Export of Services and Economic Growth: Needs and Opportunities for Viet Nam

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1 Export of Services and Economic Growth: Needs and Opportunities for Viet Nam Mr. Tran Quoc Trung ARTNeT Consultative Meeting on Bridging the Development Gaps in the GMS Centre for Analysis and Forecasting Hanoi, 1 2 June 2009

2 Presentation outline 1. Introduction 2. Recent developments in telecommunications and financial sectors 3. Institutional developments in telecommunications and financial sectors 4. Evaluation of service trade restrictiveness index (STRI) 5. Conclusions

3 Introduction Service sector growth rate is 7.4 percent over period (~ GDP growth rate). Share of service sector in GDP unchanged: 38.6 percent in 1990 and 38.2 percent in Service sector is employing about 26.8 percent of the labor force (increased from 22.5% in 2001).

4 Patterns of trade in goods Percent Year GDP growth Export growth Import growth Trade in goods as %GDP

5 Patterns of trade in services Percent CAGR Trade in services (USD billion) Export Import Trade in goods (USD billion) Export Import Trade in services as percent of trade in goods Trade in services as %GDP Trade in goods as %GDP

6 Share of service export in 2008 Other services 5% Transportation 33% Tourism 57% Telecommunication and finance 5%

7 Share of service import in 2008 I, F fee of goods import 54% Transportation 14% Telecom. and finance 5% Tourism 16% Other services 11%

8 Share of telecommunication and finance in GDP Share of important service sectors (such as telecommunications, finance, banking and insurance) in GDP is quite small and accounts for roundly 4.5%. While share of telecommunications in GDP is increasing. Share of finance, banking and insurance is unchanged.

9 Trade in services Trade in services is much smaller than trade in goods and its openness is reducing over the last few years. While the service sectors (such as telecommunications, finance, banking and insurance) are very important for doing business, their role in the economy and trade is modest

10 Integration affecting trade in services Viet Nam jointed ASEAN in 1995 and fulfilled its obligations (AFTA) in Viet Nam implemented Vietnam US Bilateral Trade Agreement (BTA) in Viet Nam signed ASEAN China Comprehensive Economic Cooperation Agreement in Viet Nam was a member of WTO in 2006 and implements specific commitments in services.

11 Recent development in telecommunications and finance Service sector Telecommunications Finance Numbers of operators Fixed line 5 PUB Mobile 6 PUB; PRV Internet services 18 PUB; PRV Banking Insurance 46 banks 28 braches 9 life insurance 23 non life insurance Ownership patterns PUB; PRV; braches of foreign banks, joint venture banks PUB; PRV; joint venture companies 100% foreign owned companies

12 Market share in telecommunications Name of firm Fixed line Market share (%) Mobile Internet services VNPT EVN Telecom Viettel Sai Gon Postel Hanoi Telecom 0.5 FPT 8.1 Netnam 1.1

13 Market share in banking Percent Name of largest bank Market share in Total deposits Total loans AGR VCB BIDV ICB ACB STB

14 Market share in insurance Name of largest company Total life insurance premiums Name of largest company Percent Total non life insurance premiums Prudential 41.7 Bao Viet 31.1 Bao Viet Life 34.6 PVI 19.7 Manulife 10.2 Bao Minh 19.3 AIA 6.2 PJICO 10.5 Dai ichi Life 5.0 PTI 3.7 ACE Life 1.8 Toan Cau 2.1

15 Market structure in telecommunications and finance Telecommunications: PUB (dominant) in fixed line, mobile and Internet services (it is far from the policy statement that by the year 2010 the market share of new operators should reach 40 50%). Banking: PUB; PRV (dominant). Life insurance: Foreign owned, PRV (dominant). Non life insurance: PRV (dominant).

16 Institutional development Fixed line services Name of regulatory institutions Ministry of Information and Communications Major functions Regulation, licensing, pricing Mobile services Internet services Banking State Bank of Viet Nam Regulation, licensing Insurance Ministry of Finance Regulation, licensing

17 Major changes in policy Telecommunication and Internet Institutional Development: General Department of Post in 1993 then General Department of Post and Telecommunications in 1996 and then Ministry of Post and Telecommunications in 2002; National IT Steering Committee and Secretariat in 2002; Development of Telecommunication and Internet service providers: VNPT in 1994 and others (Vietel, SPT, ETC, FPT, Vishipel, Netnam, Hanoi Telecom, Elinco,..) since 1997.

18 Major changes in policy Telecommunications and internet strategies and plans: Internet Development Plan for Telecommunications development strategy up to Telecommunication and Internet policies: Greater liberalization of telecommunication and Internet services: more service providers since 1997 and increasingly liberalized pricing system since 2001; Introduction of incentives for investment in telecommunication and Internet sector since 1998; Separation of policy, regulatory and operational functions among state agencies and service providers since 2002;

19 Major changes in policy Banking In 1990, two banking ordinances were issued setting the legal foundations for the transformation to a two tier banking system. In 1997 into the Law on the State Bank and the Law on Credit Institutions were issued and paved the way for a more level playing field for credit institutions, contributing to the stabilization and development of the country s economy These laws were again revised and amended in 2003 and 2004, to reflect current and future economic development needs and deficiencies in banking services, raising operational quality, management capacity, while encouraging the autonomy of credit institutions.

20 Major changes in policy The amendments aimed at: Building a modern banking system that would follow international best practices, Eliminating administrative burdens, Minimizing unnecessary interventions by the state authority over credit institutions, Expanding and redefining forms of credit institutions, Consolidating the legal system, meeting requirements of regional and international integration.

21 Major changes in policy Insurance Deregulation for market access in both life and non life sectors. Vietnam has for some time allowed 100% foreign owned insurers and brokers. Deregulation of distribution systems Insurers in Vietnam, both life and non life, have the freedom to develop their distribution systems. The Government allows insurers to formulate their own strategies for agencies and compile their own agency s commission tables. But opening branches in other provinces are still restricted for foreign insurers. There is no minimum registered capital requirement when a new branch is established

22 Major changes in policy Deregulation of Insurance products and prices Insurers operating in Vietnam are free to create insurance products that meet clients demands and also determine prices through market competition Products and rates do have to be filed with the Department of Insurance under the Ministry of Finance for approval

23 Performance indicators Service sector Number of workers (person) Total capital (VND billion) Output as % of GDP (%) Finance (banking and financial intermediation) 107,157 1,154, Insurance 14,098 37,806 Telecommunications 125, ,

24 Telecommunications and Internet development 40.0 Lines/users per 100 inhabitants Fixed Cellular Internet user Year

25 Insurance premium development Insurance premiums CAGR (%) Life (VND billion) 8, , Non life (VND billion) 5, ,

26 STRI in telecommunications Fixed line Mobile Internet Telecom Sector Domestic index Foreign index

27 STRI in finance Banking Sector Insurance Domestic index Foreign index (FR)

28 Conclusions Different level of trade liberalization in different services sector or within each service sector More liberalized in life insurance, banking than non life insurance, telecommunications (fixed line)

29 Thank you!