Vietnam pharmaceuticals healthcare report q2 2015

19 Table: Healthcare Expenditure Trends, Historical Data And Forecasts Vietnam 2011-2019.. 22 Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts Vietnam 2011-

Q2 2015 www.bmiresearch.com

VIETNAM

PHARMACEUTICALS & HEALTHCARE REPORT

INCLUDES 10-YEAR FORECASTS TO 2024

Report Q2 2015

INCLUDES 10-YEAR FORECASTS TO 2024

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: March 2015

© 2015 Business Monitor International Ltd

All rights reserved

All information contained in this publication is

copyrighted in the name of Business Monitor International Ltd, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

in any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

Report Q2 2015

INCLUDES 10-YEAR FORECASTS TO 2024

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: March 2015

© 2015 Business Monitor International Ltd

All rights reserved

All information contained in this publication is

copyrighted in the name of Business Monitor International Ltd, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

in any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 9

Political 11

Economic 12

Operational Risk 14

Industry Forecast 16

Pharmaceutical Market Forecast 16

Table: Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2011-2019) 17

Healthcare Market Forecast 19

Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019) 22

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019) 23

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019) 23

Prescription Drug Market Forecast 24

Table: Prescription Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 25

Patented Drug Market Forecast 26

Table: Patented Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 27

Generic Drug Market Forecast 28

Table: Generic Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 29

OTC Medicine Market Forecast 30

Table: Over-The-Counter (OTC) Medicine Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 31

Pharmaceutical Trade Forecast 32

Table: Pharmaceutical Trade Data And Forecasts (Vietnam 2013-2019) 33

Table: Pharmaceutical Trade Data And Forecasts local currency (Vietnam 2013-2019) 34

Key Risks To BMI's Forecast Scenario 34

Macroeconomic Forecasts 35

Economic Analysis 35

Table: Economic Activity (Vietnam 2010-2019) 39

Industry Risk Reward Index 40

Asia Pacific Risk/Reward Index 40

Vietnam Risk Reward Index 46

Rewards 46

Risks 46

Market Overview 48

Industry Trends And Developments 50

Epidemiology 50

Healthcare Sector 52

Hospital Sector 54

Table: Healthcare Resources, Healthcare Activity and Healthcare Personnel 55

Private Healthcare Sector 58

Healthcare Insurance 60

Healthcare And Pharmaceutical Reform 61

Research And Development 62

Biotechnology Sector 63

Clinical Trials 65

Regulatory Development 68

Pharmaceutical Advertising 69

Intellectual Property Issues 70

Corruption 73

Pricing Regime 74

Reimbursement Regime 79

Pricing And Reimbursement Developments 80

Competitive Landscape 82

Research-Based Industry 82

Domestic Industry 83

Foreign Industry 84

Traditional Medicines 86

Pharmaceutical Distribution 87

Pharmaceutical Retail Sector 88

Table: Key Aspects Of Good Pharmacy Practice In Developing Countries 89

Company Profile 90

DHG Pharmaceutical 90

GlaxoSmithKline 92

Merck & Co 94

Novartis 96

Pfizer 98

Sanofi 100

Traphaco Pharmaceutical 103

Vietnam OPV Pharmaceutical Co 105

Vietnam Pharmaceutical Corporation (Vinapharm) 107

Vietnam Pharmaceutical Joint Stock Company (Ampharco) 110

Vidipha Central Pharmaceutical Joint Stock Company 112

Demographic Forecast 114

Table: Population Headline Indicators (Vietnam 1990-2025) 115

Table: Key Population Ratios (Vietnam 1990-2025) 115

Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 116

Table: Population By Age Group (Vietnam 1990-2025) 116

Table: Population By Age Group % (Vietnam 1990-2025) 117

Glossary 119

Methodology 121

Pharmaceutical Expenditure Forecast Model 121

Healthcare Expenditure Forecast Model 121

Notes On Methodology 122

Risk/Reward Index Methodology 123

Index Overview 124

Table: Pharmaceutical Risk/Reward Index Indicators 124

Indicator Weightings 125

BMI Industry View

BMI View: Vietnam's underdeveloped healthcare system will continue to be an impediment to

pharmaceutical companies as patients face challenges in accessing drugs This challenge is further

compounded by the regional variations in healthcare infrastructure, including a concentration of doctors and hospital facilities in the urban provinces of the country.

Headline Expenditure Projections

■ Pharmaceuticals: VND80,731bn (USD3.81bn) in 2014 to VND92,719bn (USD4.32bn) in 2015; +14.8%

in local currency terms and +13.4% in US dollar terms

■ Healthcare: VND254,679bn (USD12.01bn) in 2014 to VND291,313bn (USD13.57bn) in 2015; +14.4%

in local currency terms and +12.9% in US dollar terms

Risk Reward Index:

Vietnam's Pharmaceutical Risk Reward Index score for Q215 is 49.1 out of the maximum 100 The countryscored above average for some indicators and sub-indicators, including overall market expenditure, sectorvalue growth and pensionable population Consequently, with this moderate score, Vietnam is ranked 11thout of the 19 key Asia Pacific markets, level with Thailand and Indonesia

Key Trends And Developments

■ In March the Vietnamese government has announced its target to achieve 75% health insurance coverage

in 2015 and 80% by 2020, reports Vietnamnet, citing Prime Minister Nguyen Tan Dung Currently,health insurance coverage is available only to a small number of households just above the poverty lineand employees of private firms, according to the blueprint for universal health insurance Healthinsurance covered 71.6% of the population in 2014 This low coverage is attributed to high premiums,low medical service quality and hurdles in insurance payments, noted Health Minister Nguyen Thi KimTien Cooperation and initiative from the entire system is required to overhaul existing policies in order

to extend coverage to the remaining 30% of the population, stressed Kim Tien

■ Eight state-owned pharmaceutical companies in Vietnam are set to go public in 2015, reports Deal StreetAsia Vinapharm, Central Pharmacy 1, Central Pharmacy 2, Vietnam Medical Equipment and DKPharma have all slated initial public offerings (IPO) in Q215, while another three companies will offershares to the public by end-2015 The move comes after the Vietnamese Ministry of Health urgedcompanies under its management to fast track the process of equitisation since only one pharmaceutical

firm, Foripharm Central Pharma No 3, was privatised in 2014 The delay in the process of equitisation

is attributed to the long procedure of analysing the value of the corporations There are approximately 35companies under the health ministry's management, out of which 25 firms auctioned their shares in 2007

■ Vietnam's pharmaceutical industry could benefit from the production and marketing of some of the total4,000 plant species used in traditional medicines, reports Nong Thon Ngay Nay, citing Drug

Administration Director Truong Quoc Cuong in February The Government has already asked the health

ministry to develop the Vietnamese traditional medicine industry in order to reduce the country'sdependence on imports The country imports 90% of its pharmaceutical materials The nationalpharmaceutical industry development strategy requires the pharmaceutical industry to meet 80% of thecountry's medicine demand by 2020.

