Vietnam Defence and Security Report Q3 2009

The Vietnamese military is comparatively larger than other regional forces and has an added strength having the top leaders' combat experience. However, its ageing platforms must be replaced if the military is to have any operational capacity within the next decade. There is an almost total absence of any largescale defence industry, which means the country has to import from abroad. Russia and India will likely remain the primary sources for new purchases, as both countries offer technologically-advanced systems for a relatively low price in comparison with Western goods. However, there is the opportunity for UK and US firms, provided that they can offer incentives to Hanoi.

We revised down our 2009 growth forecast for Vietnam from 5.0% to 2.9% in January as regional and global macroeconomic data hit home the severity of global demand destruction, which will undoubtedly have an effect on the export-dependent Vietnamese economy. We now note that both the Vietnamese government and the IMF have followed our lead. The Vietnamese government lowered its 2009 growth target from the 6.5% set in December to 5.0% in May, while the IMF reduced its 2009 growth forecast for Vietnam from 4.75% to 3.3% in early May, to reflect deterioration in the global macroeconomic environment.

We expect Hanoi's relations with its northern neighbour to remain tense in the short-to-medium term as Vietnam and China stand by their conflicting claims for the Paracel and Spratly islands. However, while Chinese investment in the extractive sector is likely to remain a contentious issue in the short term, we believe that economic integration carries the key to improved Sino-Vietnamese relations over the longer term. The overall security situation in South East Asia has been stable in the sense that there was no clear deterioration relative to Q109 or Q408.

This quarter, we have introduced a significant new aspect to BMI's Defence reports, which is the City Terrorism Rating (CTR). This assesses the risk of a terrorist attack. The CTR takes into account the overall BMI Terrorism Rating for the country in question. It also incorporates the 'prevalence' of terrorism, which recognises the frequency of attacks and whether the city is a target for terrorists. The CTR also recognises the 'threat' of terrorism in terms of the likely numbers of victims and the ability of groups to launch sustained campaigns. In Vietnam we assess the CTR for Ho Chi Minh City. At an overall CTR of 97.5, Ho Chi Minh City has one of the highest ratings in the Asian region. This reflects our belief that there is little or no risk of terrorist attack in Vietnam.