Global political risks and the opportunities, challenges for Vietnam’s economy

Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.Global political risks and the opportunities, challenges for Vietnam’s economy.

The significance of thesis

Ever since the end of the Second World War, political risk has played a major role in global trade Even while the political situation may change substantially in some regions, several difficulties have been rather constant over this time and might be seen as “background noise” at the global level.

The world’s political environment has also seen major shifts in the last several decades Since 2018, increases in tariffs are the most visible of the several restrictive measures the United States and China have implemented on trade flows between the two nations After the United States raised duties on Chinese imports, China retaliated by increasing levies on American goods Although the trade battle seemed to grow in the Fall of 2019 with additional tariff increases, a ceasefire was reached between the two nations at the end of 2019, with some previously announced tariff hikes being canceled and other earlier increases being rolled back. The so-called Phase One Agreement was signed in January of 2020 as a result of the ceasefire However, the global economy has seen a succession of trade confrontations between China and the US Moreover, the trade war is not only an economic matter, but also relates to the political one when President Donald Trump’s strategic plan is to “Make America great again” Moreover, this is a competition between two largest economic countries to lead the world.

The Russia-Ukraine conflict, commencing on February 24, 2022, severely impacted the global economic recovery following the COVID-19 pandemic It led to a noticeable economic slowdown in Western countries and the US, accompanied by soaring inflation, escalating poverty, and worsening food insecurity Globalization also faced setbacks, while environmental degradation accelerated The International Monetary Fund (IMF) revised its global growth projections, predicting a decline from 6.2% in 2021 to 3.4% in 2022 and 2.9% in 2023 Other estimates for global growth in 2023 remain pessimistic, indicating significant risks of economic recession and financial instability.

Nowadays, with the complexity of international relationships, political risk is becoming an important factor having considerable impacts on economic aspects in a country According to Eurasia group’s global political risk report, they pointed out

10 risks which have huge impacts on the globe including the Russia-Ukraine conflict, the US-China relation issue which are considered as the highest political risks, including: Rogue Russia, Maximum Xi, Weapons of mass disruption, Inflation shockwaves, Iran in a corner, Energy crunch, Arrested global development, Divided states of America, Tik tok boom, Water stress.

In Vietnam, globalization is gaining momentum, and the country is becoming more integrated regionally and internationally The process of Vietnam’s international integration into the current global framework is now being aggressively undertaken Moreover, Vietnam is a small country whose economy is relatively dependent on other countries Therefore, in the complicated context among nations, researching global political risk is extremely necessary Thus, the author chooses the thesis topic “Global political risks and the opportunities, challenges for Vietnam’s economy” in order to look at these shifts and make some predictions about how countries have altered the character of political risk in the present and the future; find out opportunities as well as give some recommendations to overcome challenges for Vietnam’s economy However, in the thesis, the author only focuses on analyzing the two biggest political risks which are the Russia-Ukraine conflict and the US-China relations tension because they have a significant influence on Vietnam’s economy.

Literature review

“Political risk” has still been one of the concerning topics for researchers so far which has considerable impacts on a country’s economy in general and enterprise’s business activities in particular Many studies have contributed to the definition, the forecasting, and assessment of political risk.

The following definitions were established in an effort to categorize the many

"technical" interpretations that have been connected to political risk throughout time: Firstly, political risk is considered as non-economic risk (Ciarrapico 1984,

Meyer 1985); Secondly, political risk is unwanted government interference with enterprise operations (Aliber 1975, Eiteman and Stonehill 1973, Henisz and Zelner 2010); Thirdly, the likelihood that political forces or events would interrupt MNE operations is known as political risk (Root 1972, Jodice 1984, Brewers 1981, MIGA 2010); Fourthly, risks in the business environment caused by changes in government policy and their possible impact on a company’s the profits or the goals are known as political risk (Thunell 1977, Robock 1971, Micallef 1982); Fifthly, political risk as the host country’s political volatility and potential for extreme political change (Green 1974, Thunell 1977).

Besides, political risk is also studied in some countries such as: China, the US, Russia In Political Risk Index: Spring/Summer 2023, the report analyse patterns in the world’s most vulnerable countries In each country, the report will score different types of risk in the country including: Expropriation Risk, Political Violence Risk, Terrorism Risk, Exchange Transfer and Trade Sanctions Risk, Sovereign Default Risk Stevens, C E., Xie, E., & Peng, M W (2016) looked at the domestic and international political risk faced by Google and Yahoo as a result of their operations in Chinato demonstrate the value of a rounded approach to political risk Sachs, T., Tiong, R., & Qing Wang, S (2007) studied rankings of political risk factors in China and Asian countries as well as rankings of these countries in terms of the risk categories and rankings of future PPP opportunities over time In

Foreign firms operating in Russia face varying degrees of political risk, as outlined by Liuhto, K (2010) These risks differ considerably across industries, including telecommunications, oil and natural gas, metals and mining, electricity, and forestry.

Moreover, there are some researches on the relationship between political risk in some fields In terms of Foreign Direct Investment, Khan, M M., & Akbar, M I.

Political risk hinders economic development, akin to other risk types Despite its significance, research on political risk has lagged behind that of economic and financial risks This discrepancy stems from data limitations.

H., & Matei, I (2010) conducted a study titled “Business climate, political risk and FDI in developing countries: Evidence from panel data” The study supposed that when political risk decreases, foreign direct investment (FDI) inflows increase. Besides, Tallman, S B (1988) researched “Home country political risk and foreign direct investment in the United States” by using investment data from the US Department of Commerce The findings show that the ICs’ investment activity in the United States is affected by the political and economic climate in their home countries.

In terms of International Business, Kettis, M (2004) studied “The Challenge of Political Risk: Exploring the political risk management of Swedsih multinational corporations’’ This research pointed out the challenges that multinational corporations face throughout the country’s risk process and gave some recommendations for improving practice Keillor, B D., Wilkinson, T J., & Owens,

D (2005) carried out a study with topic “Threats to international operations: dealing with political risk at the firm level” This study’s findings provide support to the idea that the nature of the political action undertaken by businesses will vary according to the nature of the political danger they are experiencing.

There are a lot of studies relating to political risk in Foreign Direct Investment,International Business, Marketing Although in the current global conflict context,politics is one of important factors affecting a country’s economy, there is still limited research related to global political risk and their influences on Vietnam’s economy Therefore, in the thesis, the author will find out some main current global political risks and from the analysis point out some opportunities as well as challenges for the economy in Vietnam Besides, the author also gives some suggestions about policies for the government and solutions for enterprises to tackle the issues.

Research purpose and research questions

There are two main purposes when the author decides to conduct the thesis.