BMI Economic View: Sustained growth momentum in Vietnam's manufacturing sector (which accounts

for about 19.0% of nominal GDP) and ongoing attempts by the Vietnamese government to strengthendomestic banks have reinforced our positive outlook for the economy in 2015 As such, we continue toforecast Vietnam's real GDP growth at 6.4% in 2015, placing it well above market consensus of 6.0% andrepresenting an increase from the 6.0% growth rate in 2014

BMI Political View: The Communist Party of Vietnam (CPV)'s 12th National Congress, which will

convene in January 2016, will maintain current pro-growth economic policies, but eschew political

liberalisation One of the CPV's biggest challenges will be cracking down on corruption Meanwhile, theemergence of a new generation of CPV officials could lead to rifts with the old guard over the pace ofreform, leading to policy confusion

SWOT Analysis

Strengths ■ Significant growth potential, given a large and growing population

■ The government's commitment to developing the health sector

■ Sizeable local generic drugs sector, which is being encouraged by the government

■ Strong traditional medicines segment with potential to improve the non-prescriptiondrugs market in the longer term, as long as sufficient investment in extractiontechnologies can be found

Weaknesses ■ One of the least developed pharmaceutical markets in Asia, with low per capita

spending on drugs

■ Counterfeit drugs account for a significant amount of market consumption

■ No bioequivalence requirement in place for locally made generic medicines

■ Little distinction made between prescription and over-the-counter drugs, with mostmedicines available without a prescription

■ Complex drug pricing policy biased towards local drug producers

■ Import-reliant market, especially in terms of high-tech products and activepharmaceutical ingredients, which makes it vulnerable to currency movements

■ Underdeveloped primary care services and a shortage of trained pharmacists arecontinuing to hamper access to medicines and product market penetration

■ Population concentrated in rural, rather than urban, areas, preventing access tomodern drugs and encouraging dependence upon traditional medicines

Opportunities ■ The Association of Southeast Asian Nations (ASEAN) harmonisation initiative,

including the adoption of Western regulatory standards such as InternationalConference on Harmonisation and World Health Organization guidelines

SWOT Analysis - Continued

■ Introduction of five-year exclusivity for clinical dossier data encouraging based multinationals

research-■ If investment can be found for technological improvements, then there is greatpotential in the traditional Chinese medicine market, in addition to fledgingbiotechnology

■ Full World Trade Organization membership improving the trading climate andpotentially, in the longer term, redressing pharmaceutical trade issues

■ Requirement for domestic companies to comply with international goodmanufacturing practices should boost exports

Threats ■ Government resistance to aligning patent law fully with international standards

deterring multinational sector expansion

■ Need to resolve infrastructural and power supply issues, as well as higher educationprovision, before higher levels of foreign direct investment can be expected

■ The government is increasingly interfering in the industry, protecting indigenous firmsthrough the use of legal trade barriers, which will affect competitiveness

■ Pharmaceutical price inflation threatens to put medicines out of reach of the poor andtherefore limit market volume growth

■ Legalisation of parallel imports negatively impacting performance of patented drugs

SWOT Analysis

Strengths ■ The Communist Party of Vietnam remains committed to market-oriented reforms and

we do not expect major shifts in policy direction over the next five years The party system is generally conducive to short-term political stability

one-■ Relations with the US have witnessed a marked improvement, and Washington seesHanoi as a potential geopolitical ally in South East Asia

Weaknesses ■ Corruption among government officials poses a major threat to the legitimacy of the

ruling Communist Party

■ There is increasing (albeit still limited) public dissatisfaction with the leadership's tightcontrol over political dissent

Opportunities ■ The government recognises the threat corruption poses to its legitimacy, and has

acted to clamp down on graft among party officials

■ Vietnam has allowed legislators to become more vocal in criticising governmentpolicies This is opening up opportunities for more checks and balances within theone-party system

Threats ■ Although strong domestic control will ensure little change to Vietnam's political scene

in the next few years, over the longer term, the one-party-state will probably beunsustainable

■ Relations with China have deteriorated over recent years due to Beijing's moreassertive stance over disputed islands in the South China Sea and domestic criticism

of a large Chinese investment into a bauxite mining project in the central highlands,which could potentially cause wide-scale environmental damage

SWOT Analysis

Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with

GDP growth averaging 6.6% annually between 2000 and 2013

■ The economic boom has lifted many Vietnamese out of poverty, with the officialpoverty rate in the country falling from 58% in 1993 to 17.2% in 2012

■ Vietnam has been strengthening its trade and aid ties in a bid to increase exports anddiversify its export sector

Weaknesses ■ Vietnam still suffers from fiscal deficits, leaving the economy vulnerable to global

economic uncertainties The fiscal deficit is dominated by substantial spending onsocial subsidies that could be difficult to withdraw

■ The heavily-managed and weak currency reduces incentives to improve quality ofexports, and also keeps import costs high, contributing to inflationary pressures

Opportunities ■ WTO membership and the upcoming ASEAN economic integration in 2015 should

give Vietnam greater access to both foreign markets and capital, while makingVietnamese enterprises stronger through increased foreign competition

■ The government has continued to move forward with market reforms, includingprivatisation of state-owned enterprises, addressing the high level of bad loans in thebanking sector as well as liberalising the banking sector

■ Urbanisation will continue to be a long-term growth driver The UN forecasts theurban population rising from 32% of the population in 2013 to more than 50% by theearly 2040s

Threats ■ Although inflation has subsided in 2014, complacency by the State Bank of Vietnam

on this front could result in a decline in investment

■ The potential for an escalation of political tensions with China over sovereign claims

to parts of the South China Sea could have a negative impact on the economy

SWOT Analysis - Continued

■ Market reforms could progress at a much slower pace as the government remainscautious about ceding ownership to foreign investors

