Vietnam freight transport report q2 2010

... of any information hereto contained Vietnam Freight Transport Report Q2 2010 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q2 2010 CONTENTS Executive Summary ... leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page Vietnam Freight Transport Report Q2 2010 Business Environment Ratings The freight transport. .. International Ltd Page 36 Vietnam Freight Transport Report Q2 2010 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market

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FREIGHT TRANSPORT REPORT Q2 2010

INCLUDES 5-YEAR FORECASTS TO 2014

Part of BMI’s Industry Survey & Forecasts Series

Published by: Business Monitor International

Publication date: March 2010

CONTENTS

Executive Summary 5

SWOT Analysis 6

Vietnam Road Haulage SWOT 6

Vietnam Political Swot 6

Vietnam Economic Swot 7

Vietnam Business Environment Swot 7

Business Environment Ratings 8

Table: Asia Pacific Freight Business Environment Ratings 8

Freight Industry Ratings 9

Transport Intensity Index 10

Vietnam Logistics Performance Index (LPI) 10

Economic Risk Summary 10

Political Risk Summary 11

Business Environment Risk Summary 12

Legal Code/Corruption 12

Red Tape 12

Labour Force 13

Industry Trends And Developments 14

Road 14

Rail 15

Air 16

Sea 17

Industry Forecast Scenario 20

Global Oil Products Price Outlook 20

Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl) 21

Table: Oil Product Price Forecasts (US$/bbl) 22

Macroeconomic Outlook 23

Table: Vietnam – Economic Activity, 2007-2014 25

Transport Outlook 25

Table: Freight Transport Data And Forecasts, 2006-2014 26

Table: Freight Carried, Domestic, 2006-2014 (mn tonnes-km) 27

Trade Environment 28

Table: Total Value Of Imports By Category, 2006-2014 (US$mn) 29

Table: Value Of Exports By Category, 2006-2014 (US$mn) 30

Table: Vietnam’s Top Export Destinations, 2002-2006 (US$mn) 31

Table: Vietnam’s Export Trade, 2003-2006 (% growth y-o-y) 32

Table: Vietnam’s Import Trade, 2003-2005 (% growth y-o-y) 32

Table: Vietnam’s Top Import Sources, 2002-2006 (US$mn) 33

Market Overview 34

Multi-Modal 34

Competitive Landscape 34

Road 37

Infrastructure 37

Competitive Landscape 37

Rail 41

Competitive Landscape 41

Air 44

Competitive Landscape 44

Company Profile: Vietnam Airlines 48

Water 50

Infrastructure 50

Maritime Competitive Landscape 51

Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) 58

Table: Vietnam Petroleum Transport’s Key Financial Data, 2007-Q109 59

Company Profile: Doan Xa Port 60

Table: Doan Xa Port’s Financial Performance, 2007 And 2008 61

Pipelines 62

Competitive Landscape 62

Country Snapshot: Vietnam Demographic Data 63

Section 1: Population 63

Table: Demographic Indicators, 2005-2030 63

Table: Rural/Urban Breakdown, 2005-2030 64

Section 2: Education And Healthcare 64

Table: Education, 2002-2005 64

Table: Vital Statistics, 2005-2030 64

Section 3: Labour Market And Spending Power 65

Table: Employment Indicators, 1999-2004 65

Table: Consumer Expenditure, 2000-2012 (US$) 65

BMI Methodology 66

How We Generate Our Industry Forecasts 66

Transport Industry 66

Sources 67

Executive Summary

Vietnam’s Prime Minister Nguyen Tan Dung approved the Viet Nam Seaport Development Master Plan, which will require a total investment of VND360-440trn (US$19.5-23.8bn) by 2020 The plan aims to increase the transportation capacity of the country by 500-600mn tonnes of goods by 2015, 900-1,000mn tonnes by 2020 and 2,100mn tonnes by 2030 The primary focus of the plan from now to 2015 will be the international transit port Van Phong in Khanh Hoa Province, development of the Lach Huyen seaport complex in Hai Phong, and a seaport at the Nghi Son oil refinery Although Vietnam has 266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the port to the rest of the country The increased traffic levels in Vietnam’s urban areas and the country’s general fast-paced economic development have increased the volume of exports and imports

to and from the country, thus creating a pressing need for better infrastructure between ports and inland The new master plan will improve the port infrastructure in the country

Since our last report we have cut back our macroeconomic forecasts for Vietnam, acknowledging the danger of a ‘double dip’ growth slowdown We now estimate GDP growth of 5.3% in 2009 (up from 5.1% earlier) but have reduced the projection for 2010 to 4.4% (was 5.9%) and have also trimmed 2011 to 5.5% (was 6.8%) Our forecast for 2010-2014 is for an annual average GDP growth rate of 5.9% per annum, representing a reduction on the 7.3% average rate achieved in the preceding five-year period We maintain some adjustments to mode-specific freight carried forecasts In road haulage, we have trimmed our forecast to take account of the global downturn and lower freight demand We still see road-freight turnover running ahead of the general rate of economic expansion in Vietnam Air freight is beginning to emerge from a difficult period WTO membership has been supportive of greater freight transport

turnover relative to GDP across all modes, but particularly so for shipping On the downside, the 2009 contraction in trade had a particularly strong impact on shipping and Vietnam is expected to export less coal by sea as its domestic power needs rise The net result of this is that we expect freight carried growth across all modes, measured in mntkm, to average 7.4% a year in 2010-2014

According to our latest estimates, transport and communications GDP rose by 6.5% in 2009, 1.2

percentage points (pps) faster than overall GDP, which we estimate to have increased 5.3% For the

2010-2014 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole in value terms It will achieve average annual growth of 6.9%, versus 5.9% for overall GDP The value of transport and communications GDP will rise to US$7.0bn in nominal terms by

2014, of 4.5% of Vietnam’s GDP By modes, we project that air freight to be the fastest growing, rising

by 7.7% per annum, followed by road haulage at 7.6%, shipping (7.4%), pipelines (6.8%) and rail (6.5%)

SWOT Analysis

Vietnam Road Haulage SWOT

Strengths ƒ Vietnam’s strong domestic growth rate coupled with its geography; a long country

stretching for thousands of kilometres on a north-south axis creates a need for distance freight haulage

long-Weaknesses ƒ The generally poor state of the road network Despite new highway construction, only

13.5% of the road network is considered to be in good condition, only 26% has two or more lanes and only 29% is tarred Construction of the second north-south highway may be a waste of resources given the pressing need for improvement of secondary roads

Opportunities ƒ The beginnings of local commercial vehicle production, which will help improve the

stock of lorries used by road haulage companies

Threats ƒ The attractiveness of other modes of freight transport, particularly inland waterways

and coastal shipping If progress towards a better-integrated national road network is too slow, freight growth will divert away from the trucking industry

Vietnam Political Swot

Strengths ƒ Communist Party government appears committed to market-oriented reforms,

although specific policies will doubtless be discussed at the 2011 National Congress

ƒ The one-party system is generally conducive to short-term political stability

ƒ Relations with the US are generally improving, and Washington sees Hanoi as a potential geopolitical ally in South East Asia

