Market monitor: Vietnam

Business travel remains robust for Brazil, Latin America’s economic leader

Economic overview

Vietnam is reaping the benefits of a reform plan put in place nearly 30 years ago. This was done to steady an economy battered by war, the loss of financial aid from the Soviet Union and years of tightly controlled commerce. The Communist government has been loosening controls on business and trade since the 1980s. So while much of the country’s industries are still state-owned, about 60 percent of gross domestic product now comes from other businesses.

The result is a more competitive, export-oriented economy. GDP growth was 5.9 percent in 2011, strong by global standards, but lower than the 7.2 percent annual average that Vietnam achieved in the 10 years past. The government’s actions to encourage growth also had the undesirable effect of pumping up inflation, which peaked at 23 percent in August 2011. In an effort to address high inflation, trade imbalances and other economic issues, Vietnam unveiled a new economic reform strategy early this year.

Business travel industry insight

Vietnam’s business travel industry is driven by its increasing integration with the global economy. The United States buys roughly 18 percent of its exported goods. The European Union, China, other Association of Southeast Asian Nations member countries and Japan are Vietnam’s other major customers.

Business and leisure trips made by Vietnamese expatriates also bolster the travel industry. According to government estimates, about 4.5 million Vietnamese live abroad, almost half of in the U.S. Approximately 500,000 expatriates from across the globe visit Vietnam every year.

Opportunities

  • The country is in the midst of a broad economic reform program that aims to restructure public investment, state-owned enterprises and the banking sector.
  • Although the economy is under the direction of the country’s Communist government, Vietnam has increasingly embraced open markets. It joined the World Trade Organization in 2007, after 10 years of negotiations, and in 2010 became an official partner in development of the Trans-Pacific Partnership trade agreement.
  • The economy gets a boost from capital sent from Vietnamese living abroad. In 2011, according to government estimates, the country received more than US$9 billion from the overseas Vietnamese community.
  • Vietnam is a young country; more than half of the 90 million people living there are under 40. Its labor force is growing by more than a million people per year.
  • The Vietnamese economy is bouncing back. The country posted a trade surplus of $34 million from January to September 2012, compared with a deficit of nearly $8.16 billion in the same period a year earlier, according to government data.
  • In recent years, Vietnam has opened airspace to several domestic and international budget airlines. Direct flights now operate to and from Paris and London.

Challenges

  • The rigidities of a centrally planned economy limit Vietnam’s ability to grow and compete in the free market.
  • High inflation erodes gains achieved through the government’s aggressive policies to promote growth.
  • Vietnam’s economy faces challenges from low foreign exchange reserves, an undercapitalized banking sector and high borrowing costs.
  • Foreign companies have limited access to credit and face complicated collateral procedures.
  • The Vietnamese currency, the dong, is not convertible, and foreign currency remittance is tightly controlled by the government.
  • The banking system has been plagued by bad loans and scandals that have hurt the country’s credit rating. In September, Moody’s Investors Service cut Vietnam’s credit rating over concerns that the government will have to pump money into the country’s banks.

Sources: BCD Travel research, international news reports, Vietnamese government data, U.S. government data

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