Operational Risk

SWOT Analysis

Strengths ■ Vietnam has a high number of university graduates with skilled degrees and a high

literacy rate for its income level

• In addition to a number of regional and international flight options, Vietnam has anextensive inland waterway system

■ Strong contract enforcement capabilities increase security

• Vietnam's rate of violent crime is generally low, and foreigners are unlikely to betargeted

Weaknesses ■ High labour costs increase overall operating costs, and difficulty in hiring foreigners

creates shortages of skilled labour

• Underdeveloped rail capacity overburdens the road network

• One of the worst tax administration systems in Asia

• The police force is under-equipped and under-resourced in many areas

Opportunities ■ Fairly high expenditures in secondary education by regional standards will help close

gaps in access to education

• Vietnam is easily accessible from the main shipping routes, and growth in the number

of port facilities will provide adequate capacity

• Declining trade barriers are making it easier to enter the market

• Increased foreign participation in the banking sector will increase the availability offunds for loans

Threats ■ Unequal access to secondary education will result in a lower-quality workforce in

poorer regions

• Vietnam's reliance on imported oil poses risks in the form of energy and fuelshortages

SWOT Analysis - Continued

• Corruption and inefficiency in the legal system

• Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider politicaland social unrest

Industry Forecast

Pharmaceutical Market Forecast

Vietnam's pharmaceutical market was valued at

VND80,730bn (USD3.81bn) in 2014, a 16.5%

year-on-year increase in local currency terms Over the

forecast period to 2019, BMI expects pharmaceutical

consumption to reach VND151,609bn (USD7.27bn)

equating to a CAGR of 13.4% in local currency and

13.8% in US dollar terms Over the extended

forecast period to 2024, the CAGR will be slightly

lower, but will remain in double-digit figures

Inflation will be a major factor in these high nominal

market growth rates However, we highlight that

there is considerable scope for increased

pharmaceutical consumption in a country where per

capita drug expenditure is just USD41.1 This,

combined with an expanding population, higher

levels of health awareness and increased access to

pharmaceuticals, creates a strong base for market growth assuming the required resources are put intohealthcare sector development However, pricing remains a concern, due to a lack of controls and regulatorybias against foreign products

Additionally, some have blamed unscrupulous practices by pharmaceutical companies and prescribers forpharmaceutical expenditure being higher than necessary However, it is not just companies that bribeVietnamese healthcare professionals Patients pay doctors and nurses to avoid waiting lists and receiveabove-average care Those on low incomes that cannot afford 'gifts' for staff members have to use

overcrowded facilities and rely on relatives to complement the provision of care

In fact, according to a survey by the Vietnam Union of Science and Technology Associations (VUSTA)published on the VietNamNet Bridge website in September 2009, gifts - which we interpret mostly as cash,but can also be physical goods - accounted for 9% of the cost of a health check-up The research was

performed through interviews with 140 people in rural and urban areas who had visited public and private

Pharmaceutical Market Forecast

0 0.5 1 1.5 2 2.5

f = BMI forecast Source: National Sources/BMI

hospitals over the previous six months Interestingly, 'medications/examinations/tests' only accounted for53% of expenditure It is not clear how the remaining funds were spent.

Vietnam's regulators faced their greatest challenge with the country's entrance to the World Trade

Organization at the start of 2007 Foreign enterprises have been given the right to open branches in Vietnamand to import medicines directly, although they will still be barred from distributing their products As part

of its membership application, Vietnam pledged to set import duties at less than 5% for pharmaceuticalproducts and drug tariffs are expected to average just 2.5% within five years of accession

The liberalised environment could cause problems for Vietnam's small drug production sector

Nevertheless, while the government originally called on firms to adopt good manufacturing practice (GMP)standards by the start of 2010, the deadline was extended to the end of 2010 However, in August 2008, itwas revealed that companies that did not have accreditation could come up with provisory regulations.Firms not planning to establish GMP standards must either shift to other sectors or produce traditionalmedicines, the latter being an area with problems of its own, as many traditional drugs are incorrectly

labelled and dispensed by unqualified practitioners According to Savipharm, the country has 108 factories

compliant to GMP-WHO, few plants compliant to EU and Japanese GMP as of November 2011

Meanwhile in January 2012, United International Pharma Company became the first company with a

facility that is compliant with the Pharmaceutical Inspection Convention and Pharmaceutical Inspection operation Scheme (PIC/S) GMP standards

Co-Table: Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2011-2019)

2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Pharmaceutical sales, USDbn 2 3 3 4 4 5 6 6 7 Pharmaceutical sales, USDbn, % y-

o-y 18 17 16 16 13 14 14 14 13 Pharmaceutical sales, VNDbn 50,082 59,214 69,297 80,731 92,719 105,798 119,977 135,251 151,609 Pharmaceutical sales, VNDbn, % y-

o-y 27 18 17 17 15 14 13 13 12 Pharmaceutical sales constant

exchange rate, USDbn 2 3 3 4 4 5 6 6 7 Pharmaceutical sales, USD per

capita 27 31 36 41 46 52 60 67 75 Pharmaceutical sales, % of GDP 2 2 2 2 2 2 2 2 2

Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2011-2019) - Continued

Healthcare Market Forecast

In 2014 healthcare expenditures reached

VND254,679bn (USD12.01) which corresponded to

year-on-year growth of 14.5% in local currency

terms and 13.6% in US dollar terms We now

forecast that the sector will reach a value of

VND924,552bn (USD46.58bn) by 2024 Through to

2019 and 2024, the sector is projected to grow at

local compound annual growth rates of 14.1% and

13.8% respectively (14.5% and 14.5% in US dollar

terms)

Over the long term, Vietnam's healthcare sector is

forecast to grow in accordance with its strong

economic growth However, we highlight that rising

healthcare expenditure does not necessarily equate to

quality healthcare provision According to the

General Statistics Office of Vietnam, the number of

hospitals in 2012 was 963 Meanwhile, the number of hospital beds and doctors per 1,000 people stayed flat

- at 2.01 and 0.65 respectively

Moreover, despite a double-digit growth in healthcare expenditure, the country has yet to address the risingburden of communicable diseases such as tuberculosis, AIDS and hand, foot and mouth disease Much ofthis increased expenditure will be on health infrastructure, which remains basic in many rural areas Overthe longer term, this is likely to result in greater access to basic medicines

