Preview: Vietnam’s New 2018-2023 FDI Strategy Shifts From Low-Cost Labor To High-Tech Industry

Vietnam’s Ministry of Planning and Investment, with the assistance of the World Bank, is currently drafting a new FDI strategy for 2018-2023 focusing on priority sectors and quality of investments, rather than quantity. The new draft aims to increase foreign investment in high-tech industries, rather than labor-intensive sectors. Manufacturing, services, agriculture, and travel are the four major sectors in focus in the draft.

Sectors in focus

The four major sectors in focus are:

  • Manufacturing – It includes high-grade metals, minerals, chemicals, electronic components, plastics and high-tech;
  • Services – Includes MRO (maintenance, repair, and overhaul) along with logistics;
  • Agriculture – Includes innovative agricultural products i.e. high-value products such as rice, coffee, seafood and;
  • Travel – High-value tourism services

Investment priority

The draft prioritizes FDI investments on a short-term and medium-term basis. In the short-term, industries with limited opportunities for competition will be prioritized.

Industries include:

  • Manufacturing/Production – Automotive and transport equipment OEMs and suppliers;

In the long-term, the emphasis is on sectors that focus on skills development, including:

  • Manufacturing – Manufacturing of pharmaceuticals and medical equipment;
  • Services – Services include education and health services, financial services, and financial technology (Fintech);
  • Information technology and intellectual services

The draft also includes recommendations about the further removal of entry-barriers and optimizing incentives for foreign investors such that their effect on the economy is maximized.

FDI in 2017

In the first 11 months of 2017, the total FDI capital including newly registered, additional funds and share purchase value reached US$ 33.09 billion, a year-on-year increase of 82.8 percent. FDI disbursed is expected to reach US$ 16 billion, an increase of 11.9 percent over the same period last year.

The processing and manufacturing sector received the highest capital at US$ 14.95 billion, accounting for 45.2 percent of the total. Electricity production and distribution and real estate attracted US$ 8.37 billion and US$ 2.5 billion respectively.

Japan was the leading investor amongst 112 investing countries, accounting for 27 percent of the total FDI at US$ 8.94 billion, followed by Korea and Singapore with a total registered capital of US$ 8.18 billion and US$ 4.69 billion.

Ho Chi Minh attracted the highest FDI with a total registered capital of US$ 5.68 billion, accounting for 17.2 percent of the total investment capital. Bac Ninh followed at US$ 3.28 billion, while Thanh Hoa province ranked third with a total registered capital of US$ 3.16 billion.

Need to do more

Going forward, Vietnam has to ensure that it moves away from a low labor cost economy to one focusing on technology and skilled labor. The government has to do more than just attract investments into high-value added activities. Vietnam should also focus on diversifying FDI sources, enabling domestic firms, and increasing investments in infrastructure.

Majority of the foreign investments in Vietnam are from Korea, Japan, and Singapore. Rather than been over-dependent on Asian countries, Vietnam has to promote itself further and increase investments from the EU, US, and other countries outside Asia-Pacific. With the EU-Vietnam FTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam has an opportunity to increase investments from countries outside Asia.

Foreign firms in Vietnam are offered huge tax and other incentives such as exemptions or reductions in corporate income tax, import duties, and VAT. However, domestic firms that already lack the capital and technology of foreign firms are not provided any of those incentives, further hampering their growth. The government has to find a fine balance between providing incentives to domestic and foreign firms to improve competitiveness. To increase linkages, the government can incentivize foreign firms engaged with local firms, if it wants FDI to have a long and positive effect on the economy.

One key sector not mentioned in the draft is infrastructure. As the country progress and investments increase, infrastructure will play a crucial role in the economic development. Infrastructure projects, which are in dire need of funds in Vietnam cannot be fulfilled by the domestic sector and would require foreign capital. The government has to prioritize infrastructure projects and incentivize foreign investments to reduce the increasing gap between the current and needed investment levels. Infrastructure projects such as roads, railways, power grids, ports, and industrial parks should be a priority for the government going forward.

Once the draft is finalized by the Ministry of Planning and Investment, we will have further clarity regarding the scope of their strategy.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Myanmar Just Replaced Its Century Old Companies Law, This Is What You Need to Know

On December 6, 2017, Myanmar’s President U Htin Kyaw approved the new Myanmar Companies Act, 2017, replacing the country’s century-old Companies Act of 1914. The new law aims to change the way companies are regulated in the country. It will modernize company formation and management, and significantly revise corporate governance in Myanmar, bringing the country’s company legislation at par with international standards.