Firstly, the research aims to identify opportunities and challenges for Vietnam’s economy in the complicated context of international relations among countries

Secondly, the researh aims to give some recommendations for both government and enterprises to overcome the challenges to boost economy To achieve these purposes, the thesis has to answer the following questions:

1 What are the main global political risks?

2 What are opportunities and challenges for Vietnam’s economy?

3 What are recommendations to overcome the challenges?

Scope of the research

In the thesis, the author focuses on finding about the two biggest political risks which are the Russia-Ukraine conflict and the tension of the US-China relation because the risks have significant influences on Vietnam’s economy Therefore, to research “Global political risks and the opportunities, challenges for Vietnam’s economy”, the thesis’s content is divided into two important parts including: the situation of global political risks’ influence on Vietnam’s economy and the opportunities, challenges for Vietnam’s economy in the future

In the first part, the author will study the influence of the Russia-Ukraine conflict and the US-China trade war on Vietnam’s economy from 2018 to 2023 in which the US-China trade war is mainly studied from 2018 to 2019 due to the fact that the US-China Economic and Trade Agreement (Phase One) as well as the Covid 19 pandemic in early 2020 deceased the trade war’s impacts For the Russia- Ukraine conflict, the author will find out its influence on Vietnam’s economy between 2022 and 2023 when the conflict is still happening

In the second part, from the data and analysis of the first part, the author will give some opportunities and challenges for Vietnam’s economy by 2030 TheNational Security Strategy 2022 pointed out that “This decade will be decisive, in setting the terms of our competition with the PRC 1 , managing the acute threat posed by Russia, and in our efforts to deal with shared challenges, particularly climate change, pandemics, and economic turbulence” The author believes that the stage from now to 2030 is extremely important with changes of countries’ policies to boost their influence regionally and globally Therefore, it is necessary for Vietnam to identify opportunities, challenges to improve its economy in this vital stage.

Research methodology

During the research process of this thesis, the author used different research methods, including: collection, review, synthesis, description, comparison, analysis of data and information.

Firstly, in terms of data collection, the data will be collected via desk research from a diversity of different sources such as: books, paper magazines, reports,websites, etc Particularly, when the author studies chapter 1, the auhtor will read books, articles to learn about definitions, theories related to global political risks.However, when the author collects data related to chapter 2 and chapter 3, the author will more focus on reports of prestigious institutions such as: IMF, OECD,General Department of Vietnam Customs The organizations can provide a lot of data which is updated regularly and reliably Secondly, with regard to data processing and analysis, after collecting data, the author will synthesize the data and then classify it for suitable chapters Based on the data, the author will analyze,compare the matters including: the influence of global political risk on the world and Vietnam’s economy, opportunities as well as challenges for Vietnam’s economy in the global political risks and finally give some recommendations forVietnam’s economy.

Structure of the thesis

Depart from the introduction, reference document, conclusion and limitations and future research This thesis contains three chapters:

Chapter 1: Theoretical issues and current global political risks

Chapter 2: The influence of global political risks on the world and Vietnam’s economy

Chapter 3: Opportunities, challenges and recommendations for Vietnam

THEORETICAL ISSUES AND CURRENT GLOBAL POLITICAL RISKS

Some theoretical issues

Risk is difficult to define, and its quantification is fraught with controversy because in every field, there will be different definitions Moreover, different organizations and authorities also use different definitions For example, according to Cambridge Dictionary, risk is the possibility of something terrible happening. The term “risk” refers to the apprehension of potential adverse outcomes associated with an action that might compromise anything of value to people (such as their health, well-being, money, property, or the environment) 2 Moreover, The International Organization for Standardization’s risk definition for a consistent framework across applications is “effect of uncertainty on objectives” 3 In terms of finance, US Securities and Exchange Commission defined risk associated with an investment is the possibility of a negative return on that investment When investors’ exposure to risk increases, they often demand larger returns in exchange for that exposure.

There are lots of additional relevant risk definitions, such as:

- “Source of harm” The term “risk” was first used as a synonym for the far older word “hazard”, which meant a possible source of harm This meaning was the primary one used in the first (1914) and second (1989) editions of the Oxford English Dictionary It was taken from Blount’s “Glossographia” (1661) The phrase

“unwanted events” or "something bad that might happen" has been replaced by its modern counterpart.

- “Uncertainty about loss” The source of this definition is from Willett’s

“Economic Theory of Risk and Insurance”, published in 1901 This establishes a connection between “risk” and “uncertainty”, a more comprehensive concept than either “chance” or “probability”.

2 Society for Risk Analysis Retrieved 04 May 2023

- “Consequences and associated uncertainty” This idea came from Kaplan and Garrick’s (1981) research Bayesian analysis, which views risk as the combination of occurrences and uncertainty about them, favors this definition.

- “Uncertain events affecting objectives” The Association for Project Management adopted this definition in 1997 After some minor rephrasing, it was eventually included as the definition in ISO Guide 73.

The UK's Cabinet Office implemented the concept of "uncertainty of outcome" in 2002 to encourage innovation and improve public services This concept acknowledges that "risk" can involve both potential benefits and threats.

In conclusion, business, economics, the environment, finance, information technology, healthcare, insurance, safety, security, and other fields all have their own unique ways of thinking about and dealing with risk, assessing risk, describing risk, and even defining risk.

1.1.2.1 Definition and historical evidence of political risk

It is possible to identify many distinct technical interpretations that have evolved to describe political risk throughout time:

The first definition is representative of an early stage when companies and banks started to tackle the issue of evaluating risks that did not fit neatly into the categories of traditional business hazards or could not be assessed by looking just at a country’s economic fundamentals Kobrin (1979) points out that the second definition is rather limiting since it presupposes that government interference is inevitably detrimental; in other words, that host government limitations on FDI imply economic inefficiency.

The third definition is the most semantically exact since it correctly analyzes political risk not only in terms of events but also in terms of the possibility of occurrences (damaging to an MNE’s operations), rather than just the events themselves By reducing political risk to a collection of “events” with potential consequences for a company, without considering the importance of probability, one runs the danger of acting like the proverbial idiot who, when a finger is pointed towards the moon, just stares at the finger The very nature of calculating political risk necessitates an eye into the future, and despite the lack of any immediate threats, a company may nonetheless see political risk as being rather high.

The definitions in the fourth group are more general since they include the whole business community rather than just one company A deeper examination at Robock’s (1971) important definition is warranted When political upheaval causes

(1) unexpected changes in the economic environment, (2) such changes are difficult to predict, and (3) the outcome is political risk These changes in the external environment pose a threat if they have the ability to adversely influence the success of a company’s operations.

The fifth set of definitions, which builds on previous research on political transformation, was written by academics with the goal of bridging the gap between political science and business studies Green’s work (Green, 1972, 1974) is the first to examine the connection between political regime and political risk.

More often than in the past, corporate or governmental organizations are tasked with conceptualizing and assessing political risk In conclusion, political risk can be understood as the possibility that an investment’s profitability will be negatively impacted by events attributable to either unexpectedly negative shifts in the domestic or international political arena (such as revolutions, even when linked to democratization processes, or the outbreak of tribal/ethnic conflict) or to governmental policy choices affecting an international investor’s property rights. Both scenarios need for a thorough risk assessment that takes into account the interplay between local political regimes and global influences The second section, in particular, needs further investigation into its function and implementation.

Since 1984, the Political Risk Services (PRS) Group has maintained the ICRG(International Country Risk Guide) Researcher Dataset, which includes 22 factors that anticipate three types of risk (political, financial, and economic) Information about the political, financial, and economic climates are collected, and then risk assessments are made The dataset offers yearly averages of the factors that make up the International Country Risk Guide’s (ICRG) Risk Ratings.

The purpose of a country’s political risk rating is to help local and foreign investors make informed decisions about whether or not to do business there based on the country’s perceived level of political stability According to the International Country Risk Guide (ICRG), the following 12 macro-assessments is used to calculate political risk, including:

Political risk assessment involves assigning risk points to 12 factors The total risk points indicate the level of political instability in a country A higher total implies lower instability, while a lower total signals greater instability.

