Vietnam: Destined for Success


Nick Freeman

Investor sentiment towards Vietnam seems to have reached a high not seen since the early 1990s, when the country made the first major strides towards opening up its economy. Politicians, analysts and companies alike seem to share the consensus view that Vietnam's economy is destined for success in the next few years.

Speaking in Hanoi in early March, Malaysian foreign minister, Syed Hamid Albar, predicted that 'Vietnam will be one of the most successful countries' in the region and, once WTO accession is attained, the country will have 'all the right chemistry for success'. It is probably true to say that Thailand's policy-makers have felt the same way for some time, and notwithstanding some opportunities for Thai firms to invest in the country, Vietnam is increasingly seen by Thailand as a real competitive threat.

With GDP, export earnings, production output, FDI inflow pledges and virtually all other macro-economic statistics all pointing towards robust growth, it is perhaps not surprising that investors are seeking to gain more exposure to the country. Until now, the range of assets that allows them to do so has been fairly constrained, particularly for portfolio investors and financial institutions. But a number of new offshore and onshore investment funds have been launched in recent months, and several more are expected to follow.

Most notably, an offshore-domiciled fund solely devoted to making property-related investments in Vietnam was successfully established in March. Having initially hoped to raise US$50m, the fund ultimately took US$200m in subscriptions and had to turn at least another US$100m away, according to local press reports. There is little doubt that Vietnam's inaugural US$750m sovereign bond issue, towards the end of last year, helped put 'Vietnam on the map' of international capital markets. And a recent report on the country by Merrill Lynch seems to have further stimulated the appetite of some hedge fund managers.

Direct investors in Vietnam are also upbeat. With over 6,000 foreign-invested projects in operation, according to official figures, Vietnam recently passed the US$51bn mark for FDI inflow pledges (actual disbursements are at around US$28bn). This can be attributed in large part to advances made in improving the regulatory environment for foreign firms. As Indonesia's coordinating minister for the economy recently conceded, Vietnam is ahead in the way it differentiates between foreign and domestic investors. And further improvements are anticipated under new Investment Law and Enterprise Law, recently passed by the National Assembly, and which come into effect in July 2006.

WATCHPOINT: Should Vietnam attain WTO entry in 2006, as seems likely, expect to see foreign investor sentiment and activity increase further.


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