Vietnam possesses an army with an abundance of operational experience and a strong level of political support for receiving military assistance. As a result, it has the potential to be a dominant regional player in both security and defence. Despite this, the largest inhibiting factor in industry development is a lack of infrastructure to produce technologically advanced equipment. Vietnam is far behind the leaders economically – and thus lacks the industrial and scientific base to successfully research and develop a credible defence industry. Until now the industry has relied on reverse engineering, however, future purchases may include technology transfers which could allow them to jump ahead generations in technology.

In view of the rapidly deteriorating external outlook, the 2009 GDP forecast has been downgraded from 5% to 2.9% and simultaneously the 2010 forecast has been downgraded from 7% to 5%. Growth in 2008 was largely held up by the resilience of the export sector in the face of a domestic economy plagued by spiralling inflation and fiscal and monetary tightening. However, like many Asian countries H208 resulted in Vietnamese exports falling from US$6.6bn in July to US$3.8bn in December. Current expectations of a more prolonged downturn in global demand could seriously shake the export focused Hanoi growth model.

The long running territorial dispute over the Spratly Islands in the South China Sea has escalated recently on the news that China announced plans to boost patrols in the area. The Islands have economic and political significance as the surrounding waters are valuable fishing grounds and are believed to contain large undersea oil and gas deposits.

The years of strong economic growth have resulted in an extended period of political stability in Vietnam as this high economic growth has brought material gains, however, with deteriorating economic conditions looming we see most of the political risk in the rising number of layoffs in labour intensive manufacturing in the wake of the slumping export sector.