Economic Growth Speedup: Vietnam Needs Stronger Measures to Draw Foreign Investment Capital

 

One of the top concerns of foreign investors is how they can take part in the Vietnamese capital market. At present, the foreign ownership at Vietnamese banks has been lifted from 10 per cent to 15 per cent and the ownership may be increased to 20 per cent if they are strategic shareholders. However, foreign partners cannot hold more than 30 per cent of chartered capital of a bank. In 2005, the government issued sovereignty bonds worth of US$750 million. The successful issuance of bonds to the world proved the confidence of foreign investors, to some extent, to Vietnam although the proceeds are too small compared with foreign investment capital into Vietnam in 2006. Vietnam plans to internationally issue government bonds worth of US$1 billion. All proceeds will be spent on infrastructure, engineering and transport development, etc. Regarding the loosening of foreign ownership cap, Mr Jeremy Amias, Citigroup’s head of head of Asia-Pacific Fixed Income, Currencies and Commodities Department, said: We are very glad with this move. If foreign investors can buy more stakes from State-run banks, those banks will have more benefits because, apart from capital capacity, they will have accesses to various services and more scientific administration. However, Vietnam should be braver in global government bond issuance. The US$1 billion worth of bonds is too little compared with Malaysia’s US$20 billion. However, to draw capital from this channel, Vietnam needs to create legal frameworks for the financial and monetary fields to facilitate investors in buying, selling and exchanging bonds. The country also needs many techniques to develop its capital sources like diversifying capital sources. The improvement in the transparency of information and resettlement of transactions also created favourable conditions for the Vietnamese sustainable development of the capital market.

 

General Director of VinaCapital Group [Don Lam] said the development of capital market in Vietnam has become a burning issue as many investors are pouring their money into this market. Hence, in addition to the government bond issuance, Vietnam needs to encourage local companies to issue corporate bonds to diversify investment channels. The linkage of 2,500 companies on the OTC market to the Hanoi Securities Trading Centre (HASTC) needs carrying out sooner in order to provide more commodities to financial investors. The strong point of the Vietnamese stock market is its growth rate of 45 per cent, higher than any regional stock markets, but its weak point is the low liquidity. This shortcoming should be resolved soon.

 

Mr Shozo Sakata, a senior expert from the Institute of Developing Economies of the Japan External Trade Organisation (IDE-JETRO), put forward a question that “Whether Vietnam can reach the GDP per capita of US$1,800 by 2020, which is equal to that of Thailand in 1995? Simply calculated, if Vietnam obtain this figure on the condition that its population growth of 1.3 per cent, it must keep the GDP growth rate of 8 per cent from now until 2020. However, to maintain high growth for another 10 years or more will be a big challenge! How will Vietnam do to steadily keep the average growth rate of 8 per cent year after year?” According to Mr Sakata, Vietnam firstly needs to intensify its capacity of its exporting sector. Secondly, it intensifies attraction of FDI capital. To attract a big amount of FDI capital, Vietnam needs to introduce polices to resolve difficulties for investors. “Moreover, business would be more profitable for foreign manufacturers if they could create an effective relationship with local entities. If part of their production can be localised, it could be a big cost-cut.” At a macro level, Professor Pietro P. Masina from the University of Naples ‘The Oriental’, Italy, said: historically, no country in the world has achieved industrialisation without adopting free trade. “The experience from a number of successful Asian economies has shown an ingenious combination of export-orientation with the selective protection of national strategic industries.”

 

On April 24, 2007, foreign investors had direct talks with the Ministry of Planning and Investment and the Ho Chi Minh City People’s Committee about the investment environment in the city and visited Vietnam-Singapore Industrial Park (VSIP) and Amata-Bien Hoa Industrial Park, two successful models in southern Vietnam. Many pointed out urgent matters the city was encountering. Experts forecast that Vietnam has high prospects of drawing FDI capital. The US$12 billion FDI capital is a reachable target in 2007. Many foreign investors, especially those from Japan, are carrying out “China + 1” strategy; thus, Vietnam can create an investment wave in the fields of real estate, finance, insurance, high tech, education and training, etc. However, to realise this target, Vietnam must answer the following question: What does Vietnam have to attract foreign investors more than low labour cost advantages? According to Mr Shozo Sakata, a senior expert from the Institute of Developing Economies of the Japan External Trade Organisation, the inexpensive labour will be soon faded away as Vietnam has high probability of delisting from the underdeveloped nation grouping by 2010 when the people’s incomes will be higher. Thus, Vietnam needs to create a more favourable business environment for investors such as in infrastructure system and legal environment. In HCM City, the port congestions is a hard problem. Since 2004, HCM City received 78 per cent of container ships while Cai Lan Port in Quang Ninh Province handled only 19 per cent. Ho Chi Minh City ports have been overloaded and the situation is estimated to be worse in 2008 and 2008 when Cai Mep Port will not be operated until 2010. Several other investors said the land price and rental are too high and higher than regional rates. This reduces the competitive advantage of Vietnam in the fields of production and industry. A Malaysian businessman raised a question that “I arrived in Ho Chi Minh City several times to organise events. Regrettably, hotel rooms are always fully reserved. In the integration process, HCM City remains an important gate in international exchanges, hence, foreign investors and tourists will come here. How will the city resolve this issue?” Mr Nguyen Huu Tin, Vice Chairman of Ho Chi Minh City People’s Committee, said the city is short of some 1,150 five-star hotel rooms. From now till 2010, the city will need additional 10,000 rooms to meet the increasing demand. This plan is being implemented and the city wants foreign companies to invest in this field.

 

Addressing at the meeting, representatives from ministries and Ho Chi Minh City highly appreciated constructive ideas from delegates. With its competence, Vietnam is striving to invest in infrastructure as well as administrative reform. Vietnam officially called for foreign direct investment for infrastructure, traffic, architecture, commercial centre, industrial zone and energy development projects. These are important and feasible projects in Vietnam for the future development.