Vietnam information technology report q4 2014

Q4 2014
www.businessmonitor.com
VIETNAM
INFORMATION TECHNOLOGY REPORT
INCLUDES 5-YEAR FORECASTS TO 2018
ISSN 2044-9631
Published by:Business Monitor International
Vietnam Information Technology
Report Q4 2014
INCLUDES 5-YEAR FORECASTS TO 2018
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: September 2014
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CONTENTS
BMI Industry View 7
SWOT 9
IT SWOT 9
Wireline 11
Political 13
Economic 14
Business Environment 16
Industry Forecast 17
Table: IT Industry - Historical Data And Forecasts (Vietnam 2011-2018) 17
Macroeconomic Forecasts 24
Economic Analysis 24
Table: Economic Activity (Vietnam 2009-2018) 30
Industry Risk Reward Ratings 31
Table: APAC IT Risk/Reward Ratings - Q4 2014 34
Market Overview 35
Hardware 35
Software 42
Services 50

Industry Trends And Developments 57
Regulatory Development 62
Table: Government Authority 62
Regulatory News 65
Competitive Landscape 68
International Companies 68
Table: Samsung Electronics 68
Table: Intel 69
Table: LG Electronics 70
Table: Global CyberSoft 71
Local Companies 72
Table: Sara Vietnam 72
Company Profile 73
FPT Software 73
Table: FPT Group Financials By Segment (VNDbn) 76
Regional Overview 78
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Asia Pacific Overview 78
Demographic Forecast 83
Table: Vietnam's Population By Age Group, 1990-2020 ('000) 84
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 85
Table: Vietnam's Key Population Ratios, 1990-2020 86
Table: Vietnam's Rural And Urban Population, 1990-2020 86
Methodology 87
Industry Forecast Methodology 87
Sources 88
Risk/Reward Ratings Methodology 89
Table: It Risk/Reward Ratings Indicators 90
Table: Weighting Of Components 91

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BMI Industry View
BMI View: We maintain a positive outlook for the Vietnamese IT market in the Q4 update, but we highlight
increased downside risk from a tightening of domestic credit conditions in H214 as a result of a build up of
bad debt. Credit markets could cause short term disruption but our forecast for robust medium term growth
in Vietnamese IT spending remains in place, with a forecast for a compound annual growth rate (CAGR) of
12.6% between 2014 and 2018. We expect growth will be driven by rising incomes, enterprise
modernisation and the policy environment put in place by the government. We also highlight larger
opportunities in the retail market where penetration of devices and services remains below the level in
neighbouring markets, which vendors will be able to tap as incomes rise. Meanwhile, Vietnam's
development as an outsourcing destination is a significant medium term factor, with the services segment
expected to expand rapidly. There is also increasing momentum towards Vietnam becoming a global centre
for electronics production as wages rise in China and manufacturers look to protect margins by moving to
Vietnam, where wages are as little as a third of those in China.
Headline Expenditure Projections
■
Computer Hardware Sales: VND38.9trn in 2014 to VND58.3trn in 2018, CAGR of +11.3% in local
currency terms. Rising incomes and declining device prices, along with PC subsidy schemes, will support
demand growth across all three main device categories over the medium term.
■
Software Sales: VND10.1trn in 2014 to VND17.9trn in 2018, CAGR of +16.1% in local currency terms.
There are considerable opportunities in business software and security solutions for vendors willing to
accept narrow margins in a price-sensitive market.
■
IT Services Sales: VND14.2trn in 2013 to VND25.1trn in 2018, CAGR of +15.1% in local currency
terms. Domestic demand for services remains weak, but we expect adoption to increase markedly as
awareness levels increase, particularly with regard cloud computing and outsourcing services.
Key Trends & Developments