The Act was drafted by Myanmar’s Directorate of Investment and Company Administration (DICA) with technical assistance from the Asian Development Bank (ADB). It offers a wide range of regulations that are relevant to foreign investors and businesses operating in Myanmar. Some of these are discussed below.

Change in the definition of foreign companies

One of the most significant changes introduced in the Act is the new definition of foreign companies. In the old Companies Act of 1914, even a company with a one percent of its shares owned by a foreign investor was classified as a foreign company. To sustain the “local company” status, companies had to maintain a 100 percent local ownership, thereby largely restricting foreign investment in Myanmar’s domestic companies.

The new Companies Act allows foreign investors to hold up to 35 percent of shares in a domestic company without the company losing its classification as a “local company”. The change in the foreign company definition unlocks huge business potential in areas that were previously restricted to foreign investors, such as banking and finance. It authorizes foreign investors to trade in shares on the Yangon Stock Exchange,which was previously restricted to local companies.

Further, it is much easier for companies to transform its legal status from “foreign” to “local” or vice versa, without seeking prior approval from the regulator. The concerned domestic company only need to notify DICA, if it transforms its legal status to that of a foreign company, that is, if the foreign investors share in the company increases beyond the prescribed limit of 35 percent.

This effectively opens up Myanmar’s economy to foreign minority ownership and paves the way for more foreign investments.

Amendment to rules related to company administration 

Earlier, every company required a minimum of two shareholders and two directors for the incorporation of the company. The new Act reduces this requirement to a minimum of one shareholder and one director, allowing investors to make their Myanmar company a 100 percent owned subsidiary.

As per the new legislation, the director of the company need not be a Myanmar citizen, but must fulfill conditions to pass the “ordinary resident” status. In other words, she or he must be present in Myanmar for a minimum of 183 days in a year to qualify as the director of a company.

Further, the new Companies Act explicitly details the duties of corporate directors, including the duty regarding the use of position and use of information. It also details duty in relation to obligations of a company and duty to act with care and diligence.

Other important changes

Capital management: The Act allows more flexible capital structures and changes to share capital that will permit companies to raise or reduce capital with fewer procedural requirements.

Company registration process: Simplifying the application process for incorporation and registration of companies, the Act exempts investors from the need to obtain a trade permit from DICA. The change will significantly enhance the ease of doing business in Myanmar.

Protection to minority shareholders: Allowing for more flexibility in the organization of a company, the new legislation introduces more protection to minority shareholders. It empowers such shareholders to sue on behalf of the company, even if the directors of the company do not approve of the claims. Companies may also provide other instruments in their constitution that minority shareholders may use to further their interests.

Further, the law legally authorizes companies to carry on any business and activities, after obtaining a relevant license and therefore no longer need to define the objectives of the company in its Memorandum of Association.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

China’s Electric Vehicle Battery Producers Need To Overcome These Hurdles To Supersede Global Giants

The electric vehicle (EV) industry is just one priority area of the country’s ‘Made in China 2025’ industrial strategy, which aims to transform China from a low-end manufacturer to a high-end one. Yet, the government’s goals for the industry are staggering: its target is to have five million electric vehicles on its roads by 2020, up from one million today.

The battery industry’s success is closely tied to the EV industry’s success – a battery currently accounts for up to half an EV’s cost of production. Given the close relationship of the EV industry and battery industry, the government has picked domestic champions that it is promoting to lead the way in China’s domination of the global battery industry.

Fierce global competition in this industry is already under way as producers vie for their share of the what is predicted to be a US$25 billion global industry by 2020.

The competitive landscape

In previous decades, Japanese and South Korean producers, such as Japan’s Panasonic and South Korea’s LG Chem, dominated the battery industry. Panasonic is still the world’s largest supplier of EV batteries globally; it is currently building the so-called Gigafactory in Nevada, US, with US-based EV producer Tesla.

However, Chinese champions Build Your Dreams (BYD) and Contemporary Amperex Technology Co. Limited (CATL) have nearly caught up and are now two of the world’s top-five lithium battery makers. BYD, which is based in Shenzhen, is also a big player in the EV industry and is able to take advantage of the benefits of this vertical integration.

