Record visitor numbers to Vietnam indicate bright future for tourism sector

Offering 3200 km of coastline and spectacular white sand beaches, mountainous highlands popular with adventure tourists and a vast array of cultural, historic and culinary attractions, Vietnam has seen its tourism sector become a major economic growth driver in recent years. The sector has recorded positive performances across the board including international arrivals, domestic tourists, revenues, spending and investment, leading the government to increase earlier growth targets in 2016 as foreign arrivals reached record levels. Although a restrictive visa scheme continues to prevent Vietnam from reaching the same visitor numbers as its fellow ASEAN tourism competitors, government moves to add a growing number of countries to the visa waiver list could see the country catch up with – and even surpass – markets such as Thailand and Malaysia in the coming years.

Oversight

The Ministry of Culture, Sports and Tourism (MCST) oversees all tourism sector development in the country, largely through the Vietnam National Administration of Tourism (VNAT). VNAT is responsible for assisting in strategic planning, domestic and international marketing campaigns, and recording sector statistics, in addition to advising the government on tourism policies such as the visa waiver scheme.

The Tourism Advisory Board (TAB) was created in 2012 to facilitate collaboration between industry and the government. It comprises over 20 industry leaders, including hotel CEOs, travel agencies and tourism associations, as well as representatives from the Vietnam Chamber of Commerce and Industry and the European Chamber of Commerce in Vietnam (EuroCham).

Strategy

The government’s tourism development strategy until 2020, the somewhat misleadingly titled Vision 2030, has set targets for the industry that include attracting 10m-10.5m international visitors, reaching 48m domestic tourists, increasing tourism revenues to between $18bn and $19bn, and boosting tourism’s GDP contribution to between 6.5% and 7%, all by 2020.

In July 2016, the MCST unveiled updated tourism targets, including generating $30bn in revenue annually by 2020 – a figure that is forecast to constitute 10% of GDP – in addition to 3.5m jobs in the sector. Nguyen Ngoc Thien, minister of culture, sports and tourism, also reported that Vietnam hopes to attract between 14m and 15m international visitors annually, a significant increase on the previous target.

2020 Progress

The new targets were set after several years of phenomenal tourism growth. According to the World Travel and Tourism Council (WTTC), Vietnam’s tourism industry directly contributed VND279.29trn ($12.5bn) to the country’s GDP in 2015, or 6.6% of the total. The council forecast that the industry’s direct contribution would rise by 5.2% to hit VND293.77trn ($13.1bn) in 2016, and expand by an average annual rate of 7.2% to reach VND587.59trn ($26.3bn), or 7.2% of GDP, by 2026. The WTTC reported that tourism’s total contribution to GDP, including the wider impact of investment, supply chain and induced income impacts, stood at VND584.88trn ($26.2bn) in 2015, equivalent to 13.9% of GDP. This was expected to expand by 5.3% in 2016 to hit VND615.71trn ($27.5bn), or 13.7% of GDP, rising by an average of 7.2% annually to reach VND1232.64trn ($55.1bn) in 2026, or 15.2% of GDP.

Revenues

The WTTC reports that foreign visitor spending is also on the increase, reaching VND213.39trn ($9.54bn) in 2015 and forecast to rise by 2.2% in 2016 to hit 218.08trn ($9.8bn). Visitor expenditure is set to grow by an annual average of 6.8% in the years to 2026 to reach VND422.13trn ($18.9bn).

VNAT, meanwhile, reports that tourism receipts have recorded consistent double-digit growth since 2009. Earnings rose 25% and 15%, respectively, in 2013 and 2014 to end that period at VND230trn ($10.28bn). Under a new method of calculation, VNAT estimates tourism revenues stood at VND337.83trn ($15.11bn) in 2015, the most recent year for which statistics are available. Although public expenditure on tourism development remains limited, the sector has witnessed a surge of private investment in recent years, particularly in new hotel development.