To further understand the primary features of the ICRG political risk components, we have further subdivided them into subcomponents They are:

The government’s capacity to remain in power and implement its platform are both factors in this evaluation The total risk rating is based on a combination of three factors, each of which may get a maximum of four points and a minimum of zero extremely low danger is indicated by a score of 12 points, while extremely high risk is indicated by a score of zero Governance, government unity, the proximity of recent and potential future elections, legislative and executive branch control, and citizen support of government programs are all factors evaluated in this part of political risk.

An assessment of socioeconomic factors is crucial for understanding their impact on government effectiveness and societal well-being Government actions can be constrained or fueled by these factors, shaping public perception and contentment with economic policies By examining socioeconomic influences, we can gauge the extent to which民众满意 or discontent exists, providing valuable insights into the dynamics of governance and societal attitudes.

The current global political risks

Currently, with the complicated relations among countries, there are many political risks in a country, in a region as well as on a global level However, the part only concentrates on studying two biggest global political risks which influenced significantly on Vietnam’s economy, analyzed in the next chapter

Firstly, the Russia-Ukraine conflict

The conflict has huge impacts on not only Russia and Ukraine but also on the globe in many aspects from geopolitics, military to economy This is a seriously armed conflict, having a great influence because it is related to many other countries in the world As the conflict in Ukraine erupted, the confrontation between Russia and the West intensified Russia became the nation with the most sanctions in history due to the US and the European Union (EU)

Secondly, the US-China relation’s tension

Both the US and China are one of the most important import - export market of Vietnam According to Vietnam Import - Export Report 2022 by Ministry of Industry and Trade, Vietnam’s overall import and export volume with China reached $175.6 billion in 2022 Vietnam’s exports to China were 57.7 billion USD, an increase of 3.2% from 2021, accounting for 15.5% of Vietnam’s total export revenue Vietnam’s imports from China were 117.9 billion USD, an increase of6.6% from 2021, occupying 32.8% of Vietnam’s overall import revenue

In 2022, the US and Vietnam’s bilateral commerce will have a total value of around $123.9 billion In which Vietnam imports from the US reached close to

$14.5 billion, down 5.2%, accounting for 4% of the overall import of the nation; exports to the US reached $109.4 billion, up 13.6% compared to 2021, standing for 29.5% of total exports of Vietnam.

1.2.1.1 The reason of the Russia-Ukraine conflict

In terms of the historical context, when Russia and Ukraine were members of Soviet Union, officially the Union of Soviet Socialist Republics (USSR), they had a close relationship, however, after the collapse of Soviet Union in 1991, all member states split off and declared independence, since then, the relationship of two countries has experienced periods of both cooperation and tension.

Ukraine has an important geographical location to Russia which is considered as a “buffer state” between Russia and the NATO bloc - The North Atlantic TreatyOrganization After World War II, the United States and the Soviet Union turned to confrontation due to the opposition of goals and strategies between the two power countries To isolate Soviet Union and Socialist countries, a military organization called NATO was formed by the US and Western countries in 1949 In response to the NATO bloc, the Soviet Union also formed a political and military alliance known as The Warsaw Treaty Organization (The Warsaw Pact) in 1955 Both blocs concentrated on arms races, equipped with modern weapons, especially nuclear weapons, to strengthen their bloc’s strength After the dissolution of the SovietUnion, The Warsaw Pact officially disbanded, however, NATO not only still exists,but also increasingly expands to the east, threatening Russia’s security Therefore, ifUkraine takes the side of Russia, Ukraine will be a shield to protect Russia fromNATO countries, contrariwise, if Ukraine takes the side of Western countries and let the NATO army station on the buffer state, this will be a threat to Russia’s security.

In fact, the Ukrainian split into two factions, one flavored to Russia and another flavored to the Western In 2013, Ukraine’s president, Viktor Yanukovych refused to sign a trade agreement which could bring Ukraine closer to Europe This led to a protest made by the EU-favored Ukrainians, pushed Yanukovych out of office, and elected a government that favored Europe rather than Russia.

This made Putin worried that Ukraine would take part in a military alliance with the US and Europe that would threaten Russia Therefore, in 2014, Russia took over an area in southern Ukraine called Crimea which Crimea was a part of Russia from 1783 to 1954 because in 1954 Soviet leader Nikita Khrushchev gave Crimea to Ukrainian Soviet Socialist Republic as a gift to commemorate the 300th anniversary of Ukraine signing The Pereyaslav treaty, unification with the tsarist regime.

Tensions escalated between Russia and Ukraine when fighting between Russian-supported separatists and Ukrainian government forces continued until

2015, a peace agreement, Minsk Agreements, between Russia and Ukraine was signed However, the tensions continuously have increased in recent years when Ukraine is becoming closer and closer to the US and EU countries The conflict between the Ukrainian government and the Russian-backed separatists in Donbass (including DPR and LPR) increased, making peace negotiations under the Minsk Agreement 2, the unique solution to the Ukrainian political crisis, difficult to achieve.

Therefore, in the early morning of February 24, 2022, Vladimir Putin, president of Russia, stated that he would begin a special military operation to defend civilians in the Donbas area In a short time, Russian soldiers had invaded Ukraine in a specific military operation to “demilitarize” the nation.

1.2.1.2 The current situation of the Russia-Ukraine conflict

It has been more than one year since Russia invaded Ukraine, despite all the diplomatic efforts of the two countries and the international community, the conflict situation continued to evolve fiercely and tumultuously However, neither side has achieved absolute superiority.

Over the past year, both sides have made several changes to their military plan including both the methods and scopes in actual combat Russia has shifted its focus of warfare from the capital Kiev in the North to the Donbas area and the Southeast coastline corridor and has basically controlled and annexed four Ukrainian territories into Russia (Donetsk, Kherson, Luhansk and Zaporizhzhia oblasts). Meanwhile, after the success of the counteroffensive, which saw it retake some territory, the Ukrainians were in a holding posture.

Ukraine has fought back bravely thus far, demonstrating its tenacity step by step, and has garnered widespread support and encouragement from the Western countries and the US However, Ukraine sustained significant and lasting losses: (i) temporary loss of control over 20% of its territory due to Russian annexation, interference, and binding, and deep US/Western dominance in both the military and political spheres 4 ; (ii) severe damage to Ukraine’s economy, with the overall economy contracting by more than 30.4% in 2022 and the minimum cost to repair the damage caused by the conflict estimated at around 411 billion USD 5 ; and (iii) Ukrainian defense sector suffered heavy losses, relying heavily on Western military help Meanwhile, Russia has shown that it can stand on its own; Russian internal affairs are largely stable, displaying solidity and high unity on decisions related to or affected by the Ukraine issue; the economic damage to Russia was much less severe than predicted by the US and Western nations; and the Russian economy is not “broken” as a result of the succession of sanctions and embargoes Russia was an expression of its determination on matters of strategic security via the campaign; it aimed to delay or halt Ukraine’s entry into NATO for the time being.

Ongoing peace negotiations between Russia and Ukraine have reached a standstill International mediation is not considered viable due to vastly different perspectives between the two parties Both sides remain confident in their ability to resolve the conflict independently, further complicating the path to a negotiated settlement.

