Vietnam - Defense and Security Sector

Defense and Security Sector

Last published date: 2024-01-30

Overview

According to the Stockholm International Peace Research Institute (SIPRI), Vietnam has had some of the largest increases in military expenditures in Southeast Asia. Between 2003 and 2018, its military spending increased nearly 700%, from USD 841 million in 2003 to USD 5.5 billion in 2018. In 2018, Vietnam’s military expenditures were recorded at USD 5.5 billion, or 8.1% of total government spending and 2.3% of GDP. Vietnam is ranked fifteenth on the list of top arms importers in the world between the years 2010 and 2022. Together with India, China, Australia, South Korea and Japan, Vietnam was in the top six arms importers in the APAC region during 2010-2022.

Data from the Stockholm International Peace Research Institute (SIPRI) shows that from 1995 to 2022, Vietnam’s arms imports totaled USD9.162 billion, in which Russia accounted for USD7.471 billion (81.5%).

During 2018-2020 period, Vietnam military spending is estimated to have an annual increase on average of 8.78% according to a report published by The International Institute for Strategic Studies (IISS).

According to Resolution 70/2022/15 dated November 11, 2022, Vietnam planned to allocate USD6.65 billion for recurrent defense expenditure, which accounts for 12.3% of state expenditure estimates in 2023. A report by GlobalData in early 2022 reveals that Vietnam military expenditure for acquisition was around USD1.1 billion in 2021 and projected to grow at 8.1% annually, reaching USD1.8 billion between 2023 – 2027. Regarding the total defense expenditure, the report forecasted the number will continue to increase at 8.5% y-o-y, hitting USD8.5 billion in 2027.

Vietnam has been steering its military focus to maritime security-related activities. These efforts encompass air force, air defense, surface, and subsurface capabilities. Defense equipment suppliers and subcontractors can expect increased demand for naval combatants, aerial defense, intelligence systems, and surveillance and reconnaissance (ISR) equipment. Though locked out of the market for decades, U.S. firms are seeing interest in their technology as the regulatory framework has improved for exporting U.S. defense equipment and services to Vietnam, opening significant commercial opportunities for U.S. firms. These policy changes were finalized during President Obama’s official visit to Vietnam in May 2016, when he formally announced the lifting of the decades-old arms embargo against the country.

Vietnam Defense Policy and international partnership

According to the Vietnam Defense White Paper in 2019, Vietnam is pursuing a non-aligned policy known as “four no’s” which is no military alliances; no siding with one country against another; no foreign military bases and no using Vietnamese territory to oppose other countries; and no using force or threatening to use force in international relations. The 2019 White Paper includes one caveat that “depending on certain circumstances, the country will consider developing necessary defense and military relations with other countries at appropriate level,” which leaves room for the military to maneuver. The strategy demonstrates Vietnam’s steadfast stance in territorial protection and maintaining regional security stability. In addition, this modernization of the military calls for a diversification of Vietnam’s international defense partnerships in order to more adequately address the shared challenges in the region and around the globe. Vietnam is also seeking to reduce reliance upon a sole supplier of defense equipment and material and is actively seeking new partners, updated equipment, and new technology.

As Vietnam has a 2,000-mile coastline facing the South China Sea and the maritime sector provides substantial contributions to GDP, the Government of Vietnam sees maritime issues as a priority defense target in the context of sovereign tensions in the South China Sea. In 2011, it issued a detailed maritime strategy for 2011-2020, making the protection of maritime sovereignty and the maritime economy a key national security pillar. Resolution 36 in 2018 again emphasized that sustainable development of the marine economy associated with national defense is a priority for Vietnam’s economic development in 2030-2045. In an effort to modernize maritime capabilities, Vietnam has increased spending for maritime defense. Vietnamese Navy and Air Force have traditionally had very little capacity to protect Vietnam’s maritime interests, but over the past decade both services have undergone some modernization.

After the 13th National Congress in February 2021, Vietnam has approved a plan to modernize its armed force by 2030 with a compact and strong People’s Army and People’s Public Security with priority given to the following forces: Air, Navy, Coast Guard, Signal, Electronic Warfare, Technical Reconnaissance, and Cyber Warfare. Vietnam also made legal amendments to expand the procurement of equipment for Ministry of Public Security’s Mobile Police, enabling them to acquire aircraft and ships in addition to weapons, explosives, vehicles, and other support equipment.

The lifting of the U.S. arms embargo in May 2016 has opened the possibility of U.S-Vietnam defense cooperation. In March 2018, U.S aircraft carrier USS Carl Vinson first arrived in Da Nang and the U.S. transferred six fast-response Metal Shark patrol boats to Vietnam’s Coast Guard during that visit and another six were transferred in March 2019. More defense items from the U.S. have been acquired or transferred to Vietnam, including a Boeing ScanEagle UAVs package ordered in 2019, 12 Beechcraft T-6C Texan II trainer aircraft ordered in June 2021, and a third decommissioned U.S. Coast Guard Hamilton-class cutter to Vietnam Coast Guard following the transfer of the first one in 2017 and the second in 2021. Additional security cooperation areas include institutional capacity building, cyber defense, maritime domain awareness, peacekeeping operation training, military medicine, and English language training.

