted land have been recognised. Some further modifications have been made in the tax structure of the transfer of land to ensure better revenue collection by the local and central governments arising due to the same. The land, however, continues to belong to the State in accordance with the constitution of the Socialist Republic of Vietnam. Vietnam is considered by investors as the second most attractive destination in the region after China. During the first seven month of 2008, Vietnam has licensed US$45.49 billion worth of registered FDI capital. Of the pledged sum, 654 new foreigninvested projects registered US$43.7 billion and 188 existing projects added US$788 million to their operation. Total trade turnover in the first seven month of 2008 is US$ 88.77 billion but the cumulative deficit for the first seven months of 2008 was $15 billion. Economic growth, however, has recently slowed from the high rates recorded in recent years. According to the Vietnamese govt sources, real GDP grew by 5.6% year on year in the second quarter of 2008, the slowest pace of growth since 2000. This is also a result of a deliberate policy to reduce the growth of domestic credit, which in turn is intended to tame inflation. During the first seven

months of 2008, the CPI has increased by 19.78 per cent. Agriculture (including forestry and fisheries) has grown 3% in the first half of 2007, up slightly from 2.8% in the first half of 2007. The overall industrial sector posted growth of 7% in the first half, down from 9.9% in the first half of 2007. The main cause of the slowdown is the sharp drop in construction. Manufacturing, however, has held up well, posting growth of 11.4% in the first half. The services sector has also maintained momentum, with growth standing at 7.6% in the first half. Although GDP growth has moderated, industrial output continues to expand rapidly, rising by 16.5% in the first half of 2008. Vietnams economic relations have greatly diversified and its economic exchange with the neighbouring ASEAN countries, the US, the EC, Japan, South Korea, Australia and Singapore have been expanding at a rapid pace. A number of foreign banks have been given licence to open branches in Vietnam and many have already started operations in Hanoi and Ho Chi Minh City. Singapore, Taiwan, Japan and South Korea are the leading foreign investors in Vietnam. Trade has been a key element in Vietnam's economic growth. During the period of 2001-2007, total export revenue increased by 17.5% per year. Both the composition and quality of exports have improved significantly. The proportion of industrial products has risen considerably. Total imports have increased by 18.8% per year. Export revenue reached US$520 per capita. Exports reached US$ 61.6 billion in 2008, an increase of more than 25% compared to 2007. However, due to considerable importation of plants, equipment and materials used for the industrialization and modernization process and for foreign investment projects, the trade deficit has increased over the past three years. Trade relations with foreign countries, especially other countries in the region, have expanded. The growth of the private sector has been a significant feature of Viet Nams economic development over the past decade. The non-state sector accounted for more than half of GDP in 2007. Preliminary estimates show that private businesses generated almost 90% of the 7.5 million jobs created during the 5 years to 2005. Most of the 1.6 million new jobs Viet Nam needs to create annually in 20062010 are expected to come from the private sector. However, shortages of skilled labor have become apparent. The industrial park and export processing zone authority for Ho Chi Minh City has stated that the citys vocational schools can only supply about 15% of the 500,000 workers that the citys industry will likely need through 2010. In the policy arena, the Government outlined in May 2006 a strategy for banking reforms. The State Bank of Viet Nam is to be converted into a modern central bank with a mandate (and capacity) to manage monetary policy and supervise financial institutions. State-owned commercial banks are to be restructured in an effort to improve their performance, and are to be equitized, or partly privatized, by 2010. Prime Minister Dung in December 2006 approved a list of state firms to be equitized during 20072010, including major ones such as Viet Nam Airlines, the Viet Nam Foreign Trade Bank (Vietcombank) etc. Several domestic banks also took major international banks as strategic partners. Two foreign banks, HSBC and Standard Chartered, received permission in September 2008 to incorporate locally as 100% foreign-owned enterprises. The move lifts restrictions on the banks' ability to open branches, limits that have effectively prevented them from marketing aggressively to local clients. It is also consistent with the agreement Vietnam inked with the World Trade Organization ahead of its accession in early 2007. The securities market expanded beyond expectations in last few years. A law on securities and securities markets was approved, and came into force in January 2007. The number of listed companies has risen exponentially, and total market capitalization increased by almost 20 times from 2005 levels. However, since 2007 the stock market has been facing difficulties and is still in slumps. The Ho Chi Minh City Stock Exchange index has plummeted over the past nine months from a recent high of around 1100 points in mid-October 2007 to below 500 at the moment. The earlier phase of stock market boom also encouraged more stateowned enterprises (SOEs) to issue shares to investors. Subsidiaries of several major SOEs in areas such as hydropower made successful initial public share offerings. Vietnam is making moves to improve corporate governance and market regulation. The maximum foreign ownership in listed companies has been raised from 30% to 49%. The number of foreign tourists visiting Vietnam was over 4 million in 2007. Vietnam has signed MOUs/ Agreements with several countries like Malaysia and Saudi Arabia regarding export of manpower. VIETNAM'S ECONOMY IN FIGURES

