Vietnamese Dong Recaps and Guru Updates: Vietnam Could be an Oil Player

Recent reports prove that the Vietnamese economy is accelerating. Economic growth appears to be driven primarily by increased liberalization and new trade agreements with other countries. The Communist Party of Vietnam has held discussions with leaders from the United States, China and other allies, which should help spur economic activity for all parties.

Vietnam News: Phu Trong Discusses New Partnerships With U.S. and China Leaders

New agreements with other world leaders are helping spur economic growth and improve security in Vietnam. The Vietnamese government has hosted discussions with leaders from the United States and China over the past couple of weeks. They are scheduled to continue the discussions later next month, as well as host meetings with Choummaly Sayasone, the President of Loas. Communist Party officials pointed out that many additional details need to be worked out, but are encouraged by the progress thus far.

Phu Trong Hosts Discussions With President Obama

U.S. President Barrack Obama has expressed a strong interest in growing ties with Vietnam. His office claims that the interest is primarily in improving security, but economic factors are playing a key role as well. Last week, Obama held a meeting with General Secretary Nguyen Phu Trong, head of the Communist Party of Vietnam to discuss many of the issues that affect both countries. Obama hailed the ?remarkable progress? the two countries have achieved as they deepen ties.

?This is an excellent opportunity for us to deepen our discussions around our vision for a comprehensive partnership,? Obama stated. He said that he plans to visit Vietnam after the successful discussions at the White House earlier this week, where the two leaders hope to iron out the details of proposed labor and trade agreements.

New Trade Agreements with China May Be on the Horizon

Phu Trong is also holding ongoing discussions with the Chinese. Data from the Vietnamese General Statistics Office (GSO) shows that China remains Vietnam?s largest trade partner. Trade between the countries exceeded $32.1 billion in the first half of 2015 and is projected to rise by the end of the year.

Trade between China and Vietnam has been growing since their leaders reached an agreement in 2012. However, the true impact of that treaty on economic growth wasn?t evident until the GSO released economic figures a couple weeks ago.

On Thursday, Chinese Vice Premier Zhang Gaoli held a meeting with the Communist Party of Vietnam to discuss potential improvements to the trade agreement. The Chinese government is encouraged by the progress the two countries have achieved and believes they can collaborate to further drive economic growth.

“It is in the best interest of the two nations, especially Vietnam, to enhance mutual political trust and understanding instead of aggravating differences,? wrote Xinhua, the state-run news outlet.

Business leaders and politicians in Vietnam share these optimistic sentiments. “Vietnam and China are two neighboring countries. It will benefit both if the two countries join hands together. I hope the two countries will continue to cooperate with each other in all fields, including trade, investment, tourism and culture, among others,? said Nguyen Huong Thao, an office worker at consultancy firm Nguyen Van Cac.

Oil and Energy: Oil Output Grows As Industry Seeks New Reserves

Country Rank by Proven Oil Reserves:

The Vietnamese government has taken new steps to boost oil production in an effort to grow the economy. On Wednesday, the oil ministry acknowledged that the industry has yet to find new sources of oil, but is confident that new supplies will be available soon. They plan to increase extraction of oil from existing fields in the meantime, which it doubts will present any problems over the long term.

In 2013, the country increased production 10% to lift the economy. Higher output was meant to be temporary until the government met GDP growth targets. Le Ngoc Son, general manager for PetroVietnam, said that the country faced some challenges.

?To maintain the production at a stable level, that?s our key mission, our key objective,? Son pledged. ?First, we need to bring new fields into production, to add new production. Second, we need to find a way to improve the recovery factor by drilling additional wells, trying to find new oil from the old field.?

While the oil industry still faces some challenges finding new oil reserves to tap, producers are unlikely to curtail demand anytime soon. In fact, it is on target to boost production to 115.4 million barrels in the 2015 fiscal year.