The country's low per capita health and pharmaceutical expenditure highlights the population's poor access

to healthcare services and low affordability levels for medicines - particularly high-value drugs This

represents a short-term challenge for pharmaceutical firms, but over the long term we believe economicdevelopment will aid growth in the pharmaceutical and healthcare sector Our country risk team remainsbullish about the Vietnamese economy as it forecasts strong economic growth through to 2024

In the meantime, the government has outlined plans for the investment of up to USD1.5bn in the

pharmaceutical manufacturing sector over the next 10 years to reduce reliance on imports The money is to

be used for a variety of programmes, including upgrading technology to meet good manufacturing practice

Healthcare Expenditure Forecast

0 3 6 9

World Health Organization (WHO)/ BMI

standards, the development and expansion of the pharmaceutical supply network to poor and remote areas,the establishment of joint ventures with foreign players and achieving a greater percentage of domesticpharmaceutical demand.

The government's intention to invest in the development of its biotechnology sector is likely to act as acatalyst for wider industry reform, in particular concerning patent protection However, local drug

production is still weak and incapable of meeting domestic demand, although local regulation reform on aconsiderable scale is expected to attract foreign investment In some sectors, such as vaccines, considerableprogress has been made to increase Vietnam's self-sufficiency, with the country now producing sufficientmeasles vaccines domestically to meet national demand

To help make further progress, the government has outlined plans to invest USD241mn in eight projectswithin the local drug manufacturing industry This will include the construction of four pharmaceuticalplants in the next four years The authorities aim to have 80% of domestic demand met by local producers

by 2020, up from around 50% currently

In a workshop help by Vietnam Ministry of Health in August 2013 in collaboration between MedicalExcellence Japan and Japan's Ministry of Economy, Trade and Industry, the two countries reiterated Japan'ssupport towards Vietnamese healthcare through investment in three hospitals including: Bach Mai Hospital,Hue Central Hospital and Cho Ray Hospital

In an interview with local media, Vietnam News, Pham Le Tuan, deputy minister of health, stated thatpublic hospital fees will increase progressively until 2018, in line with Decree 85/2012/ND-CP In 2012, thegovernment increased the prices of three out of seven cost elements incurred by patients, which include thecost of medicines, chemicals, consumable materials, electricity, water, equipment maintenance and others.Under the plan developed by the Ministry of Health on increasing hospital fees, this will cover the

remaining four out of seven cost elements (beds, medical equipment, salaries, and other hospital operationcosts) These four elements were previously covered by the government

Timeline Of Hospital Fees Increments

■ 2014: Hospital fees charged to patients will include the bed cost for inpatient services and part of the cost

of their surgery

■ 2015: Fees will include medical equipment used for patient treatment, hospitals' management andoperating costs and 20-30% of hospital staff's basic salary at provincial hospitals in mountainous regions,central highlands and district hospitals in Ha Noi and Ho Chi Minh City

■ 2016-17: Part of the hospital fee will be used to pay basic salary cost for staff at provincial hospitals,central government hospitals and district hospitals in two major cities of Ha Noi and Ho Chi Minh City.

■ Post-2018: full cost recovery policy for medical services will be implemented across the board

The deputy health minister believes that with these increments in fees service quality will improve

considerably, as hospitals will be dependent on patients He added that 'more patients mean more money forhospitals and their staff.' We highlight that this is potentially regressive as patients will have to shoulder theburden of healthcare costs due to low funding from the government In addition, we see a risk of

overcharging by hospitals if the implementation of these increments is not properly regulated Conversely,hospitals may also not generate sufficient revenues despite the implementation of the regulation In August

2013, Vietnam News reported that hospitals in Ha Noi ran into problems in applying new hospital fees due

to unclear regulations and staffing shortages

Nevertheless, as a result of these progressive increments, we have upgraded Vietnam's private healthcareexpenditure forecast, as the increased costs will be borne by patients rather than the government Through to

2019, we forecast that private health expenditure will increase at a compound annual growth rate of 14.1%(14.5% in US dollar terms) This growth rate is higher than government health expenditure (13.6%, 13.9%

in US dollar terms) We highlight that the government may spend savings generated elsewhere to boosthealth services, such as improving health infrastructure

Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019)

2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Health

spending,

USDbn 8.3 9.3 10.6 12.0 13.6 15.5 17.9 20.6 23.6 Health

spending,

USDbn, %

y-o-y 16.3 11.3 13.9 13.6 12.9 14.3 15.2 15.1 14.9 Health

spending,

VNDbn 172,398.0 193,834.4 222,374.1 254,679.4 291,312.8 332,802.2 379,732.8 432,752.9 492,579.6 Health

spending,

VNDbn, %

y-o-y 25.6 12.4 14.7 14.5 14.4 14.2 14.1 14.0 13.8 Health

expenditure

constant FX

rate, USDbn 8.1 9.1 10.5 12.0 13.7 15.7 17.9 20.4 23.2 Health

spending,

USD per

capita 92.8 102.3 115.3 129.8 145.3 164.7 188.2 214.8 245.1 Health

spending, %

of GDP 6.2 6.0 6.2 6.5 6.8 7.0 7.2 7.3 7.5

f = BMI forecast Source: World Health Organization (WHO)/ BMI

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019)

2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Govt health

spend,

USDbn 3.8 4.0 4.5 5.1 5.7 6.5 7.4 8.5 9.7 Govt health

spend,

USDbn, %

y-o-y 13.0 4.7 13.5 13.1 12.4 13.8 14.6 14.5 14.4 Govt health

spend, VNDbn 77,975.7 82,501.7 94,345.4 107,528.7 122,404.0 139,167.7 158,036.7 179,249.7 203,069.6 Govt health

spend,

VNDbn, %

y-o-y 22.0 5.8 14.4 14.0 13.8 13.7 13.6 13.4 13.3 Govt health

spend, %

total health

spend 45.2 42.6 42.4 42.2 42.0 41.8 41.6 41.4 41.2

f = BMI forecast Source: World Health Organization (WHO)/ BMI

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019)