I. Industrial growth (% increase on 1994 price) By ownership Total State-owned 1996 1997 1998 1999 2000 14.2 13.8 12.5 11.6 17.5 11.6 10.8 7.7 5.4 13.2 Private sector 11.5 9.5 7.5 10.9 19.2 FDI 21.7 23.2 24.4 21.0 21.8

2001 2002 2003 2004 2005 2006 1997

14.6 14.8 16.8 16.6 17.2 17.0 17.1

12.7 12.5 11.9 11.9 8.7 9.1 10.3

21.5 18.3 23.3 22.3 24.1 23.9 20.9

12.6 15.2 18.0 17.4 20.9 18.8 18.2 Source: General Statistics Office

II. Export, Import of Vietnam Billion US Dollar

Source: General Statistics Office, Vietnam

III:

Top

10

countries

from

which

Vietnam

exported

goods

in

2008 US Dollars

Top import destinations during 2008

Major commodities of imports and exports VIETNAM: MAJOR EXPORTS 2008 Million USD 1 2 3 4 5 6 7 Crude oil Textile Footwear Seafood Rice Wooden products Electronics, computers 10450 9108 4697 4562 2902 2779 2703

8 9 10 11 12

Coffee Rubber Coal Electric wires & cables Other

2022 1597 1444 1014 19622

VIETNAM: MAJOR IMPORTS 2008 1 2 3 4 5 6 7 8 9 10 11 Machinery and equipment Petroleum Steel Of which: Steel rough Electronics, computers and spare parts Plastic in primary form Textiles, leather Chemicals Cattle feed and supplies Chemical products Others 13712 10888 6566 1657 3722 2924 2376 1768 1738 1607 33442

SERVICE EXPORT, IMPORTS IN 2008 USD million 2007 Exported services Air transport Sea transport Post & communication Tourist Finance Insurance Governmental service Other 6460 1069 810 110 3750 332 65 45 279 2008 7096 1322 1034 80 4020 230 60 50 300 109.8 123.7 127.7 72.7 107.2 69.3 92.3 111.1 107.5 100.0 18.6 14.6 1.2 56.7 3.2 0.8 0.7 4.2

2008 vs. 2007 (%)

Structure 2008 %

Imported services Tourist

7176 1220

7915 1300

110.3 106.6

100.0 16.4

Air transport Sea transport Post & communication Finance Insurance Governmental service Other Estimated C.I.F for imports

820 250 47 300 210 40 1030 3259

800 300 54 230 150 50 850 4181

97.6 120.0 115.7 76.7 71.4 125.0 82.5 128.3

10.2 3.8 0.7 2.9 1.9 0.6 10.7 52.8

Source: General Statistics Office

India - Vietnam two way trade and investment

Indian exports and imports Bilateral trade touched US$ 2.48 billion during Jan Dec 2008, up from US$ 1.54 billion during Jan Dec 2007. Exports from India to Vietnam were US$ 2.09 billion, registering a growth of 54.35 per cent over the corresponding period in 2007. Exports from Vietnam to India were US$ 389 million, an increase of 116.47% over the corresponding period in 2007. During the first quarter of 2009, as a result of global economic recession, exports from India to Vietnam were US$406.44 million, a decrease of 43.60% over the corresponding period in 2007. Exports from Vietnam to India increased by 45.53% to reach US$69.55 million. Million US dollar

(Figures in US$ millions)

2002 Import Export Total trade Trade imbalance 324.6 52.03 376.63 272.57

2003 456.95 32.27 489.22 424.68

2004 593.53 77.24 670.77 516.29

2005 598.79 97.76 696.55 501.03

2006 880.28 137.84 1018.12 742.44

2007 1356.93 179.7 1536.63 1177.23

2008 2094.4 388.99 2483.39 1705.41

Source: General Statistics Office Major export commodities from India to Vietnam (Amount in million USD)

Sl. No.