4 Office of High Commissioner for Human Rights

5 World Bank (WB), European Commission (EC) militarily or try to win a military victory to create an advantage before entering negotiations, (iii) the US and Western nations interfere and dominate, and (iv) internal pressures of both countries make compromise difficult The international community’s attempts at mediation to facilitate prisoner swaps and export deals for grain and fertilizer have had minimal success Nonetheless, the parties will soon have to contemplate a solution to the stalemate on the battlefield in light of the tremendous damage done to both sides and the bad effects on the globe, therefore, the sooner the better, the political solution can be considered to halt the fighting.

1.2.1.3 The impacts of the Russia-Ukraine conflict in Geopolitics

The Russia-Ukraine conflict is a geopolitically important event which has considerable impacts on global security as well as becoming a factor to make changes of countries power This is not only a military conflict between two countries but also with intervention and support from many other countries In addition, this is a total war including not only military activities but also economics, diplomacy, energy, media issues Even though the US or the Western countries take advantage of Ukraine to deal with Russia via economic transactions

THE INFLUENCE OF GLOBAL POLITICAL RISK ON THE

The influence of the current global political issues on the world economy

2.1.1 The influence of the Russia-Ukraine conflict on the world economy

Although there are recent signs of improvement, the conflict between Russia and Ukraine has still had huge impacts on different aspects of the world economy including economic production and growth, energy crisis, global supply chain disruption, global inflation and other economic impacts.

The impacts on global economic growth

Table 2.1: Global growth is projected to slow further

Projections for the worldwide GDP growth in 2022 are 3.1%, almost half the pace recorded in 2021 during the comeback from the pandemic, and 2.2% in 2023,both much lower than the rate anticipated before the conflict Initial attempts to relax policy interest rates in various nations are expected to aid in global growth in

2024, which is estimated to be 2.7% As a result of predicted stable development in the main Asian emerging-market countries and dramatic slowdowns in the United States and Europe, the global outlook is becoming more unbalanced.

Russian and Western oil sanctions on each other pose a severe danger to the international energy market Consumers and energy-intensive sectors in Europe have suffered greatly as a result of the economic crisis In a broader sense, the crisis has pushed up energy prices worldwide, which has affected economies everywhere owing to rising input costs for agriculture and industries.

The 27 member states of the European Union used up 412 billion cubic meters of gas in 2021 Creating electricity, heating homes, and operating factories all rely heavily on gas In the European Union, more than 30% of houses are heated by gas.

Figure 2.1: Gas consumption in the EU

Graph illustrating the EU’s gas consumption patterns The electricity and heat generation sector accounts for almost 30%, followed by the households at 24%, the industrial sector at 22.6%, and the service sector at 10.6% About 11% of energy use goes toward other, non-energy uses.

However, in 2021, 83% of the EU’s natural gas supply came from imports and Russia was one of the most important gas exporters According to the below figure, in 2021, the EU depended significantly on Russia’s natural gas supply, importing above 40% natural gas from the country.

Figure 2.2: The EU’s diversification away from Russian gas

However, gas exports to the European Union from Russia have dropped dramatically as a result of the invasion of Ukraine Less than a quarter of EU gas imports between January and November 2022 came from Russia (pipeline gas +LNG imports) Norway contributed 25%, and Algeria 11% This shortfall has mostly been made up for by a dramatic rise in LNG imports, primarily from the

United States Excluding Russia, imports of LNG (mostly from the United States, Qatar, and Nigeria) accounted for 25.7% Therefore, the EU is looking for alternative solutions such as renewable energy to reduce its reliance as well as decrease the greenhouse effect.

Oil, gas, and food costs all rise as a direct result of war That may add a considerable amount to monthly outlays for things like mortgage interest, electricity, and transportation It also has a trickle-down impact on poor nations that must rely on energy imports for survival As a result, even if income levels stay stable, developing nations will be forced to pay greater costs for energy imports, which might raise local fuel prices, food prices, and total commodities imports In emerging nations, this causes inflation and cost of living increases Higher global inflation is possible if the influence is felt in both developed and developing nations.

Figure 2.3: Commodity prices have diverged recently

Source: Refinitiv; and OECD calculations

Oil, gas, coal, a variety of metals, wheat, maize, and several culinary oils, and fertilisers all saw sharp increases in price as soon as fighting broke out in Ukraine.

Although most commodity prices have now dropped, in part owing to low demand from China, those of globally traded gas and coal continue to be quite high.

Figure 2.4: The inflation in the world from 2021, projections for 2025 11

According to the figure, it can be seen that the global international headline inflation (CPI) rose dramatically to 8.7 percent from 2021 to 2022, however, the figure would fall to 7.0 percent This prediction is over two times as high as the one made in January 2022, but only slightly higher than the one predicted in January

11 Percent; dashed lines from January 2022 WEO Update vintage

Russia's invasion of Ukraine has significantly disrupted global supply chains due to their vital roles in the international supply system This has led to energy and trade shocks, resulting in higher energy, commodity, and food prices, as well as increased inflation worldwide The availability and cost of various commodities have been affected by production and distribution disruptions caused by sanctions, particularly in Russia's "advantageous goods." Ukraine and Russia account for one-third of global grain exports, and the decline in their exports has pushed up global food prices, disproportionately impacting vulnerable populations in Africa This situation raises concerns about social instability in low- and middle-income countries.

Geopolitical disputes have significant economic consequences beyond the sanctioned nation The Russia-Ukraine conflict exemplifies the unintended consequences of sanctions on non-belligerent countries, especially when the disputing nations are trading partners of third-party countries Such sanctions can disrupt international trade, hindering the economies of non-involved nations.

2.1.2 The influence of the US-China trade war on the world economy

The impacts on global growth

The global economy has experienced a significant slowdown, particularly in the second half of 2018 and the first half of 2019 This weakness stems from a confluence of factors, including ongoing trade tensions, heightened policy uncertainty, ongoing trade disputes, and dwindling confidence among businesses and consumers These factors have contributed to a diminished sense of optimism and a slowdown in economic activity worldwide.

Table 2.2: Global growth remains weak

Source: OECD Economic Outlook 105 database.

Overall, the real GDP growth in the world in general and in other countries in particular decreased from 2017 to 2019 except for the figure for the US In 2017, the global real GDP growth was 3.7%, however, the figure went down to 3.5% in

The influence of the current global political issues in Vietnam’s economy 44 1 The influence of the Russia-Ukraine conflict in Vietnam’s economy

2.2.1 The influence of the Russia-Ukraine conflict in Vietnam’s economy

Due to Vietnam’s high level of economic openness and its rapid process of global economic integration, Vietnam is very vulnerable to the repercussions of the Russia-Ukraine conflict Especially in the context that Vietnam is promoting socio- economic recovery and development after the Covid-19 pandemic, it is particularly vulnerable to the knock-on effects of global slowdown, inflation pressure, energy crisis, and stakeholder policy responses This complicates economic management, which has real-world consequences for people’s daily lives, particularly for those with lower incomes.

2.2.1.1 The influence on Vietnam’s trade sector

Vietnam’s traditional and important Eurasian commercial relationships are Russia and Ukraine The conflict between Russia and Ukraine has increased the cost of raw materials for home manufacturers by driving up the price of oil, natural gas,and other commodities used in manufacturing throughout the world Many obstacles remain in the way of commercial and economic interactions between Vietnam and the two nations Vietnam’s production and import-export operations are being hampered by the unpredictability of the Russia-Ukraine conflict This conflict has already reduced investment, disrupted business, and lowered consumer demand throughout the world.

