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Think again

Released at: 02:49, 28/07/2014

Think again

Vietnam's economy represents a land of opportunity for foreign investors and those deterred by short-term turbulence may regret it in the long run.

by Thong Dat

    Those who predicted a massive exodus of foreign investors following the recent territorial dispute between Vietnam and China may have the good reason to think again. True, the dispute could not have come at a worse time for Vietnam’s economic recovery, which is currently more or less on track. But gloomy forecasts have been made before and many times proven incorrect. The short answer is that businesses and investors who leave the country may miss out on the lucrative opportunities on offer in the long term. This was one of the main points emphasised by experts and international corporate leaders who gathered at the Vietnam Business Insights forum held by leading regional broadcaster Channel NewsAsia last month.

    With annual GDP growth forecast at around 5.6 per cent in the years to come Vietnam is poised to be among the 20 largest economies in the world by 2050. “The country has a diverse and dynamic economy, natural resources and commodities to sell, and most importantly, a young and increasingly well-educated population who are hard working and driven,” said Ms Debra Soon, Managing Director of Channel NewsAsia, adding that the broadcaster’s intends to open a bureau in Vietnam this year. “We want to be able to tell the story of Vietnam’s growth and development, its challenges and its people, from the ground,” she said.

    Various measures initiated by the government to implement reforms and fast track the decision-making process have improved the country’s investment and business environment and raised its competitiveness. “To add new chapters to Vietnam’s success story, the government is continuing to revitalise its business and investment climate,” Prime Minister Nguyen Tan Dung told the World Economic Forum on East Asia in Manila last month. “One way it is doing this is its work on three ‘strategic breakthroughs’: putting in place market economy institutions and a legal framework, building advanced and integrated infrastructure, particularly transport, and developing a quality workforce. These should all be completed by 2020.”

    While positive changes in the local economy have been challenged by the recent complications in the East Sea it seems that foreign investors are not deterred by the short-term turbulence. The government has won praise from investors for its policies and measures to support businesses suffering from damage caused by the illegal protests that took place in some areas. “I believe that the government’s quick response to the recent situation has eased investors’ concerns,” said Mr Warrick Cleine, CEO of KPMG, Vietnam and Cambodia, who has been in the country for 16 years.  “In the long run, investors don’t need to be concerned as prospects remain bright.”

    Official figures again indicate that Vietnam remains a destination of choice for foreign investors. As at April there were more than 16,300 active foreign direct investment (FDI) projects in the country, totalling $238 billion. Investors have come from 100 countries and territories and many are some of the world’s leading multinational corporations. In 2013 FDI inflows exceeded $22 billion, an increase of more than 35 per cent against 2012.

    The Taiwanese bicycle chain maker KMC Kuei Meng International announced last month that it will invest about $5 million in Vietnam in the second half of the year as it enters the Southeast Asian market. The company plans to build a new factory capable of making 15 million chains a year at the AMATA Industrial Park and construction is expected to be completed within 12 months. “Since we only have limited capacity for bicycle chains in Southeast Asia, a new factory in Vietnam can help us enter the market,” KMC President Daniel Wu was quoted as saying.

    Cause for optimism lies in Vietnam’s large population and resulting huge pool of human resources, making it an attractive market for businesses and investors. By some measures, Vietnam now has a ‘golden population structure’, with 60 per cent of its population being of working age. This is a wonderful opportunity for the country to soar if it can take advantage of such a demographic bonus. Furthermore, with a young population of 90 million, Vietnam is one of the top retail markets in the world. In conjunction with dynamic economic growth, disposable incomes have steadily increased and a high-spending middle class has appeared, especially in larger cities. For foreign investors, markets in Vietnam are still young in many areas and therefore not so densely occupied.

    In addition, Vietnam is now a market economy, a member of the WTO, and part of the Trans-Pacific Partnership negotiations. It is also a party to multiple frameworks for international economic integration, including free trade agreements (FTAs) with partners both within and outside of the region. These factors all go some way to explaining why so many investors have chosen Vietnam. Ms Nicola Connolly, Chairwoman of EuroCham, said that the last seven rounds of negotiations showed Vietnam’s commitment and willingness to speed up the finalisation of an FTA with the EU. “The FTA is expected to be signed by October and will bring win-win opportunities to both sides,” she said.

    For his part, Mr Johan Nyvene, CEO of the Ho Chi Minh Securities Corporation (HSC), insists that Vietnam has re-emerged from the global economic challenges and has rewarded savvy investors with good opportunities. Yet the country remains heavily dependent upon FDI inflows and thus on foreign investor confidence. “The low-scale stock market and the yet-to be developed capital market and other fragile factors are obstacles to sustainable development,” he said. “FDI capital is crucial to Vietnam’s development, considering the lack of a roadmap for the private sector’s growth. This trend is clear and it may continue in the future.”

    Despite these advantages when it comes to embracing foreign investors, the key to moving towards sustainable development for Vietnam is to accelerate reforms that will facilitate a robust corporate sector. Mr Nyvene recommended that for stronger private sector growth authorities need to get it right. “The private sector needs strengthening, especially in the current economic conditions” he said. “A better support mechanism from authorities is therefore needed to enable the private sector to reach its full potential.”

    In a bid to improve its investment climate, Vietnam has been reviewing two key policies: the Enterprise Law and the Investment Law, both of which were promulgated in 2005. This is the latest in a series of changes aimed at shoring up the private sector’s economic success. On the macro side, Mr Cao Hoai Duong, President and CEO of the PetroVietnam Fertilizer and Chemicals Corporation, recommends that authorities continue to adopt urgent solutions in order to remove any difficulties for enterprises and stabilise the macro-economy, such as improving the business environment, implementing tax extensions and reductions, broadening access to bank loans for small and medium-sized enterprises, and resolving inventory problems.

    Even before the incident with China, none of this was going to be easy or quick. But despite all the challenges Vietnam remains an attractive country in which to make money. Foreign investors who are already here are staying, and others who join them stand to prosper as well.

“Vietnam is still at a stage where FDI capital is a powerful instrument for growth and development. But I think such development is not sustainable without a developed private sector. This is why authorities should increase support for sustainable growth with a focus on the private sector.”
Mr Johan Nyvene, CEO, HSC

“The blessings of such a large population of 90 million may be offset by some major challenges, as Vietnam needs more and higher quality jobs as more young Vietnamese enter the job market every year. Besides, sustainable growth will not occur without a robust corporate sector. There is a real need for local companies to step up their service levels to be competitive.”
Mr Warrick Cleine, CEO, KPMG, Vietnam & Cambodia

“Vietnam is a land of opportunity and if some investors withdraw others will take their place because the business opportunities are there. So if someone does not see the opportunity and turns their back on Vietnam, it won’t be Vietnam that loses.”
Mr Le Dang Doanh, Senior Economist

 

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