Vietnam – Steady Course Ahead of Succession

Although Vietnam has thus far weathered the COVID-19 health crisis with limited loss of life, a surge of infections in Da Nang in July highlighted the dangers of complacency at a time when the ruling CPV is preparing for a change of leadership in January 2021. Nguyen Phu Trong, who has been the CPV general-secretary since 2011 and national president since the death of Tran Dai Quang in 2018, suffered a stroke last year and seems eager to retire. That said, he is also keen to ensure a smooth transfer of power, not least in view of the fact many of his supporters on the Central Committee are also set to age out of the government.

Despite the healthcare crisis, Trong has maintained his anti-corruption purge, extending the campaign to the security forces. The endeavor has kept the focus on the depth of mismanagement and wrongdoing that undermines Vietnam’s business environment and its fiscal metrics, and any attempt to address it and improve transparency should help to improve the country’s investor reputation, albeit at some potential risk of destabilizing the bureaucracy by creating an undercurrent of resentment within the various layers of authority.

Vietnam has gained investment at China’s expense, proving attractive to companies seeking to relocate to avoid the punitive tariffs imposed amid the escalating US-China trade war or motivated by political considerations related to a general rise in anti-China sentiment as a result of the Hong Kong crisis. Capital generated by FDI projects was estimated at $10.1 billion through the first seven months of the year, or nearly double the total for the same period in 2019, and the government’s ability to control the spread of COVID-19 has reinforced the country’s attractiveness to foreign investors.

Although Vietnam is expected to be one of the few countries that records positive annual real growth in 2020, the pace of expansion will be the slowest in decades. A return to growth of 6%–7% is possible next year, but with tourism in the doldrums and footwear exports down by more than 8% (year-on-year), evidence of a second-wave pandemic in Europe and elsewhere represents a clear downside risk to the growth forecast that will persist until an effective vaccine is broadly available.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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