Mr. Peter Ryder, CEO of Indochina Capital, shares his thoughts on relations between the US and Vietnam since normalization.
■ As one of the most successful American investors in Vietnam, what is your view of investment from the US in Vietnam since the two countries normalized relations?
Since the US and Vietnam normalized relations in July 1995 Vietnam has experienced tremendous economic growth and social change. Direct interaction in investment and trade between the US and Vietnam has been one of the prime catalysts in Vietnam’s development. The lifting of the US trade embargo in 1994, the normalization of US-Vietnam diplomatic relations in 1995, and the implementation of the US-Vietnam bilateral trade agreement in 2000, accompanied by various other bilateral and multilateral political, financial, and trade arrangements, have deepened the relationship between the two countries.
Over the last 20 years US-Vietnam relations have experienced positive and sustainable growth, quantitatively and qualitatively. On the quantitative front, the US is Vietnam’s largest trade partner, with over $30.5 billion of goods exported to the US and nearly $5.7 billion of goods imported from the US in 2014. In terms of FDI, the US is the seventh largest investor in Vietnam among 101 countries. However, if one counts investments flowing through US subsidiaries in Singapore, the Cayman Islands, the British Virgin Islands and other jurisdictions, the US would be within the top three or four largest investors. On a qualitative basis, the two countries continue to exchange dignitaries, students, tourists, and intelligence. With the mutual interest of maintaining regional stability, the two countries will continue to move closer together.
■ Do you think Vietnam is a market of potential for US investors?
Vietnam has made considerable progress in opening and reforming its markets over the last 20 years. As such the country is consistently ranked as one of the region’s most attractive destinations for foreign investors in general and US investors in particular.
Vietnam offers “fertile ground” for investment, boasting abundant natural and human resources. And the country is well-located within Asia-Pacific.
On the demographic front, Vietnam has a large, young and educated population. In particular, the rapidly expanding consumer class will be very attractive for US investors who are looking to cater to this large consumer base. According to Boston Consulting, Vietnam’s middle and high class will be the fastest growing in Asia through 2020. It is expected to triple from 12 million in 2012 to 33 million in 2020.
US manufacturers have also been attracted to Vietnam’s low-cost and highly-literate labor force. Many have been relocating their factories from China, Thailand and other countries in the region to Vietnam. As an example, Intel’s largest chip plant in the world is located just outside of Ho Chi Minh City.
Given the attractiveness of the market, cross-border transactions between US investors and local companies have increased significantly over the past few years and the quality of investors has also improved. This trend is headlined by the US-based Texas Pacific Group, who is a large investor in a local consumer company, and Warburg Pincus, who is a large investor in a local real estate company.
■ What are the challenges for Indochina Capital when doing business in Vietnam?
Over the past 16 years Indochina Capital has established a well-deserved reputation as Vietnam’s premier investment company. We have been involved in high-end real estate development, real estate services, investment banking, strategic advisory, and renewable resources. Despite the challenges of doing business in Vietnam we maintain a long-term positive outlook on the country and are here for the long term.
During our time in Vietnam we have witnessed extreme market cyclicality, from the highs of Vietnam entering the WTO in 2007, when the stock market peaked at 1170, to the lows in 2009 following the global financial crisis, with the stock market losing 80 per cent of its value. We have seen two bouts of runaway inflation coupled with high interest rates, in 2008 and 2011, a period of rapid currency devaluation, from 2008 to 2011, and high trade deficits, which sent many foreign investors fleeing.
Since 2012 the macro-economic picture has improved and many investors have taken another look at Vietnam. Despite the improved macro-economic picture, investors are beset by the heavy-handed nature of the approval process for licenses and permits to carry out virtually any type of business, investment, and trade-related activity in Vietnam. Thus, approvals take longer than they should, costing investors time and money and deterring more investors from investing in Vietnam.
With a capable and experienced professional team Indochina Capital has been able to overcome different challenges to move forward. We operate based on near-term agility and long-term vision, to achieve solid growth and success over the years.
■ How do you foresee FDI from the US in Vietnam in the time to come?
One of the key drivers for FDI from the US to Vietnam will be the Trans-Pacific Partnership (TPP). The TPP between the US, Vietnam and ten other countries will bring these economies into a single trading bloc accounting for 40 per cent of global GDP. As the poorest country (on a per capita basis), Vietnam will be the biggest beneficiary of the TPP.
Outside of the TPP, the government is trying to make meaningful reforms with the equitization of more State-owned enterprises, revision of investment laws, and allowances for foreign ownership of real estate.
With the continuance of economic stability, the introduction of the TPP, and structural reforms, we would expect more FDI to flow from the US to Vietnam.