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HSBC: Tourism the growth pillar, not oil

Released at: 17:26, 03/11/2017

HSBC: Tourism the growth pillar, not oil

Illustrative image (Source: antoangiaothong.gov.vn)

Dwindling demand means that Vietnam can no longer rely on crude oil exports for economic growth, HSBC writes in latest report.

by Quang Huy

Boosting the tourism industry as a pillar for growth instead of the oil and gas sector is a more sustainable policy for the Vietnamese Government given the country’s dwindling fossil fuel output and its growing services industry, HSBC stated in its latest report.

Out with oil

The years of having crude oil as a pillar for economic growth in Vietnam appear to have passed, HSBC wrote. Mining output of fossil fuels has fallen over the past two years due to the country’s limited and less-productive oil fields, leading to the sector’s negative contribution to GDP growth during the period.

Over the past five years, Vietnam’s exports have been primarily driven by a rapid growth in electronics and mobile phone shipments. This is drastically different from the previous decade of 2000-2010, when crude oil exports were a significant driver of exports growth, in addition to textiles and other goods, such as agriculture.

This year is looking to be no different, HSBC noted. Crude oil output as at September was estimated at 1.06 million tons, down 9.9 per cent year-on-year and 11 per cent on a year-to-date basis. It was also reported that Vietnam turned to a net importer of crude oil for the first time on record in August, amid rising demand and dwindling output.

Government officials have also signaled that this could be the new norm. Deputy Prime Minister Vuong Dinh Hue told a meeting with legislators that crude oil production will fall by about 3 million metric tons this year, which would be equivalent to a 0.25 per cent decline in GDP.

According to Deputy PM Hue, the country is not able to produce more crude oil even if it wanted to, saying “this means we have to move our oil rigs further out to sea where there is less crude oil.” As a result, he concluded, “there is just no way we can depend on crude oil to boost economic growth.”

In with tourism

In contrast to the mining sector, tourism has provided a sizeable lift to Vietnam’s economy this year, according to HSBC. The country earned around $16.5 billion in tourism revenue in the first nine months, a 26.5 per cent increase year-on-year. The services sector has also experienced a boom, growing at its fastest rate since at least 2013.

HSBC believes that growth in services should provide support for the country’s current account, which has seen a rising deficit in services trade over the years. This is crucial, as pressure for a declining current account mounts through higher imports of goods, such as oil, electronics, and machinery.

But perhaps even more significant is that tourism to Vietnam has been partly driven by investment interests. With South Korea now the largest source of foreign direct investment to Vietnam, particularly to manufacturing, there has also been growing Chinese interest in Vietnam’s real estate sector after the country relaxed foreign home ownership laws were introduced in 2015, and HSBC’s global consumer and retail team forecasts continued growth in Chinese tourist numbers to Vietnam, exceeding 9 million by 2018.

As such, HSBC remains optimistic about Vietnam’s tourism sector and expects visitor numbers to exceed 10 million moving forward, just as it did in 2016. “Considering that neighboring Thailand has averaged around 25 million tourist arrivals per year since 2010, Vietnam still has a lot of potential to grow over the next few years, provided continued visa liberalization, infrastructure improvements, and a benign external economic and political environment,” HSBC economist Mr. Noelan Arbis said. 

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