Figure 2.9: Export - Import turnover between Vietnam and Russia from 2019 to 2022

Source: The author’s collection from General Statistics Office of Vietnam

Russia is Vietnam’s main market in the EAEU, accounting for 81% of Vietnam’s total import and export turnover with the Union 12 According to the Ministry of Industry and Trade, in 2021, two-way trade between Vietnam and Russia reached over $5.5 billion, of which Vietnam’s exports to Russia reached

$3.2 billion, increasing by 12.2 %, and imported $2.33 billion from this market, rising by 16.5% compared to the same period in 2020.

Figure 2.10: Export - Import turnover between Vietnam and Russia in months of 2022

Source: The author’s collection from General Statistics Office of Vietnam

However, in 2022, two-way trade between Vietnam and Russia reached around $3.5 billion, of which Vietnam’s exports to Russia reached $1.5 billion, decreasing by 46.9%, and imported about $2 billion from this market, declining by 0.8% compared to the same period in 2021 In particular, in January 2022, Vietnam’s export turnover to Russia was at $325 million, going down sharply to

$38 million in March The figure continued fluctuating in the rest of months and reached about $114 million in December, decreasing by 40,2% compared to the period in 2021 Similarly, in January 2022, Vietnam’s import turnover fromRussia was at $276 million, going down significantly to $163 million in March,only reaching $88 million in July The figure continued fluctuating in the rest of months and reached about $245 million in December, going down by 0.1% compared to the period in 2021.

Figure 2.11: Export - Import turnover between Vietnam and Ukraine from 2019 to 2022

Source: The author’s collection from General Statistics Office of Vietnam

With regard to Vietnam - Ukraine trade, Vietnam exported $344 million toUkraine in 2021 Vietnam’s top exports to Ukraine in 2021 were seafood ($29 million), Other machinery, equipment and spare parts ($19 million), Computers and accessories ($17 million), and footwear ($ 17 million) However, since theRussia-Ukraine conflict, the Vietnam export turnover to Ukraine went down dramatically to $65 million in 2022 In particular, the figure declined from $32 million in January to $0.3 million in May, continuing decreasing to $3 million inDecember in 2022.

Figure 2.12: Export - Import turnover between Vietnam and Ukraine in months of 2022

Source: The author’s collection from General Statistics Office of Vietnam

Vietnam imported $375 million from Ukraine in 2021 The main products that Vietnam imported from Ukraine were Wheat ($43 million), Other machinery, equipment, tools and spare parts ($2 million), and Products from iron and steel ($ 0.1 million) The Vietnam import turnover from Ukraine went down dramatically to

$178 million in 2022 In particular, the figure declined from $5 million in January to $1 million in May, and reached $3 million in December in 2022.

Generally, due to the impacts of the Russia-Ukraine conflict, the Vietnam trade with Russia and Ukraine witnessed a significant decrease.

2.2.1.2 The influence on Vietnam’s investment sector

According to Vietnam Chamber of Commerce and Industry (VCCI), as of March 2023, the Russian Federation ranked 28th out of 143 nations and territories in Vietnam with a total registered capital of about $970 million, spread over 171 valid projects 17 of Vietnam’s valid investment projects worth a combined $1.63 billion were invested in Russia With 7% of Vietnam’s total foreign investment capital, Russia ranks as the fourth biggest recipient of Vietnamese investment money among the 78 countries and territories Vietnam invested in.

However, Russian and associated partner investment in Vietnam is being impacted by the ongoing conflict in the Ukraine The United States, the United Kingdom, Canada, and the European Union stated that they would be cutting off access to the SWIFT international payment system for many Russian banks. Vietnam’s investment in Russia will be thrown into uncertainty as a result of this move The oil and gas industries and the power sector are two of the key areas in which Russia has direct investment projects in Vietnam For instance, the Vinh Phong offshore wind power project with joint venture Zarubezhneft JSC of Russia and DEME Concessions of Belgium, signed a memorandum of understanding from April 2021; and the Long Phu 1 thermal power project, led by Russia’s Power Machines (PM) as the general contractor, was delayed by 2 years because PM Company was listed on the US embargo list.

2.2.1.3 The influence on Vietnam’s supply chain sector

The Russia-Ukraine conflict has made matters worse for the shipping and supply chain In particular, the supply-demand mismatch and logistical bottlenecks have drastically increased shipping durations, leading to a critical scarcity of shipping containers Freight prices have skyrocketed as a result of intense rivalry between logistics firms offering to lease or sell containers Therefore, it had a devastating impact on Vietnamese businesses that exported to the European Union, Ukraine, and Russia

Moreover, both Russia and Ukraine play significant roles in the international energy and supply systems In terms of supplying niken, neon, krypton, aluminum, and palladium, these two nations are among the top producers The production of electronics relies heavily on these natural resources Therefore, the manufacturing chain for electronic equipment in Vietnam might be negatively impacted by any restrictions or slowdown in the supply of raw materials from Russia Fuel costs will rise as a consequence, sending retail prices through the roof.

Companies have been urged to diversify their supply channels in the wake of the global supply chain crisis The conflict between Russia and Ukraine is only the most recent example Recent examples include the COVID-19 pandemic disruption.

To mitigate uncertainty and ensure business continuity, it is crucial to diversify suppliers and sources beyond a single nation Vietnam emerges as a compelling choice for sourcing operations and supply chain diversification due to its strategic location, stable government, and favorable manufacturing conditions.

2.2.1.4 The influence on Vietnam’s energy and inflation

The crisis caused by the Russia-Ukraine conflict is one of the main reasons for the increase in commodity prices on the world market Production output and export market share of some materials for production and consumption, such as: gasoline, gas, wheat, aluminum, nickel, corn of Russia and Ukraine Therefore, if the Russia- Ukraine conflict continues lasting for a long time, it may cause difficulties in the supply of these materials in the near future, affecting the recovery and economic development of Vietnam.

Only domestic petroleum products in the first quarter of 2022 increased 48.81% compared to the same period last year, contributing 1.76 percentage points to the average inflation rate of 1.92% in the first 3 months of 2022 At the same time, domestic gas prices fluctuate according to gasoline prices and world gas prices, on average in the first quarter of 2022, gas prices increased by 21.04% over the same period last year, making the overall CPI increase by 0.31 percentage points Besides petrol and gas, prices of agricultural products such as food, cotton; animal feed; fertilizer; industrial metals; construction iron and steel increase, putting great pressure on Vietnam’s inflation control target in 2022.

General review

Globalization has fostered extensive international business interactions, leading to heightened economic interdependence Political instability in one nation can ripple through the global economy, impacting multiple countries The Russia-Ukraine conflict and US-China trade war exemplify this, having significant repercussions for Vietnam's economy and the international economic landscape as a whole.