BMI has repeatedly highlighted the drag on IT market development from Vietnam's exposure to cyber
security risks, including cyber crime and state backed attacks. We therefore welcomed the September 2014
opening of the Department of Network Security in Hanoi, with the remit of securing Vietnam's internet
traffic. The key focus is on comprehensively improving the standards of network security officials and
officers. However the government has also bundled its own domestic security goals in with the remit for the
new department. These elements have concerned political risk analysts, for instance the power to erase
violated content on web portals and social networks under orders from the government, as well the use of
information filtering mechanisms. The department will also be able to identify Vietnamese users on social
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networks by linking the electronic databases to its own database of citizen identification cards. Social
networks and web portals in Vietnam must store at least two years of their information activities and the
same time span for the information of the users' accounts, log-ins, log-outs and IP addresses on social
networks. We believe the bundling of functions could ultimately disrupt the agencies work on tackling
cyber crime, with the danger that political objectives could take precedence.
A more positive development related to the government came in July 2014 when the Prime Minister of
Vietnam enabled state agencies to use outsourced information technology providers for the first time. It will
enable IT firms to provide software and technology systems as service packages, which BMI believes
represents a significant new area of growth for vendors. There is considerable scope for growth in domestic
outsourcing sales over the medium term from the public, and private, sectors - however confidence remains
a major impediment to adoption. Managers are unsure of the benefits of IT outsourcing, as well as having
concerns about security and a loss of control over key processes. A report from Grant Thornton
International stated that only 12% of enterprises in Vietnam are open to outsourcing. BMI expects
outsourcing adoption to accelerate once awareness of the benefits is more widely spread, and vendors ease
manager concerns.
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SWOT
IT SWOT
SWOT Analysis

Strengths
■
Supportive policy framework and funding in place to promote the development of the
IT sector.
■
Vietnam's gradual integration into the global trade network via its accession into trade
organisations such as ASEAN and WTO, as well as bilateral agreements with Japan
and China.
■
The domestic IT market is in a rapid growth phase, with trade liberalisation and
growing affordability driving increased adoption among enterprises and consumers.
■
Expanding local hardware production industry with major international players such
as Samsung, Nokia, LG and Intel making large investments.
Weaknesses
■
IT spend per capita is much lower than in neighbouring Thailand, reflecting a much
lower GDP per capita.
■
Highly cost-sensitive market, with 75% of software provided by lower-cost local
software vendors.
■
High level of software piracy, with a stall in the reduction 2011 to 2013.
■
Cyber security measures by the government have been pushed through with state
security measures, with potential human rights implications.
Opportunities
■
Decision in July 2014 to enable state agencies to use outsourced information

technology providers for the first time opens a new growth channel for vendors.
■
Low PC penetration means there is scope for vendors to tap first-time buyer market
as well as the upgrade/replacement market. Due to low penetration desktop and
notebook sales continue to increase despite competition from tablets.
■
Low-cost tablets are proving popular with consumers, with significant medium-term
sales growth potential as incomes continue to rise.
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SWOT Analysis - Continued
■
Vietnam is a popular destination for software development and IT services
outsourcing, with particularly strong growth potential from Japanese enterprises that
are turning away from Chinese based providers.
■
National IT Plan will drive spending on IT utilisation in areas such as e-government, e-
taxation and education.
■
SMEs have much potential to increase spending on basic solutions, including
customer relationship management and security.
■
The government's drive to create an IT services industry over the next 15-20 years -
through incentives to create IT clusters - is expected to be a significant factor shaping
the market.
■
Cloud computing awareness has risen fast and adoption is expected to accelerate
through 2014 and 2015.
Threats
■

A domestic credit tightening in H214 could result in a growth slowdown, with negative
implications for IT market growth.
■
Low-cost tablets from own-brand Chinese vendors a particular threat to low- and
mid-range notebook vendors. Falling prices may further undermine margins and
profitability after steep discounting.
■
Cyber security issues could undermine confidence in IT solutions and services, with
big data and cloud computing vulnerable.
■
Yen depreciation has hit the software outsourcing market by making exports less
competitive and eroding Vietnam's cost advantages.
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Wireline
SWOT

