Political Risk Analysis - Continued Repression A Snag To EU Trade Negotiations - FEB 2018

BMI View: Although Vietnam scores highly in our short-term political risk index (82.5 out of 100) due to the communist party's monopoly on power, we see the lack of democratic principles as unsustainable over the long-term. As a result, Vietnam scores poorly in our long-term political risk index (59.7 out of 100). Hanoi's poor human rights track record is also a stumbling block towards Vietnam-EU trade negotiations and potentially better relations with the west.

Vietnam remains one of the most repressive countries in the world, ranking 175 out of 180 in the Reporters Without Borders 2017 World Press Freedom Index. The conviction and jailing of activist bloggers such as the 22 year old Nguyen Van Hoa over his role in reporting the 2016 Formosa industrial toxic spill, and the alleged kidnapping of a Vietnamese businessman in Berlin by government agents are further testament to that. Although Vietnam scores very highly in our short-term political risk index score (82.5 out of 100), we continue to see the current political system as unsustainable over the long-run, informing its low long-term political risk score of 59.7 (compared to the regional average of 61.9). This could also hamper efforts by Hanoi to strengthen diplomatic and trade ties with the west, potentially delaying the finalisation of the EU-Vietnam free trade agreement.

Vietnam Standing Below Regional Average
Southeast Asia - Long-Term Political Risk Index Score, Out Of 100

Arrest of Activist Bloggers Another Setback To Human Rights Track Record

In the latest blow to Vietnam's human rights and press freedom track record, a court in the central coastal province of Ha Tinh sentenced blogger Hoa to seven years in prison and three years house arrest under article 88 of the penal code after a one-day closed trial on November 28. State prosecutors argued that the blogger's post, including videos and writings on an industrial toxic spill that devastated wide areas of Vietnam's central coast in mid-2016, was aimed at "propagating against, distorting, and defaming the government".

The waste discharge by Taiwan's Formosa Ha Tinh Steel Corporation in April 2016, which reportedly contained cyanide and other chemicals, killed hundreds of tonnes of marine life and sickened people along a 200km stretch of coastline, and was one of Vietnam's largest environmental disaster. This subsequently led to protesters numbering in the thousands taking to the streets in October 2016 to vent their anger and dissatisfaction against government's lack of accountability and perceived favoritism towards the Taiwanese steel maker. In response, the government cracked down on the peaceful protests, including the arrest of Hoa in January, who covered the incident extensively on Facebook and other social media platforms. Hoa's conviction follows the sentencing of blogger Nguyen Ngoc Nhu Quynh (popularly known as 'Mother Mushroom') to 10 years in prison in June under a similar charge after she wrote about social and political issues including land confiscation and police brutality, and campaigned for the release of many political prisoners.

We continue to see the lack of democracy and accountability by the Vietnamese government as unsustainable in the long run as the country's economic takeoff has led to a rise in internet penetration and a burgeoning civil society, which are beginning to drive a shift in the country's political landscape. Indeed, the ruling Communist Party of Vietnam (CPV) has been seen giving in to popular demand on several occasions, including the Formosa incident and the shelving of plans by city authorities in Hanoi to cut down thousands of trees in 2015 ( see ' Growing Middle Class And Internet Changing The Political Landscape ' , October 12 2016). We believe that rising domestic social pressure will likely continue to lead to a gradual loosening of the government's tight grip on power.

Abduction Case Clouding Vietnam-EU Trade Deal

Externally, the repressive nature of the government and its checkered history with human rights have also tarnished Vietnam's international reputation and strained relations with its western counterparts. In July, Vietnamese businessman Trinh Xuan Thanh reportedly disappeared off the streets of Berlin, one day before he was scheduled to meet with German officials to seek political asylum. A week later, he was shown on Vietnamese state television, pleading for the government's forgiveness. Prior to the saga, Thanh had been a senior official within the government and chairman of PetroVietnam Construction, but was accused of mismanagement that resulted in losses of about USD147mn under an anti-corruption crackdown initiated by the top leadership.

Germany has pinned the blame on the Vietnamese government saying that Thanh was abducted by agents linked to Hanoi and demanded an apology for an episode that it said was "wholly unacceptable". However, Vietnam has not issued any public apologies. In response to the abduction, Germany expelled two Vietnamese diplomats and suspended high-level bilateral visits, while the German Foreign Office said that the Vietnam-EU trade deal would need to win approval in both the German and European parliaments, and that there would be clear implications as a result of the abduction case. While we not expect the entire trade deal to be derailed by one incident as there also clear benefits for businesses on both sides, the negotiations could be further delayed until the two sides reaches a face-saving deal.

Macroeconomic Forecasts (Vietnam 2013-2019)
Indicator 2013 2014e 2015e 2016e 2017f 2018f 2019f
National Sources/BMI
Population, mn 91.50 92.54 93.57 94.57 95.54 96.49 97.43
Nominal GDP, USDbn 170.4 185.8 191.3 201.3 219.2 241.3 265.1
GDP per capita, USD 1,862 2,007 2,044 2,128 2,294 2,500 2,720
Real GDP growth, % y-o-y 5.4 6.0 6.7 6.2 6.5 6.7 6.5
Industrial production, % y-o-y, ave 5.9 7.6 8.4 8.6 8.6 8.5 8.5
Consumer price inflation, % y-o-y, ave 6.6 4.1 0.6 2.6 3.9 4.5 4.8
Consumer price inflation, % y-o-y, eop 6.0 1.8 0.6 4.7 4.2 4.8 4.8
Central bank policy rate, % eop 7.00 6.50 6.50 6.50 6.25 6.25 6.25
Exchange rate VND/USD, ave 21,029.04 21,198.86 21,919.28 22,366.16 22,730.00 23,025.00 23,400.00
Exchange rate VND/USD, eop 21,095.00 21,388.00 22,485.00 22,761.00 22,750.00 23,300.00 23,500.00
Budget balance, VNDbn -236,768.0 -249,362.0 -263,135.0 -254,000.0 -264,587.9 -306,298.8 -311,293.2
Budget balance, % of GDP -6.6 -6.3 -6.3 -5.6 -5.3 -5.5 -5.0
Goods and services exports, USDbn 142.9 161.5 173.7 189.5 210.7 233.1 256.4
Goods and services imports, USDbn 103.9 114.2 127.8 136.0 154.2 173.1 191.7
Current account balance, USDbn 9.5 8.8 -0.4 8.2 8.2 8.7 10.1
Current account balance, % of GDP 5.6 4.7 -0.2 4.1 3.8 3.6 3.8
Foreign reserves ex gold, USDbn 25.5 34.2 28.3 48.5 68.5 89.4 112.1
Import cover, months 2.5 3.0 2.2 3.6 4.5 5.3 6.0
Total external debt stock, USDbn 65.5 72.4 77.8 87.0 81.7 77.1 72.8
Total external debt stock, % of GDP 38.4 39.0 40.7 43.2 37.3 31.9 27.5
Crude, NGPL & other liquids prod, 000b/d 348.0 324.0 351.0 320.0 295.8 279.2 268.7
Total net oil exports (crude & products), 000b/d -20.0 -66.0 -66.0 -118.1 -162.0 -201.7 -235.5
Dry natural gas production, bcm 8.8 9.0 9.4 9.4 8.9 8.7 8.4
Dry natural gas consumption, bcm 8.8 9.0 9.4 9.4 8.9 8.7 8.4