Investment

The WTTC reports that Vietnam’s tourism sector attracted VND113.5trn ($5.1bn) of capital investment in 2015, with investment set to rise by 7.7% in 2016 to reach VND122.24trn ($5.5bn). The council forecasts investment will continue to grow by an average of 6.5% annually over the next decade to VND229.86trn ($10.3bn) in 2026, equivalent to 10% of total national investment. Real estate firm Jones Lang LaSalle reports that hotel deal volumes soared by 50% in 2015 to $85bn, bolstered by a record proportion of cross-border capital and single asset transactions. The firm reports that 53 hotels sold for over $600,000 per room in 2015, reflecting a high level of confidence in the hospitality sector. Hotel values are expected to continue to rise in 2016, particularly in secondary markets.

Employment

The sector is also an important source of employment for the country, with the WTTC reporting that travel and tourism generated 2.78m direct jobs in 2015, or 5.2% of the country’s total workforce. Employment is not expanding as fast as arrivals and revenues, and WTTC estimates tourism job growth at 0.7% in 2016 to reach 2.8m, or 5.1% of total employment. Employment is forecast to rise by an average of 2.4% annually over the next decade to 3.55m in 2026.

Indirect tourism employment, which includes the wider effects of investment, supply chain growth and induced income impacts, stood at 6.04m jobs in 2015, or 11.2% of total employment. Indirect employment is also set to rise by 0.7% in 2016 to hit 6.08m jobs, or 11.1% of the workforce, and expand by 2.3% annually to 2026 to reach 7.36m jobs, or 12.3% of all jobs.

Tourist Growth

The 2016 EuroCham Whitebook reports that visitor arrivals rose by 4% in 2014 to 7.9m, despite a worrying trend that started during the year, in which arrivals fell for 13 months in a row beginning in May, leading to an 11.3% year-on-year (y-o-y) decrease in arrivals during the first half of 2015. EuroCham’s 2016 Whitebook attributed this to political tensions with China and economic volatility as a result of international sanctions imposed on Russia.

Tourism arrivals recovered during the second half of 2015, however, and VNAT reports that international arrivals rose by 0.9% to reach 7.94m. Growth accelerated dramatically in 2016, and in December VNAT reported that international tourist arrivals surged by 25.4% y-o-y between January and November to reach 9m, meaning the country is on track to reaching, and even exceeding, its original 2020 arrival targets.

Domestic tourism has recorded similarly robust growth, with VNAT finding that domestic tourists jumped by 22% in 2009 to 25m, and rose a further 12%, 7.1%, and 8.3% in 2010, 2011 and 2012, respectively, to hit 32.5m. Domestic tourism increased by 7.7% in 2013 to 35m, followed by 10% in 2014 to 38.5m, and soared by 48% in 2015 to end the year at a record 57m.

China Effect

Vietnam has become increasingly popular among Chinese tourists, who tend to visit the beach destinations of Nha Trang, Phu Quoc and Da Nang. China accounted for 30% of all tourist arrivals to Vietnam during the first 11 months of 2016, according to VNAT, with more than 2.48m visitors, a 53.9% increase over the same period in 2015. This makes China Vietnam’s fastest-growing feeder market after Hong Kong, which saw visitor arrivals jump by 72.9% during the first 11 months of the year to reach 31,786.

The economic benefits of rising Chinese arrivals are significant, with Credit Suisse reporting in November 2016 that a 30% rise in Chinese tourist spending would boost Vietnam’s GDP by nearly one percentage point.

After Hong Kong and China, South Korea, New Zealand and Russia were the fastest-growing feeder markets, with international arrivals increasing by 39.2%, 35.4% and 29.1%, respectively, between January and November 2016. China accounted for the largest number of international arrivals, followed by South Korea (1.39m), Japan (676,991) and the US (506,197).

Visa Waiver

The 2016 EuroCham Whitebook reports that one of the most significant impediments to tourism growth is the visa scheme, with visitors from most nations required to obtain a visa prior to entering the country, a process which must be repeated in the case of any exit from the country. This has hampered return visitors touring the ASEAN region, who would be required, for example, to apply for a new visa if they crossed the border to Cambodia but wanted to return to Vietnam. The authorities have made strides in enacting visa reforms, however, and as of 2016 the visa waiver list numbered 22 countries, ranging from South Korea, Russia and Japan to EU members France, the UK, Germany, Spain, Italy, Sweden, Norway, Denmark and Finland, as well as the entirety of the ASEAN community.