2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Private health

spend,

USDbn 4.6 5.3 6.1 6.9 7.9 9.0 10.4 12.0 13.9 Private health

spend,

USDbn, %

y-o-y 19.1 16.7 14.1 14.0 13.3 14.7 15.6 15.4 15.3 Private health

spend,

VNDbn 94,422.3 111,332.7 128,028.7 147,150.7 168,908.8 193,634.5 221,696.1 253,503.2 289,510.0 Private health

spend,

VNDbn, %

y-o-y 28.7 17.9 15.0 14.9 14.8 14.6 14.5 14.4 14.2 Private health

Prescription Drug Market Forecast

The market figures for the prescription and

non-prescription sectors are blurred by a lack of any

proper distinction between the two In fact,

according to some drugstores, only 20-30% of

patients buy drugs with a prescription Only

medicines that cause dependency, such as

benzodiazepines, are routinely refused sale without a

prescription Antibiotics are the most popular drug

sold without a prescription This has resulted in

worrying levels of antibiotic resistance For

example, nearly 70% of bacteria carried by people

living in urban parts of Vietnam are resistant to

penicillin

Nevertheless, the growth of the prescription

medicines market will outpace the growth of

over-the-counters (OTCs) mainly due to the influx of

expensive patented products from abroad and increased demand for sophisticated drugs Additionally,tighter regulations in the pharmaceuticals sector as a whole are likely to lead to the introduction of stricterdispensing guidelines with the good pharmacy practice recommendations established in 2011

By 2019, we forecast that prescription medicines will be worth VND113,806bn (USD5.46bn) at consumerprices, posting a compound annual growth rate of 13.8% in local currency terms (thus somewhat above thewider pharmaceutical market) In percentage terms, at this point, prescription drugs will account for 75.1%

of the total market, up from 73.8% in 2014, driven by expanded access to formal healthcare in rural areas

Demographic and environmental trends will be some of the key drivers of the prescription market in

Vietnam Respiratory problems are on the rise, including asthma and chronic obstructive pulmonary

disease, partly due to the high prevalence of smoking and partly due to poor air quality Manufacturers ofdrugs in the respiratory therapeutic category will, therefore, have considerable room for expansion over thecoming years Similarly, increased incidence of cancer, diabetes and hypertension among the Vietnamesepopulation will provide scope for drugmakers to expand

Prescription Drug Market Forecast

0 25 50 75 100

f = BMI forecast Source: National Sources/BMI

One therapeutic area that has strong potential is oncology At an international scientific conference in April

2013, Mai Trong Khoa, deputy director of Hanoi-based Bach Mai Hospital, stated that Vietnam reportsabout 110,000 new cases of cancer annually, with over 73% of patients dying from the disease - one of thehighest rates in the world He added that the average death rate in developing countries is 67.8% while thatfor developed countries is 49.4% In January 2014 a representative from the Vietnam Social InsuranceAgency stated that cancer drugs account for a large percentage of insurance expenses Moreover,

prescribing patterns seem to be influenced by economic considerations, with drug companies payingcommissions to doctors who promote certain types of product The Ho Chi Minh City authorities conducted

an investigation into the practice, with findings revealing that a number of doctors were in receipt of more

than VND500mn (USD26,300) each month The investigators looked into the prescribing of Merck & Co's

hepatitis drugs - namely PegIntron (interferon Alfa-2b) in 50mcg and 80mcg dosages, with commissions

reportedly being in the region of 10% to 30% of the drugs' cost Joint monthly revenues for the two drugsare reportedly in excess of VND6bn (USD315,000) In September 2012, Nguyen Thi Kim Tien echoed asimilar view stating that prescribers receive 'commission' from foreign pharmaceutical firms therefore manyprescriptions contain expensive medicines

Local industry representatives claim that large firms can therefore gain an upper hand as they can afford topay higher commissions, although doctors' relationships with companies also have a role to play in theirdecisions Moreover, despite the existence of hospital medicine councils - which are in charge of makingprescribing suggestions and supervising prescribing patterns - many doctors can still suggest different types

of medicines to their patients Patients have also stated that commissions are widespread

Table: Prescription Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019)

2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Prescription drug

sales, USDbn 1.8 2.1 2.4 2.8 3.2 3.7 4.2 4.8 5.5 Prescription drug

sales, USDbn, %

y-o-y 18.4 17.4 16.6 16.0 13.8 14.6 14.9 14.2 13.6 Prescription drug

sales, VNDbn 36,603.2 43,419.9 50,982.2 59,591.2 68,668.6 78,618.4 89,454.7 101,184.3 113,806.8 Prescription drug

sales, VNDbn, %

y-o-y 27.9 18.6 17.4 16.9 15.2 14.5 13.8 13.1 12.5 Prescription drug

sales, % of total

sales 73.1 73.3 73.6 73.8 74.1 74.3 74.6 74.8 75.1

f = BMI forecast Source: National Sources/BMI

Patented Drug Market Forecast

Value development of the patented drugs segment

and consequently the overall prescription segment

-will be hampered by the government's plan to

contain pharmaceutical costs through restrictions on

advertising and the request that hospitals and

medical professionals give preference to

domestically produced drugs, as well as the fact that

most of the insured now incur some sort of

co-payment Moreover, a number of high-value drugs

are due to come off patent in the coming years

Nevertheless, the price increase evident since the

start of 2011 may take the value of the prescription

and patented markets beyond current estimates By

2024, we expect the patented drug sector to reach

VND44,027bn (USD2.22bn) but represent a lower

percentage of the total market (17.6% versus 21.9%

in 2014) Over the 2014-2024 period, patented drugs are expected to post a compound annual growth rate of9.5% in local currency (9.5% in US dollar terms) - below the rate of the overall market development

Counterfeit drugs will continue to have a detrimental impact on patented drug sales over the forecast period,despite the government's efforts to the contrary The global economic slowdown has fuelled demand forcheaper drugs and counterfeit medicines are prospering as a result Supported by the WHO, police, customsand regulatory officials in the country have begun to coordinate their activities, although little can be done

in terms of enforcement without greater commitment to intellectual property rights as well as more stringentpenalties for violators

Corruption also has a role to play in drug prices, with commissions paid to pharmacists and doctors by salesrepresentatives and distributors to persuade them to prescribe their product to push up the retail price ofmedicines Such practices can only damage the industry as a whole, putting many patented products beyondthe budgets of the majority of the Vietnamese population

Speciality medicines, such as central nervous system and cardiovascular drugs, are expected to be the keygrowth area, while an increase in cancer, diabetes and hypertension will also generate product demand

Patented Drug Market Forecast

0 5 10 15 20 25

f = BMI forecast Source: National Sources/BMI

However, the basic nature of consumption is illustrated by the continued strong showing of antibiotics andalimentary/metabolism products The need to contain the HIV/AIDS epidemic and related health problemswill boost the antiretroviral sector, while the prevention of swine flu and similar diseases continues to drivethe growth of anti-flu drugs.