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

ruling Communist Party

ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership’s tight control over political dissent

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

acted to clamp down on graft among party officials

ƒ Vietnam has allowed legislators to be more vocal in criticising government policies, opening up opportunities for more checks and balances within the one-party system

Threats ƒ The slowdown in growth in 2009 and 2010 is likely to weigh on public acceptance of

the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule

ƒ Although domestic control will ensure little change to the political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable

ƒ Relations with China have deteriorated over the past year due to Beijing’s more assertive 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 widescale environmental damage

Vietnam Economic Swot

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

GDP growth averaging 7.6% annually between 2000 and 2007

ƒ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004

Weaknesses ƒ Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving

the economy vulnerable as the global economy continues to suffer in 2010 The fiscal picture is clouded by considerable ‘off-the-books’ spending

ƒ The heavily-managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary press

Opportunities ƒ WTO membership has given Vietnam access to both foreign markets and capital,

while making Vietnamese enterprises stronger through increased competition

ƒ The government will in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises, and liberalising the banking sector

ƒ Urbanisation will continue to be a long-term growth driver The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s

Threats ƒ Inflation and deficit concerns have caused some investors to reassess their hitherto

upbeat view of Vietnam If the government focuses too much on stimulating growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis

ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilise the economy

Vietnam Business Environment Swot

Strengths ƒ Large, skilled, low-cost workforce has made Vietnam attractive to foreign investors

ƒ Vietnam’s location –proximity to China and South East Asia and good sea links – makes it a good base for foreign firms to export to the rest of Asia, and beyond

Weaknesses ƒ Vietnam’s infrastructure is still weak Roads, railways and ports are inadequate to

cope with the country’s economic growth and links with the outside world

ƒ One of the world’s most corrupt countries Its score in Transparency International’s

2009 Corruption Perceptions Index was 2.7

Opportunities ƒ Increasingly attracting investment from key Asian economies, such as Japan, South

Korea and Taiwan This offers possibility of transfer of high-tech skills and knowhow

ƒ Pressing ahead with privatisation of state-owned enterprises and the liberalisation of the banking sector This should offer foreign investors new entry points

Threats ƒ Ongoing trade disputes with the US, and the general threat of American

protectionism, which will remain a concern

ƒ Labour unrest remains a lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period

Business Environment Ratings

The freight transport sector in the Asia Pacific region offers one of the most attractive business

environments for the industry worldwide There are various reasons for this First, the region offers a

powerful combination of future growth and economies of scale It contains arguably the two most

significant of the four BRIC (Brazil, Russia, India and China) economies, which, it is argued, are the

powerhouses of future global growth China and India combine vast geographical size, large populations,

globally competitive labour costs and as yet untapped infrastructure potential To this must be added the

‘third BRIC’, Russia, which, although outside the region, has critically important trade and transport links

to Asia (such as crude oil exports to China) Second, at a ‘big picture’ level, most of the regional power

centres are committed to reasonably pragmatic and relatively stable, market-based policies Countries that

in the past were either fervently communist (China, Vietnam) or capitalist (Malaysia, Taiwan) share a

much wider non-ideological common ground focused on how to achieve a sustainable rise in living

standards This is not to say, of course, that the area is free of tensions and flash points (North Korea,

China-Japan, India-Pakistan to name just a few)

Table: Asia Pacific Freight Business Environment Ratings

Limits of potential returns Risks to realisation of returns

Country risk Risks

Overall rating

Regional rank

Strong freight transport growth rates are combined with a very encouraging infrastructure investment picture across most of the region

By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to smaller/higher value loads continues Rail freight will benefit from long-distance economies of scale, whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route Shipping is being lifted by the surge in trans-Pacific commodity and manufacturers’ trade routes, while air freight is growing on the back of liberalisation and the budget airline boom While the freight transport industry in the region suffers from patchy regulation and in some areas there are ongoing issues with corruption and cronyism, it is on the whole much more open and competitive than in the past A strong positive factor is the dynamic and outward facing role played by foreign trade

Freight Industry Ratings

Our overall freight transport rating for Vietnam stands at 58.1 (out of a theoretical maximum score of 100) This is composed of a score of 60.7 for potential returns (reflecting factors such as market size, growth and the competitive environment), which gets a 70% weighting, and a lower score of 52.3 for risks to those returns (reflecting factors such as market orientation, regulatory environment and other country-risk issues), which gets a 30% weighting

Vietnam’s freight transport traffic, measured in mntkm, rose by an annual average of 10.2% in 2005-2009 and, according to our projections, will decelerate to an annual average of 7.4% in 2010-2014

According to official information, there is a wide range of transport sector investment projects in the pipeline, across road, rail, air and sea Work is underway to develop the Mekong basin area, and new seaports are planned While there is no doubt that Vietnam’s transport infrastructure is expanding, our rating for this category is constrained by poor planning and limited project management experience

Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that the reform process started nearly two decades ago The country gained access to the WTO in 2007 In the transport sector, state-owned enterprises (SOEs) continue to be dominant in many areas There is not yet a clear legal framework for the protection of passenger and freight customer rights

Freight transport competition remains limited, with SOEs dominating key transport modes There are few foreign entrants, although we expect more to arrive during the forecast period To be able to operate in the country, significant negotiations and procedures are required Although the government favours attracting more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive markets

Transport Intensity Index

This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2005 through to 2014 As such, it is a mix of actual performance (the five-year 2005-2009 period) and projected performance (2010-2014) In Vietnam’s case, actual average annual trade growth in 2005-2009 was a strong 18.8%, which in our projections will ease substantially to 11.1% per annum in 2010-2014 The annual average across the 10 years as a whole is 16.8%

Vietnam Logistics Performance Index (LPI)

In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as ‘the first in-depth cross-country assessment of the logistics gap among countries’ The LPI was calculated on a five-point scale and based on survey responses from over 800 logistics professionals Countries were given an aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the quality of customs, infrastructure and international shipments, logistics competence, tracking and tracing, domestic logistics costs and timeliness

In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9 For comparison with the major OECD economies, the Netherlands was ranked second in the world with an LPI of 4.2;

followed by Germany (third with an LPI of 4.1), the UK (ninth, LPI of 4.0) and the US (14th, LPI of 3.8)

In comparison with other Asian economies, Singapore was the world number one with an LPI score of 4.2, followed by Australia (17th, LPI of 3.8) and Taiwan (21st, LPI of 3.6) Then came South Korea (25th, LPI of 3.5), Malaysia (27th, LPI of 3.5), China (30th, LPI of 3.3), Thailand (31st, LPI of 3.3) and Indonesia (43rd, LPI of 3.0) Vietnam was therefore close to the bottom end of the regional LPI ranking, ahead of Papua New Guinea (95th, LPI of 2.4) and Laos (117th, LPI of 2.3) In terms of the different components of the index, Vietnam’s best performing areas, ranked in order, were domestic logistics costs, timeliness, international shipments, and tracking and tracing Weaker areas in descending order were customs, logistics competence, and infrastructure