Five of the visa-exempt countries – the UK, France, Germany, Italy and Spain – are exempt under a temporary waiver programme which was extended for one year in July 2016. However, citizens from these countries are only permitted to stay in the country for a maximum of 15 days, a decision which has been criticised by stakeholders as a restrictively short amount of time for many travellers, with EuroCham’s 2016 Whitebook stating that “many visitors arriving in Vietnam and departing Vietnam often want to stay for 21 or 30 days, particularly if they also plan to visit neighbouring countries. In this case, they get caught by the ‘no return within 30 days’ rule, which then requires them to apply for a visa.”

Exemption Benefits

The benefits of visa exemption are quantifiable. In 2014, for example, EuroCham’s 2016 Whitebook reports that Thailand’s visa exemption for 52 nationalities enabled it to reach 24.8m visitors, while Malaysia, which has rolled out visa exemptions for 164 nationalities, saw visitor arrivals reach 27.4m in the same year. In Vietnam, the 2016 EuroCham Whitebook reports that in 2014, visa waiver countries including South Korea, Japan, Norway, Sweden, Finland and Denmark showed a 5% increase in visitor arrivals, with arrivals rising another 8% in the first half of 2015. South Korea showed the biggest gains following its addition to the waiver list, with arrivals up 13% in 2014, and 32.9% during the first eight months of 2015. The UN World Tourism Organisation and WTTC have also jointly published a report which found that international tourism arrivals rise anywhere from 5% to 25% as a direct result of visa facilitation.

In an effort to further boost international arrivals, Vietnam is set to pilot a new electronic visa programme beginning in early 2017. The scheme will last for two years, following which it could be extended indefinitely. Countries currently enjoying temporary visa waivers, including the UK and Germany, are expected to switch to an e-visa system once the exemption expires.

Cruise Ship Tourism

Although VNAT reports that the majority of international arrivals arrive via air, with 7.53m air passengers landing during the first 11 months 2016, the cruise ship segment also holds tremendous growth potential. In December 2016 the General Statistics Office reported that over 16,600 passengers visited Vietnam by cruise ship in November, including 1200 passengers on the German ship SuperStar Virgo.

An additional 2044 passengers aboard the Genting Dream docked in Tan Cang-Cai Mep Port in Ba RiaVung Tau. The largest cruise ship to call at port was the 4100-passenger Ovation of the Seas, which visited Chan May Port in Thua Thien-Hue province.

Cruise Tourist Infrastructure

In 2015 total international arrivals to Vietnam by sea soared by 256.9% to reach 169,839. Although the number of arrivals by sea fell by 11.4% during the first 11 months of 2016 to hit 138,392, cruise ship passengers could rise significantly in the coming years as the government moves to invest in new dedicated facilities. In March 2015, for example, the People’s Council of Kien Giang announced it had approved construction of a $76.6m passenger port on Phu Quick Island, which will include a 140-metre-long wharf, and offer capacity for cruise liners with up to 6000 passengers.

More recently Vietnam’s Ly Son Island saw ground break on a new $9m tourism-oriented port in November 2016. The port will span 3 ha, and will be designed to simultaneously accommodate a 2000-deadweight-tonne vessel, a 1000-tonne vessel and a 400-seat passenger ship. The project includes a 438-metre-long and 84-metre-wide dock, a 153-metre-long quay and a 1000-sq-metre loading platform. Construction is expected to wrap up in 2018.

Marketing

VNAT and TAB are currently undertaking a joint marketing initiative with VNAT focused on key international markets to promote the Vietnamese brand globally. As part of the “Vietnam Timeless Charm” initiative, the two entities are focusing on redeveloping critical digital assets including websites and social media accounts, as well as moving to ramp up advertising campaigns and trade show participation.