Table: Patented Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019)

2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Patented drug sales,

USDbn 0.6 0.6 0.7 0.8 0.9 1.0 1.2 1.3 1.4 Patented drug sales,

USDbn, % y-o-y 16.2 15.0 14.3 13.6 11.4 12.1 12.2 11.5 10.8 Patented drug sales,

VNDbn 11,560.4 13,437.9 15,473.9 17,713.2 19,975.3 22,363.9 24,863.5 27,455.7 30,119.2 Patented drug sales,

VNDbn, % y-o-y 25.5 16.2 15.2 14.5 12.8 12.0 11.2 10.4 9.7 Patented drug sales,

% of prescription sales 31.6 30.9 30.4 29.7 29.1 28.4 27.8 27.1 26.5 Patented drug sales,

% of total sales 23.1 22.7 22.3 21.9 21.5 21.1 20.7 20.3 19.9

f = BMI forecast Source: National Sources/BMI

Generic Drug Market Forecast

Although the overall generic drug market is sizeable,

standing at around VND41,878bn (USD1.98bn) in

2014, approximately 52% of the overall market's

value, most products were actually low-quality

copies of unproven bioequivalence The Ministry of

Health is stepping up its efforts to address the

problem by enlisting the help of medical

professionals in the country, in a bid to improve

generic usage and the utilisation of domestically

made products in hospitals and clinics

Additionally, entrance into the World Trade

Organization should in theory, result in dubious

copy products gradually being purged from the

market, as the country brings its intellectual property

(IP) regime in line with TRIPS However, given the

notoriously poor standard of IP enforcement in the

country, these illicit products will continue to have a sizeable influence in the near future

Overall, generic products are likely to continue dominating the market in volume terms and we forecast thevalue of the sector should reach VND147,207bn (USD7.42bn) in 2024, accounting for 58.8% of the totalmarket (up from the calculated 51.9% in 2014) Vietnam offers strong prospects for generic market growthdue to low consumer purchasing power However, a number of obstacles still remain, such as a widespreadbelief that generic drugs are inferior to patented products and that in many cases, they are not that muchcheaper than patented counterparts They are also not as widely available as they could be

In an interview with local media VietNamNet Bridge, Vietnam's former deputy minister of health, Dr LeVan Truyen, stated in January 2014 that the population is still reluctant to use domestically producedpharmaceuticals Some of the key reasons mentioned include:

■ Several domestic pharmaceutical firms failing to 'provide enough evidence about the effects of theirdrugs compared with imported drugs', consequently 'deepening people's doubt on the effectiveness andreliability of local drugs'

■ Some drugs used in specialised and central hospitals are still protected by patents, preventing local firmsfrom producing them The situation is made worse by free trade agreements that may extend patent terms

Generic Drug Market Forecast

0 15 30 45 60 75

f = BMI forecast Source: National Sources/BMI

Table: Generic Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019)

2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Generic drug sales,

USDbn 1.2 1.4 1.7 2.0 2.3 2.6 3.0 3.5 4.0 Generic drug sales,

USDbn, % y-o-y 19.4 18.5 17.6 17.0 14.8 15.6 15.9 15.2 14.6 Generic drug sales,

VNDbn 25,042.8 29,982.0 35,508.3 41,878.0 48,693.4 56,254.5 64,591.2 73,728.6 83,687.5 Generic drug sales,

VNDbn, % y-o-y 29.0 19.7 18.4 17.9 16.3 15.5 14.8 14.2 13.5 Generic drug sales, %

of prescription sales 68.4 69.1 69.6 70.3 70.9 71.6 72.2 72.9 73.5 Generic drug sales, %

of total sales 50.0 50.6 51.2 51.9 52.5 53.2 53.8 54.5 55.2

f = BMI forecast Source: National Sources/BMI

OTC Medicine Market Forecast

Despite the blurred distinction between prescription

and non-prescription products, OTC healthcare has

been achieving relatively robust value growth in the

last few years The value of OTC sales is likely to

reach VND59,232bn (USD2.98bn) in 2024, up from

VND21,140bn (USD1.0bn) in 2014 At the same

time, the sector's share of the total market as a

percentage is expected to fall to 23.7%, from 26.2%,

due to the rising value of the prescription sector and

more expensive imports and stricter dispensing

controls

Key drivers of OTC market growth will be mostly

limited to volume, as consumers become better

educated and more confident about self-medication

OTC drugs will also benefit as consumers' spending

power increases, and - in the case of the low income

population - they may well turn to OTCs and traditional medicines to seek cheaper alternatives to patenteddrugs

Another factor affecting the growth of the self-prescription market is that manufacturers import the bulk ofraw materials and active pharmaceutical ingredients, which disadvantages segments such as vitamins andanalgesics, especially given the local currency depreciation compared with key sources markets like China,Japan and South Korea

Nevertheless, despite these setbacks, vitamins and dietary supplements are one of the fastest growingsegments of OTC healthcare in Vietnam, with analgesics remaining the best sellers Single vitamin

supplements have become common household products in the country, while high generic penetration inthis area has helped to make the products affordable to the majority of consumers In fact, according to a

survey conducted by market research firm AC Nielsen in partnership with the Association of the European

Self-Medication Industry (AESGP) consumers in Vietnam (at 45% of the total) are among the most likely totake an OTC drug for a minor ailment as soon as symptoms are present

OTC Medicine Market Forecast

0 6 12 18 24 30

f = BMI forecast Source: National Sources/BMI

Market research also established that it is common for people in Vietnam to ask the advice of unlicensedpharmacists or friends when choosing a medicine, rather than seeing a doctor and receiving a prescription.Concern surrounds pharmacists who offer customers prescription-only medicines over the counter, which inthe case of drugs such as antibiotics, can lead to resistance if they are overused Like many other Asiancountries, branding and advertising is becoming increasingly prevalent in Vietnam's OTC sector.