CATL, based in Ningde, is China’s fastest growing battery producer and had the capacity to produce 7.6 gigawatt hours (GWh) of batteries in 2016. Due to China’s big push, it is predicted that CATL will surpass Tesla’s ‘Gigafactory’ by 2020. Tesla has a target to produce at a capacity of 35 GWh by 2020, compared to 50 GWh for CATL and 12 GWh for BYD.

Other Chinese producers are also competitive. Lishen, based in Tianjin, has a target to produce 20 GWh by 2020. As well as expanding production domestically, CATL is also expanding its production abroad so that it is strategically located to do more business with foreign EV producers.

With large capital investments by battery producers, global battery production capacity has more than doubled to 125 GWh over the last three years. Analysts predict this figure to double again to over 250 GWh by 2020.

As Chinese battery producers, including CATL, BYD, and Lishen, continue their rise, and battery production shifts from Japan and South Korea to China, analysts expect China to go from currently producing 55 percent of global lithium batteries to 65 percent by 2021. It is quite clear that China recognizes the opportunities in the rapidly growing battery industry and does not plan to miss out on these opportunities.

Challenges for the domestic industry

While the battery industry has strong growth potential, it faces a number of challenges. Solutions and technologies to overcome these challenges will need to be developed if the industry is to be sustainable both in China and globally – this is a space where foreign manufacturers, suppliers, and consultants can collaborate.

Despite growing demand from the EV industry, there are production capacity concerns in China’s battery industry. As producers race to increase capacity and seize upon the opportunities presented by the EV market, there are overproduction concerns with 25 KWh batteries; the low-end segment of the market.

However, at the same time, there are underproduction concerns with the 75 KWh and 100 KWh batteries – the high-end segment of the market. Premium electric vehicles, such as Tesla vehicles, require the high-end batteries. High-end battery producers in the domestic market are in a strong position because they are faced with a high demand for their batteries.

To allow electric cars to go farther on a single charge, a critical factor for batteries is their energy density. For now, China lags behind South Korean producers in terms of the capabilities and technology to provide greater energy density, according to Bernstein analysts. The frontrunners in the market are LG Chem, Samsung SDI, SK Innovation, and Panasonic, with Chinese suppliers playing catch-up, the report says.

Many observers feel Chinese producers need to develop their technology and capabilities if they are to get the full attention of EV producers, especially foreign EV producers.

Separately, as the cost of the battery makes up a significant part of the cost of an EV, it is important to reduce the cost of the battery to make the EV industry competitive compared to conventional internal combustion engine (ICE) vehicles.

Due to advances in battery efficiency gained from developments in technology, significant progress has already been made by the industry, with global battery prices falling by roughly 80 percent (from US$1,000/KWh to US$227/KWh) between 2010 and 2016. Even at US$227/KWh, a 60 KWh battery is a US$13,620 component of a car. A 60 KWh battery is the typical sized battery used in an EV.

However, further reductions in battery prices will be required and the Chinese government is aware of this. A target to halve battery costs is among national 2020 targets. Based on current projections, battery prices could fall below US$100 KWh by 2030, which will mean some EV and ICE models will have price parity. That could be the start of a ‘tipping point’ for EV sales.

Even if EV models do have price parity with ICE models, there will be other obstacles that could prevent consumers from switching from ICE vehicles to EVs. These obstacles include the lack of EV charging infrastructure, the time taken to charge a battery, and the relatively low power density of batteries.

Moreover, the existing power density of batteries is about half of what is needed to sustain driving ranges of 400 kilometers, which many consumers want. One of the Chinese government’s targets is to improve energy by two-thirds by 2020.

China’s ambitious plans for both the EV industry and the EV battery industry mean that there are opportunities in China’s EV battery industry. However, if these opportunities are to come to fruition, and the industry is to be sustainable, the industry must overcome the challenges that it faces.

For China, the development of new technologies and the ability to produce high-end batteries will be of critical importance if it is to realize its ambitions to dominate the global EV battery market. It is in these areas where China can benefit the most from foreign investment.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Catch-22 In The South China Sea: China’s Provocations And ASEAN’s Impotence

Despite upcoming talks, Manila’s deferential stance to Beijing, and wider ASEAN disunity, mean no end in sight for China’s island-building in the South China Sea. Yet those islands will destroy the coral reefs they are built on, and the very fish stocks China wants to control in the first place.

