Country Profile: Vietnam

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Nestled on the far eastern side of the Indochina peninsula in southeast Asia, Vietnam is unfortunately best known for the Vietnam war of the 1960s and 1970s.

The country can trace its history back as far as 939, when the independent Vietnamese state was founded in the northern part of the country. Before this it was part of Imperial China.

European influences entered the country with the French colonisation of the Indochina Peninsula in the mid 19th century, and continued until they were defeated in the first Indochina war of 1954. Prior to that, the country was occupied by the Japanese.

Once the French had left, Vietnam was divided into two politically independent states of North and South Vietnam.

A war then followed and, despite heavy US-led intervention, the North was victorious and the country was once again united, although this time as a communist state.

But by the mid 1980s, the communist map of the world was changing. Countries that had adopted communism were beginning to adapt and change. The two largest communist countries, China and Russia, had both begun moving away from centrally-planned economies, and Vietnam began the process of transforming itself.

During 1986 the Vietnamese government introduced a series of political and economic drives that that were not only designed to stimulate Vietnam’s economy but also aimed to bring it out of isolation. That year was also a pivotal year in Russian economic history, as a collapse in world oil prices forced the country to transition faster into a mixed, rather than centrally planned, economy.

Under its five-year plan introduced in 1986, Vietnam began the transformation from a centrally-planned to a more market-based economy, while retaining some communist characteristics. The government also began the process of allowing foreign investment and foreign-based businesses to set up in the country.

Before this change, the country relied on agriculture and small-scale industry. The World Bank began tracking GDP growth in Vietnam from 1985, when 3.8% growth was recorded.

The economy continued to evolve and grow through the 1990s, although GDP growth never topped that of 1985 and averaged 2.6% over the decade.

The beginning of the new century saw the economy begin to expand rapidly, partly due to a Bilateral Trade Agreement (BTA) signed with the US in July 2000. The BTA opened the US up to goods manufactured in Vietnam, and speeded up its transformation into a manufacturing export driven economy. A secondary effect of the BTA was to open up the economy to inward foreign direct investment (FDI), not only from the US but from Europe and elsewhere in Asia as well.

Data from the World Bank shows that FDI into Vietnam has experienced phenomenal growth, especially in 2008 when it more than doubled. A large part of this FDI was contributed by Samsung, who opened up a large operation in the country in 2009. This has now grown to include just over 100,000 employees, who manufacture more than 40% of all Samsung phones, amongst other electronic devices.

According to vietnam-briefing.com, South Korea accounted for just over 28% of inward FDI into Vietnam in 2016, by far the largest share and dwarfing even China, which contributed the third highest amount with 7.7%.

Vietnam and South Korea put in place a Free Trade Agreement at the end of 2015 to ease trade between them. The terms of the agreement saw Vietnam drop 89% of import tariffs on South Korean goods, while South Korea dropped 95% of its tariffs on Vietnamese goods.

This helped exports to South Korea grow, which in turn led to more South Korean FDI into the country.

However, Kroll argues that South Korea made many of its investments in Vietnam believing that Vietnam would soon join the Trans-Pacific Partnership (TPP). The TPP was to have been a pact between 12 countries, including the US, that aimed to cut tariffs and deepen economic ties between the countries involved.

It aimed to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth. Members had also hoped to foster a closer relationship on economic policies and regulation.

US participation in the TPP was seen as vital, however, on his first day in office, President Trump abandoned it, believing it would be bad for American jobs and industry.

Although the TPP could in theory go ahead, several other members of the pact, including Japan, have said it would be meaningless without the US.

With GDP increasing, the Vietnamese middle class has also expanded. With higher disposable incomes, they have become upwardly mobile, creating a need for a robust and relatively inexpensive air transportation network.

The national flag carrier, Vietnam Airlines, was originally founded in 1956 as Vietnam Civil Aviation. As with most other airlines of the communist era, Vietnam Airlines originally flew a small fleet of mostly Russian-built aircraft, including a small fleet of Tupolev TU-134s that served destinations including Bangkok, Kuala Lumpur and Hong Kong.

Following a failed attempt to introduce western aircraft in the early 1990s, then US president Bill Clinton lifted a trade embargo with the country in 1994, allowing Vietnam Airlines to begin disposing of its old Soviet-built fleet and begin modernising with western-built aircraft.

Alongside the growth of the national airline, Vietnam has seen an explosion in growth of low cost carriers. The largest of these, VietJet, began operations on 25 December 2011 with flights between Ho Chi Min City and Hanoi.