Economic Risk Summary

Inflation To Continue Rising

Consumer price inflation hit 6.5% y-o-y in December, boosted by a VND800/lite fuel price hike on November 20 and a 3% devaluation of the dong on November 25 The December reading was the highest since April, but we expect consumer price inflation to rise further in H110, potentially hitting double digits by mid-year However, we expect inflation to decelerate in H210 as the authorities tighten fiscal and monetary policy, coming in at 7.0% by December 2010 A failure to tighten fiscal and monetary

policy would pose upside risks to our forecast that inflation will average 9.0% in 2010

Long-Term Risk

We believe Vietnam will need to tighten fiscal and monetary policy sharply in 2010 in order to bring the balance of payments back to a sustainable level With external demand still weak, we are forecasting real GDP growth dropping to 4.4% in 2010 from an expected 5.1% in 2009 The co-existence of slowing economic growth and increasing inflation will inevitably raise debate about economic policy at the Communist Party of Vietnam’s (CPV) National Congress, scheduled for January 2011 We believe the political impetus is still behind continued economic reform, but that Vietnam will have to lower its economic growth targets and adjust its economic policy mix in order to avoid further macroeconomic turbulence

While successful in boosting domestic demand and bringing about a recovery in growth from 3.1% y-o-y

in Q109 to 4.4% and 5.2% in Q209 and Q309, Vietnam’s sizeable fiscal and monetary stimulus package implemented over 2009 has also led to a widening trade deficit through a high degree of import leakage With Vietnam’s foreign exchange reserves below the three months’ worth of imports, we expect Vietnam

to depreciate the dong towards VND19,000/US$, raise interest rates by 500bps to 12.0% and tighten fiscal policy in 2010 in order to avoid a balance-of-payments crisis

Political Risk Summary

Political Repression To Increase In 2010

Tranh Anh Kim, leader of the pro-democracy Bloc 8406 group, was jailed for 5½ years on December 28 for subversion and four other pro-democracy activists arrested with Kim in July 2009 are to be tried in court in early 2010 We expect the Vietnamese government to continue tightening the screw on political dissidents ahead of the Communist Party of Vietnam’s five-yearly National Congress in January 2011 While Vietnam scores 80 out of 100 in our short-term political risk rating, its 52.8 long-term political risk

rating reflects our opinion that one-party rule is ultimately unsustainable

Long-Term Risk

Vietnam’s relations with China have come to the forefront of an internal power struggle within the Communist Party of Vietnam, pitting economic reformers centred around Prime Minister Nguyen Tan Dung against more conservative Politburo members with links to China With the two factions seeking to strengthen their positions ahead of the 2011 National Congress, we believe the reformists will maintain the upper hand The sensitive power balance within the Politburo will limit the scope for a further

rapprochement between Vietnam and US, with bilateral ties also strained by Hanoi’s suppression of Catholic activists

Business Environment Risk Summary

Vietnam is making headway in improving its dilapidated infrastructure with construction on a number of ports, power plants and road projects commenced in 2009 Nonetheless, it will take a number of years, if not decades, until Vietnam’s infrastructure rating of 37.2 comes anywhere near the 68.0 China scores On the economic reform front, the government’s privatisation process is gaining pace again with the listing of

Vietcombank , VietInBank and Eximbank in 2009 We are also expecting improvements in the

business environment from the Vietnam-Japan Economic Partnership agreement and a free trade

agreement currently under negotiation with the European Union

Equity Sale Rules Loosened

The minimum period for share holdings is to be decreased from three to two days after purchase in a measure aimed at boosting the liquidity of the domestic stock market, according to Vu Bang, chairman of the State Securities Commission Poor transparency at listed corporates and the relative illiquidity of shares have held back foreign investment into the Vietnamese stock market, in spite of the strong growth potential for the economy An improvement of corporate governance standards and increased liquidity should raise the profile of the Vietnamese stock market and thus widen the financing options for

contract, which takes an average of 120 days The East Asia and Pacific average is 24 and 193,

respectively, while the process involves 18 procedures and 213 days in high-income OECD states

Conversely, World Bank data state that it takes 11 procedures and 56 days to start a business in Vietnam, compared with an average of nine and 61 in East Asia and Pacific and six and 25 in high-income OECD states

Labour Force

Size

Reliable data on the labour force in Vietnam are difficult to find However, it is estimated that the

working age population in the country is 42.1mn, approximately 61% of the total An estimated 10.2mn live in urban areas, with the remaining 31.9mn in rural areas ‘Technically skilled workers’ form an estimated force of 8.84mn, accounting for 20.99% of the total The south-east region has the highest rate

of skilled workers (30.13%), followed by the Red River delta (27.99%) and Coastal South Central

(20.85%) The lowest rate was reported in the north-west region

Education

The adult male illiteracy rate was estimated at 4% for males and 9% for females in 2000, with the youth illiteracy rate 3% for both genders

Regulation

The Vietnam labour force is comparatively heavily regulated, according to World Bank’s Employment

Laws Index Its score of 56 indicates that regulations are tighter than the East Asia and Pacific average,

and a bit tighter than OECD high-income states Disaggregating the data, the regulations for hiring workers are looser than those for firing workers, with scores of 43 and 48, respectively, the combination

of which suggests a more regulated workforce than regional peers

Issues

Fears of growing unemployment and rising social unrest in the cities is slowing down the reform of SOEs The SOEs are an inefficient and loss-making legacy of a different era, and would have gone bankrupt a long time ago if the market had had its way However, the fear of creating mass

unemployment in the cities by laying off surplus labour has prevented meaningful reform As a result, the SOEs continue to crowd out the more productive private sector, while adding to the government’s fiscal woes by forcing the state to absorb their losses

Industry Trends And Developments

Road

In January Vietnam was seeking loans from the World Bank (WB) and the Japan International

Cooperation Agency (JICA) to finance the construction of an expressway costing US$2.5bn, reported The Saigon Times Daily The 130km-long expressway, will connect Danang City to Quang Ngai Province Work will done by the state-owned Vietnam Expressway starting in 2010 JICA is expected to fund a 65km-long section from Danang City to Tam Ky in Quang Nam Province The WB is expected to fund the remaining 66km-long stretch from Tam Ky to Quang Ngai Province Vietnam has a total road

network of 222,000km, although only 19% of it is paved, indicating the poor condition of road

infrastructure in the country Vietnam’s Ministry of Transport and Communications estimates that it will require close to US$60bn up to 2020 to fund road infrastructure projects

The Transport Ministry approved the term-end report for the Ben Luc-Long Thanh highway project, reported Intellasia The project, involving investments of US$1.7bn, will be carried out by the state-owned Vietnam Expressway Investment and Development Company (VEC) The 58km-long highway will have four lanes totalling 27.5m in width VEC, the main investor, is considering acquiring loans from the Asian Development Bank (ADB) and using its counterpart capital to finance the project