Meanwhile, BMI believes that there is great potential for Vietnam's traditional medicines (TM) sector as

long as the government can attract investment in extraction technologies, reduce Vietnam's reliance onimporting raw materials and in turn bring down the retail prices of such products With more than 4,000medicinal herbs and plants in the country, there could be myriad applications in the consumer health sector,which would boost the overall OTC market value

However, the government will also have to improve regulation of the sector It is estimated that up to 70%

of traditional medicines are fakes imported into the country Presently, the MoH only allows around 15

herbal brands to be sold in Vietnam, although the market is saturated with unlicensed offerings BMI

believes that in the coming years, the MoH will increase its reliance on TM and the cultivation of ThuongHoang, a mushroom that has been used traditionally to treat cancer, is a positive step in the right direction

In February 2011, Deputy Prime Minister Nguyen Thien Nhan stated that the government wants to continue

to nurture the traditional medicine sector and drafted a plan that aimed to modernise traditional medicine by

USDbn, % y-o-y 16.7 16.0 15.1 14.5 12.3 13.1 13.4 12.7 12.0 OTC medicine sales,

VNDbn 13,478.3 15,793.8 18,315.3 21,139.7 24,050.1 27,179.8 30,522.0 34,066.9 37,802.7 OTC medicine sales,

VNDbn, % y-o-y 26.0 17.2 16.0 15.4 13.8 13.0 12.3 11.6 11.0 Over-the-counter

(OTC) medicine sales,

% of total sales 26.9 26.7 26.4 26.2 25.9 25.7 25.4 25.2 24.9

f = BMI forecast Source: National Sources/BMI

Pharmaceutical Trade Forecast

Vietnam is highly reliant on pharmaceutical imports

Data from UN Commodities Trade Database

(UNComtrade) showed that the country imported

USD1.8bn worth of pharmaceuticals in 2012 while

exporting USD77.1mn worth of products in the same

period Imported pharmaceuticals were mainly from

France (USD235.9mn) India (USD230.5mn) South

Korea (USD164.4mn) Germany (USD143.4mn) and

Italy (USD93.9mn) Meanwhile, the country

exported to Germany (USD9.7mn) Nigeria

(USD5.6mn) Cambodia (USD5.5mn) Japan

(USD4.2mn) and India (USD4.2mn) Given that the

pharmaceutical sector is still in its infancy, we

expect such reliance on imports to continue From

2014 to 2019, we forecast that pharmaceutical

exports and imports will see local compound annual

growth rates of 19.5% and 12.8% respectively in US

this reliance on imported products as a commercial opportunity for foreign drugmakers

However, while the pharmaceutical sub-sector may be growing at a double-digit rate, we caution that not allforeign drugmakers will be able to capitalise on this growth opportunity Doubts regarding drug quality andcounterfeit drug problems are two reasons why people prefer imported products in developing markets such

as Vietnam Consequently, we believe that careful branding and marketing is a vital method by which firmscan capture market share in Vietnam and other developing countries Companies that are able to engagephysicians (through their sales forces) initiate differential pricing policies and launch various corporatesocial responsibility programmes are likely to be seen in a more positive light than those that fail to do so - and are therefore more likely to succeed in Vietnam

Pharmaceutical Trade Forecast

f = BMI forecast Source: United Nations Comtrade Database DESA/UNSD, BMI

Free trade agreements are seen as an obstacle to the use of domestic drugs due to patent

conditions BMI notes that Vietnam is one of the member countries under the Trans-Pacific Partnership

(TPP) Interest groups from a number of countries such as Malaysia, Australia and New Zealand havewarned of potential increases in drug prices, as there could be an extension of intellectual property rightsinvolving pharmaceuticals Should member countries agree to extend patent terms, all generic drug

companies will be affected

At the same time, the Vietnamese government is keen to increase domestic drug use in the country InDecember 2013, the Drug Administration of Vietnam (DAV) launched a programme to raise awarenessamong doctors, hospital managers and the community on the use of locally produced drugs In addition topromoting local drugs consumption, the government is aiming to implement universal healthcare by the end

of 2014 The country may opt to subsidise more locally made drugs under the scheme, which would bringdownside risks to foreign drugmakers

Table: Pharmaceutical Trade Data And Forecasts (Vietnam 2013-2019)

2013 2014e 2015f 2016f 2017f 2018f 2019f

Pharmaceutical exports, USDmn 93.8 116.5 141.9 170.5 204.3 242.5 283.3 Pharmaceutical exports, USDmn, % y-o-y 21.6 24.2 21.9 20.1 19.8 18.7 16.8 Pharmaceutical imports, USDmn 2,138.4 2,471.3 2,777.8 3,144.7 3,568.3 4,025.1 4,514.9 Pharmaceutical imports, USDmn, % y-o-y 16.2 15.6 12.4 13.2 13.5 12.8 12.2 Pharmaceutical trade balance, USDmn -2,044.7 -2,354.8 -2,635.9 -2,974.2 -3,363.9 -3,782.5 -4,231.7

f = BMI forecast Source: United Nations Comtrade Database DESA/UNSD, BMI

Table: Pharmaceutical Trade Data And Forecasts local currency (Vietnam 2013-2019)

2013 2014e 2015f 2016f 2017f 2018f 2019f

Pharmaceutical

exports, VNDmn 1,971,853 2,468,995 3,047,303 3,657,833 4,341,948 5,105,487 5,905,970 Pharmaceutical

exports, VNDmn, %

Pharmaceutical

imports, VNDmn 44,968,828 52,388,249 59,636,889 67,453,829 75,825,296 84,727,704 94,136,046 Pharmaceutical

imports, VNDmn, %

Pharmaceutical trade

balance, VNDmn -42,996,975 -49,919,254 -56,589,587 -63,795,996 -71,483,348 -79,622,217 -88,230,075

f = BMI forecast Source: United Nations Comtrade Database DESA/UNSD, BMI

Key Risks To BMI's Forecast Scenario

The existence of rampant corruption will continue to hinder the country's progress in the pharmaceuticaland healthcare sector, bringing downside risks to its business environment In August 2012, it was revealedthat Vietnam's social health insurance funds are running a deficit, in part due to mismanagement of funds aswell as a result of corruption In March 2012, Doan Van Cuong, an ex-employee of the Can Tho socialinsurance department, made fraudulent claims He used the names of pregnant women and asked forpostnatal assistance worth VND119.5mn (USD5,730) even though these women were not his employees