Strengths
■
Fixed-line penetration levels and internet user rates are high in major urban centres
such as Ho Chi Minh City, Hanoi, Danang and Haiphong.
■
Competition exists in fixed-line and internet access markets; VNPT faces competition
from several other state-owned companies and privately owned operators.
■
High levels of literacy and other demographic factors bode well for strong and
continued demand for wireline services over the next few years.
Weaknesses
■
Vietnam's fixed-line and internet access markets are dominated by state-controlled

operator VNPT.
■
Although alternative broadband infrastructures are currently being explored,
broadband growth continues to be highly dependent on DSL.
■
Low fixed-line penetration rates in rural regions limit the scope for DSL broadband
growth.
■
Although internet user growth is improving, rural Vietnam still has limited access to
internet infrastructure.
■
Broadband tariffs remain high, creating a barrier for low-income subscribers to
access.
Opportunities
■
The privatisation of VNPT could help to bring about increased investment revenue
and the arrival of new skills.
■
On a national level, broadband penetration rates remain low - this means that the
sector has considerable growth potential.
■
Significant opportunities exist to develop alternative broadband technologies,
including WiMAX, LTE and fibre; WiMAX and LTE internet services have the potential
to raise the level of internet user penetration in rural parts of Vietnam.
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SWOT - Continued
■
Draft Bill of Law on Telecommunication has been put forward for discussion at the
National Assembly Steering Committee. If passed, the bill will allow private

companies to build network infrastructure for the first time and will open up the
telecoms market to foreign investors.
Threats
■
Fixed-line sector may enter a period of decline, with potentially negative
consequences for DSL growth.
■
As the market for mobile data services grows, this could have potentially negative
consequences for the growth of fixed broadband services.
■
VTV's dominance in the pay-TV sector is holding back market development.
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Political
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 one-
party system is generally conducive to short-term political stability.
■
Relations with the US have witnessed a marked improvement, and Washington sees
Hanoi 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 tight

control 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 government
policies. This is opening up opportunities for more checks and balances within the
one-party system.
Threats
■
Macroeconomic instabilities continue 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.
■
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 be
unsustainable.
■
Relations with China have deteriorated over recent years 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 wide-scale environmental damage.
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Economic
SWOT Analysis

Strengths
■

Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.1% annually between 2000 and 2012.
■
The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20.7% in 2012.
■
Vietnam has been strengthening its trade and aid ties in a bid to increase exports and
diversify 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 on
social subsidies that could be difficult to withdraw.
■
The heavily-managed and weak currency reduces incentives to improve quality of
exports, and also keeps import costs high, contributing to inflationary pressures.
Opportunities
■
WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam
greater access to both foreign markets and capital, while making Vietnamese
enterprises stronger through increased competition.
■
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.
■
Urbanisation will continue to be a long-term growth driver. The UN forecasts the
urban population rising from 29% of the population to more than 50% by the early
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.
■
We see potential for political tensions with China could have a negative impact on the
economy.
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SWOT Analysis - Continued
■
Any prolonged macroeconomic instability could prompt the authorities to put reforms
on hold as they struggle to stabilise the economy.
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Business Environment
SWOT Analysis

Strengths
■
Vietnam has a large, skilled and low-cost workforce, which has made the country
attractive to foreign investors.
■
Vietnam's location - its proximity to China and South East Asia, and its good sea links
- makes it a good base for foreign companies to export to the rest of Asia, and
beyond.
Weaknesses
■
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.
■

Vietnam remains a corrupt country. According to Transparency International's 2013
Corruption Perceptions Index, Vietnam ranks 116 out of 176 countries.
Opportunities
■
Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
skills and know-how.
■
Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This should offer foreign investors new entry
points.
Threats
■
Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern.
■
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.
■
The dispute with China in Q214 in the South China Sea suggests the potential for
renewed political tensions going forward.
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Industry Forecast
Table: IT Industry - Historical Data And Forecasts (Vietnam 2011-2018)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
IT market
value,
VNDmn 40,863,664 47,495,837 55,874,102 63,193,610 71,092,811 80,242,456 90,304,860 101,331,083