The Ministry of Transport and the People’s Committee of Lao Cai province in Vietnam began the bidding package for the A7 section of the Noi Bai-Lao Cai expressway project on December 20 2009, reported Intellasia.net The first phase of the bidding package includes construction work on a road with total length of 26.7km The winning bidder for the package was China-based Guangxi Road and Bridge

Construction, with a contract price of VND1.6trn (US$86.6mn) Construction is expected to take 38 months The roads and ports sectors are seeing the greatest level of activity in transport infrastructure in Vietnam, with the government funnelling public funds and loans from multilateral institutions for their development

The Hanoi-Hai Phong highway construction project in Vietnam was set to be financed with loans from Czech-based KB Bank, it was stated in December 2009 The prime minister of Vietnam has provided, in-principle, approval to Vietnam Development Bank (VDB) for securing 10-year loans from KB Bank for the project The highway project involves construction of a 105.5km-long expressway, six lanes and road surfacing Along the highway, two sudden-stop lanes, six intersections, nine large bridges, 21 medium bridges and 22 overhead bridges will also be built This follows another infrastructure financing

agreement between Vietnam and the Czech Republic In March 2008, Vietindebank, one of Vietnam’s major state-owned banks and the Czech Export Bank have entered into an agreement to jointly provide funding for projects in Vietnam, including large infrastructure projects The funding for all the planned

projects will be worth US$956mn, of which US$720 will go towards the construction of a road in

southern Vietnam and part of the remaining US$236mn will go into the development of a waste-treatment plant

The Vietnamese Transport Ministry started work on a 61.3km-long four-lane expressway that will

connect Thai Nguyen, Bac Ninh and Hanoi, said the Vietnam News Agency The expressway is expected

to ease the traffic on National Highway 3 and facilitate the growth of trade between Hanoi and other northern parts of the country The project also includes construction of six junctions, 29 bridges and other facilities The Japan International Cooperation Agency (JICA) will provide a VND6.1trn (US$338.89mn) loan for the VND8.1trn (US$450mn) project, which is scheduled to be completed by 2013

The Vietnamese road authority has signed a build-operate-transfer (BOT) contract with local company Bien Hoa-Vung Tau Expressway Development (BVEC) for the expansion of National Highway 51 The national highway, linking the provinces of Dong Nai and Ba Ria-Vung Tau, will be expanded to 32.9m in width The project also includes expansion of 10 bridges and construction of 12 new bridges The project will require an investment of VND3.31trn (US$185.36mn), out of which 10% will be provided by

investors, with the rest to be contributed by commercial loans

According to Thai News Service, as cited by Cargo News Asia in early November, truck drivers were travelling on alternative streets to avoid paying tolls on the Hanoi Highway in Ho Chi Minh City,

Vietnam They were choosing to drive down a small street running parallel to the Hanoi Highway The news came after a two-day protest by drivers over charges at the toll station The station was shifted to the Hanoi Highway in August 2009 to collect fees from heavy transport vehicles The Ho Chi Minh City Cargo Transportation Association said the city Infrastructure Investment Joint Stock Company (CII) put the toll station in the wrong place and was unfairly collecting toll fees from trucks travelling between the Cat Lai Port, Hanoi Highway and Nguyen Huu Canh Street The move by truck drivers to avoid paying the frees led to traffic congestion in the area

Rail

A consortium formed from French construction company VINCI Construction Grands Projets and French manufacturer LOHR Industrie has signed an agreement for the construction of the first light railway line

in Ho Chi Minh city in Vietnam The project, with an estimated cost of EUR200mn (US$297.77),

involves design and construction of 12km railway line that will have a total of 23 stations Under the terms of the agreement, the consortium will hold discussions until June 30 2010 with an intention to enter into an Early Contractor Involvement (ECI) design-build contract for the project

Vietnam’s Quang Ninh province People’s Committee received the construction plan for the Van Don international airport The plan was submitted by the US-based Rockingham Asset Management Group The US$1.2bn project will be carried out on build-operate-transfer (BOT) basis, and the airport is

expected to become operational in 2014 Its control will be transferred to Vietnamese authorities in 2048 The Vietnamese government has ambitious plans to modernise and expand the country’s airport

infrastructure, though some, like the Long Thanh international airport, have been in the pipeline for years with little progress being made However, the government’s willingness to get projects off the ground provides grounds for optimism The Ministry of Transport announced in early May 2009 that it will upgrade and expand Vietnam’s main airports Plans include new international airports in Phu Quoc, Long Thanh, Cam Ranh, Chu Lai, Danang and Hue The Noi Bai airport in Hanoi will be expanded, as will the Cat Bi airport in Haiphong

Quang Nam province in Vietnam was in November seeking a new investor for its delayed Chu Lai international airport project Spanish project management and consulting firm Garuda Group had signed a memorandum of understanding (MoU) in April 2009 for carrying out a feasibility study for the airport, which it was unable to complete US-based Airis International Holdings (Airis) has expressed its interest

in developing the airport Airis has also recently submitted a new investment plan for the development of Chu Lai airport According to a master plan released in 2008, the transport ministry intended to increase the handling capacity of the airport to 2.2mn passengers and 1.5mn tonnes of air cargo by 2015 and 4.1mn passengers and 5mn tonnes of cargo by 2025

South Korea’s Korean Air (KAL) opened a 747-400 freighter service to Hanoi, Vietnam in the last week

of October 2009, aimed at capitalising on the country’s increasing importance in the Asian trade market The airline was set to operate four times a week to Hanoi, which included two direct flights out of Seoul Incheon International Airport and two with connections through Singapore Vietnam is witnessing huge industrial development and several international manufacturers are establishing operations in the country KAL is the larger of South Korea’s two airlines By 2006, its fleet had grown to 118 planes The company

operates passenger routes to 77 destinations in 28 countries The group’s freight division, Korean Air Cargo, is the world’s third-largest cargo carrier and, as with its passenger division, is a member of

SkyTeam Cargo

Sea

The ASEAN Ports Association (APA), a collective of port authorities representing South East Asian states, has launched a project to develop the region’s ports in partnership with the German Technical Cooperation (GTZ), a development organisation The news follows the implementation of an ambitious free-trade agreement (FTA) between the Association of Southeast Asian Nations (ASEAN) and China that is expected to place increased pressure on the countries’ trade infrastructure over the next few years The plan, titled ‘Sustainable Port Development in the ASEAN Region’, will help finance developments at nine ports across five ASEAN states: Sihanoukville Autonomous Port and Phnom Penh Autonomous Port (Cambodia), Port of Tanjung Priok and Port of Tanjung Priok (Indonesia), Port of Iloilo and Port of Cagayan de Oro (the Philippines), Bangkok Port and Laem Chabang Port (Thailand), and Saigon Port (Vietnam) APA and GTZ’s participation will ensure that the development and the expansion of the ports

is undertaken in a manner that is sustainable and will benefit the long-term economic growth of the countries in which they are based BMI believes that planned development of South East Asia’s ports is a necessity if the region is to keep pace with its growing trade volumes We expect growing bilateral trade with China, in particular, to place additional demand on the region’s port sector over the coming decade China became the region’s largest export market in 2007, over taking the US In January 2010, the