Initially the airline had a small fleet of Airbus A320s, but has recently signed orders for the delivery of up to 100 Boeing 737 MAX 200 aircraft. The airline still has outstanding orders with Airbus for a mixture of up to 80 A320neos and A321ceos and A321neos.

VietJet became the first airline in the country to be publically listed with an IPO this year, which valued VietJet at $2.2 billion. It was also the first Vietnamese company to comply with the US Securities Act’s standards and practices.

The IPO has led its CEO, Nguyen Thi Phuong Thao, to become one of only two Dollar billionaires in the country. The only other Vietnamese billionaire is Phạm Nhật Vương, who has an estimated fortune of $4.1 billion, largely from real estate.

Although the number of billionaires in the country is low, the number of millionaires is growing. In a 2017 article, vietnamnet.vn suggested that the newly rich Vietnamese prefer to stay off the radar, and interviewed one person who wanted to remain unnamed.

Despite the increase of the middle class, no private jets have ever been registered by, or been operated on behalf of, Vietnamese companies or individuals. There are, however, currently two King Airs registered in Vietnam.

The first of these, 1989-build King Air 200 BB-1329/VN-B594, is operated by Vietnam Air Services Company (VASCO), a division of Vietnam Airlines. This was damaged substantially at the end of 2013 when it landed belly-up at Phung-Duc Airport, Vietnam. The aircraft was performing a runway calibration flight at the time, with five employees from the Vietnam Air Traffic Management Corporation on board. Nobody was hurt in the accident.

According to local news source Tuoi Tre, which reported the incident, the aircraft was used for terrain mapping, runway calibration, and search and rescue missions, so was unlikely to have ever been available for passenger charter.

The second aircraft is 2004-Build King Air 350, MSN FL-417/VN-B444. This is based in Ho Chi Minh City, and is owned by the Hoang Anh Gia Lai Group (HAGL). The Group is based in Pleiku, an hour’s flight north of Ho Chi Minh City.

The Group started as a small furniture manufacturer, and has diversified into different industries. It is now amongst the largest property developers in the country. It has also made significant investments outside Vietnam, including in Myanmar, Cambodia and Thailand.

A small number of Cessna 208s also operate in Vietnam. All three aircraft are owned by Hai Au Aviation, and are fitted with floats so they can operate from Hanoi to Halong Bay, a 45-minute flight away.

Business jet flights from elsewhere in Asia have also been low. Although dated from the fourth quarter of 2016, data from German consultancy WINGX Advance shows that flights from the surrounding countries in Asia are low, with the majority concentrated on flights into Ho Chi Minh City. These were, however, in the low single figures. Despite the Korean investments in the country, flights between the countries were also low, with just two private jet flights between the two countries in the three months covered.

During the first half of 2017, GDP grew by 5.7%, and the Asian Development Bank estimates that this will reach 6.3% for the full year. This is a 0.1% increase from 2016, but still well above the global average of 4.6% estimated by the International Monetary Fund (IMF).

One of the barriers to Vietnam building a business jet fleet could be that it doesn’t currently have FAA CAT 1 safety status. While this more normally affects the airline industry, meaning that no carriers can launch direct services between Vietnam and the US, potential private jet owners could find it harder, and probably more expensive, to get finance.

This is, however, expected to change next year, as Vietnam Airlines has asked the local Civil Aviation Authority (CAA) to allow it to open direct services to the US by the end of 2018. To do this, the CAA set up a project to increase safety in the aviation sector, with the aim of gaining FAA Cat 1 status. This project was partly funded by the US Trade and Development Agency, which provided $560,000 in financial aid.

Once Vietnam gains Cat 1 status, direct air links between the two countries can be established. The largest group of ethnic Vietnamese in the US are concentrated around California, with the lion’s share of these living in the greater Los Angeles area.

Aside from connecting families one way, and boosting tourism in the opposite direction, there is significant evidence to suggest that creating direct air links between two countries helps FDI, both inbound and outbound.

South Korea is a good example of this. The Seoul to Ho Chi Minh City route has five airlines flying ten times a day between them. Hanoi has seven airlines flying 12 flights a day.

Vietnam’s controlled growth of its economy has meant that it has adapted and changed as global economies have changed. This will in time translate into how private jets will enter the country.

As with other rapidly developing economies, Vietnam will suffer infrastructure and regulatory headaches as it begins to grow but, before that happens, the first aircraft needs to come into the country.

Unlike other countries, which have been able to register their aircraft on offshore registries, Vietnamese CAA rules state that any aircraft to be operated in the country for more than two years needs to be registered in the country. It won’t be too long, then, before we start seeing VN- private jets appearing around the world.

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