Commodities

Jan Dec 2006

Jan Dec 2007

% Increase

1.

Feed ingredients

245.08

450.44

83.79

2.

Pharmaceuticals

61.17

85.80

40.26

3.

Machinery and Equipment

48.48

91.17

88.06

4.

Ordinary metals

71.38

75.78

6.16

5.

Plastic materials

65.21

73.28

12.38

6.

Steels of all kinds

44.36

60.76

36.97

7.

Medicinal Ingredients

30.87

40.66

31.71

8.

Leather and textile materials

27.81

41.20

48.15

9.

Cotton of all kinds

37.32

39.69

6.35

10.

Pesticides and materials

25.68

34.80

35.51

11.

Tobacco accessories

11.13

26.74

140.25

12.

Chemicals

15.46

27.84

80.08

13.

Chemical allied products

28.48

22.45

-21.17

14.

Fibres of all kinds

9.90

14.04

41.82

15.

Fabrics of all kinds

8.24

10.49

27.31

16.

Other products

285.92

564.84

97.55

Exports from Vietnam to India during 2007: Vietnams exports to India during 2007 registered an increase of 21% over the corresponding period in 2006

(Amount in million USD)

2006 (Jan - Dec) 137.84

2007 (Jan Dec) 179.70

% Increase 30.37%

Major

export

commodities

from

Vietnam

to

India

(Amount in million USD)

Sl.No.

Commodities

Jan Dec 2006

Jan Dec 2007

% Increase

1.

Coal

20.25

20.73

2.37

2.

Pepper

10.98

13.61

23.95

3.

Rubber

6.91

9.2

33.14

4.

Computer and electronic goods

6.86

10.75

56.71

5.

Cinnamon

7.08

9.03

27.54

6.

Garment and textiles

7.96

3.82

-52.01

7.

Footwear of all kinds

4.33

3.81

-12.01

8.

Coffee

7.74

2.62

-66.15

9.

Vegetable

2.89

2.16

-25.26

10.

Other products

52.96

96.94

83.04

Investment relations As of December 2008, India has 30 investment projects in Vietnam with total registered capital of US$185.47 million. Indian companies are investing in oil and gas exploitation, mineral exploitation and processing, sugar manufacturing, agro-chemicals, IT, and agricultural processing. TATA Group of India inked a memorandum with Vietnam Steel General Corporation to research for the building of Ha Tinh Conjugate Steel Company and exploit Thach Khe iron mine with an output capacity of 4.5 million tons per year. It is expected to invest more than USD 4.5 billion in the next few years. With this investment, India has become top 10 investors in Vietnam. From Vietnamese side, a Vietnamese company, FPT, has made an investment of US$150,000 in an Indian technology development and investment project. Development Assistance of India to Vietnam Vietnam is one of the largest recipients of Indian aids through Lines of Credit extended by Department of Economic Affairs (DEA), Ministry of Finance of the Government of India. Since 1976, India has extended 14 Lines of Credit totaling Rs.3,610 million to Vietnam. In the 1980s, Vietnam received relatively large amounts of assistance though these programmes were reduced during the 1990s. India announced another credit line of US$27 million to Vietnam an agreement for which was signed in August 2004 between Exim Bank of India and Ministry of Finance of Vietnam. Most recent credit line of US$ 45 million is being implemented for Nam Chien Hydropower projects in Vietnam. India has announced an aid of Rs. 100 million to Vietnam for setting up of an Advanced Resource Centre in IT in Hanoi. Another grant of Rs. 122.07 million has also been given to Vietnam for assisting human resource development in the field of IT in six educational institutions in Vietnam. Implementation of both these projects is going on.