ASEAN-5 (Malaysia, Singapore, the Philippines, Singapore and Indonesia) and Brunei signed an FTA with China, creating the world’s third-largest trade bloc The agreement eliminates tariffs on 90% of goods traded between the countries and China Four other states, Laos, Cambodia, Vietnam and

Myanmar, are on course to join the trade bloc in 2015

BMI believes that, in principle, the agreement is good news for the region It will further reduce

countries’ reliance on developed markets, in particular the US, for export growth, and will offset what is likely to be a sluggish recovery in consumer demand in the West However, from a logistical perspective,

we caution that the move raises questions regarding ASEAN’s ability to cope with a projected increase in trade volumes Using the World Economic Forum’s 2010 survey on the quality of port infrastructure across different states as a gauge of port sector development, we note that only three countries from the region – Singapore, Malaysia and Thailand – rank in the top 50 of the 133 nations represented in the survey Moreover, four states rank in the bottom 50: Cambodia (89th), Indonesia (95th), Vietnam (99th) and the Philippines (112th) A lack of modern container ports in the region is perhaps the most significant point to note Manufactured goods make up a significant proportion of the exports of most ASEAN states, and imports from China are also significantly composed of consumer goods One potential problem we highlight is the dependence of some states on a single large facility for container shipments For example, Indonesia, which has a population of some 230mn people, has just one container port, Tanjung Priok,

with a capacity of more than 1mn twenty-foot equivalent units (TEUs) a year Since January 16 2010, the port authority has adapted to an influx of Chinese products by implementing a 24-hour container handling service at the port, reports Bisnis Indonesia While such measures allow ports to manage increased cargo

throughput in the short term, BMI believes that expansion and development of the port sector is needed to

meet the demands of longer-term growth Development agencies are able to assist in ensuring these expansions are sustainable and of benefit to both the region’s economy and its environment, however, in our view, the main source of financing must be individual governments and/or the private sector

Vietnam’s Prime Minister Nguyen Tan Dung approved the Vietnam Seaport Development Master Plan, which will require a total investment of VND360-440trn (US$19.5-23.8bn) by 2020 The plan aims to increase the transportation capacity of the country by 500-600mn tonnes of goods by 2015, 900-1,000mn tonnes by 2020 and 2,100mn tonnes by 2030 The primary focus of the plan from now to 2015 will be the international transit port Van Phong in Khanh Hoa Province, development of the Lach Huyen seaport complex in Hai Phong and a seaport at the Nghi Son oil refinery Though Vietnam has 266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the port to the rest of the country The increased traffic levels in Vietnam’s urban areas and the country’s general fast-paced economic development have increased the volume of exports and imports

to and from the country, thus creating a pressing need for better infrastructure between ports and inland The new master plan will improve the port infrastructure in the country

Netherlands-based engineering firm DHV was in December awarded a US$100mn contract for work on a 250km stretch of Vietnam’s Mekong River The project will involve deepening and widening the river as well as constructing 18 bridges and a new lock to ease transport The Mekong River stretches almost 5,000km from its source in China, running through Myanmar, Laos, Thailand, Cambodia and finally Vietnam before discharging into the South China Sea As a result, the river could act as an important inland trade artery for the region However, many of the bridges currently spanning the river are too low, preventing large-scale shipping on the waterway After DHV completes restructuring the bridges and dredging, the Mekong will be able to handle shipping of up to 600 deadweight tonnes (dwt) The project

is due to be complete in 2014, which will be none too soon With Vietnam’s economy expected to grow

by over 10% per year until 2014, the country’s GDP should reach US$154.4bn, almost five times its size

in 2000 This is the result of Vietnam’s emerging status as a manufacturing hub, with Ho Chi Minh City, located close to the Mekong delta, at the epicentre of domestic production Indeed, Vietnam’s maritime traffic is set to grow from 122,155mn tonnes-km to 163,785mn tonnes-km in 2014 Taiwan’s Formosa Plastics Group is currently constructing the port of Son Duong, which it hopes will become the largest deep-sea port in Southeast Asia The port, which has an estimated cost of US$1.2bn, will accommodate vessels with a capacity of 200,000-400,000dwt However, US$20-25bn needs to be invested in Vietnam’s port sector by 2020, according to the Vietnam Maritime Administration (Vinamarine), as cited by Lloyd’s List The country’s port throughput continues to grow, supported by increasing foreign investment, but there are fears that ports will not be able to keep up with demand Of the US$20-25bn it has been

suggested needs to be invested, only 12%-15% is expected to come from the Vietnamese government, with the rest to be raised from the private sector at home and overseas This is pertinent, as the current Mekong River works are being funded by outside sources, the World Bank in this instance

In early November 2009, it was reported that Vietnam National Shipping Lines (Vinalines) had started work on the development of an international transhipment port complex in Van Phong Bay in the Khanh Hoa Province in Vietnam The transhipment port complex will be developed in four phases Vinalines has started the construction of the first two wharves as part of the first phase of construction, involving an investment of VND4trn (US$250mn) The wharves, with a total length of 650m are scheduled to be completed by 2013 The first phase will be carried out from 2010 to 2015 The rankings of the Global Competitiveness Report published by the World Economic Forum annually highlight the weakness of the port sector’s infrastructure in Vietnam Though the country has 266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the port to the rest of the country The upgrading of Van Phong transhipment port complex will help the country

considerably improve the condition of its ports

Industry Forecast Scenario

Global Oil Products Price Outlook

Chilling Out

Nothing short of a weather miracle can empty brimming storage tanks and take some of the pressure off the beleaguered refining industry Another prolonged period of snow and arctic temperatures is needed in January and February in order to ensure that the inventory position improves sufficiently There is some scope for this, but there are likely to be continuing stock surpluses and narrow refining margins in 2010 Demand growth, particularly for jet and diesel, needs to be strong and sustained if the products markets are to have a good year Otherwise, rising crude costs and weak product demand implies more misery for refinery operators

The December 2009 cold snap, combined with increasing seasonal demand and stock draws helped underpin product market sentiment at the end of 2009, boosting crack spreads and refining margins in the

US and Europe The winter of 2008/09 was unusually cold, and the current season needs to be colder still

if the stock draw is to accelerate and margin strength be retained Huge distillate volumes are still being stored offshore, while gasoline stocks have been on the rise It could be that positive sentiment evaporates

as soon as the last snow melts

After December’s heavy snow in the north east US, distillate inventories started to fall, down by 10mn bbl in the month This boosted heating oil prices before the US distillate market lost some of its short-lived strength in the second week of January as the de-stocking trend reversed on the back of lower-than-expected demand growth and forecasts for normal weather temperature in the short term in the main heating-fuel markets

Improving gasoline demand, along with a slowing of stock builds in December, supported gasoline prices

In early January gasoline stock builds once again accelerated, in part reflecting the difficult US driving conditions and consequent demand weakness Any continuation of this situation will undermine gasoline market sentiment and encourage traders to liquidate long positions, putting downwards pressure on prices