China’s provocations and ASEAN’s impotence

Chinese and Filipino diplomats are still deciding when and where to pick up talks on the South China Sea in 2018, but in terms of substance, the two sides are already on the same page. Li Keqiang of China and Rodrigo Duterte of the Philippines spent the 31st ASEAN summit in October jointly insisting a “code of conduct” could stabilise tensions in the South China Sea – but failed to mask the lack of real progress.

The current state of affairs already represents a major diplomatic victory for Beijing. The Philippines, host of this year’s ASEAN summit, has effectively abandoned an unequivocal 2016 ruling in its favour from the Permanent Court of Arbitration (PCA) over China’sconstruction of artificial islands in disputed waters.

China rejected the validity of both the ruling and the PCA’s authority, but the Philippines and its ASEAN partners also failed to stand by the decision. Among member states, only Vietnam has come out in direct support of the PCA decision. China already ignores a 2002 declaration of conduct applying to the South China Sea. There is no indication any new code would be more binding.

This is unfortunate, because the PCA ruling addressed some of the most urgent ramifications of China’s actions in the region. It was particularly scathing in regard to environmental violations, stating “China had caused severe harm to the coral reef environment and violated its obligation to preserve and protect fragile ecosystems and the habitat of depleted, threatened, or endangered species.”

The inherent irony of the dispute is that dredging the sea floor to construct artificial islands endangers the very fisheries Beijing seeks to control. China’s own territorial waters are dead zones as a result of overfishing and industrial pollution, one of the main drivers for China’s claims in the South China Sea. Despite this, China marked the end of the summit (and last month’s visit from Donald Trump) by launching its new “magic island-maker” in a clear sign the island-building campaign is far from over.

Not that China is solely responsible. The failure of ASEAN to present a united front puts the resource-rich waters and the millions who rely on their declining fishing stocks for food and employment at risk. By leaving member states to fend for themselves against China, the bloc is undermining its own commitments to support environmental conservation and sustainability as well as international law.

Political concerns trump environmental imperatives

Preserving fish stocks and the ecological balance of the region as a whole requires concerted multilateral action of the sort current tensions render impractical. As early as 1992, scientists were proposing that the Spratley islands be designated as an international ecological marine park. At that point, the islands were not much more than atolls and rocks incapable of sustaining human habitation.

Since then, attempts at preservation have largely been unilateral and confined to respective Exclusive Economic Zones. As of late 2016, the Philippines intended to declare a marine sanctuary and no-fishing zone in the area that it claimed as its own, in spite of competing Chinese claims.

Worse, the destruction is not exclusive to China. Malaysia, Vietnam, the Philippines and even Taiwan have built airstrips and artificial islands on atolls in the South China Sea, destroying coral reefs in the process. Through its “Island Tracker,” the Centre for Strategic and International Studies (CSIS) has attributed ten such reclamation projects and 120 acres of reclaimed land to Vietnam alone – although it does consider Vietnam’s methods less destructive than China’s.

Even so, the overall ecological costs are substantial. Destroying atolls means destroying natural habitats for over 6,000 species of fish. Thanks to overfishing and environmental degradation, fish stocks in the region have plummeted: overall decline since the 1950s falls somewhere between 70% to 95%. In the 1970s, a Filipino fisher could count on an average daily catch of 20kg. Today, that number stands at less than 5kg.

Coral destruction only aggravates the impact of illegal, unreported and unregulated (IUU) fishing, which CSIS calls “a direct and indirect national security threat” in a report released this month with support and collaboration from the Philip Stephenson Foundation.Chinese fishers have to go farther afield to make a living. Accusations of IUU fishing have followed them, not just in the South China Sea but also in West Africa and South America.

These economic concerns could have serious political ramifications. In an era ofincreasing socio-economic inequality, Beijing obviously seeks to sustain its fishers’ livelihoods. The Chinese fishing industry directly employs between 7-9 million Chinese (in and beyond the South China Sea) and contributes as much as $279 billion USD to the national economy on a yearly basis.

ASEAN fishers are just as vulnerable to the threat of unemployment. The South China Sea may be the conduit for $5.3 trillion in annual international trade, but its struggling fisheries also employ at least 3.7 million people across littoral countries. Duterte’s deference to Beijing may partially be a bid to win concessions for Filipino fishers kept away from key fishing grounds by Chinese encroachment. That strategy has secured at least some successes, such as reopening the Scarborough Shoal to Filipino fishing boats.

