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Market |
Defence |
Report Type |
Market Research |
Country |
Vietnam |
Published |
16 April 2010 |
Number of Pages |
63 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
File Format |
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Vietnams external political situation is characterised by ongoing tensions with China over contested territorial possessions. We expect Hanoi to use its influence as Chairman of the Association of South East Asian Nations (ASEAN) in 2010, to coordinate the member states claims for the disputed Paracel and Spratly Islands and thus counter the strong-arm tactics of Beijing in the issue. With its large trade deficit adding to the tension between Beijing and Hanoi, we expect Vietnam to slide further into the ASEAN camp of more pro-Western nations over the medium term.
Domestically, the 11th National Congress of the Communist Party in January 2011 will serve to keep the political barometer high. We expect some criticism of Hanois handling of the macroeconomic turbulence Vietnam has undergone in recent years from more conservative party members, but no major changes to the current leadership and government policy.
The strong domestic demand-driven recovery in Vietnam brought real GDP growth to 6.9% y-o-y in Q409, and full-year expansion to 5.3%. We believe a sharp tightening of fiscal and monetary policy will be needed in 2010 to avoid overheating and to plug a widening trade deficit. We thus maintain our belowconsensus forecast of real GDP growth dropping to 4.4% in 2010. Our outlook on Vietnam has essentially not changed since early Q409 when it became increasingly clear that the economy was overheating. We thus went from expecting a gradual economic recovery in 2010 to a double-dip scenario with real GDP expansion dipping in 2010, after a forceful economic recovery in the three last quarters of 2009. Vietnams army is extremely experienced operationally and well-supported by the government. It has the potential to be a dominant regional player in both security and defence. In Q208 Vinasat-1, Vietnams first satellite, was launched. It is expected to increase the security of military communications. In December 2009, it was reported that the government was urging the rapid development of its stateowned defence industries to supply the army with the most modern military equipment. No details were revealed about how it is planning to develop those capabilities and the announcement is unlikely to affect procurement policy for many years ahead.
A lack of infrastructure to produce technologically advanced equipment is the key factor holding back the industry. Traditionally, Vietnam has relied on reverse engineering, but future purchases may include technology transfers which could allow the forces to rapidly modernise. The country lacks the industrial and scientific base to successfully research and develop a credible defence industry.
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