European product market sentiment strengthened appreciably as the winter weather hit and arbitrage opportunities opened up for gasoline to the US and West Africa The gasoline spread against Brent crude

in Rotterdam rose to above US$7 per barrel (bbl) in early January from about US$6/bbl in the first week

of December Unfortunately, recent bullish developments in the European gasoline market may be

countered by increased gasoline stock builds in the US

The European naphtha market may remain strong over the next months amid useful and persistent

arbitrage opportunities to Asia and improving economic growth prospects Even the European distillates market has been gaining momentum on the back of the region’s icy temperatures and fewer import cargoes These developments led to stock draws and a narrowing of the contango in the gasoil market This could result in some reduction of the ample offshore distillate stocks, standing in excess of 100mn bbl Given the persistent overhang in distillate stocks in Europe, still well above the five-year average, prices are not expected to improve appreciably over the near term

The Energy Information Administration (EIA) estimates that OECD commercial oil inventories were 2.69bn bbl at the end of 2009, or about 58 days of forward cover, and about 80mn bbl more than the five-year average for that time of year It predicts OECD oil inventories will remain at the upper end of the historical range in 2010

Revised Forecasts

BMI estimates that the global wholesale price for premium unleaded gasoline was US$81.41/bbl in

Q409 This compares with US$77.16 in Q309 Over the year the price ranged from a monthly low of US$49.33 in January 2009 to US$83.25/bbl in November Gasoline prices in Q409 were up from

Table: Oil Product Price Forecasts (US$/bbl)

Gasoline 2007 2008 2009 2010f 2011f 2012f 2013f 2014f

Rotterdam Premium Unleaded 75.75 100.12 70.60 95.99 98.30 104.09 104.09 104.09

NY Harbour Unleaded 78.75 102.54 69.70 98.53 100.91 106.84 106.84 106.84 Singapore Premium Unleaded 74.98 102.64 70.21 96.07 98.39 104.18 104.18 104.18 Global average 76.49 101.77 70.17 96.86 99.20 105.04 105.04 105.04

Gasoil

Rotterdam 77.02 122.62 68.74 93.94 96.20 101.86 101.86 101.86 Mediterranean 77.69 121.75 69.13 94.73 97.02 102.73 102.73 102.73 Singapore 77.03 119.53 69.01 94.29 96.56 102.24 102.24 102.24 Global average 77.24 121.30 68.96 94.32 96.60 102.28 102.28 102.28

Jet/kerosene

Rotterdam 81.13 126.61 70.81 96.73 99.06 104.89 104.89 104.89

NY Harbour 82.48 127.13 71.18 101.27 103.71 109.81 109.81 109.81 Singapore 79.17 121.11 69.99 95.77 98.08 103.85 103.85 103.85 Global average 80.93 124.95 70.66 97.92 100.29 106.18 106.18 106.18

Sources: 2000-2006 historical data: EIA 2007/2008 historical data: IEA Forecasts: BMI

For Q110 we forecast an average global gasoline price of US$87.96/bbl, up 8% quarter-on-quarter (q-o-q)

and 68% year-on-year (y-o-y), from US$52.22/bbl in Q109 For 2010 as a whole, BMI puts gasoline at an

average US$96.86/bbl, with the price expecting to peak in July at more than US$116/bbl Gasoline prices will rise 38.0% y-o-y in 2010

In Q409 gasoil averaged US$81.33/bbl, based on a composite global price This was a y-o-y rise of almost 8% Our revised forecast for Q110 is for global gasoil to average US$91.46, up 12.5% q-o-q The weather will have helped gasoil prices relative to gasoline, in spite of the unusually large inventory position For 2010 as a whole, we forecast an average price of US$94.32/bbl, probably peaking in January

2010 if cold weather persists The full-year outturn will be a 36.8% increase y-o-y

Jet prices averaged US$83.35/bbl in Q409, using the composite for New York, Singapore and Rotterdam The y-o-y increase was just under 6%, with jet lagging behind the gain in gasoil prices The monthly low

in 2009 was US$53.75 in February 2009, with the price reaching US$84.74/bbl in November 2009 In Q110 we assume an average global jet price of US$96.22, up 15.4% q-o-q and 69.5% y-o-y For 2010 as

a whole we forecast US$97.92/bbl, up from US$70.66/bbl in 2009

In 2009 naphtha was a surprisingly robust performer among the major refined products, gaining 92% between January and November In Q409 naphtha averaged US$73.44, up from US$66.21/bbl in Q3 and US$54.70 in Q2 We put the 2010 average naphtha price at US$80.44/bbl, up 35.6% y-o-y

Looking further ahead, we see gasoline prices rising to US$99.20/bbl in 2011 and stabilising around US$105.04/bbl from 2012 Gasoil is expected to climb to US$96.60 in 2011, reaching a plateau of

US$102.28/bbl from 2012 The price of jet is forecast to average US$100.29/bbl in 2011, before levelling out at US$106.18/bbl from 2012

Macroeconomic Outlook

Double Dip Now Our Core Scenario

With Vietnam’s balance of payments yet again approaching breaking point, we expect a sharp tightening

of fiscal and monetary policy in 2010, which will see real GDP growth dip to 4.4% from an expected 5.3% in 2009 This will raise criticism of economic policy at the 11th National Congress in January 2011, but we expect the market reform agenda to be maintained

We have shifted our Vietnam growth outlook from expecting a gradual economic recovery in 2010 to a double-dip scenario with real GDP expansion dipping from an expected 5.3% in 2009 to 4.4% in 2010 This is based on our expectations that fiscal and monetary policy will have to be tightened sharply in early 2010 in order to rein in the widening trade deficit and halt inflationary pressures Our outlook for Vietnam has much in common with that for China However, while the policy aims of the respective governments are similar, we view the macroeconomic concerns in Vietnam as more alarming, at least in the short term, as Hanoi’s fiscal and monetary resources are considerably more limited

As a consequence, we find it likely that the inevitable shift towards tighter monetary and fiscal policy will come earlier in Vietnam than in China Indeed, while Hanoi’s fiscal and monetary stimulus has helped economic growth recover from a low of 3.1% y-o-y in Q109 to 5.2% in Q309, it has also been a key factor, in our view, behind a considerable widening of the trade deficit over the same period to US$1.9bn

in October While the return to positive growth in G3 markets in H209 and 2010 should give some

support to Vietnamese exports, we believe a continuation of the current accommodative policy would lead to a further widening of the trade deficit

With Vietnam’s foreign exchange reserves in Q409 estimated at below the three months of imports seen

as a minimum, we believe drastic policy action will be needed to avoid a balance-of-payments crisis This will include:

A downward adjustment of the dong towards our VND19,000/US$ end-2009 forecast, from

VND17,862/US$ on November 6, to stem the outflow of US dollars through the trade channel

A hiking of policy rates to uphold public confidence in the dong, stem capital outflows, and contain upward pressure on inflation through higher import prices We are now expecting 500bps of hikes in

2010, bringing the Vietnam base rate from 7.0% in November 2009 to 12.0%

A reduction of the fiscal deficit from VND118trn (US$6.6bn), or 7.2% of GDP, to VND105trn