For the global economy, both the Russia-Ukraine conflict and the US-China trade war went down the global growth The Russia-Ukraine conflict causes an energy crisis all over the world, especially in the EU The cost of heating, cooling,lighting, and transportation has all increased as a direct result of the Russia-Ukraine conflict, and the price of many other products and services has risen as a result of this, leading to higher inflation Similarly, due to trade tensions between the US andChina, there was a dramatic deceleration in global growth in 2018, with the weakness starting from the second half of 2018 carrying over into the first few months of 2019 Trade and investment have slowed, particularly in Europe andChina, business and consumer confidence have dropped, and policy uncertainty was high.

Although Vietnam does not take part in the Russia-Ukraine conflict or the US- China trade war directly, both the wars have direct and indirect effects on Vietnam’s economy Firstly, in terms of the Russia-Ukraine conflict, these countries are Vietnam’s partners in different fields such as: import - export, investment, therefore, when these countries are not politically stable, leading to disrupting business activities in countries and their partners From the above data and analysis, it can be seen that the import - export turnover between Vietnam and two countries declined dramatically from 2021 to 2022, especially immediately after the conflict broke out Moreover, the conflict is not only related to the two countries but also other relevant countries such as: the US, Western countries which imposed economic sanctions on Russia and its alliances as a retaliation for Russia’s actions. The sanctions caused difficulties on international payment because the US removed Russia from the SWIFT international payment system, affecting Vietnam’s trade and investment with Russia negatively Secondly, for the US-China trade war, China and the US are the biggest economies in the world, thus when these countries change economic policies, leading to impacting on other countries’ economy including Vietnam When the two-way trade between the US and China decreased, creating opportunities for Vietnam’s goods to export to the big markets From 2018 to 2019, Vietnam witnessed a significant increase in export turnover to the US from

$17.5 billion to $66.7 billion (35.6%), however, Vietnam’s export turnover to China only increased by 0.1% while Vietnam’s import turnover from China rose considerably by 15.2% This can be explained that when the US imposed high taxes on imported products from China, making these goods more difficult to export to the US, thus the enterprises had to look for other market including Vietnam to export them Whereas, due to not importing goods from China, the US enterprises also found out other market including Vietnam, leading to increase Vietnam’s export turnover to the US Besides, the US-China trade war also bring some benefits to Vietnam’s foreign investment from both two countries According to the above data, the capital investment in Vietnam from China increased rapidly

CHAPTER 3: THE OPPORTUNITIES, CHALLENGES ANDRECOMMENDATIONS FOR VIETNAM’S ECONOMY

The Vietnam’s Foreign policy and political risk index

Vietnam’s economy has experienced a dramatic realignment in the last several decades, moving from a Soviet-backed communist outpost in Asia to a fully-fledged participant in Western world trade and investment Vietnam is officially a communist country with strong ideological links to Russia and China, but it is in a tense standoff with the Chinese government over overlapping territory claims in the South China Sea/East Sea, as well as to a lesser extent in Cambodia and Laos.

Vietnam and Russia have maintained their comprehensive strategic alliance for almost two decades because of Vietnam’s dependence on Russian military weaponry While Russia invaded Ukraine in February 2022, Vietnam has tried to take a neutral stance on the issue officially However, at least some Vietnamese leaders have not been oblivious to the similarities between the Russian invasion and Vietnam’s worries that China may launch a similar invasion of Vietnam.

Vietnam's alignment with the West has shifted since the dissolution of the Soviet Union and economic reforms in the 1980s-1990s The country now has substantial trade links and foreign investment from the West, particularly in export-oriented manufacturing Vietnam's appeal as an investment destination has enabled it to ascend the value chain, with Chinese firms relocating to Vietnam to circumvent US sanctions on China.

While the communist regimes in Vietnam and China are theoretical political allies, tensions between the two nations remain high due to incidents involving their respective navies in territorial seas claimed by both countries and periodic anti- Chinese riots in Vietnam Hanoi’s officials are aware that the West views Vietnam as a tool to control China, therefore they are cautious when considering overtures from Western nations to elevate relations to the level of a strategic alliance.

Therefore, Vietnam has avoided developing such ties in favor of participating in a wide range of regional and bilateral economic accords and trade pacts, all of which have been beneficial to its economy without provoking China.

Expropriation risk of physical assets in Vietnam is quite low, despite the absence of an independent court and other weak institutions that make for a less- than-robust or friendly working environment for foreign companies In spite of these factors, the risk of expropriation of physical assets in Vietnam is relatively low However, since Vietnam is becoming more dependent on international investment inflows to fuel its economic development, the country has little motivation to develop a reputation for high expropriation risk This is because foreign investment inflows support Vietnam’s economic growth.

The potential for political violence is low The communist regime will not tolerate anything that even somewhat resembles open opposition, whether it comes from inside its own ranks or from the general public The mechanisms of Vietnam’s domestic security system are quite efficient The most probable cause of public violence, such as rioting, would be if China took bold actions regarding its rival territorial claims, with some Vietnamese citizens believing that their government is not sufficiently hard-line in resisting Beijing’s strategic objectives This would be the most likely source of public violence This has happened in the past, with harm being perpetrated on firms that were considered, whether correctly or not, to be controlled by Chinese nationals.

Despite the ideological connections between the communist parties of China and Vietnam, nationalist sentiment remains prevalent in both societies Nonetheless, Vietnam's robust police and security system ensures swift and decisive responses to potential threats This system effectively enforced pandemic lockdown measures from 2020-21, demonstrating its ability to maintain order and compliance.

Despite being criticized for media restrictions, Vietnam boasts a commendable security apparatus This apparatus has effectively safeguarded the country from organized terrorism and most forms of violent dissent, making terrorism a highly uncommon occurrence in Vietnam.

Exchange Transfer and Trade Sanctions Risk

The dong is not widely convertible outside of Vietnam, and its value in comparison to the US dollar during the last several years has been relatively stable.

In December 2019, Washington put Hanoi on a watch list for possible currency manipulation In April 2021, however, it was revealed that Vietnam had been removed off the list, and as a result, the country was no longer at risk of facing economic penalties Prior to this, Hanoi had taken the possibility of sanctions being imposed by the United States seriously As a result, it had investigated several methods in which it might take in a greater share of exports from the United States in the hope of lowering its trade surplus with that country Despite this, the trade surplus continues to expand, mostly as a result of an increasing number of export- focused firms situated in China relocating to Vietnam, in an effort to avoid the trade tensions between China and the US.

The conclusions of the International Monetary Fund (IMF)’s most recent Article IV discussions with Vietnam were a clean bill of health for its economy at the beginning of July 2022 According to estimates provided by the IMF, Vietnam’s foreign currency reserves are somewhere around 125 billion USD, which is enough to covering almost four months of imports The Vietnamese government is not a large borrower on international financial markets, and the IMF estimates thatVietnam’s total public and publicly guaranteed debt is about equivalent to roughly forty percent of GDP.

The opportunities for Vietnam’s economy in the global political risks

The world is becoming more and more unstable due to the conflict, competition, leading to some disadvantages to the global economy However, in this context, Vietnam can still get some opportunities to develop the country’s economy.

3.2.1 The opportunities for Vietnam’s trade sector

With regard to the Russia-Ukraine conflict

Firstly, the opportunities for Vietnam’s agricultural export to the European market

The EU nations require an alternative supply of grain and agricultural products due to the embargo of the United States and Western countries and the automatic boycott of Russian commodities Therefore, Vietnam may substitute Russian and Ukrainian exports with its own in the EU’s market for agricultural and food items.

