While all eyes have been focusing on China, nearby Vietnam has been the quiet achiever.
GDP growth has averaged about 7 per cent for the past decade, poverty levels have dropped dramatically, and in 2007, after 10 years of negotiation, Vietnam was finally admitted to the World Trade Organisation.
However 2008 has delivered some sharp shocks, with the stock market plunging more than 50 per cent, and March inflation running at almost 20 per cent.
Paul Fairhead is the National President of The Australian Chamber of Commerce in Vietnam and says that the issue of spiralling inflation, and what is being done to reign it in, is a question on everyone’s lips.
“That’s the million dollar question! We’re all asking that question,” says Mr Fairhead.
“There was even a lunch this week which we were all invited to by the government to discuss the issue of inflation and what they could do to try and remedy it.
“ADB, IFC, World Bank have all put forward papers and suggested ways that it could be reigned in, and I think if they adopt those positions it will all be fine,” Mr Fairhead continues.
“But across the board I think everyone’s looking that there will be a correction here across the sector, and it’s probably one they need to have to bring the markets back into line of good value.”
Lawrence Nguyen, a Vietnamese economic expert, and Executive Director of VECL, a company specializing in Vietnamese investment, believes that while the high inflation is cause for concern, it is not unusual in a country’s economic development.
“If you average out the inflation rate for last year it was about 6.1 per cent,” says Mr Nguyen. “This year there’s been a high spike in the previous quarter due to increasing prices of commodities, goods, rice and petrol as well, so it is an issue.
“But the government is actively trying to control this inflation issue, grabbing hold of the liquidity in the market and also stabilizing the macro economy as well,” Mr Nguyen says.
“So it is part of a growth economy and with a high GDP and a high growth rate I don’t think it’s going to be a big problem in future years.”
Coupled with the rising inflation has been a 50 per cent plunge in the local stock market. However with fewer than 200 companies listed on the exchange, Austrade’s Acting Senior Trade Commissioner in Vietnam, Tony Burchill, says that many Vietnamese businesses won’t even have noticed the drop.
“The stock market, to be honest, probably needed the correction, although 54 per cent was a pretty strong correction,” says Mr Burchill.
“But for many firms, what the stock market is doing, with a very narrow band of companies, isn’t actually going to affect their businesses,” Mr Burchill continues.
“What they do want to see is a relatively stable macro-economic environment, and that’s the challenge for the local governments here.”
Paul Fairhead agrees, and says that while Vietnam’s current economic problems have not helped its fledgling stock exchange, the market crash does not necessarily signal economy disaster, as it would perhaps in a more mature exchange.
“It’s still regarded as risk market so I think when people are tightening up they will pull away from these markets,” Mr Fairhead says.
“It’s not participated in in the same way as it is in Australia, in that it is a very, very young market, and probably got a bit ahead of itself in the heady times at the end of last year. But it’s probably come back to a bit more of a realistic point now.”
According to Paul Fairhead, a Keating push in the 1990’s saw Australian businesses such as ANZ and Telstra move to Vietnam to take advantage of its potential. However follow-up of this early push has been slow.
But today, as companies and investors look to increase their Asian presence, we ask the experts what advice they would give to those looking in Vietnam’s direction?
In terms of the country’s growth sectors, Paul Fairhead says that three in particular have caught the eye of Australian businesses.
“The banking sector’s opened up mainly with ANZ and Commonwealth Bank,” says Mr Fairhead.
“The mining sector is still an area of great potential for Australia, but there haven’t been very many new projects under the new mining law yet.
“Education has probably been the main growth area, but with only one university set up, most of that is really involved in cooperation, or getting students to go to Australia.”
Meanwhile Lawrence Nguyen, whose expertise lies in direct investment, says that despite the current economic volatility, those prepared to put their money into Vietnam could still stand to make substantial returns.
“You need local knowledge and you need the know-how of the economy, but with the right investments, an investor should expect somewhere between 20 to 30 per cent, investing in the right company with the strong management and market dominance there,” says Mr Nguyen
“So I think there’s a lot of opportunity in the Vietnamese stock market, as well as the investment market in Vietnam.”
Austrade’s Tony Burchill also agrees that the outlook for Vietnam is good. However Mr Burchill cautions that while the current economic storm is temporary, the dark clouds are set to linger for some time to come.
“In the short term, in the next year, growth will probably fall off a little bit - it’s a period of correction,” says Mr Burchill.
“But having said that the country is just so resilient. The high work ethic of the population, the thirst for improvement, the political stability, are all things that are going to appeal to foreign investors. And already the Japanese, the Taiwanese, the South Koreans and to a lesser extent Malaysia and Singapore, have invested literally billions of dollars in this country, so this country isn’t going to go away.