Business and Foreign Investment: Deregulation and Foreign Incentives Spur Business Growth

While Vietnam has had a planned economy for nearly a century, it has also taking steps towards liberalization since 1986. The transition to a market economy has helped fuel economic growth and improved prosperity for citizens throughout the developing country.

A 2013 report from Tuoitre News shows that private businesses are growing faster than state run enterprises. The report shows that the 44% of the businesses on Vietnam Report Co.?s list of the 500 largest firms are privately owned. Only 40% of firms are run by the state, while the rest are foreign companies. The most impressive part of the report is that 160 of those firms are new businesses that have grown rapidly over the past couple of years.

Role of Deregulation in Spurring Business Growth

More recent reports have shown that privately run companies are growing even faster. Deregulation over the past 25 years appears to be one of the biggest factors driving growth. Many Vietnamese business leaders are optimistic that they will have a much easier time attracting investors as the state continues to reduce the red tape businesses must contend with.

On July 1, the government took major steps to reduce onerous regulations on many businesses. Here are some of the changes that Vietnamese businesses will witness:

• They are now allowed to operate in more regions. Prior to the government?s new decrees, businesses were barred from operating in 51 areas across the country. The government has opened all but six of those regions to business, which enables private firms to expand into many untapped markets.
• The government is considering lowering the business tax. In 2013, the government reduced the corporate tax from 25% to 23%, which is one of the factors that propelled private sector growth. The government believes that further lowering taxes will both spur domestic business activity and attract more foreign companies.
• The government is considering arguments from the Trans Pacific Partnership to further reduce deregulation. Officials plan to release proposals in the next few months.

Government Takes Steps to Attract Foreign Direct Investment

While the economy has certainly benefited from the growing domestic businesses in Vietnam, these companies still face a learning curve as they try to operate in a market economy. Most of the founders grew up in a time when the state controlled all economic activity, so they are still earning to adapt. Foreign companies have more experience competing in a deregulated environment, so the government is trying to draw more foreign direct investment to drive the economy.

Vietnam became a member of the World Trade Organization in 2007, which has helped improve the nation?s perception among foreign investors. As a result, foreign companies are flocking to Vietnam, which will be a boon for local businesses as well.

The government recently announced plans to lure more foreign firms with free land and other incentives. Similar efforts have already proven to be highly effective, because foreign direct investment has risen sharply in recent years. One year ago, foreign direct investment contributed $238 billion to the national economy. Most experts believe that this figure has risen this year, although the GSO has yet to publish data on it.

While the trend towards foreign direct investment is encouraging overall, some experts fear that foreign competition could threaten local businesses. The government plans to still monitor these firms to ensure the stability of their own companies.

Dong Value & Exchange Rate: Currency Devaluation Likely to Be Temporary

Dong to USD Exchange Rate Weekly View:

The value of the Dong has been rising steadily in recent years. According to Trading Economics, the currency value has been trading 50% higher since 2006. The State Bank of Vietnam (SBV) temporarily devalued the currency to stimulate economic growth, but the value is likely to rise as the government feels the need to stabilize the economy.

While the central bank is currently trying to suppress the value of the Dong, other factors could play a role in setting the currency price in the future. One such factor is a new set of financial regulations to improve transparency on the FOREX markets. The government believes that these provisions will give investors a better understanding of the amount of money flowing into and out of Vietnam. Improved transparency will lead to a more efficient FOREX market, which will affect the value of the currency.

It is also important to note that the value of the Dong has only been devalued relative to the U.S. dollar. The Vietnamese currency has actually appreciated against most other world currencies, primarily due to the fact that trade is growing much more quickly than other Asian economies.

According to the GSO, exports have consistently risen by 18% a year, which is a boon for the national economy and Dong investors alike. However, a July 14 report from East Asia Forum suggests that the rosy figures overlook some challenges that Vietnam may be facing, such as a decline in international tourism.

http://www.undp.org/content/dam/vietnam/docs/Publications/21934_5086_Telecom_Report.pdf

http://www.wsj.com/articles/the-u-s-trade-hypocrisy-in-vietnam-1437066648