IT market
value, % of
GDP 2 2 2 2 2 2 2 2
Computer
hardware
sales,
VNDmn 25,948,427 29,922,377 34,921,314 38,864,070 43,011,151 47,744,261 52,828,343 58,265,373
Personal
computer
sales,
VNDmn 20,893,673 24,084,521 28,108,166 31,273,917 34,602,471 38,395,935 42,495,119 46,891,972
Software
sales,
VNDmn 6,333,868 7,219,367 8,492,864 10,110,978 11,659,221 13,400,490 15,532,436 17,935,602
Services
sales,
VNDmn 8,581,370 10,354,092 12,459,925 14,218,562 16,422,439 19,097,705 21,944,081 25,130,109
e/f - BMI estimate/forecast. Source: BMI.
BMI believes the Vietnamese IT market will be one of the outperforming IT markets in APAC over the
medium term as a result of a range of factors including supportive government policy, rising incomes,
declining device prices, enterprise modernisation and investments in telecoms infrastructure. However,
demand in 2014 is expected to be dampened by the tighter domestic credit environment, and this also
presents downside risk in 2014, with reports in September 2014 that enterprises in several sectors were
unable to obtain credit as banks reassess in light of the high levels of bad debt in Vietnam.
Despite short-term downside, we highlight the strong medium term growth potential. The IT market in
Vietnam is relatively undeveloped but the IT sector will account for a growing share of GDP over the
duration of our five-year forecast to 2018. We also highlight the development of Vietnam's local IT
industry, with software development and outsourcing services firms developing rapidly and positioned to
benefit from large foreign enterprises seeking lower cost locations over the medium term.BMI forecast the
IT market in Vietnam will expand by 13.1% to a total of VND63.2trn in 2014, up from VND55.9trn in

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2013. We expect strong growth to continue over the medium, term with a CAGR of 12.6% forecast for
2014-2018, with the market expected to reach a value of VND101.3trn in 2018.
2014 Outlook
Although BMI highlights the downside from tightening credit conditions in Vietnam in H214, with
government attempts to resolve the bad debts held by local banks so far not proving effective, and the issue
could drag over into 2015. This could reassert a traditional area of weakness in Vietnam, which had become
a less significant factor as a result of partnerships between banks and retailers formed in 2013. However,
with the wider Vietnamese economy still on track to record strong growth we expect the credit tightening is
only expected to cause short-term disruption. We forecast real GDP growth of 5.7% in 2014 and real growth
of private final consumption of 6.5%, growth rates that will support a buoyant retail hardware market.
We expect growth in desktop, notebook and tablet shipments as rising incomes and declining device prices
promote first-time buyer and upgrade sales. The influx of low-priced Chinese own-brand tablets since 2012
has deepened the market and vendors in the notebook category have been lowering prices to compete with
this influx, which has helped make devices more affordable and boosted sales. There is evidence in H114
that hybrid notebooks have carved out a significant niche and are beginning to challenge tablets by offering
multi-use cases, a more important development in emerging markets where consumers are focused on value
for money more than the fashion cache of tablets.
Private demand could be negatively impacted by credit conditions, and under this scenario government
demand will become a more important source of sales. The Ministry of Information and Communication's
released a proposal in August 2013 to allocate at least 2% of the state budget to boosting the IT sector each
year. The government is actively promoting IT market development in several areas including PC subsidy
programmes, licensing software used by government agencies and enabling state agencies to use outsourced
information technology providers for the first time in 2014.
In terms of the enterprise sector in Vietnam, the outsourcing market continues to develop rapidly, although
the outlook for 2014 is weaker than previous years. Vietnam has become the first choice for Japanese
enterprises looking to outsource functions in recent years, primarily based on the cost advantages offered.
However, the depreciation of the yen against the US dollar has hit the competitiveness of Vietnamese
providers, and will be a drag on expansion. This weakens the outlook, but with a well developed

outsourcing industry in Vietnam and several clusters, and underlying cost advantages, BMI expects demand
will continue to expand.
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Drivers
Industry Trends - IT Market
2011-2018
e/f - BMI estimate/forecast. Source: BMI.
Positive economic fundamentals over the medium term and declining device prices will drive retail
hardware market growth. Another supporting development is the investment taking place in the expansion
of both wireline and wireless broadband network infrastructure to rural areas, as well as upgrading capacity
of urban infrastructure and improving backbone networks. Additionally, telecoms operators such as Viettel
are emerging as significant distribution channels for notebooks as vendors seek tie-ups. In a country where
PC penetration remains low, particularly in rural areas, government digital divide programmes to boost
internet and digital utility in rural areas underpin addressable market growth and open PC ownership to a
growing number of rural inhabitants.
Another area of the IT market that will benefit from investment in networking infrastructure is the cloud
computing market. In June 2014 VMWare reported the results of its cloud adoption survey in Vietnam. It
found that 80% of polled businesses considered cloud computing the number one priority for IT
applications; while 67% were confident cloud computing would have a major effect on business
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activities. VMWare estimates that cloud adoption is growing faster in Vietnam than the wider region as a
result of an absence of legacy on-premises systems due to Vietnam's late-developer status. The existing drag
on the market, that is concerns about information security, should lessen as cloud education levels increase,
and drive growth higher.
The government is a major supporter of the development of the IT market in Vietnam through policy
initiatives and financing. Policies include promoting the use of IT by government agencies, citizens and
enterprises - as well as promoting the development of local industry, particularly in software and
outsourcing services.

