Vietnam: Emerging Market with Growing Opportunities for Foreign Investment
The first thing you notice in Vietnam is the traffic. Graham Greene wrote about Vietnam that you learn a lot in a few minutes, the rest has got to be lived. Well, in the first few minutes you learn quickly how to navigate the hundreds of scooters flying past in all directions (including the wrong) without losing your life or any useful appendages. Once across the road, a sense of achievement is felt as you turn to look back at the seemingly impenetrable flow of traffic you have just traversed, which sense of achievement over the months turns to a relaxed confidence and mild sympathy for those taking their first steps. I don’t know if this tells us anything wider about Vietnam itself, or rather highlights how insubstantial Mr Greene’s observation was. Anyway it is not for me to judge, and Mr Greene is not here to defend himself, so let’s move on to the main themes of the article.
Vietnam has a rapidly growing economy, driven by a young, energetic and educated population. It is projected by Goldman Sachs that the economy will continue to grow with its current momentum to move from 55th largest economy in the world, to 17th largest economy in the world by 2025. Opportunities are available for foreign investors looking to move into the country and the government has recently passed legislation to ease foreign involvement. We will take a look at some of the background to this and the current situation for foreign investment in Vietnam.
Vietnam continues to be a single party state dominated by the Communist Party but since 1987 has been initiating a number of economic reforms to move Vietnam towards being a socialist oriented market economy. These reforms are called “Doi Moi” in Vietnamese, which translates as “renovation” and is an appropriate appellation in terms of the purpose of the policies, which is to make changes to allow private enterprise a prominent role in the economy while retaining a central role for the state.
As a result of the “Doi Moi” policies, Vietnam entered into a number of international trade agreements and associations, which in turn spurred on the move away from a centralised state economy. These included entering the Association of South East Asian Nations (ASEAN) in 1995, signing the Bilateral Trade Agreement with the United States in 2000 and pursuing the Trans Pacific Partnership and EU Free Trade Agreement. Importantly, Vietnam became a member of the World Trade Organization (WTO) in 2007.
The WTO commitments have been a catalyst to easing the situation for foreign investment in Vietnam and have framed most of the developments for foreign enterprise in terms of the law and further international trade negotiations. Much of the recent legislation has been enacted to bring the domestic law into line with the WTO commitments. Vietnam moved sluggishly at first it would seem but has made quite significant improvements to market liberalisation and access for foreign direct investment as compared with other recent additions to the WTO.
Since accession to the WTO the Vietnamese economy has become one of the most open with exports providing around 70% of the Vietnamese GDP. The economy is now roughly divided in terms of GDP, as 20% agriculture with services and industry providing 40% each, with significant development in textile, footwear, steel, cement, and automotive assembly sectors. There are significant opportunities for foreign investment in these areas and the additional areas of oil and gas and education.
Vietnam is seen as one of the top four emerging markets for the education sector due to the strengthening economy and emphasis on education. There are opportunities for foreign investors in the recruitment of students for study overseas and directly setting up international campuses in Vietnam. According to the Vietnamese Ministry of Education and Training 125,000 Vietnamese studied overseas in 2013, a 15% increase over 2012, and the figure is rising continuously. Around 90% of those students in 2013 were self-funded, with Vietnamese families spending up to $1.875 billion on overseas study-related expenses (around 1% of the GDP). Some higher education establishments have already taken advantage of the opening up of the Vietnamese market and developed campuses in Vietnam, the most prominent of which is the Royal Melbourne Institute of Technology (RMIT). RMIT built a multi-million dollar campus in Ho Chi Minh City in 2001 and has gone from strength to strength in terms of reputation and student numbers. There are still great opportunities for foreign universities in Vietnam, particularly in technical and science based subjects.
These opportunities can be pursued with greater ease since the coming into force of the Law on Enterprises and Law on Investment on 1 July 2015. These laws are designed to provide clear and effective procedures for establishing foreign owned businesses and obtaining the necessary licenses, cutting down on much of the procedural red tape. It is now possible for foreign investors to establish 100% foreign owned enterprises in most sectors in Vietnam and also to invest up to 100% in most existing Vietnamese businesses. This combined with the WTO commitments has meant we have been dealing with a growing number of foreign investors taking advantage of these developments and the consequent commercial opportunities.
Another significant legal development in 2015 for foreign investors was the opening up of the property market to foreign ownership with the Law on Real Estate Business and Law on Residential Housing. As Vietnam is a communist state the land is treated as being owned by the nation for the benefit of the people, but In July 2015, new laws opened up the Vietnamese property market to expats. Foreign buyers can now enter the country to purchase and own residential property. There are some restrictions on the kinds of property foreigners are permitted to purchase, which include apartments, villas and townhouses that are part of development projects. Also, as noted due to the communist policy on land ownership foreigners purchase a 50 year leasehold, which can be extended for a small fee, sold on, inherited and borrowed against, effectively giving ownership rights.
Vietnam is an exciting market and great steps have been taken to open the country to foreign investment and allow for ease of business. There are still risks involved, as there are anywhere, in investing and pursuing opportunities in Vietnam but with the risks come the possibility of high returns. This has been a necessarily brief introduction to some of the background and legal issues making up the current situation for foreign investment in Vietnam. In coming articles we look in more depth at specific areas hopefully pertinent to your piqued interests in Vietnam.