One of the advantages of Vietnam’s product export to the EU is the EU-Vietnam Free Trade Agreement (EVFTA) which is a new generation FTA betweenVietnam and the EU’s 27 countries The EU has agreed to abolish 99.2% of tariff lines, equivalent to 99.7% of exports from Vietnam to the EU, within seven years of the EVFTA’s implementation.

Table 3.1: EU open-door commitments for Vietnam’s agricultural commodity groups

Commitment The tariff commitment of EU to Vietnam

Rice Applying the tariff rate quota mechanism, imports within the quotas enjoy a tarriff rate of 0%.

The total quota is 80,000 tons, specifically:

- Unmilled rice: the quota is 20,000 tons

- Milled rice: the quota is 30,000 tons

- Fragrant rice: the quota is 30,000 tons Import duties will be completely eliminated after 5 years for broken rice and 3-5 years for rice products.

Coffee Import duties will be completely eliminated as soon as the

Agreement comes into force Sugar The tariff rate quota is applied for 10,000 tons of white sugar and 10,000 tons of products containing more than

80% sugar Natural honey Import duties will be completely eliminated as soon as the

Agreement comes into force Fresh and processed fruit and vegetable products, fruit juices, fresh flowers

Import duties will be completely eliminated as soon as the Agreement comes into force

Some products are eligible for the EU’s tariff quota commitments for Vietnam:

- Processed poultry eggs: 500 tons Garlic: 400 tons

Sweet corn: 5,000 tons Tapioca: 30,000 tons Mushrooms: 350 tons Ethyl alcohol: 1,000 tons Other chemical products (manitol, sorbitol, dextrins, ): 2,000 tons

Therefore, Vietnam needs to make full use of its rice export quota of 80,000 tons per year to the EU with a tariff rate of 0% under the EVFTA Agreement.

However, in 2021, Vietnam only exported 60,000 tons of rice to the EU market. Thus, this is a good condition for Vietnam to increase exports of rice and other agricultural products to the EU market, which has high demand, importing about

$160 billion annually, exporting many important agricultural and food products for the world, such as rice, coffee, cashew nut, pepper, cocoa, cassava, shrimp, pangasius, fruit, etc Rising prices of rice and agricultural products benefit Vietnamese exporters of these products Moreover, in this context, there are more opportunities to strengthen Vietnam’s position as a leading supplier of goods to customers.

Secondly, the opportunity to diversify import and export markets

Businesses in Vietnam may now adapt and expand into new markets Wheat and maize, both of which are widely produced in the United States, are among Russia’s top exports to Vietnam As a result, Vietnam can redirect the import of these products from the US market, which is also a solution to contribute to balance of payments, diversify the market.

Vietnam can study the export of fertilizers to other countries But to be able to penetrate difficult markets, requiring high standards such as the EU and the US, Vietnam needs to focus on upgrading technology standards and the quality of human resources.

The Russia-Ukraine conflict will reduce food supplies to many countries because both Russia and Ukraine are markets for wheat, corn, sunflower oil and pork Political instability has made it difficult for importing countries in Asia,Africa and the Middle East, leading to disrupting supply materials, causing food prices to soar This is an opportunity for Vietnam to diversify its import market,switch to importing meat from India, and reduce imports from Russia.

With regard to the US-China relation’s tension

If tensions between these two economies are escalating in the future, Chinese goods can become less competitive in the eyes of US importers, leading to a trend of trade shifting, redirecting the US imports from China to other markets, especially markets in Southeast Asia, including Vietnam This happened in the US-China trade war Vietnam’s agricultural, forestry and fishery products exported to other countries have similar quality to those of China This creates an opportunity for Vietnam to replace China as a source of goods to the US Similarly, China will also restrict importing products from the US market if the US-China relation’s tension is increasing, leading to some good opportunities for Vietnam’s export to China market to alternate the goods from the US.

3.2.2 The opportunities for Vietnam’s investment sector

When tensions between Russia and the West escalate, many investors will accelerate the process of diversification, relocating capital investment, and seeking new safer addresses Vietnam is in an excellent position now because of the country’s stable political status, strong economic development, and constantly improving business and investment environment.

Vietnam is a promising market for foreign investors:

Vietnam has shown its commitment to global integration and has affirmed a new role, image, and position in the world This has contributed to Vietnam’s reputation and status.

Vietnam has signed 15 FTAs throughout the last three decades of reform and integration Vietnam has signed a number of modern FTAs in the last five years,including Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP), EU-Vietnam Free Trade Agreement (EVFTA), UK-Vietnam Free TradeAgreement (UKVFTA), and Regional Comprehensive Economic Partnership(RCEP).

Vietnam is situated roughly in the middle of SouthEast Asia and shares its borders with the Pacific Ocean, China, Laos, Cambodia, and the Gulf of Thailand.

Vietnam has a coastline that is almost 3,000 kilometers long and is located near major maritime and commerce routes on the world stage.

With a population of over 49 million people of working age, a continually rising percentage of skilled employees, and prices that are competitive in comparison to those of surrounding countries, Vietnam’s workforce is an asset for the country.

Vietnam is seen as one of the nations, having more political stability in South East Asia from a political standpoint The expansion of the economy is the primary focus, in addition to the upkeep of the one-party state system.

FDI is still very much welcomed in Vietnam with many investment incentives, and the contribution of international enterprises to the economy is significant.

The implementation of new regulations has significantly improved the regulatory environment for businesses, streamlining the registration processes and making it easier to operate These revisions have earned the nation high rankings in both business registration and ease of doing business indices.

The Vietnamese government places a high priority on the upgrading of infrastructure in order to attract more FDI.

Vietnam’s rapid recovery from the COVID-19 epidemic: Maintaining political stability, ensuring social security and order, and implementing efficient remedies to recover and grow the economy

As the above analysis shows, Vietnam is a country having an advantageous competition for foreign investors, especially in the political instability context all over the world Thus, Vietnam has the opportunity to benefit from the foreign investors being able to move its business activities in an area of geopolitical instability, to a place with reasonable policies and stable politics Therefore, in the coming time, FDI is forecasted to shift to regions such as Southeast Asia and Northeast Asia including Vietnam.

The challenges for Vietnam’s economy in the global political risks

3.3.1 The challenges for Vietnam’s trade sector

In terms of the Russia-Ukraine conflict

Although the Russia -Ukraine conflict can bring some advantages for Vietnam’s trade, the conflict also causes some challenges for import and export activities in Vietnam Trade between Vietnam and Russia-Ukraine has significant decreased for the following reasons:

These sanctions on Russia will have a substantial influence on the economy of the world as a whole, including the economy of Vietnam, which will not be immune to the fallout from these penalties Russia has been excluded from the international payment messaging system known as SWIFT, western nations have effectively frozen $630 billion worth of Russia’s foreign reserves, and a number of significant banks and other financial institutions have frozen Russian assets located in other countries totaling around $3 billion.

The removal of Russia from the SWIFT international payment system has significantly impacted Vietnamese businesses exporting to Russia The absence of SWIFT's services has created obstacles in payment processing, both for receiving funds from Russian entities and making payments to Russian organizations This disruption has resulted in substantial challenges for Vietnamese companies engaged in trade with Russia.