For instance, in November 2014 the government announced it would spend USD400,000 on building its
own version of California's Silicon Valley for start-ups, with two accelerators set up in Hanoi and Ho Chi
Minh city. The government hopes the development will help mature emerging technology companies in the
country and link them with suitable venture capital. A number of government ministries and organisations,
including the Ministry of Education and Training, have also started to promote the roll-out of cloud
services. The government has also promoted the IT industry through policy and incentives to grow hi-tech
parks, both for the construction of IT hardware, but increasingly software and IT services.
A specific IT development initiative is the government's drive to grow the IT services industry over the next
15-20 years. The cost of outsourcing in Vietnam was estimated in 2013 research to be as much as 30%
lower than in China, a fact which Japanese firms were especially aware of. The momentum that could be
garnered from Japanese enterprises shifting business process and software development outsourcing to
Vietnam could see medium term increases from European and North American demand. Meanwhile, with a
report from Grant Thornton International stating that only 12% of enterprises in Vietnam are open to
outsourcing, there is also huge growth potential domestically - particularly after the Prime Minister of
Vietnam enabled state agencies to use outsourced information technology providers for the first time in July
2014.
However, growth will depend on government progress on various business environment issues, including
copyright protection and combating cyber security threats. Further progress in combating software piracy,
which is still reported to be at higher levels than in China, India and Thailand in 2013, and progress seems
to have stalled since 2011. It is also taking steps to increase the penetration of information security
certification by distributing funds to enterprises and in September 2014 the Department of Network Security
was officially opened in Hanoi, with the remit of securing Vietnam's internet traffic. The key focus is on
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comprehensively improving the standards of network security officials and officers. However there are
elements of the remit that have concerned political risk analysts (see regulatory developments section).
Segments
Income Per Capita Breakdown
(2011-2018)
Poorest 20%, net income per capita, VND

Richest 20%, net income per capita, VND
Middle 60% of population, net income per capita, VND
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
0
25,000,000
50,000,000
75,000,000
100,000,000
e/f - BMI estimate/forecast. Source: BMI, National Statistics Office
As a developing market with a large agricultural sector BMI believes there to be considerable scope for
vendors to market productivity enhancing products and solutions. The agricultural sector accounted for an
estimated 19.5% share of GVA in 2013 - a figure BMI expects to only decrease marginally to 19.3% in
2018 - and its share of labour is considerably higher. Mobile operator Viettel is a world leader in pioneering
smart agricultural products, including IT services such as information packages about produce prices,
disease warning, weather reports and analysis of coffee and cashew nut markets. These products generated
VND7bn a month in revenue - a far higher figure than that generated from the much hyped game
application development market. The success of Viettel's model has attracted interest from IT services
providers, for instance Hanel has stated its intention to develop smart agriculture products. BMI expects the
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agriculture vertical in Vietnam has medium term growth potential as vendors innovate real-time updates for
producers.
Large Vietnamese companies are the most likely to buy packaged software from multinationals, which have
only around 25% of the local software market. In the large corporate sector, growing demand for digital
infrastructure projects in segments such as banking, telecoms and energy has attracted global IT services
leaders, such as IBM, to invest in Vietnam. Foreign investment, particularly by Japanese companies, in call
centres and other areas will help to grow the market.
Large state enterprises are also increasing spending on IT products and solutions, a trend that should
continue over the medium term. For instance, in August 2014 FPT won a major IT services contract for the
development of a new ticket distribution system for the Vietnam Railway Corporation. FPT will build a