In November 2016, for example, the country unveiled a new website targeting English-speaking tourists, emphasising Vietnam as a destination for nature, culture and gastronomy under the “timeless charm” campaign. The site was launched after a year of development in partnership with global advertiser, Ogilvy One Worldwide. VNAT’s chairwoman Nguyen Thi Than told media that the website is a cost-effective alternative to opening new representative offices abroad.

Public funding for marketing remains relatively limited, however, with EuroCham’s 2016 Whitebook reporting that current financing levels for international marketing campaigns in Vietnam are less than $1.5m annually, a fraction of spending levels in Malaysia, Thailand and Cambodia, which spend an annual average of $130m, $86m and $3.5m, respectively.

Hotels

The Vietnam Hotel Association (VHA) reported that there were 104 five-star, 232 four-star, and 453 three-star hotels in operation in Vietnam in 2016, as well as 10 luxury hotels, for a total of 799 facilities. The VHA reported that hotel occupancy rates averaged 53-60% between 2010 and 2016, although five-star hotels generally averaged 75% and above during the same period, while four- and three-star hotels recorded average occupancy of above 80%. Meanwhile, peak season occupancy rates at three- and four-star hotels averaged above 95%. The northern region accounted for 45% of hotel stock and 32% of rooms, while the central region accounted for 29% of hotels and 38% of rooms, followed by the southern region, with 25% of hotels and 30% of rooms, according to the association. In a July 2016 hotel survey, Grant Thornton, an accounting and consultancy firm, reported that while four-star hotels saw average annual room rates fall by 17.1% in 2015, from $87.20 to $72.30, five-star hotel rates in the country rose by 1.2% over the same period to average $111.40.

Hotel Investment Potential

Hotel investment is set to rise, and the VHA reports that with marine and beach tourism on the rise, coastal cities hold significant investment opportunities. The association has highlighted the cities of Ha Long, Sam Son, Cua Lo, Hoi An, Nha Trang, Ninh Hai, Mui Ne, Phu Quoc, Vung Tau and Con Dao as holding particularly high potential for future hotel expansion. The up-and-coming tourism hotspot of Da Nang is also expected to see a surge of new hospitality developments in the coming years, after receiving significant international attention in 2016 (see analysis). “Da Nang is one of the areas with the fastest growth of hotels. It ranks second among the cities that have the highest number of three-, four-, and five-star hotels, behind only Ho Chi Minh City,” Do Hong Xoan, chairwoman of the VHA, told OBG. “With the number of hotels in Da Nang at present, in my opinion we should stop building new hotels within the next three years. After three years we might reconsider the market’s status, based on the occupancy rates at that time, before taking further action.”

New Projects

With occupancy rates remaining extremely high during peak season, and domestic tourism helping to offset any low-season slowdown, hotel investment is already on the rise. In March 2016, for example, the country’s top property developer Vingroup began construction of a new VND19trn ($849.9m) island resort near the northern port city of Hai Phong. The project will be built over five years, and includes villas, a golf course, an eco-park and a cable car.

FLC Group is also active in new hospitality developments, and unveiled a luxury resort complex in the central coastal city of Quy Nhon, in 2016. The VND3.5trn ($156.6m) project spans 300 ha, and includes hotels, a high-end restaurant, a conference centre, and an amusement park. In November 2016 Warburg Pincus partnered with Vietnam-based private equity firm VinaCapital to launch a $300m hotel joint venture that will seek to develop, acquire and operate hospitality assets both within the country and across South-east Asia. Savills reported in October 2016 that more than 2800 new hotel rooms at 14 new projects are set to come on-line in Ho Chi Minh City alone by 2018.

Outlook

Although there is room to expand international marketing activities, the tourism industry’s growth prospects remain extremely strong, as evidenced by unprecedented levels of international arrivals, rising domestic tourism, and surging hotel investment. Though public funding for the sector’s development may remain limited over the medium term, government moves to overhaul its visa scheme should see foreign arrivals continue to rise in 2017, putting the country on track to meet its 2020 growth targets.