The year 2006 marked many milestones in improving the investment and business environment for both domestic investors and foreign investors. The accession to the World Trade Organisation (WTO) and the successful hosting of the 14th APEC in Hanoi gave good impressions of the Vietnamese financial and monetary markets to foreign investors.
According to the statistics released by the Monetary Policy Department under the State Bank of Vietnam (SBV), Vietnam attracted a total of US$10.2 billion foreign direct investment in 2006, including US$7.8 billion from fresh projects and US$2.4 billion from existing projects, up 31.7 per cent compared with 2005. This is the largest amount of registered foreign direct investment capital since the Law on Foreign Investment took place in 1987, far surpassing the second largest amount of US$8.6 billion in 1996. In 2006, some US$4.1 billion was disbursed, up 24.2 per cent against 2005 because many big projects were carried out immediately. These good results came from an improved investment and business environment, which was proven by the issuance and enactment of legal documents to instruct the implementation of Investment Law, Enterprise Law, Competition Law and Intellectual Property Law.
In addition, Vietnam’s official accession to the WTO and its corollary of fulfilling commitments related to most favoured nation and national treatment regulations, as well as the successful hosting of the APEC Vietnam 2006, were the major factors for the expanding FDI capital inflows. In the APEC Leaders’ Week only, some 1,200 foreign investors arrived in Vietnam to seek investment opportunities. They signed agreements to invest US$2 billion in total in Vietnam in the coming future.
Foreign debts: Together with the foreign direct investment capital inflow, the foreign direct debt keeps growing, mainly long-termed official development assistance (ODA) capital, which enjoy days of grace and low interest rates (accounting for 70-80 per cent of the total foreign debt). With the donation of US$3.74 billion worth of ODA by international donors at the Consultative Group (CG) meeting, Vietnam actively cooperated with its donors to prepare documents, complete procedures for negotiation and sign specific agreements. The CG meeting, which took place in December 2006, pledged to donate US$4.45 billion to Vietnam in 2007, a record high since 1993. Together with the ODA flow, the corporate debts also tended to increase, but not too much. The short-term loan is normally delayed commercial credit with a maturity of 3-12 months. Hence, this source of capital has little impact on outstanding loan volume.
Stock investment: If the investment flow for the valuable papers was small before 2006, the money injected into securities soared in 2006 and made a lot of records. The Vietnamese stock market closed the year 2006 trading day with the VN-Index of 751 points in Ho Chi Minh City Securities Trading Centre (HSTC) and HASTC-Index of 243 points in the Hanoi Securities Trading Centre (HASTC). Thus, the VN-Index increased by 146 per cent compared with that in the beginning of the year while HASTC-Index rose by up to 170 per cent.
The year 2006 also witnessed the efforts made by competent management units, consulting units and securities companies, as well as equitised firms eying to list their stocks on the stock market. As of the last trading session of the year on December 29, the Ho Chi Minh City Securities Trading Centre had 106 listed shares, two fund certificates and 367 bonds, with a total listed face value of over VND72,000 billion (US$4.5 billion). The Hanoi Securities Trading Centre had 87 listed stocks and 91 bonds with a total registered listing face value of VND29,000 billion (US$1.81 billion). In total, the market capitalisation of 193 listed stocks on the Vietnamese stock market reached VND220,000 billion (US$13.8 billion) as of late 2006.
Capital disbursement: The total disbursement of the FDI capital was US$4.1 billion in 2006, including the realisation of both foreign and domestic investment sides. Of the sum, foreign investment flows contributed some 88 per cent, or US$3.6 billion, including equities and foreign debts of FDI enterprises. According to a preliminary calculation, the equity and long- and medium-term loans in FDI activities were some US$2.4 billion and the ODA capital disbursement accounted for some US$1.75 billion in 2006. This was the second year in a row the capital disbursement broke the annual target.
The capital inflows into Vietnam were mainly medium-term and long-term sources (FDI and ODA), which can exploit the low cost labour in the country. With a low proportion of short-term capital and expanding international reserves in recent years, Vietnam can tackle the international capital flow fluctuations better. Although the increase in foreign investment capital through securities channels has contributed a large sum of foreign currencies, this is a fluctuant capital flow, especially when foreign investors can freely move their capital to other countries. Therefore, in the coming time, the ministries, branches, especially the State Bank and the Ministry of Finance (State Securities Commission) need to cooperate tightly with each other to analyse and monitor the evolutions of the foreign capital flows. They should put forth suitable macroeconomic solutions to stabilise the financial and monetary market.
Quynh Chi
Vietnamese