Risks to export forecasts are mostly to the upside, from the point of view of volumes produced A number

of foreign players have - or are in the process of establishing - export ventures in the country The fact thatsuch facilities comply with international norms will continue to stimulate export potential

The current trend for regional harmonisation provides the ideal background for progress of Vietnam'shealthcare and pharmaceutical industries However, whether such reform can be carried out successfully is amatter for much conjecture given the disorganised state of the sector Nevertheless, Vietnam's World TradeOrganization membership since early 2007 is expected to stimulate other similar deals in the region

Macroeconomic Forecasts

Economic Analysis

BMI View: We expect continued strong foreign direct investment (FDI), healthy export growth and ongoing

efforts by the government to improve macroeconomic fundamentals to keep the Vietnamese economy growing strongly in 2015 Consequently, we forecast Vietnam's real GDP growth to accelerate to 6.4% in

2015, from 6.0% in 2014.

In line with our bullish economic outlook for Vietnam, the country's real GDP growth accelerated to animpressive 7.0% in Q414 from the revised 6.1% in the previous quarter This in turn brought real GDPexpansion for the year to 6.0%, surpassing the Bloomberg consensus estimate of 5.7% and marking

Vietnam as one of the brightest growth spots in Asia We expect Vietnam's robust economic growth

momentum in 2014 to be carried over into 2015, largely on the back of greater foreign direct investment(FDI) inflows, continued healthy export growth as well as continual efforts by the Vietnamese government

to improve macroeconomic fundamentals As such, we forecast the Vietnamese economy to continuegrowing at a strong pace of 6.4% in real terms in 2015

Strong Economic Expansion On The Cards

Vietnam - Real GDP Growth, %

Source: BMI, GSO

FDI And Exports To Continue Driving Growth

From an expenditure approach, the strong showing in 2014 owes largely to high foreign investor interesttowards the country and the robust performance in the export sector Latest data published by the GeneralStatistics Office showed that total foreign registered capital rose 9.6% to USD15.6bn in 2014, with themanufacturing sector receiving the bulk of it (71.6%) While there is the potential for volatility in emergingand frontier markets as the US looks to tighten its monetary policy over the coming quarters, we

nevertheless expect a continuation of strong FDI inflows to Vietnam This is corroborated by our view thatVietnam can continue to attract foreign investors, particularly manufacturing firms, as it offers themattractively low wages, strong demographics that will ensure a continual supply of workers as well asgenerous tax incentives

Meanwhile, exports grew by 13.6% to approximately USD150.0bn over the course of 2014 Given thecountry's export orientation to the US, which received about 19% of total Vietnamese outbound shipments

in 2014, a recovering US economy will bode well for the export sector going forward

Manufacturing And Services Sectors To Remain Strong

From a production perspective, broad-based growth was witnessed in 2014 Notably, the manufacturingsector rose by 8.5%, while construction grew by 7.1% The service industry also posted robust growth of6.0% Over the coming quarters, we expect the Vietnamese economy to continue riding on strong

manufacturing performances The Purchasing Managers' Index (PMI), a leading measure of manufacturingperformance, points to higher production activity Indeed, the index came in at 52.7 in December 2014,marking the 16th consecutive month of expansion In addition, continued FDI inflows to the sector will alsohelp to keep factories running at high capacity utilisation

In addition to the manufacturing sector, we are also optimistic about the prospects of Vietnam's real estateand construction sectors The easing of foreign property ownership rules, which will take effect in July

2015, should act as a catalyst to attract more foreign demand for domestic properties (see 'Easing Of Foreign Property Ownership Rules A Positive Step Forward', December 2, 2014) Since the construction

sector is strongly correlated with the property market, we expect the former to continue putting in a strongperformance over the coming quarters as well That said, we note that business environment weakness couldweigh on foreign participation in realty investment in the near term

Improving Macroeconomic Fundamentals Bode Well For Growth

Ongoing efforts by the Vietnamese government to strengthen macroeconomic fundamentals and to forgefinancial stability following several economic missteps should also bode well for the economy The

economy has witnessed a rapid decline in inflation, which is further aided by the slump in global oil prices

in H214 Consumer price inflation came in at a modest 1.8% year-on-year (y-o-y) in December 2014, downfrom 2.6% y-o-y in the previous month and marking a long way down from its peak of 23.0% recorded inAugust 2011 We expect price pressures to remain subdued over the coming months, owing in part to lowercommodity prices As such, we forecast average inflation to come in at 2.1% in 2015, down from our initialestimate of 5.3% The government has also sought to address the high level of bad debt in the bankingsystem via the Vietnam Asset Management Company (VAMC) The VAMC, established in July 2013, willpurchase sour assets from local banks and sell them thereafter in a bid to allow these institutions to undergomuch needed restructuring

Price Pressures To Remain Subdued

Vietnam - Headline Inflation, % chg y-o-y

Source: BMI, GSO

Key Challenges

While we see positive developments in the economy, there are nevertheless some downside risks to our

2015 real GDP growth forecast Chiefly, we note that the ongoing maritime dispute with China oversovereign claims to the South China Sea could lead to an economic backlash by China Likewise, thecountry's fiscal woes and banking frailties are also key risks to the economy

Table: Economic Activity (Vietnam 2010-2019)

2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Nominal GDP, USDbn 112.9 134.6 155.5 170.4 185.8 199.3 220.6 248.4 280.0 314.9 Real GDP growth, % y-o-y 6.4 6.2 5.2 5.4 6.0 6.4 6.6 6.4 6.4 6.3 GDP per capita, USD 1,267 1,496 1,712 1,859 2,007 2,133 2,341 2,616 2,925 3,266 Population, mn 89.0 89.9 90.8 91.7 92.5 93.4 94.2 95.0 95.7 96.4 Industrial production, % y-o-y, ave 14.1 10.9 7.0 5.9 7.7 8.4 8.6 8.6 8.5 8.5 Unemployment, % of labour force, eop 4.3 3.6 3.2 3.6 3.5 3.4 3.5 3.5 3.5 3.5

e/f = BMI estimate/forecast Source: National Sources/BMI