EBSCOhost Page 1 of 4 Record: 1 Vietnam goes for sustainable growth. By: McGlinchey, Rob. Global Investor. Nov2008, Issue 217, p41-42. 2p. 2 Color Photographs. Abstract: The article discusses the growth in foreign direct investment (FDI) and other economic issues of Vietnam. The country's FDI is foreseen to break $60 billion by the end of 2008. However, there are other economic issues that need to be addressed such as expensive labor, fraud, infrastructure, bureaucracy, and the effect of the global financial crisis. The country is commended for its improved competitiveness in its licenses. (AN: 35694696) Database: Business Source Complete Section: ASIA REPORT Vietnam goes for sustainable growth Vietnam has been enjoying growth in foreign direct investment for some years, despite high inflation and trade deficit. But for growth to continue, the country has to address further challenges, writes Rob McGlinchey Vietnam's foreign direct investment has already surpassed last year's $50 billion and is expected to break $60 billion by the end of 2008. But figures can only convey so much. Although inflation and the country's trade deficit have come down as a result of government measures coupled with an easing of oil and commodity prices, many issues remain. Labour, as a commodity, has become more expensive; fraud has become an issue that requires serious investor awareness; and the the global financial crisis has thrown into doubt the prospects for continued growth in Vietnam's economy. This is not to say that confidence in FDI into Vietnam has plummeted, but calls to address infrastructure issues have arisen. Supplies have become an area where investor's resources and accountancy have been tested and acquiring skilled labour and licences has been time consuming. Henry Nguyen, managing general partner of IDG Ventures Vietnam points out that Vietnam has enjoyed a mini bubble of enthusiasm, which is fully justified. But the government has yet to address such fundamental issues as hard infrastructure, the soft infrastructure and the bureaucracy. Nguyen felt that these issues would be addressed. He said: "It gets better day by day, but Vietnam still has quite a bit of work to do. The good news is that I sense it will. If you look at the senior leadership in Vietnam, I sense they realise that they need to do a lot of things better to be competitive." Licensing One area where the Vietnamese government has worked to improve competitiveness is in its licences, recently allowing Standard Chartered Bank to become one of the first foreign banks to http://web.ebscohost.com.ezproxy.usq.edu.au/ehost/delivery?sid=5b76ed49-1d15-4c48... 4/11/2013 EBSCOhost Page 2 of 4 open wholly owned divisions. Standard Chartered's Hanoi-based bank, which already owns 15% of Asia Commercial Bank, will have a capital base of $61 million. A sign of Vietnam's commitment to the World Trade Organisation - of which it became a member last year - the grant of licences to foreign banks would seem a sure sign of what is yet to follow in FDI. However, Standard Chartered was forced to wait for 15 months before its licence was approved, which points out the fundamental flaws in the system. Figures released recently, also highlight that only 0.04% of the total FDI in Vietnam between January and August was in the finance and banking sector. Ashok Sud, chief executive of Standard Chartered Vietnam, and vice chairman of the European Chamber of Commerce, says that there are real challenges in acquiring a licence. The fact that the Vietnamese government is the source of all licences to business in the country is a problem facing all sectors, not just banking. The inactivity and time constraints applied by the Vietnamese government in FDI have particularly affected those businesses that have been promised privatisation. In a recent survey, it was found that in the first half of 2008, FDI into transport and telecoms was at $4,000, CHECK, compared to 2007 year figures of $570,000. It is expected that decisions on the privatisation of telecoms will only be made in 2009-2010. Investors will be more interested in the outlook of Vietnam's geo-political development than looking for flaws in government policy, Sud believes. "Vietnam in many ways punches beyond its weight. It's a regional kind of media out here, if we include Cambodia and Laos - Indochina - it is a very crucial part of the world that stays away from the influences of Big Brother (China). The geo-politics of Vietnam cannot be underestimated. If Vietnam fully aligns, as does Cambodia and Laos, with China, you have already lost a huge attraction." Foreign investors focus on such issues as fraud and corruption, making them a recurrent theme of FDI into Vietnam. "It is often talked about," Sud