Vietnam: Asia’s other tiger economy


This was written for Calibre magazine in Malaysia back in 2009. Calibre is a business and lifestyle magazine for Public Mutual Gold members and features issues and concerns on a wide range of topics. Reflecting the select membership, Calibre’s pages are as much about economic and money matters as they are about the finer things in life.

Vietnam

Vietnam (Photo credit: jamesonwu)

Vietnam. A nation often synonymous with a war which gave the attacking nation a big, black eye. Things are a little different nowadays however you might be forgiven if you think otherwise; such has been the intensity of focus on China in recent years. It seems as if everyone and their dog has a form of investment in the world’s most highly populated nation (and, if you have an ear to listen to marketers, the world’s largest marketplace of potential customers).

Over the past few years however, Vietnam has emerged from China’s shadow and has successfully drawn many multinational conglomerates to invest in the country. Today, Vietnam stands on its own right as a key investment destination in Asia and as an economic gateway into SEA. Since shifting from a centrally planned economy to a more market-oriented model, Vietnam’s economy has gone from strength to strength with per capita income rising from a measly US$220 in 1994 to US$1,024 in 2008.

Take a look at some more facts about Vietnam’s economy:

  • Vietnam has climbed from 4th in 2007 to take over India’s top spot in 2008 in the 7th Global Retail Development Index TM (GRDI), an AT Kearny study which studies retail investment attractiveness among 30 emerging markets
  • Research firm RNCOS has predicted that Vietnam’s retail industry will grow at a compounded annual growth rate of approximately 13.6% during 2008-2012
  • In 2001, the Bilateral Trade Agreement between US & Vietnam went into force, expanding trade between the two countries from US$2.91 billion in 2002 to US15.7 billion in 2008
  • Vietnam is the fourth most confident country in the world, up five places since March 2009, according to a survey published in October 2009 by the Nielsen Company
  • Malaysian private investors have been openly invited to actively participate in its infrastructure projects through its Public-Private Partnership (PPP) model in Q1 2010.

Staying on that last point for a moment, in September 2009, Vietnam’s Ministry of Finance announced that they needed another US$150 billion in investments from then until the end of 2010 and at that least 30% must be derived from foreign investors. The country also plans to attract US$15 billion in foreign mining investments from now until 2025. According to a recent survey from the United Nations Conference on Trade and Development (UNCTAD), Vietnam’s attractiveness as a global investment destination ranked favourably in the top division for 2009-2011, alongside Brazil, China, and India.

Many investors may be flocking towards Vietnam’s IT sector, which is currently growing at a red-hot rate of over 20% a year and is certainly an attractive carrot for technology investors. Already, household names like Intel and IBM have made significant investments into that sector. In 2006, Intel invested $1 billion into a chip assembly factory while in May 2009; IBM announced plans to build an innovation centre to assist start-ups and local businesses in developing and marketing new technologies.

“Vietnam made great progress in infrastructure in the last decade,” according to World Bank senior economist Katharina Gassner. “There is a strong link between infrastructure and the growth of a country. The infrastructure is a necessary ingredient for all sectors that matter in development, as it facilitates everything else that the country needs to develop,” said Gassner. In November 2009, World Bank’s East Asia and Pacific Update forecasted Vietnam’s 2009 growth rate to be 5.5% and noted that Vietnam’s economy had seemed to navigate through the global economic crisis pretty well.

Part of the reason for this might be attributed to a significant growth in direct investment from the US into Vietnam. Previously lagging far behind South Korea, Taiwan, Malaysia, Japan,

and Singapore in terms of direct investments, US is now Vietnam’s largest investor (Malaysia was the largest in Oct 2008) with investments of almost US$4 billion in the first eight months of 2009, mostly as a result of heavy investments by Chevron and General Electric. The two companies have invested in a project to use gas to produce electricity in the Mekong Delta region, with a view towards ensuring a long-term power strategy for Vietnam. According to Le Hai Van, head of the statistics division of Vietnam’s Foreign Investment Agency, US firms accounted for 37% of foreign investment from January to August. In contrast, US investment only accounted for 3% in the same period in 2008.

Malaysian investors have several things to keep in mind when considering investment in Vietnam. The ceiling on foreign ownership in local businesses will soon be raised from 30% to 49% and Vietnam’s government is also considering allowing foreign investors to own up to 49% of total chartered capital of local securities trading organisations. Also important is the need for caution and prudence for any business dealing in Vietnam as the country still ranks an unfavourable 121st (out of 180) in the Transparency International’s Corruption Perception Index 2008.

Be careful about investing in the property market as a new law has been issued bringing the maximum number of years for which a foreigner may own Vietnamese property down from 70 to 50. Those eligible to purchase apartments include foreign firms purchasing housing for staff, and four categories of individual foreigners. The categories include those working at Vietnamese firms, those married to Vietnamese, those with special skills needed by the economy, and those who have been awarded medals or honours by the government.

Aside from that, there are also several social and cultural considerations which you should be aware of. To the average Vietnamese person, punctuality is a big deal so you should always plan to arrive earlier for meetings there. Also, try as far as possible to have all your important written documents and business cards, translated into Vietnamese. Gift giving is a common practice in Vietnam but they do not need to be expensive as a simple token of appreciation like fruit and flowers is often sufficient.

As we move into the next decade, it is good to see Vietnam trying to improve on their Ease of Doing Business ranking as well as their Corruption Perception Index by introducing measures to liberalise their markets and contain corruption. Consultants have been engaged to revamp their stock market and discussions are underway to relax foreign ownership restrictions.

Notable investors

  • Siam Cement Group, Thailand’s largest industrial conglomerate and Qatar Petroleum International, state owned oil firm: Investing in a petro-chemical complex project worth US$3.5 to $4 billion
  • France is Vietnam’s third largest European trade partner: Bilateral trade turnover in 2007 surpassed US$2 billion and in 2008 it was about US$1.8 billion
  • IBM Corp., US electronics giant: Invested US$1 billion in addition to an investment in an ‘innovation centre’
  • OAO Gazprom, Russian energy giant: Planned investment of 9.43 million roubles (US$319 million).

Malaysian investors and some of their notable investments

  • Vinashin Lion Steel Co., Ltd, joint venture company between the Lion Group and Vinashin Group of Vietnam: Invested US$9.8 billion into the Ca Na steel complex
  • Gamuda Land Sdn Bhd: Investing in the Yen So Park development project with a gross development value of over US$2.5 billion
  • Berjaya Land Berhad: Invested US$2 billion into the 600 hectare Nhon Trach Berjaya New City project
  • Setia Lai Thieu Ltd, a subsidiary of SP Setia Berhad and Vietnam Investment and Industrial Development Corp (Becamex IDC Corp): Investing in a mixed used real estate project with a gross development value of US$250 million
  • Parkson Vietnam Co., Ltd: Has invested $70 million in shopping centres in Vietnam since 2005.
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