Ways forward for preservation

With political and diplomatic avenues coming up short, other parts of the globe may offer alternative ideas on how to proceed. In the less geopolitically sensitive Caribbean, governments and international organisations work with non-governmental organisations (NGOs) to identify and implement proactive solutions.

Examples include Dr. Sylvia Earle’s Mission Blue, a project aiming to create a “worldwide network of marine protected areas.” Together with the Philip Stephenson Foundation, Mission Blue president recently hosted a gathering on the Caribbean island of Petit St. Vincent that promoted the goal of making 30% of the world’s oceans “fully protected” by 2030.

The choice of venue is significant, as these and several other NGOs (including CLEAR Caribbean and the Nature Conservancy) are also involved in coral planting there. Thanks to their political neutrality, environmental NGOs may offer a mutually acceptable path to ecological solutions in the South China Sea.

ASEAN and the Philippines have demonstrated their inability to stand by the PCA ruling. Non-state actors could have an easier time fostering initiatives to save coral reefs and the region’s fisheries. If successful, those projects could constitute the first steps to addressing the legal and geopolitical tensions bedeviling ASEAN governments.



Nicholas Leong is currently a trainee advocate & solicitor for Messrs Lai Mun Onn & Co in Singapore. As originally appears at:


Regardless Of Who Wins Chile’s Elections, Codelco Likely Loses

If Chile’s year-long bull market is anything to go by, conservative candidate Sebastian Piñera is likely to become the country’s next president after the December run-offs. But neither Piñera nor his centre-left rival Alejandro Guillier seem too concerned about state-miner Codelco, whose financial well being could have a ripple effect on the global copper market.

Codelco (1006Z:CI) has consistently posted strong quarters since it began implementing austerity measures during the 2015 copper market dip. Last quarter saw a pre-tax profit of $1.6 billion, an overall improvement of more than three times against the loss posted for the same period last year. Nonetheless, it’s a trend that is hardly sustainable given Codelco’s falling ore grades and aging mines.

The state-miner’s average ore grade has fallen roughly 10% since 2013, meaning Codelco has to process 10% more ore in order to produce the same amount of copper it did five years ago. At a time when declining ore grades are prevalent across the industry, the state-miner has to invest in higher yielding mines to remain profitable.

Codelco, which accounts for around 60% of Chile’s exports, would need around $20 billion to keep output flowing and expand its operations according to internal reports. Codelco has proposed revamping operations at its traditional crown jewels, the El Teniente and Radomiro Tomic mines, as well as resuming interest in investments outside Chile in projects as far away as Mongolia. Can they get it done?

Political Priorities For Codelco

Both runoff candidates, conservative Sebastian Pinera and centre-left Alejandro Guillier have widely differing priorities for the state-mining giant. Piñera, who has shown scepticism over Codelco’s management in the past, has recently told the miner it would have to maximize performance of existing assets and draft a “realistic investment plan”.

During his first administration, Piñera turned to the bond market to finance Codelco, raising the miner’s debt 84% at a time when there were already high market prices for copper. The presidential candidate now promises to reduce public spending and lower the country’s deficit. That would leave Codelco high and dry.

In contrast, Senator Guiller has prioritized relations with the company’s unions, much like the outgoing administration of Michelle Bachelet. Labour actions have hit copper miners hard over the past few years, particularly inside Chile. Melbourne-based BHP Billiton (BHP:AU) saw a 43-day strike in its flagship Escondida mine from February to March, cutan estimated $1 billion off its yearly revenue. Codelco’s Chief Executive Nelson Pizarro freely admits the mining industry is “unpleasant” to most Chileans. Nevertheless, while improving union relations could protect the miner’s bottom line, it would do little to add to production.

Guiller’s plans, however, are likely to be heavily influenced by leftist party Frente Amplio and its strong showing in the November elections. Frente Amplio had previously called for the recapitalization of Codelco in order to finance social spending, leaving little room for mining investments.

Surprisingly, both candidates have vowed to unburden the state-miner of its constitutional mandate to fund the military. The Pinochet-era legislation transfers 10% of Codelco’s export sales (roughly $866 million last year) to the Chilean military. The widely unpopular piece of legislation could free up capital for investments. But the laws successful passage will arguably have more to do with the incumbent legislative assembly than the president.

Fractured Landscape

The success of a left-wing Frente Amplio and other non-coalition parties in the legislative elections has muddied the waters for both runoff candidates. Regardless of who wins, they are unlikely to hold a strong mandate and will be forced to balance their centrist appeal and cater to their bases’ extremes.