As a result of the restrictions, a number of Vietnamese shipping lines have chosen not to take orders to carry products from Vietnam to Russia Specifically, companies who get their raw materials from Russia or Ukraine run the danger of experiencing severe supply shortages as a direct result of the conflict Additionally, the aviation sector in Vietnam might potentially suffer as a direct result of the higher cost of oil being passed on to consumers.

In terms of the US-China relation’s tension

The main reason for the US-China relationship’s tension is to become the dominant country in the world Both countries are looking for ways to improve their influence in the region and globe in different fields including: politics, military, especially economics Therefore, even though the US-China trade war was tending to cool down, the US and China markets are still relatively risky for each other, leading to some disadvantages for Vietnam’s trade:

Firstly, the risk of a trade balance deficit: In order to deal with the export’s problems to the US, China is likely to introduce dumping policies, increase exports of goods to neighboring countries including Vietnam to maintain productivity.Because Vietnam’s import turnover from China is quite high, this may causeVietnam’s imports to increase sharply, leading to an increasing disparity in the trade balance between Vietnam and China Therefore, the risk of a trade balance deficit will be higher and seriously affect the economy of Vietnam.

Secondly, risks from the origin of goods: Due to the purpose of avoiding the

Due to US tariffs on China, Chinese companies have shifted export activities to Vietnam, potentially turning Vietnam into a transit point for Chinese goods destined for the US This raises concern as Chinese goods may be mislabeled with Vietnamese origin to avoid US tariffs Vietnam Customs has identified Chinese exports falsely declared as Vietnamese in sectors such as textiles, seafood, agriculture, ceramics, metals, and wood, resulting in high US tax penalties on Vietnamese goods The US has previously imposed significant anti-dumping and special tariffs on Vietnamese steel products, citing Chinese origin Consequently, the import-export industry fears increased US scrutiny of Vietnamese products, potentially hindering Vietnamese exports to the United States.

Thirdly, the pressure of commodity competition increases: With the short-term opportunities created by the US-China relation’s tension, not only Vietnam but also other countries will try to seize the opportunity Therefore, Vietnamese goods will have more competitors to export to the US In addition, when exports to the US are limited due to the impact of tariffs, China will promote the consumption of domestic goods, Vietnamese goods therefore have to compete with Chinese domestic goods.

3.3.2 The challenges for Vietnam’s investment sector

When the US-China relation is more and more tense, leading to the political environment in two countries is not stable for investment as the US-China trade war situation Therefore, in this case, Vietnam is expected to be one of the places to

13 Ministry of Industry and Trade, 2019

Recommendations for Vietnam’s economy in the context of global political risks

Firstly, the risk of increasing competition in the domestic market, making it difficult for Vietnamese enterprises to produce and export to the US market.

Secondly, the risk of Vietnam becoming a “backyard” for Chinese manufacturing activities to export to the US.

Thirdly, the standards and tools to control environmental protection activities of foreign enterprises in Vietnam are not good, leading to the risk of large environmental pollution from Chinese enterprises.

Fourthly, Vietnamese labor is cheap and the investment capital selection policies are not tight, Vietnam may fall into the processing trap of Chinese enterprises, making Vietnam continue to export low value-added goods to the US market.

Fifthly, capital investment and human resource transfer by Chinese enterprises put pressure on Vietnam to control national security and defense, which can cause political - diplomatic problems with the US and influence the commercial relationship between the two sides.

Therefore, when the capital from China to Vietnam is not well controlled in the context of the US-China relation’s tension, Vietnam may suffer more damage than seize the opportunities.

3.4 Recommendations for Vietnam’s economy in the context of global political risks

There are still many existing issues for Vietnam’s economy in the current global context On the one hand, the global political risks can bring some opportunities to develop Vietnam’s economy with trade growth to other countries as well as more opportunities for foreign investment in Vietnam However, on the other hand, the risks are considered as factors creating more challenges for

Vietnam’s economy Therefore, looking for effective measures to seize the opportunities and overcome the challenges is extremely necessary in the stage.

In the context of deepening integration and globalization as well as tension’s escalation among countries, diplomatic policy should be a key factor Vietnam’s diplomacy continues to carry out a new mission, contributing to the creation and maintenance of a peaceful, stable environment for the nation’s security; as well as finding new ways to promote international cooperation, to create favorable conditions for economic construction and development that enhance the country’s position and potential.

It is not denied that the government plays an important role in making policy to develop the nation’s economy Therefore, when there are global political risks, leading to both advantages and disadvantages to Vietnam, the government should have had policies, measures to take advantage of opportunities as well as resolve challenges

3.4.1.1 Some recommendations for Vietnam’s trade

Firstly, to minimize negative impacts from global political risks on Vietnam’s trade, Vietnam must focus on expanding market access.

Vietnam has participated in many free trade agreements (FTAs) which bring many benefits related to eliminating taxes on Vietnamese goods Therefore, in this way, Vietnam will have the opportunity to increase exports to other markets as well as decrease the dependence on markets affected by political tension

Therefore, The Ministry of Foreign Affairs needs to expand and deepen relations and create intertwined economic interests with bilateral and multilateral partners Paying attention to the contents of promoting economic cooperation and economic diplomacy in formulating and implementing projects to develop relations with partners, especially neighboring countries, major countries, strategic partners,comprehensive partners and other important partners

Secondly, The General Department of Customs must control the origin of goods in order to prevent them at border gates and at customs; prevent smuggling of goods; and tighten to monitor the import - export product in the region.

Along with that, The Ministry of Industry and Trade and The General Department of Customs also need to carefully study Chinese goods that can be imported into Vietnam In case China’s exports to the US are restricted, this country will transfer goods to Vietnam, then exported to the US market with the label of goods from Vietnam

Thirdly, the State Bank should make a payment risk management strategy

In order to alleviate payment issues created by banks, the State Bank must immediately advise businesses engaging in import and export operations on methods of payment and precautions to take when signing contracts when Russia is excluded from the SWIFT international payment system Besides, to aid domestic firms in keeping their legal translations with Russian partners, the State Bank must also investigate the development of payment channels with Russian banks and businesses, as well as via non-embargoed ways.

3.4.1.2 Some recommendations for foreign investment in Vietnam

Firstly, The Ministry of Planning and Investment build policies to speed up the improvement of the business investment environment.

In the future, there will be more opportunities for Vietnam’s investment sector, therefore, to take advantage of the opportunities, Vietnam needs to have a more favorable environment compared to others such as India to attract foreign investors effectively:

- Review and timely adjust foreign investment policies to suit and keep up with fluctuations and uncertainties of the global economy and changes in FDI attraction strategies of countries around the world;

- Build a competitive advantage in attracting foreign investment with investment conditions, a transparent and predictable legal system on the basis of developing a globally connected market economy by the rules of law.

- Step up the implementation of public investment projects to improve socio- economic infrastructures, create the most favorable conditions for foreign investors in investing and implementing FDI projects.

- Be active and proactive in digital transformation, application of modern technology, minimizing administrative procedures, time and cost of accessing and implementing legal regulations and laws, creating favorable conditions for foreign investors.

To promote selective foreign investment, the Ministry of Planning and Investment should clearly define industries and sectors for foreign investor attraction Simultaneously, restrictions and criteria should be established to ensure the selection of investors possessing advanced, sustainable, and secure technologies This approach will safeguard national interests while encouraging the influx of desirable foreign capital.

Firstly, Vietnamese enterprises should update information actively