Major local players and market access issues

The Ministry of National Defense and the Ministry of Public Security are responsible for making lists of imported defense and security equipment and devices before submitting them to the Prime Minister for approval. The approved list is later assigned to defense units to process with procurement.

As regulated by the law, enterprises eligible to do business in defense and security sectors are limited to two categories:

State-owned enterprises under the Ministry of Defense or Ministry of Public Security which are assigned to perform defense production and procurement plans.
Private companies that receive permits or written approval issued by the Ministry of National Defense or the Ministry of Public Security to import and trade predefined products.

Enterprises under the Ministry of National Defense (MND)

Vietnam’s MND issued decision No. 84, in 2007 to regulate the import and export of defense equipment. Accordingly, General Import-Export Vanxuan Corporation (VAXUCO), a military goods importer owned by the MND, is the ministry’s designated importer of military goods, and is authorized to sign purchases on behalf of the MND. Other importers of dual-use military goods are GAET, Viettel, Tecapro, Hitaco and Thai Son Corporation.

GDDI, the General Department of Defense Industry is responsible for directing and controlling all military production establishments and economic activities, and for ensuring mobilization readiness of the entire defense industrial infrastructure, including for research and development and weapons procurement.

VAXUCO, the General Import-Export Vanxuan Corporation, was established in 1991 and owned by the MND with the main mission of importing weapons, ammunition, military equipment, raw materials and supplies exclusively used for national defense.

GAET, the Defense Economic Technical Industry Corporation, which is formerly Department of Materials (General Department of Logistics), has operated under the Ministry of Defense since 1962. Its main function is to import, purchase machinery, equipment, and install production lines of Defense industry products; repair and upgrade weapons and military equipment; supply industrial explosive materials for national construction, transportation, mining projects.

VIETTEL, Viettel Military Industry and Telecoms Group, is Vietnam’s largest telecommunication service provider. It is a state-owned enterprise wholly owned and operated by the Ministry of Defense with more than 70,000 employees inside and outside the country. Its operation mainly focuses on telecommunications and information technology (IT); research and manufacture of electronic and telecommunications equipment; defense industry; cyber security and digital services. Viettel High Technology Industries Corporation, a subsidiary of Viettel, was established in May 2019 to develop defense technology in areas such as communications, electronic warfare, radars and command-and-control systems.

HITACO, the High Technology Application One Member Company Limited, was established in 1997 under the MND and mainly operates in the field of Defense and Security, and Technology transfer and application consulting.

TECAPRO, Technological Application & Production One Member Limited Liability Company was established in 1988 and operates under the MND with the main functions of researching, applying technology transfer, production and business, serving defense and economic tasks, and focuses on developing four key technology areas: Information Technology, Electronics and Telecommunication and Environmental Technology, Simulation technology. TECAPRO has been under an equitization process under the restructuring project of the MOD.

Thai Son Corporation is a business under the Ministry of Defense, operating in many sectors among which is the application, technology transfer and technical services involving the security and national defense tasks.

According to Project 80 on the military enterprise structure in 2017, MND continues to maintain 100% state-owned enterprises with 17 enterprises, of which 12 units are performing military and defense duties. The Ministry is also drafting a project on forming five main corporations with the task of manufacturing and repairing weapons and special technical equipment based on restructuring existing defense enterprises.

Enterprises under Ministry of Public Security (MPS)

Among 100% MPS-owned enterprises, the following entities play a major role in supplying and importing security products, devices and equipment:

BCA Thang Long One Member Company Limited was established in 1993 by the Ministry of Public Security (MPS) and under the direct management of The Department of Security Industry (SID)- MPS. The company operates in multiple sectors including trading, manufacturing, and construction. It is also the main importer of special purpose vehicles, specialized security equipment, and fire protection for MPS.

BCA Thanh Binh One Member Company Limited was established in 2015 after consolidating two of MPS’s factories. The company specializes in manufacturing, assembling, and supplying defense mechanical products, importing defense and security equipment, and consulting work and is involved in technology transfer.

GTEL, Global Telecommunications Corporation, was established in 2007 by MPS with a focus on providing telecommunications and information technology, radio, television, multimedia communication, network security, e-commerce solutions, importing and conducting technology research on telecommunications equipment, information technology and network security products.

Foreign exporters often find market entry to be difficult because Vietnam does not periodically publish data on defense expenditures and maintains secrecy on procurement plans. Though SOEs dominate defense and security imports, there are several non-public private companies participating in defense procurement through joining tenders opened by MPS and MND. Lack of transparency in the tender process and successful bidder information prevents foreign suppliers from approaching potential partners in this sector.

It is important to note that Vietnam prefers government-to-government procurement when dealing with defense systems. Developing and participating in government-to-government relationships is an important avenue to increase business opportunities for U.S. firms.