“People have made substantial bets and substantial investments in this country, so it will continue to prosper, but albeit with some corrections in the short to mid term.”
However 2008 has delivered some sharp shocks, with the stock market plunging more than 50 per cent, and March inflation running at almost 20 per cent.
Paul Fairhead is the National President of The Australian Chamber of Commerce in Vietnam and says that the issue of spiralling inflation, and what is being done to reign it in, is a question on everyone’s lips.
“That’s the million dollar question! We’re all asking that question,” says Mr Fairhead.
“There was even a lunch this week which we were all invited to by the government to discuss the issue of inflation and what they could do to try and remedy it.
“ADB, IFC, World Bank have all put forward papers and suggested ways that it could be reigned in, and I think if they adopt those positions it will all be fine,” Mr Fairhead continues.
“But across the board I think everyone’s looking that there will be a correction here across the sector, and it’s probably one they need to have to bring the markets back into line of good value.”
Lawrence Nguyen, a Vietnamese economic expert, and Executive Director of VECL, a company specializing in Vietnamese investment, believes that while the high inflation is cause for concern, it is not unusual in a country’s economic development.
“If you average out the inflation rate for last year it was about 6.1 per cent,” says Mr Nguyen. “This year there’s been a high spike in the previous quarter due to increasing prices of commodities, goods, rice and petrol as well, so it is an issue.
“But the government is actively trying to control this inflation issue, grabbing hold of the liquidity in the market and also stabilizing the macro economy as well,” Mr Nguyen says.
“So it is part of a growth economy and with a high GDP and a high growth rate I don’t think it’s going to be a big problem in future years.”
Coupled with the rising inflation has been a 50 per cent plunge in the local stock market. However with fewer than 200 companies listed on the exchange, Austrade’s Acting Senior Trade Commissioner in Vietnam, Tony Burchill, says that many Vietnamese businesses won’t even have noticed the drop.
“The stock market, to be honest, probably needed the correction, although 54 per cent was a pretty strong correction,” says Mr Burchill.
“But for many firms, what the stock market is doing, with a very narrow band of companies, isn’t actually going to affect their businesses,” Mr Burchill continues.
“What they do want to see is a relatively stable macro-economic environment, and that’s the challenge for the local governments here.”
Paul Fairhead agrees, and says that while Vietnam’s current economic problems have not helped its fledgling stock exchange, the market crash does not necessarily signal economy disaster, as it would perhaps in a more mature exchange.
“It’s still regarded as risk market so I think when people are tightening up they will pull away from these markets,” Mr Fairhead says.
“It’s not participated in in the same way as it is in Australia, in that it is a very, very young market, and probably got a bit ahead of itself in the heady times at the end of last year. But it’s probably come back to a bit more of a realistic point now.”
According to Paul Fairhead, a Keating push in the 1990’s saw Australian businesses such as ANZ and Telstra move to Vietnam to take advantage of its potential. However follow-up of this early push has been slow.
But today, as companies and investors look to increase their Asian presence, we ask the experts what advice they would give to those looking in Vietnam’s direction?
In terms of the country’s growth sectors, Paul Fairhead says that three in particular have caught the eye of Australian businesses.
“The banking sector’s opened up mainly with ANZ and Commonwealth Bank,” says Mr Fairhead.
“The mining sector is still an area of great potential for Australia, but there haven’t been very many new projects under the new mining law yet.
“Education has probably been the main growth area, but with only one university set up, most of that is really involved in cooperation, or getting students to go to Australia.”
Meanwhile Lawrence Nguyen, whose expertise lies in direct investment, says that despite the current economic volatility, those prepared to put their money into Vietnam could still stand to make substantial returns.
“You need local knowledge and you need the know-how of the economy, but with the right investments, an investor should expect somewhere between 20 to 30 per cent, investing in the right company with the strong management and market dominance there,” says Mr Nguyen
“So I think there’s a lot of opportunity in the Vietnamese stock market, as well as the investment market in Vietnam.”
Austrade’s Tony Burchill also agrees that the outlook for Vietnam is good. However Mr Burchill cautions that while the current economic storm is temporary, the dark clouds are set to linger for some time to come.
“In the short term, in the next year, growth will probably fall off a little bit - it’s a period of correction,” says Mr Burchill.
“But having said that the country is just so resilient. The high work ethic of the population, the thirst for improvement, the political stability, are all things that are going to appeal to foreign investors. And already the Japanese, the Taiwanese, the South Koreans and to a lesser extent Malaysia and Singapore, have invested literally billions of dollars in this country, so this country isn’t going to go away.
“People have made substantial bets and substantial investments in this country, so it will continue to prosper, but albeit with some corrections in the short to mid term.”
