Doi Moi – a political and economic renewal campaign that was launched in 1986, heralded a new era of transformation for the Vietnamese economy by opening it up to the rest of the world. Naturally, there were challenges to encouraging the involvement of the private sector in the country’s economic growth, which required the government to step in and develop the necessary regulations and create a sound business environment in the country.
Vietnam revamped much of its legal system through launching and revising most major laws, in addition to amending existing laws, so as to create a transparent and attractive space for foreign investors. Particularly significant examples include: the Enterprise Law, which was first enacted in 2000 and then revised in 2014; the Investment Law of 1988 that was updated in in both 2005 and 2014; the Law on Securities, which was first passed in 2006 and amended in 2010, and the 2004 Law on Competition.
Aided by its accession into the World Trade Organisation in 2007, Vietnam has been shifting its economic structure from dominantly agricultural to industry and services-driven, a transition that has contributed to the dynamism of the economy by increasing consumption and production. The establishment of the Ho Chi Minh Stock Exchange in 2000 marked the birth of the Vietnamese stock market, and the government’s policy of denationalisation and SOE equitisation – the privatisation of wholly-state-owned enterprises – are also opening new doors for foreign investors to Vietnam through both direct investment, partnerships or equity investment in local companies. World Finance had the opportunity to speak with Huy Le, Deputy General Director of BIDV Securities Company, about these drastic developments in Vietnam’s economy and the impact they have made to the inflow of foreign investment.
How did international investors first react to Vietnam’s opening up?
Well, I will let the numbers tell our story. In the period of 1988 to 1990, there were only around 200 registered FDI projects in Vietnam, totalling $1.6bn. Five years later, this number increased to nearly 1,800 projects with a registered investment of $28bn.
Last year in 2015 alone, total FDI was $13bn, which can be explained by the country welcoming a diversity of foreign investors from more than 100 countries around the world: Asia, Europe and America in particular contribute the greatest portion of total FDI in Vietnam.
What major changes have you seen in the Vietnamese financial and investment sector since your company was founded in 1999?
Being an active market participant since the earliest days of Vietnam’s financial market, we have witnessed three major changes in the financial and investment sectors. Firstly, the country’s legal and regulatory framework: financial, banking and accounting systems are more transparent and conform more closely to international standards in most aspects.
Secondly, for the last 20 years we have seen the types of investment diversify. Now, in Vietnam, both local and foreign investors can implement their investment in various forms across numerous sectors. They can form shareholding or limited liability companies, they can establish representatives offices and invest in PPP, BOT, BOO, BCC, or though M&A, to name just a few.
Significantly, last year Decree 60/2015/ND-CP took effect, which means that foreign investment equity capital can now be increased to 100 percent for many sectors. Another key change is the unprecedented demand for the expertise of local financial advisory firms coming from both domestic and foreign institutional clients.
What makes Vietnam an attractive place for international investors?
I would say positive economic growth, a stable political system and geographic proximity to global supply chains in addition to the country’s commitment to liberalisation and integration into the global economy. Vietnam is also very attractive because of the country’s participation in financial trade agreements, such as the WTO, AFTA and TPP, while its dynamic demographics are major competitive advantages.
The appeal for international investors has been enhanced even further by the recent amendment in Enterprise Law 2014, as well as Decree No. 60/2015/ND-CP, which was previously mentioned in relation to foreign investors in Vietnam.
What role has your own firm had in increasing inflows of investment to Vietnam, and how has this been done?
As we offer brokerage, investment and financial advisory services, we facilitate foreign capital inflows through our brokerage, asset management, research and investment banking capabilities. All of our business lines contribute remarkably to market dynamics. For example, our brokerage, research and asset management functions act as an integrated business unit.
Then we have the research department – which provides the recommendations upon which the brokerage and asset management advise and carry out transactions for our clients. We also offer bespoke coverage for industries and areas our corporate clients have expressed a particular interest in.
The investment banking department – which includes teams working on DCM, ECM and M&A – helps foreign investors who are seeking more exposure to the Vietnamese market in order to find best matched companies to invest in.
From which country do most international investors originate?
Asian investors – including Korea, Japan, Hong Kong, Singapore, China and Malaysia – have topped the list for the largest direct investment in Vietnam in recent years. For the last three years, total investment from Asian countries accounted for around 60 percent of total FDI in Vietnam.
If you look at M&A, Japanese investors have been the most active ones for the last couple of years, with more than 70 M&A deals in a wide range of industries in Vietnam. In 2015, Japanese investors made 15 deals totalling a value of $310m, which was followed by US investors with 10 deals at $126m. While Hong Kong investors topped the biggest deal value for eight deals that were worth $1.1bn in 2015.
Have international investors increased in the past few years?
Korea is now an extremely important investment and trading partner to Vietnam. It has risen quickly to become the biggest for the past three years and we expect that it will maintain this position for the time being. We have also seen greater interest from emerging ASEAN economies, most noticeably since the birth of the ASEAN Economic Community – Malaysia in particular has emerged as quite a phenomenon.
What barriers do international investors face when looking to Vietnam, and how are these being resolved?
In our opinion, current barriers for foreign investors could be Vietnam’s incomplete legal system, lack of regulatory oversight and its complex administrative procedure. The country also has a weak financial structure with considerable risks in the financial and banking sector, as well as traditionally high inflation. I would say that the high proportion of unskilled workers and increasing labour cost is another challenge.
To address these issues, Vietnam must focus on attracting FDI that helps to improve its policy and legal systems. There also needs to be an effective mechanism in place for general public administration, with a focus on FDI management. Finally, licensing for FDI projects could be stricter in order to filter those that are inefficient and ineffective.
How have capital flows to Vietnam been affected by the slowdown of the Chinese economy and economic trouble there?
There has been little negative impact on Vietnam’s foreign investment sector because, when it comes to manufacturing and processing industries, foreign investors pay strong attention to the domestic consumer market. Vietnam’s large population base, strong business and positive consumer sentiment are major selling points to investors.
In assessing the setback of China’s economy, we have to bear in mind that it has been the biggest recipient of FDI among developing countries for more than 20 years. However, in the last two years its economic downturn has reduced its attractiveness, which has caused FDI to shift to more attractive countries, such as India and ASEAN countries, including Vietnam.
How important is international investment to the economic advance of Vietnam?
Foreign investment into Vietnam is very important. Its many roles include being a source of capital for investment, a driver for technological development, job creation, and greater consumer income – all of which entail social development and economic growth. International investment also contributes additional revenue for the national budget and significantly to export revenue, acting as an economic restructuring mechanism.
We believe that foreign investment in Vietnam will continue to gain ground in the coming years (see Fig. 1), encouraged by efforts in reforming administrative procedures, which are successfully improving the business environment and
Which types of investment have proven most popular with international investors?
Foreign investors have a wide range of investment vehicles to choose from. We have bonds, equity, real estate, commodities, hedge funds and private equity. Derivatives instruments are not yet popular – however, the government is building the necessary regulatory framework.
In the debt market – both for the government and corporate bonds – there are no restrictions for foreign investors. As for equity, from 2006 onwards there has been active participation of foreign investors in trading or purchasing shares on Vietnam’s stock market and making equity investments via M&A.
Consequently, there are now many foreign investors that hold up to 49 percent of numerous blue-chip companies. As a result of ongoing SOE equitisation in the country, we anticipate many more exciting opportunities over the next three years.