says, "but if you look at it objectively, the level of corruption in any country is linked to the per capita GDP. That is something which the IMF guide has got a full study on, which they have done across the world." The conclusion to be drawn from this study is that Vietnam is not more or less corrupt, but at an average for its per capita GDP. The response, too, by the Vietnam Ministry of Trade to the problem of fraud and corruption has been generally welcomed. Yet investors are holding on to the view that fraud and corruption in Vietnam remains a significant issue. Sud says: "Here in Vietnam, I think there is a little bit of accounting 'scamery' in terms of how people can manipulate - especially the Vietnam economy standards - how people can manipulate earnings and revenues and cash flows. That worries me because in terms of my training on US CAP and on international accounting standards, I already have a healthy scepticism whenever I see any financials. With Vietnamese financial statements there are a lot of holes and pockets that I see and the ones I quickly take a look at. When colleagues show me statements, they make me question the validity and accuracy of the statements - from a logical perspective it doesn't seem to make sense to me". The challenge posed by fraud and the intention to commit fraud that VinaCapital experienced when it launched the Vietnam Opportunity Fund has been a learning curve for the company. http://web.ebscohost.com.ezproxy.usq.edu.au/ehost/delivery?sid=5b76ed49-1d15-4c48... 4/11/2013 EBSCOhost Page 3 of 4 Andy Ho, managing director and head of investment, said: "We've learned a lot about how the (scams) are carried out and this certainly helps us better prepare our investment terms." Foreign direct investors may need to be wary when approaching Vietnam, but the future of FDI looks bright. The country's demographics, along with its economic track record, suggest that the country is in a good position to continue to grow. According to a recent report, Vietnam's trade liberalisation is continuing, generating a continued confidence in the region, particularly from EU countries. Since 2000, over 259,000 companies have been set up in Vietnam, around 59,000 during 2007. Last year, Vietnam was the second fastest growing economy in Asia with GDP growth at 8.48%, and the country expects to grow at a further 9% in 2008, even during the current global climate. The effects of the global financial crisis are still being understood by the Vietnamese government, and therefore it is difficult to understand the severity the crisis will have. Already, poor market confidence has caused a fall in Vietnamese equities and it is expected that this confidence will also have an impact on exports in the region. In FDI, it is expected that the disbursement of foreign direct investment will slow down with business plans expected to decelerate. Therefore it is difficult to estimate at what level the Vietnamese economy will grow at over the next 18 months. Ho believes however, that a slow down in FDI disbursement will not considerably affect Vietnam's growth targets. Although he conceded that he expects Vietnam's 2008 GDP to grow at a rate of 6% compared to targets of 9%, he expects growth to continue under the correct level of controls. He said: "I think Vietnam should welcome a slower pace of FDI disbursement because we have seen in the past that too much disbursement can lead to a situation of too much cash chasing after too little goods and services and thus causing inflation. If FDI disbursement slows notably and a gradual release of credit controls doesn't occur, achieving growth targets for 2009 and 2010 will be under threat. "Overall, however, we still see it as inevitable that a country with Vietnam's fundamental potential will see substantial growth over the next 10 years. Vietnam was one of the world's fastest growing economies over the past decade, and we see no reason that will change in the next 10 years." PHOTO (COLOR): Modernising: Vietnam's fundamental potential will see substantial growth over the next 10 years. PHOTO (COLOR): (From the top) Askok Sud, Henry Nyuyen and Andy Ho ~~~~~~~~ By Rob McGlinchey ©Euromoney Institutional Investor PLC. This material must be used for the customer's internal business use only and a maximum of ten (10) hard copy print-outs may be made. No further http://web.ebscohost.com.ezproxy.usq.edu.au/ehost/delivery?sid=5b76ed49-1d15-4c48... 4/11/2013 EBSCOhost Page 4 of 4 copying or transmission of this material is allowed without the express permission of Euromoney Institutional Investor PLC. Source: Global Investor and http://www.globalinvestormagazine.com. http://web.ebscohost.com.ezproxy.usq.edu.au/ehost/delivery?sid=5b76ed49-1d15-4c48... 4/11/2013
