Vietnam: ASEAN’s next emerging market
 Vietnam continues to be a major foreign direct investment (FDI) destination across diverse sectors. Overseas investors, particularly from ASEAN countries including Thailand and Singapore, together with longer established investors such as those from Japan and Korea, have increased their operational activity in the country as positive returns have encouraged further investments.FDI in Vietnam continues to gain ground, encouraged by political stability, compared to neighboring countries, and government commitments to liberalise the economy.1 The removal of investment caps for overseas investors in certain sectors is likely to see such figures increase in 2016. Previously, international investors were limited to minority stake acquisitions and investments of no greater than 49 percent in some sectors, with stringent application and approval processes on acquisitions of even 1 percent. Since September 2015, FDI caps in numerous industries have been lifted, allowing overseas investors to take up majority ownership or full ownership (100 percent acquisitions) in publicly listed Vietnamese firms2. This, coupled with a number of free trade agreements and the ongoing state-owned enterprise equitisation programme, has created a more progressive inbound investment environment.Compared with other emerging markets in the region, Vietnam also enjoys stable macro-economic conditions, including low inflation and a well-regulated monetary policy. New free trade agreements and continuous legislative reforms are also making the country an increasingly attractive investment destination. This is reflected in recent statistics, in the first 10 months of 2015, the country attracted US$19.29 billion in new investments, a 40.8 percent year-on-year increase. Meanwhile, the implemented capital from existing FDI projects reached US$11.8 billion, which was 16.3 percent higher than the same period in 2014.3 While the many macro level indicators are encouraging – Vietnam has one of ASEAN’s largest populations at 90 million and a young, working demographic – it can still be a difficult region to navigate for both new investors and existing companies looking to expand their business. Corruption remains a major issue at a local, regional and national level, with Vietnam currently ranked 119 out of 174 countries in the 2014 Corruption Perceptions Index published by Transparency International, behind the Philippines, Thailand and China.4 The existence of patronage networks and requirement to maintain relationships with public officials is generally considered necessary for doing business in Vietnam, and many major companies are partially state-owned and have opaque holding structures. Transparency regarding beneficial ownership is also limited, the use of nominee directors is widespread and public records are not always available or current. The key risks we have seen typically revolve around high levels of corruption coupled with this lack of transparency. From a transactional perspective, there are a lesser number of data points than you may get in more sophisticated markets during a due diligence process, and this lack of information can sometimes make it difficult to know exactly who you are dealing with, what their relationship is within the business, or if any hidden agendas, including conflicts of interest and proxy relationships, may be playing into the transaction. Navigating the risks of operating in Vietnam, whether at the investor’s local subsidiary or with a proposed joint-venture partner, underlines the requirement to undertake detailed due diligence. Ideally, this should be conducted in a way which utilises on-the-ground human intelligence from a trusted network of sources to better understand the reality of conducting business in the country. –––––––––– ––––––––––– |
