Political Risk Analysis - Ties With Vietnam To Benefit From Greater Cooperation - JUNE 2017

BMI View: The signing of five cooperation agreements between Singapore and Vietnam following Singapore PM Lee Hsien Loong ' s visit to the country in late-March underscores the Singapore government ' s commitment to engaging with the world and suggests that the city-state will continue to seek to deepen its trade linkages with its ASEAN neighbours. This bodes well for Singapore ' s trade-dependent economy, and demonstrates the government ' s commitment to carrying out the suggestions of the CFE.

Singapore Prime Minister Lee Hsien Loong's visit to Vietnam from March 21-24 underscores the city-state's commitment to remaining open to trade and investing in the region. The official visit led to the decision to further advance the existing strategic partnership agreement and the signing of collaboration agreements. In our view, deeper economic and social ties will be positive for the region's political outlook, and could lead to further cooperation on regional issues such as the South China Sea and the ongoing regional integration in the ASEAN Economic Community (AEC). Furthermore, the continued engagement of trade partners and willingness to invest despite the global trend towards increased protectionism suggests that the republic will continue to seek deeper trade linkages with the region. This bodes well for Singapore's trade-dependent economy, and demonstrates that the government has taken on the recommendations of the Committee on the Future Economy (CFE) to deepen and intensify its international connections and remain engaged with the region.

Cooperation Agreements Aimed At Strengthening Bilateral Ties

Following Lee's visit to Vietnam, both sides announced that five agreements had been signed, including one between Sembcorp and Vietnamese provincial authorities to explore a new Vietnam-Singapore industrial park (VSIP) in the Central Vietnamese province, Quang Tri. If realised, the project would be the eighth VSIP. Other areas of collaboration will be sectors such as banking, power generation and infrastructure. At a joint news conference with Vietnam's Prime Minister Nguyen Xuan Phuc on March 23, Lee said that economic ties are strong and that the two countries are taking their strategic partnership forward. His sentiments were echoed by Phuc, who noted that 'the general agreement is to comprehensively promote the strategic partnership between Vietnam and Singapore in all areas, to promote the connectivity of our economies in trade, investment, transport, education and training'. In addition, both sides have agreed to further discuss liberalising bilateral air services to boost connectivity, in a move that would be positive for trade and investment.

Visit Demonstrates Singapore's Commitment To Regional Engagement

In our view, the signing of agreements demonstrates Singapore's commitment to engaging with the region and will be positive for both political and economic development in ASEAN. Consisting of ten nations, ASEAN has always been governed by consensus, and strong bilateral ties between any of its members are positive for the bloc's cohesion. As such, the continued good relations between Singapore (a founding member) and Hanoi (a large and somewhat influential economy) are likely to be beneficial for ASEAN unity.

ASEAN cohesion is becoming increasingly important as the world shifts towards becoming a more multi-polar one, and Singapore has consistently relied on its membership in ASEAN as one of the ways by which it maintains its sovereignty. With China becoming more assertive and the US adopting a more unilateral foreign policy, we believe that Singapore will increasingly promote ASEAN unity as a way of enabling the region to obtain more bargaining power vis-a-vis major regional powers. As such, bilateral ties within the countries in ASEAN will take on an increasing importance as the bloc seeks to present a united front on regional issues such as the South China Sea. Stronger bilateral ties between Singapore and Vietnam are therefore likely to be part of the city-state's ongoing efforts to maintain good relations with the rest of the bloc's members.

Trade With Vietnam On A Gradual Uptrend
Singapore - Trade With Vietnam, % Of Total Trade
BMI, UN Comtrade

Move Builds On Recommendations In CFE

In particular, we believe that the signing of the agreement between the Singapore International Foundation (SIF) and the Vietnam-Singapore Friendship Association (VSFA) to promote people-to-people and cultural exchanges is an encouraging sign and suggests that the Singapore government is actively adopting the CFE's recommendations. We had previously noted that strengthening ties at the business and individual levels is a more sustainable form of engagement, with increased personal ties likely to lead to a deeper understanding of Singapore's partners and the markets that Singaporean firms are operating in (see 'Commitment To Free Trade Positive For Business Environment', March 16). This is likely to be positive for the government's efforts to encourage firms to seek greater markets overseas, and bodes well for the future of Singapore's trade-dependent economy.

Furthermore, it appears as though Singapore's overtures have been well-received by Hanoi, with Phuc stating that he welcomed further investment from Singapore and recognised the importance of creating a pro-business environment, strengthening business-to-business links, and facilitating the expeditious resolution of challenges faced by businesses. While we note that Vietnam's business environment has been improving gradually, foreign firms still face many challenges and the support of the government could potentially lead to an improvement in the operating environment for Singapore businesses.

Macroeconomic Forecasts (Singapore 2013-2019)
Indicator 2013 2014 2015e 2016e 2017f 2018f 2019f
e/f = BMI estimate/forecast. Source: National sources, BMI
Population, mn 5.4 5.5 5.6 5.7 5.8 5.9 5.9
Nominal GDP, USDbn 299.4 292.8 278.0 277.4 297.6 320.2 347.0
GDP per capita, USD 55,401 53,181 49,602 48,697 51,441 54,575 58,414
Real GDP growth, % y-o-y 5.0 3.6 1.9 2.0 1.9 2.2 2.6
Industrial production, % y-o-y, ave 1.7 2.7 -10.0 9.9 1.3 1.8 2.3
Consumer price inflation, % y-o-y, ave 2.4 1.0 -0.4 -0.2 1.1 2.3 2.5
Consumer price inflation, % y-o-y, eop 2.3 -0.1 -0.6 0.2 2.0 2.5 2.5
Central bank policy rate, % eop 0.00 0.00 0.25 0.50 1.00 1.50 2.00
Exchange rate SGD/USD, ave 1.25 1.27 1.37 1.38 1.41 1.37 1.34
Exchange rate SGD/USD, eop 1.26 1.33 1.42 1.45 1.39 1.35 1.31
Budget balance, SGDbn 4.7 5.2 -4.8 4.1 2.5 2.2 1.9
Budget balance, % of GDP 1.2 1.3 -1.2 1.0 0.6 0.5 0.4
Goods and services exports, USDbn 579.0 577.6 516.7 511.4 510.9 553.3 597.8
Goods and services imports, USDbn 508.8 502.4 438.1 434.6 435.4 474.7 515.4
Current account balance, USDbn 54.1 58.8 57.6 56.5 54.4 55.6 57.5
Current account balance, % of GDP 18.1 20.1 20.7 20.4 18.3 17.4 16.6
Foreign reserves ex gold, USDbn 273.1 256.9 247.7 246.6 258.9 271.8 285.4
Import cover, months 6.4 6.1 6.8 6.8 7.1 6.9 6.6
Total external debt stock, USDbn 1,182.8 1,179.6 1,106.8 1,094.7 1,085.5 1,081.7 1,080.9
Total external debt stock, % of GDP 395.0 402.8 398.2 394.6 364.8 337.8 311.5
Crude, NGPL & other liquids prod, 000b/d 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Total net oil exports (crude & products), 000b/d -1,215.1 -1,267.1 -1,280.0 -1,286.6 -1,293.1 -1,295.8 -1,298.4
Dry natural gas production, bcm 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dry natural gas consumption, bcm 9.4 11.1 11.1 11.2 11.5 12.0 12.0