Vietnam Industry and Trade News Bulletin for January 12, 2016

A. GENERAL ECONOMIC HIGHLIGHTS

1. The Economist Disagrees with Bloomberg: Vietnam to Grow Slower than Laos and Cambodia While Bloomberg previously forecast Vietnam to have the 2nd fastest growth in the world in 2016, a new report by The Economist Intelligence Unit (EIU) places Vietnam 9th. EIU forecasts Vietnam’s GDP growth at approximately 7% (aligning with the National Assembly’s 6.7% target) . Notably, EIU predicts Vietnam will lag behind regional neighbors: Laos (nearly 8%, ranked 2nd globally), Cambodia (ranked 3rd), and Myanmar (ranked 4th) .

2. Average Tet Bonus is One Month’s Salary Reports from localities to the Ministry of Labor, Invalids and Social Affairs (MOLISA) indicate that the average Lunar New Year (Tet) bonus for 2016 is equivalent to one month’s salary . In Hanoi, the highest bonus is 100 million VND, while in Ho Chi Minh City, the highest is 600 million VND .

3. Japan’s ANA Holdings Buys Stake in Vietnam Airlines On January 12, Vietnam Airlines and ANA Holdings (Japan’s largest airline group) signed a memorandum of understanding for a strategic partnership. ANA will purchase shares in Vietnam Airlines valued at 2,431 billion VND ($108 million) . ANA will support Vietnam Airlines in management and service quality improvement, aiming for a 5-star rating . The deal is expected to be finalized in Q1 2016 .

4. Transportation Firms Must Declare Rates if Fluctuations Exceed 3% A draft circular by the Ministry of Finance and Ministry of Transport requires transport businesses to re-declare fares if fuel prices drop by 20% or if transport costs increase/decrease by more than 3% . In HCMC, fearing fines, taxi firms like Mai Linh and Vinasun have announced fare reductions of 300-500 VND/km .

5. No New Small Banknotes for Tet The State Bank of Vietnam (SBV) announced it will not issue new banknotes with denominations of 5,000 VND or less for the Lunar New Year to promote thrift, continuing the policy from the previous three years .

6. Indirect Offshore Investment Allowed for Profitable Firms Under Decree 135, economic organizations (securities firms, insurance companies, commercial banks, SCIC) that have been profitable for 5 consecutive years are permitted to engage in proprietary indirect investment overseas (stock, bonds) starting February 15, 2016 .

7. 60% of Workers Say Salary Not Enough to Live A survey by JobStreet.com reveals that 60% of workers feel their salary is insufficient for living expenses, despite Vietnam’s double-digit average salary growth . However, the survey notes that a dynamic working environment (22%) ranks higher than salary (17%) in retaining employees .

8. The Reality of “Lubrication Fees” Commenting on World Bank data regarding informal charges, Mr. Nguyen Van Duc (Dat Lanh Real Estate) confirmed that “lubrication fees” (bribery) are pervasive, especially in construction and real estate, where costs can range from hundreds of millions to billions of VND to expedite procedures or increase construction density . He warned this culture prevents Vietnamese businesses from growing .

B. INDUSTRY AND TRADE NEWS

I. OIL & GAS

Stopping High-Cost Wells: Facing plunging oil prices, PetroVietnam (PVN) subsidiaries are adopting austerity measures. PVEP’s after-tax profit plummeted from over 14,000 billion VND in 2014 to just 20 billion VND in 2015 . Vietsovpetro has had to stop exploiting certain rigs where production costs exceed revenue . The sector faces a risk of being unable to borrow capital for exploration due to high risks .

II. ELECTRICITY

Southern Drought Risks: EVN warns of severe water shortages in hydropower reservoirs from October 2015 to April 2016 due to El Nino (the strongest in 60 years), causing tension for power supply in the South . EVN plans to run oil-fired plants and maximize coal power to ensure supply .
Pricing Confusion: EVN estimated the 2015 average electricity selling price at 1,629.8 VND/kWh, which is higher than the government-approved rate of 1,622 VND/kWh . Experts argue EVN cannot sell above the government-mandated price cap . EVN plans a 2016 average price of 1,651.2 VND/kWh .

III. MINERALS

Illegal Gold Mining: Illegal gold mining in Tam Lanh, Quang Nam is surging ahead of Tet, despite police raids .
Vinacomin Revenue: The coal and mineral group Vinacomin reported 2015 revenue of nearly 105,500 billion VND (up 3%) and expects to reach 110,000 billion VND in 2016 .

IV. HEAVY INDUSTRY & SUPPORTING INDUSTRY

Airbus Partner: The Civil Aviation Authority has proposed AESC (a domestic firm) to the Ministry of Transport as a candidate to partner with Airbus for setting up a factory in Vietnam .
Auto Industry Risk: With import taxes from ASEAN dropping to 0% in 2 years, experts warn the domestic auto industry faces collapse. High-tech utilization in Vietnam is only 2% compared to Thailand’s 31% .
Hydropower Divestment: The PM allowed the Vietnam Rubber Group (VRG) to divest en bloc from 5 hydropower companies .

V. EXPORT – IMPORT

Pangasius Regulation Eased: As of Dec 31, 2015, pangasius exporters are no longer required to submit export contracts to the Vietnam Pangasius Association for registration, removing a costly administrative burden .

VI. DOMESTIC MARKET

Foreign Retailers: MoIT Deputy Minister Ho Thi Kim Thoa warned that foreign retailers (from Thailand, Singapore, Korea) have advantages in capital and professionalism, putting pressure on domestic retailers .
Beer Consumption: Vietnam consumed 3.4 billion liters of beer in 2015, ranking 1st in Southeast Asia and 3rd in Asia (after China and Japan) .
Car Market: Car prices are fluctuating as firms wait for tax policy changes. Some luxury imports saw price hikes in late 2015 .

VII. CONSUMER PROTECTION

Toxic Chopsticks Denied: Following Taiwanese reports of Vietnamese disposable chopsticks containing toxic chemicals (biphenyl, hydrogen peroxide), Vietnamese manufacturers like Sadaco deny using these substances . Tests on 10 market samples by the National Institute for Food Control showed negative results . Businesses suspect cheap Chinese goods might be counterfeiting Vietnamese origin .

VIII. INTERNATIONAL INTEGRATION

Leaving the “Village Pond”: Experts at a TPP seminar urged Vietnamese businesses to “swim out to the big ocean” rather than relying on relationships with local authorities (“lubrication”), warning that without reform, FDI firms will dominate .