INFLATION SPECIAL REPORT
March 2009
A Neilson Survey concludes that it is not doom and gloom in Vietnam.  But many wonder if Vietnam is asleep and dreaming?

Vietnam: Boom or Doom in 2009?

http://blog.nielsen.com/nielsenwire/consumer/vietnam-boom-or-doom-in-2009/

March 20th, 2009

Few countries have developed as rapidly as Vietnam has over the last decade - its growth has averaged 7.5 percent per year since 2000.  But the economic downturn has affected almost all countries to some degree.  Will the global recession derail the extraordinary progress Vietnam has made?  Nielsen has prepared a study “Boom or Doom in Vietnam in 2009?” to look at this very question.

Success has bred confidence: Vietnamese are the 9^th most confident consumers in the world. And opportunities clearly remain, with AT Kearney rating Vietnam as the most attractive retail market in the world, ahead of larger countries such as Russia, India and China. In 2008, Vietnam attracted 1,171 new foreign direct investment projects with a value of $60.2 billion - triple that of 2007.

Household income is growing, with the average household now claiming a monthly income of US$300, while households with incomes of more than 4 million VND (about US$ 229) have grown from 20 percent in 2002 to over 80 percent in 2008. Internet penetration is surprisingly higher in Vietnam than other developing nations, with 23 percent having internet access compared to 22 percent in China and just 7 percent in India.  And perhaps most remarkably, Vietnam leads all other countries in Asia Pacific - even Japan and Korea - in spend on new technology.

But even Vietnam is not immune to global trends.  Food price  [no, all consumer price] inflation hit a record high of 28.3 percent in August 2008, although it has since moderated to 14.8 percent in February 2009. GDP growth is predicted by the International Monetary Fund to slow to 5 percent, and the Vietnamese government is preparing a $6 billion package to stimulate the economy.

From a consumer standpoint, the biggest concern is inflation. While most categories’ growth has slowed somewhat, they remain stronger than most other countries.  Areas where Vietnamese consumers say they will cut back are:

• Fast food
• Carbonated soft drinks
• Eating out
• Going out to bars and coffee shops

Despite expressing some concern, Vietnamese consumers remain quite positive [unless they are trying to get their former exorbitantly high rents from existing or new tenants].  Significant growth opportunities remain in the country in most consumer goods categories, and companies that continue to invest and innovate will secure a strong long-term future once the economy improves. 

Vietnam remains highly attractive to companies, as growth opportunities are abundant.  Half of the population is under age 30, which means labor costs are lower and consumption demand is high.  Tourism continues to grow strongly - up 7 percent in 2008 - as more people discover the energy, beauty and culture Vietnam has to offer.

From the report:

·        GDP growth fell in 2008: 6.2% vs. 8.5% in 2007

·        IMF predicts Vietnam’s GDP growth in 2009 will slow to 5%, whilst the Vietnamese Government

·        predicts between 6.57.5% (By comparison, IMF predicts world growth to slow to 0.5% in   2009)

·        Vietnamese Government preparing a stimulus package up to US$6 billion which is equal to 39.5% of 2009 GDP. Source: IMF.

·        Tourism grew in 2008 4.3 million tourists (up 100,000 vs. 2007; $3.5 billion revenue (up 7% YOY)

·        Almost 50% spent less this Tet (2009) compared to previous years. Consumers claim things are more expensive and they have less money to spend.

·        One third of households spent less on key Fast Moving Consumer Goods (beer, confectionary, beverage, clothing, tobacco, others) …except Food.

·        Different from prior years, leading up to Tet 2009 consumers spent less on eating out, going to bars/coffee shops and entertaining at home

·        Consumers are paying more attention to price than before…40% in HCM & 28% in Hanoi.

·        It’s not doom and gloom in Vietnam according the Vietnamese. 45% say Vietnam’s economy is worse than 6 months ago. [That means 55% say the world's economy is worse that theirs.]

·        Consumers believe the Global Economic Crisis is driving inflation and unemployment in Vietnam, and not their own greed.

·        Overall FMCG growth rate has slowed since mid 2008, but volume is still up by 4.5% vs. 2007 and value growth is above 20% YOY

·        Vietnam’s Economic Impact on FMCG

o       Overall Vietnamese consumers are more confident compared to other countries.

o       37% of consumers said they will NOT spend less this year as most are concerned with price increases.

o       FMCG growth rates have slowed slightly…but are still stronger relative to most other countries

·        More than half intend to spend less in the next 6 months on Fast Food, CSD (consumer services?), and Nonfood categories

·        Majority think global economic crisis is having a negative impact on Vietnam…but not all consumers! Particularly inflation & unemployment is caused by the global economic crisis.

·        Biggest concern for consumers is the price increases for daily food

·        Consumers intend to spend less on eating out & going to bars / coffee shops

·        Overall Vietnamese consumers more price conscious and understandably more cautious…particularly for non essential items… but they are still positive!

As with the data we generally report on, the survey data above allows us to only report the data that Vietnam makes public. We cannot know the actual findings or the reasons.  But we and others speculate that many Vietnamese may be are asleep and dreaming in lieu of realizing what is really happing.  Using one example only, as reported above, 55% of the population thinks the Vietnamese inflation is caused by global and not local matters and that global economies are worse then theirs.  Vietnamese do not appear to be aware that in many places the concern is about deflation where the governments hope for some moderate inflation while Vietnam still suffers from over-heated inflation.

This month, many of our key sources for economic indicators are not reporting at all, or reporting with obvious, egregious errors.  Some reports for March 2009 are dated December 2007; reports of certain projects in February 2009 were 300 in number while the purported March 2009 number is down to 55.  There is no explanation of course.