(US$5.9bn), or 5.7% of GDP, in 2010 on the back of reductions in current and capital expenditure

growth

Implications For Growth

We expect the fiscal and monetary tightening to lead to a double dip in growth after the tentative rebound seen in the last three quarters of 2009 We are expecting real GDP growth to come in at 4.4% in 2010, as weak growth in G3 markets will weigh on exports and prevent a marked improvement in net exports in spite of the devaluation of the dong This will mean that the slowdown in domestic demand will be harder felt With inflation expected to average roughly 9.0% in 2010, we expect government consumption to decrease by 3.5% in real terms, which will shave 0.3 percentage points (pp) off headline growth A more marked effect will be coming from a slowdown in private consumption growth as credit conditions are tightened We expect private consumption growth (in real terms) to slow to 2.3% from an expected 4.9%

in 2009 and 9.2% in 2008 This should see the contribution to growth from private consumption decrease

to 1.6pp in 2010 from 3.3pp in 2009 and a massive 6.0pp in 2008

We are, on the other hand, expecting an increase in the contribution from gross fixed capital formation from 0.4pp to 1.1pp as FDI disbursements, down 12.1% y-o-y to US$8bn in January-October 2009, recover and state-and aid-financed projects gather pace However, the precarious state of the property market, where activity and prices have been supported by the loan-subsidy programme, is a risk to this forecast While only a minority of property purchases are financed through bank lending, higher interest rates should still have an impact on the market and on commercial and residential construction

Policy Rebalancing Needed At 2011 Party Congress

We expect the slowdown in growth in 2009 and 2010 to make economic policy the main matter of debate during the Communist Party of Vietnam (CPV)’s 11th National Congress scheduled for January 2011 The macroeconomic rollercoaster ride experienced in recent years has raised criticism against Prime Minister Nguyen Tan Dung, the most important proponent of economic reform, from more conservative members in the Politburo We believe the mainstay of the CPV is still behind Nguyen’s reform agenda, meaning that there will be no drastic shift in the socio-economic development strategy for 2011-2016

However, we expect measures to be taken to achieve greater macroeconomic stability, including a

reduction of official growth targets, a shift in monetary policy towards inflation targeting and increased exchange rate flexibility This is likely to come at a cost to economic growth in the short term, and we are consequently forecasting real GDP growth of 5.5% and 6.0% in 2011 and 2012, respectively, as the

global economic environment is expected to be less conducive than in the 2003-2007 boom years A failure to take a decision on rebalancing economic policy would, on the other hand, mean a high risk of a continuation of macroeconomic volatility

Table: Vietnam – Economic Activity, 2007-2014

2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f

Nominal GDP, VNDbn 1 1,144,015 1,478,695 1,628,770 1,825,075 2,053,255 2,288,455 2,562,686 2,855,653 Nominal GDP, US$bn 1 71.1 89.8 85.7 96.1 108.1 123.7 138.5 154.4 Real GDP growth, %

GDP per capita, US$ 1 835 1035 974 1077 1195 1350 1492 1640 Population, mn 2 85.6 86.8 88.0 89.2 90.4 91.6 92.8 94.1 Industrial production

index, % y-o-y, average 3 16.7 14.9 6.8 10.0 12.0 14.0 14.0 14.0 Unemployment, % of

labour force, end of

turnover relative to GDP across all modes, but particularly so for shipping On the downside, the 2009 contraction in trade had a particularly strong impact on shipping and Vietnam is expected to export less coal by sea as its domestic power needs rise The net result of this is that we expect freight carried growth across all modes, measured in mntkm, to average 7.4% a year in 2010-2014

According to our latest estimates, transport and communications GDP rose by 6.5% in 2009, 1.2

percentage points (pps) faster than overall GDP, which we estimate to have increased 5.3% For the

2010-2014 forecast period, we expect the transport and communications sector to continue outpacing the

economy as a whole in value terms It will achieve average annual growth of 6.9%, versus 5.9% for overall GDP The value of transport and communications GDP will rise to US$7.0bn in nominal terms by

2014, of 4.5% of Vietnam’s GDP By modes, we project that air freight to be the fastest growing, rising

by 7.7% per annum, followed by road haulage at 7.6%, shipping (7.4%), pipelines (6.8%) and rail (6.5%)

Table: Freight Transport Data And Forecasts, 2006-2014

2006 2007 2008 2009e 2010f 2011f 2012f 2013f 2014

Annual GDP growth, % 8.2 8.5 6.2 5.3 4.4 5.5 6.0 6.8 6.9 GDP index, 1995=100 217.5 236.0 250.6 263.9 275.5 290.7 308.1 329.1 351.8 5-year average annual GDP

Annual T&C growth, % 9.5 9.8 7.5 6.5 5.6 6.7 7.2 8.0 6.9 Transport sector GDP index,

1995=100 224.9 246.9 265.4 282.7 298.6 318.6 341.6 368.9 394.3 5-year average annual

transport GDP growth, % 9.0 9.6 9.1 8.6 7.8 7.2 6.7 6.8 6.9 T&C sector, % of GDP 4.2 4.2 4.3 4.3 4.4 4.4 4.5 4.5 4.5 Annual import growth, % 22.1 38.3 28.2 -8.9 10.9 10.1 10.0 10.0 10.0 Imports index, 1995=100 568.0 785.3 1006.7 917.3 1017.3 1120.0 1232.0 1354.7 1490.7 5-year average annual

import growth, % 24.1 27.2 27.3 20.2 18.1 15.7 10.1 6.4 10.2 Annual export growth, % 22.8 22.1 29.0 -9.7 12.9 12.1 12.0 12.0 12.0 Exports index, 1995=100 765.4 934.6 1205.8 1088.5 1228.8 1376.9 1542.3 1726.9 1934.6 5-year average annual

export growth, % 21.7 23.9 25.6 17.3 15.4 13.3 11.2 7.8 12.2 T&C sector value, US$bn

e/f = estimate/forecast; T&C = transport and communications Source: BMI

Table: Freight Carried, Domestic, 2006-2014 (mn tonnes-km)

2006 2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f

Road 20,537 22,457 23,989 25,133 26,460 28,279 30,485 33,180 36,156 – % change y-o-y 16.2 9.3 6.8 4.8 5.3 6.9 7.8 8.8 9.0 – 5-year average % change 17.5 16.1 14.4 11.1 8.5 6.6 6.3 6.7 7.6 – % share of total 17.4 16.4 15.4 16.6 16.4 16.4 16.4 16.6 16.7 Rail 3,447 3,769 4,026 4,218 4,422 4,690 4,999 5,373 5,781 – % change y-o-y 16.9 9.3 6.8 4.8 4.8 6.1 6.6 7.5 7.6 – 5-year average % change 11.1 9.7 8.2 9.0 8.5 6.4 5.8 5.9 6.5 – % share of total 2.8 2.9 2.8 2.6 2.8 2.7 2.7 2.7 2.7 Inland waterways 4,081 4,463 4,767 5,020 5,263 5,581 5,949 6,394 6,880 – % change y-o-y 8.8 9.3 6.8 5.3 4.8 6.1 6.6 7.5 7.6 – 5-year average % change 7.5 8.5 8.4 7.8 7.0 6.5 5.9 6.1 6.5 – % share of total 3.6 3.5 3.3 3.1 3.3 3.3 3.2 3.2 3.2 Maritime 89,297 105,617 122,207 116,547 124,800 133,711 143,207 154,437 166,637 – % change y-o-y 11.8 18.3 15.7 -4.6 7.1 7.1 7.1 7.8 7.9 – 5-year average % change 11.5 13.5 13.6 10.2 9.6 8.7 6.5 4.9 7.4 – % share of total 75.8 77.2 78.6 76.9 77.2 77.3 77.3 77.2 77.0