modern e-ticket distribution system, enabling customers to purchase tickets either online, via email or
through sale agents. The project is expected to take place over 7 years, with 3 development stages, and a
total cost of around VND200bn.
Meanwhile, smaller enterprises have a lower penetration of enterprise software, including ERP and security
software, but due to price sensitivity favour local solutions. The SME market is an area of the market in
which vendors can achieve growth as SME awareness of the benefits of IT utilisation increase, encouraged
by government initiatives to modernise firms and improve international competitiveness. However, vendors
will have to face the challenge of enterprises that are constrained by low budgets and lack of access to
credit. Promising SME verticals include discrete manufacturing and consumer packaged goods, as well as
hotels and property management. The solution areas with most demand currently include security software
and key applications such as CRM, ERP and HR management.
Finally, the government is a major source of demand for IT vendors, across the hardware, software and
services segments. In April 2013 the Ho-Chi Minh City authority announced plans to spend VND300bn
(USD14.3mn) on developing e-government capacity. It will also focus on replacing out of date hardware
and improving network security in 2013. An additional feature is the authority's intention to work with local
small and medium IT enterprises where possible, rather than immediately turning to large IT vendors.
Spending in 2013 was a marked increase over the 2005-2012 period when the city authority carried out
1,012 projects with a total spend of VND665bn.
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Vietnam GVA By Vertical (%)
2014f
f - BMI forecast. Source: BMI, National Statistics, World Bank, UN
Summary
Overall, the hardware market is anticipated to grow from VND38.9trn in 2014 to VND58.3trn in 2018, with
computer sales rising from VND38.9trn to VND46.9trn over the same period. Software spending should
rise from VND10.1trn to VND17.9trn and IT services from VND14.2trn to VND25.1trn over the forecast
period.
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Macroeconomic Forecasts
Economic Analysis
BMI View: We have downgraded Vietnam's growth forecast from 5.9% to 5.7% in 2014 on the back of
weaker-than-expected H114 growth numbers, combined with the risk of an economic backlash from China.
That said, we have maintained our forecast for growth to come in at 6.4% in 2015, and we continue to
believe that the economy will be driven by growth supportive government policies, as well as a strong
outlook for foreign investment and exports.
Real GDP growth came in at 5.3% year-on-year (y-o-y) in Q214, according to the General Statistics Office
(GSO), bringing growth for the first half of the year to 5.2% y-o-y. This marks an acceleration when
compared to the 4.9% registered in the first half of 2013, and chimes with our view that the economy will
continue to accelerate into 2014 and 2015. Growth was predominantly driven by strength in the services
sector as well as the industry and construction sectors, which contributed 2.6 and 2.1 percentage points
respectively to growth. Although we see strong growth ahead, we have revised down our growth forecast
for 2014 from 5.9% to 5.7% on the back of a slightly weaker than expected first half of the year, combined
with the potential for an economic backlash from the ongoing political dispute with China (see 'Political
Tensions Pose Downside Risks To Growth', June 10). That said, we have kept our 2015 real GDP growth
forecast unchanged at 6.4%.
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Slight Downgrade, But Powering Along
Vietnam - Real GDP Growth, % chg y-o-y
Source: GSO, SBV
The Vietnamese government will continue to promote pro-growth policies, by running a fiscal deficit -
albeit a declining one - maintaining a dovish stance with regard to monetary and exchange rate policy,
restructuring many state owned enterprises (SOEs), promoting foreign direct investment and exports as well
as attracting developmental-type aid. For the first six months of the year, we estimate that the government
posted a fiscal deficit of approximately 4.3% of GDP, with spending rising by 9.7% y-o-y. At the same
time, the State Bank of Vietnam (SBV) has maintained a dovish bias since the beginning of the year, cutting
its refinancing rate by 50 basis points in March to 6.5% in an effort to spur lending. Indeed, the SBV
recently also devalued the Vietnamese dong by 1% in June, in what we believe is a pre-emptive move to

boost exports in the event of a slowdown driven by the ongoing political spat with China. Given low
inflationary pressures, we would not be surprised to see either another cut to the refinancing rate, or another
adjustment to the currency before year-end in the event of a slowdown in growth, although it is not our core
view. Combined, both accommodative monetary and fiscal policy will continue to support growth over the
coming quarters.
Vietnam Information Technology Report Q4 2014
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