Chile’s fragmented congress will force the incumbent president to cross party lines in order to pass any significant legislation. This is particularly troubling for Piñera given that both congress and the senate lean towards the left. Passing his proposed tax reforms will be next to impossible without support from the centre-left. For Guiller, this will likely mean his entire agenda will be pulled to the left by Frente Amplio.

In this fragmented legislative environment, a repeal of Codelco’s 10% military burden is highly likely to stall. There is already a broad concern the export tithe will not be cut back regardless of the President’s policy initiative. They point towards the influence the Chilean military continues to wield over all branches of government, irrespective of recent corruption scandals. Mining Professor Gustavo Lagos at the Universidad Catolica is among those that sees doubts that the law will ever get overturned: “I’m not very optimistic (…) we’ve been talking about it for 25 years”.

However, if the military funding mandate were to be repealed, there is no certainty Codelco will keep the 10%. It may very well be distributed to any other policy priority outside the miner’s coffers. So far Piñera has been the only candidate to insinuate he might return the money back to Codelco.

Emerging Risks

It’s a mistake to dismiss Chile’s influence in the world’s copper markets or the outcome of the upcoming election. Asian markets are continuing to demand copper due to higher-than-expected GDP growth and forecasts already seeing a bump in the copper market as high as 2% in 2018. Burgeoning industries, in particular green-products, will also rely heavily on the red metals to go into production.

Copper miners are now branching out into previously untapped mineral sources and investing in mines inside politically volatile areas such as the Central African copper belt. Chile’s copper industry is tantamount to an insurance policy against market dips caused by political instability elsewhere.

Chile has been the world’s top copper producer for the last quarter century and will remain a leading player for the near future. Thus, government policy regulating the state-miner will have a tremendous impact on the overall mining environment in the country, and the wider market.

‘Tis The Season To Be Realistic: 5 Things To Know About North Korean Tensions

North Korea’s latest missile test is its most significant yet, putting the US mainland firmly in Kim’s sights. When the conversation inevitably turns to politics this silly season, at work or at home, we’ve prepared the ultimate cheat sheet to keep things festive. Here’s hoping the only five golden rings you receive this Christmas are the ductile kind.

1. What’s the current situation? Should we be worried?

On 29 November, North Korea tested an intercontinental ballistic missile (ICBM) that flew further, and higher, than any previous launch. The 53-minute flight ended 600 miles away in the Sea of Japan, with North Korea claiming that the newly developed Hwasong-15 is now capable of landing anywhere on mainland US soil.

Tensions are as high as the early 1990s, when then-President Clinton consideredbombing the North’s nuclear facility at Yongbyon. The US and North Korea are at opposite ends of an impossible spectrum: North Korea is headstrong in its pursuit of developing long-range nuclear missile capability, and the US is determined to stop this from happening. It’s a zero-sum game that no one stands to win.

The next step for Kim Jong-un is to conduct a long-range test with a live nuclear warhead- experts predict North Korea can achieve this within the year. US rhetoric seems to suggest that all diplomatic responses have been exhausted, leaving only last-stage options on the table: limited military strikes, secondary sanctions against China, or a complete embargo against North Korea.

2. What effect has the Trump administration had?

The previous four US administrations all pursued a range of strategies, and all failed in different ways. Trump’s policy of applying “maximum pressure” is an extension of the Obama administration’s approach during his second term, which focused on collaboration with allies to impose financial costs on North Korea. So far, it seems to be working– at least to some degree.

The main difference is in the public face of US policy towards North Korea- whereas previous administrations emphasised the need for restraint, Trump has approached the US-North Korea relationship with his now-familiar bombastic tone. All diplomatic relations have been severed, and there are no official talks between Washington and Pyongyang. Last week, Trump reinstated North Korea to the US terror blacklist, labellingthe North as a state sponsor of terrorism.

Even if Trump were to tone it down, de-escalation seems unlikely. Other governments that have relinquished their weapons of mass destruction- such as Ukraine, Libya, and Iraq- don’t paint an attractive picture for the North Korean regime, who views its nuclear programme as the only guarantee of safety. It is safe to assume that it has no intention to pursue denuclearisation.

3. How are other countries reacting?

Fortunately (depending on how much faith you hold in Trump), the US is not the only player in attempts to contain the North. Japan and South Korea both support maximum pressure on North Korea, curbing Pyongyang’s access to much-needed foreign currency via a series of ever-expanding sanctions. South Korea’s President Moon appears the most dedicated to pursuing dialogue and continuing to provide humanitarian assistance to the North’s starving masses, though this has not yet caused too much tension in the coalition against the regime.