– % change y-o-y 12.6 12.8 6.8 4.2 4.0 7.1 8.4 9.5 9.7 – 5-year average % change 11.4 12.3 9.1 7.6 8.1 7.0 6.1 6.7 7.7 – % share of total 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

– % change y-o-y 9.0 9.8 7.1 6.1 5.1 6.3 6.9 7.8 7.9 – 5-year average % change 8.2 8.7 8.6 8.2 7.4 6.9 6.3 6.4 6.8 – % share total 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Total 117,842 136,841 155,561 151,519 161,573 172,932 185,363 200,171 216,310 – % change y-o-y 12.6 16.1 13.7 -2.6 6.6 7.0 7.2 8.0 8.1 – 5-year average % change 12.3 13.5 13.3 10.2 9.3 8.2 6.4 5.2 7.4

e/f = estimate/forecast Source: BMI

Trade Environment

Although high tariffs, customs bureaucracy and legal inadequacies have provided significant trade

barriers, the opening up of Vietnam’s economy has been accompanied by concrete measures to meet the requirements of the WTO and other international trade organisations This means tariffs are falling in many sectors and the customs regime is being overhauled

Trade Agreements

Vietnam became a member of the WTO in 2007 It is also a member of the Association of South East Asian Nations (ASEAN) – with Brunei, Philippines, Indonesia, Laos, Myanmar, Malaysia, Singapore, Thailand and Cambodia – as well as the linked ASEAN Free Trade Area (AFTA)

A bilateral trade agreement with the US came into effect in December 2001 Vietnam is also in, or

preparing for, talks over free trade agreements (FTAs) with Japan, South Korea, Australia and New Zealand The country is also party to FTA negotiations being conducted by ASEAN, such as talks with the EU and China

Tariffs And Non-Tariff Barriers

Import tariffs are high, averaging around 18% in 2004 However, Vietnam is reducing tariffs to meet ASEAN and WTO goals, although some key sectors remain protected Vietnam has agreed to comply with ASEAN’s Common Effective Preferential Tariff (CEPT) scheme on manufactured goods within the ASEAN region, which calls for rates to be brought down to the 0-5% range

The legislation providing the framework for the trade regime is 1998’s Law to Amend the Import and Export Tariffs Law However, given the ASEAN and WTO requirements, the tariff structure is in a constant state of flux at present After a May 2005 meeting with Vietnamese officials, the WTO praised the country for speeding up the passage of legislation

At the WTO meeting, Vietnam unveiled its latest round of commitments and changes These are: a proposed revision of excise duties to end discrimination against imported motor vehicles; a similar proposal for excise duty on beer; the elimination of export subsidies that depend on export performance; a commitment to require supported products made in free zones to be subject to normal customs formalities when entering the rest of Vietnam; enquiry points on technical barriers and sanitary/phytosanitary

measures to trade to be set up; and the reduction of restrictions on trading rights to some sensitive

products such as oil, pharmaceuticals, sugar, tobacco, salt, fertilisers, rice and cultural products

Table: Total Value Of Imports By Category, 2006-2014 (US$mn)

2006 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f

Total imports 42,600 58,900 75,500 68,800 76,300 84,000 92,400 101,600 111,800 – % change y-o-y 22.1 38.3 28.2 -8.9 10.9 10.1 10.0 10.0 10.0 Food, live animals, 1,235 1,708 2,190 1,995 2,213 2,436 2,680 2,946 3,242

Beverages and tobacco 43 59 76 69 76 84 92 102 112 – % of total 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 Crude materials, excl

fuels 767 1,060 1,359 1,238 1,373 1,512 1,663 1,829 2,012

Mineral fuels, lubricants

and related materials 5,708 7,893 7,893 7,893 7,893 7,893 7,893 7,893 7,893 – % of total 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 Animal and vegetable

oils, fats and wax 128 177 177 177 177 177 177 177 177

Chemicals and related

products 5,666 7,834 7,834 7,834 7,834 7,834 7,834 7,834 7,834 – % of total 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 Basic manufactures 9,329 12,899 12,899 12,899 12,899 12,899 12,899 12,899 12,899 – % of total 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9 Machines, transport

equipment 11,417 15,785 15,785 15,785 15,785 15,785 15,785 15,785 15,785 – % of total 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 Misc products 2,769 3,829 3,829 3,829 3,829 3,829 3,829 3,829 3,829

Unclassified goods 5,581 7,716 9,891 9,013 9,995 11,004 12,104 13,310 14,646 – % of total 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1

e/f = estimate/forecast Source: UN Comtrade, BMI

Table: Value Of Exports By Category, 2006-2014 (US$mn)

2006 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f

Total exports 39,800 48,600 62,700 56,600 63,900 71,600 80,200 89,800 100,600 – % change y-o-y 22.8 22.1 29.0 -9.7 12.9 12.1 12.0 12.0 12.0 Food, live animals, 9,472 11,567 11,567 11,567 11,567 11,567 11,567 11,567 11,567 – % of total 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8

Crude materials, excl

fuels 915 1,118 1,118 1,118 1,118 1,118 1,118 1,118 1,118

Mineral fuels, lubricants

and related materials 10,507 12,830 16,553 14,942 16,870 18,902 21,173 23,707 26,558 – % of total 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 Animal and vegetable

oils, fats and wax 159 194 251 226 256 286 321 359 402

e/f = estimate/forecast Source: UN Comtrade, BMI

Table: Vietnam’s Top Export Destinations, 2002-2006 (US$mn)

NB Total exports is from the IMF’s Direction of Trade Statistics Consequently there may be some discrepancy with data used elsewhere in this report Source: IMF

Table: Vietnam’s Export Trade, 2003-2006 (% growth y-o-y)

NB Total exports is from the IMF’s Direction of Trade Statistics Consequently there may be some discrepancy with data used elsewhere in this report Source: IMF

Table: Vietnam’s Import Trade, 2003-2005 (% growth y-o-y)

NB Total imports is from the IMF’s Direction of Trade Statistics Consequently there may be some discrepancy with data used elsewhere in this report Source: IMF

Table: Vietnam’s Top Import Sources, 2002-2006 (US$mn)

NB Total imports is from the IMF’s Direction of Trade Statistics Consequently there may be some discrepancy with data used elsewhere in this report Source: IMF