Leading Sub-Sectors

Although Vietnam’s navy, air and armed forces all require modernization of ageing equipment and hardware, Vietnam People’s Navy will continue to receive the lion’s share of investment.

Naval Force

The continuing tension with PRC in the South China Sea and the national strategy to focus on marine economic development in the period between 2030-2045 under Resolution No. 36 (2018) are the main driving factors for the Vietnam government to increase expenditure on improving and modernizing its naval forces.

The country has shown interest in developing and equipping its Naval force with maritime anti-access/area denial (A2/AD) and surveillance capabilities through the purchase of Midget Submarines, coastal high-speed patrol vessels, stealth frigates, anti-submarine warfare, as well as anti-ship ballistic missiles and other dual coastal defenses.

The Vietnam Coast Guard (VCG) is one of the forces that receives great attention and investment from the Vietnamese government for modernization. Instead of building large battleship, Vietnam will give prioritize equipping the VCG with high-speed, mobile, large patrol ships capable of operating offshore with long hours and under harsh weather. In addition, maritime patrol aircraft that can provide surveillance to a large marine area are also an investment focus.

Air Force

Vietnam has been enhancing its air force capabilities since 2011. Fighter aircraft, multirole fighter jets, transport aircraft, UAVs, anti-submarine and maritime surveillance aircraft, electronic warfare aircraft are considered essential to modernize and strengthen Vietnam’s air force. Currently, most of Vietnam’s military aircrafts are from Russia, Poland, France or the Czech Republic. Therefore, to pave a way for purchases from other suppliers, aircraft training, technical assistance and equipment maintenance are necessary to educate and familiarize military personnel with the operation of new devices.

Military Communication and Electronic Warfare

Military information communication and electronic warfare are one of the top prioritized areas in Vietnam’s military modernization plan. Given the vital role of information communication systems in maintaining in-time, effective and secure communication during military missions, Vietnam will allocate sufficient resources to build and purchase high-tech equipment for this subsector. With the growing importance of electronic warfare in the battlefield and conflict, the country is showing efforts to equip its military force with state-of-art products, especially upgrading its C5ISR (command, control, communications, computers, combat systems, intelligence, surveillance and reconnaissance) capabilities.

Opportunities

U.S. defense products have a long-standing reputation for cutting-edge technology, high precision, and long-term stability during operation. U.S defense and security suppliers will have more advantage in areas that require unique and high technology, including naval combatants, aerial defense, anti-access/area denial and surveillance equipment, communication and electronic warfare supporting equipment and system. A total package approach emphasizing an effective sustainment program and follow-on technical assistance would pay dividends in the long run and pave the way for future procurements.

To foster the development of domestic defense industry, Vietnam Politburo issued Resolution 08-NQ/TW dated January 26, 2022, to identify key areas of improvement for the sector until 2030. The government will focus on research, innovation, manufacturing and import of cutting-edge, dual-use weapons and equipment with 4.0 technology such as Internet of Things, Artificial Intelligence, 5G and higher mobile systems, virtual-physical connection systems, application of new material technology (nano), autonomous systems (self-propelled vehicles, UAV, unmanned tanks, robot combat), digital map technology, field simulation technology associated with the battlefield, command integration technology. As the key players in these areas, U.S. companies may find potential collaboration opportunities with Vietnamese partners.

The U.S.-Vietnam double upgrade in relations to a Comprehensive Strategic Partnership after the U.S. President’s visit to Vietnam in September 2023 will help deepen the security cooperation between the two countries, possibly paving the way to large-scale arm deals and security assistance.

Events

In 2015 and 2016, the U.S. Commercial Service office in Vietnam, working with the Office of Defense Cooperation, hosted the U.S Defense Industry Promotion Symposium, with the support of MND. This event was created to allow U.S. defense firms to promote their goods and services directly to MND, while educating MND officials about U.S. licensing requirements.

Vietnam International Defence Expo (http://vietnamdefence.vdi.org.vn/ ) From Dec 08 – Dec 10, 2022, Ministry of National Defence successfully organized Viet Nam Defence 2022, offering an excellent opportunity for foreign OEMs, system integrators, assemblers, and service providers to introduce state-of the-art equipment, weapons and technologies to Viet Nam market. The three-day event was attended by 170 companies from 30 countries including U.S. defense contractor Lockheed Martin.

The next Vietnam Defense Expo is expected to take place in Gia Lam Airport on 19-24 December 2024. The event will provide a great opportunity to showcase new and high-tech weapons as well as promote connection with the country’s military officers.

Resources

For more information about the Vietnamese Defense and Security industry, please contact:

Anh Nguyen, Commercial Specialist

U.S. Commercial Service – U.S. Embassy in Hanoi

E-mail: anh.nguyen@trade.gov

Nga Hoang, Commercial Specialist

U.S. Commercial Service – U.S. Consulate in Ho Chi Minh City

E-mail: nga.hoang@trade.gov