Second to South Korea, China perhaps stands the most to lose in the event of complete destabilisation on the peninsula: sharing a border with the North, Beijing is loath to incite a regime collapse that would lead to a flood of refugees and nuclear assets into the country, and has accordingly been slower to conform to UN Security Council measures. Even so, it has been increasingly proactive in sanctioning firms seen to be cooperating with the regime. This week’s missile launch comes just days after a visit by China’s special envoy to the reclusive state, insulting Beijing and straining the relationship even further.

Citing the need to downgrade tensions, China has called for an end to joint military exercises by South Korea and the US in return for a commitment from North Korea to halt missile development and return to the negotiating table. With the US determined to maintain military readiness, this is an unlikely course of action for 2018.

4. What happens next?

With both sides unwilling to engage in talks, the diplomatic impasse continues. Following this week’s launch by the North, Pyongyang is now claiming that it has reached the position of a nuclear state. Though is an exaggeration of its current capabilities, 2018 will be an entirely different story. With Trump at the helm of US policy, paired with more strained regional relations than ever before, further escalation may be inevitable.

5. Still confused?

Don’t worry, there is very little that can be done anyway. Unless you count asking Santa for a nuclear bunker in New Zealand, that is.


Track 1 dialogues: Government-to-government dialogues, the form of dialogue that the US has used to engage North Korea in the past.

Track 2 dialogues: Non-governmental dialogues, such as the kind that occurs in secret to prevent serious miscommunication and misunderstanding.

ICBM: Intercontinental Ballistic Missile, a guided missile that travels just above the Earth’s atmosphere to cross vast distances.


Joanna Eva is a Political Risk Analyst at Global Risk Insights. As originally appears:

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Why Bangladesh Scores Low on the Buffett Indicator?

The Buffett Indicator

Warren Buffett has long championed looking at market capitalization to GDP (gross domestic product) ratio when assessing a market. For Buffett, the “single best” way to tell if stocks are too expensive is to look at the total value of all equities in the market relative to the total size of the economy. Looking at the developing markets (EEM) (FM) in particular; markets such as China (FXI), India (EPI), Brazil (EWZ), and Russia (RSX) had Buffett indicators at 65.4%, 69.2%, 42.2%, and 48.5% (market capitalization of listed domestic companies to GDP ratio), respectively as of 2016. In comparison, developed markets such as the US, UK and Australia, had market cap to GDP ratios of 147.3%, 141.2%, and 105.3%, respectively.

Rahman sees the Buffett indicator rising to 40% for Bangladesh

Bangladesh lags far behind by the standards of this indicator with a 22% market cap to GDP ratio, Majedur Rahman, Managing Director of the Dhaka Stock Exchange told Frontera during a recent conversation. “Bangladesh’s GDP is about $250 billion, whereas its market capitalization is about $52 billion. Back in 2010, the market cap to GDP ratio was 40%. So, we’re pretty far behind compared to other South Asian markets,” said Rahman. He expects the Bangladeshi government’s focus and listing interest from the corporate sector to drive this ratio up to at least 40% in 3-5 years.



The Frontera interview with Majedur Rahman, Managing Director of the Dhaka Stock Exchange was conducted by Abraham Sutherland.

What Is Required to Boost The Share of Foreign Investment in Bangladesh Capital Market?

Foreign representation at Bangladesh capital market

Cross border investment flows have rebounded well post the financial crisis. From about $1.09 million in 2009, outward FDI (foreign direct investment) flows had reached a $1.47 million in 2016, according to data from OECD. Foreign investment has now come to play a key role for any economy’s capital market. However, when it comes to Bangladesh, the share of cross border capital into its stock market still remains dismal.

In a recent conversation with Frontera, Majedur Rahman, Managing Director of the Dhaka Stock Exchange said that foreign investment currently constitutes just 5-6% of the Bangladeshi capital market on a daily turnover basis. However, this is an improved figure over the less than 1% share that foreign money commanded at the DSE prior to 2013. A good part of this growth has been witnessed over the past one year.

Further privatization would be a boon for investment

Thomas Hugger, chief executive officer and founder of Hong Kong-based Asia Frontier Capital (AFC) believes that one of the reasons why foreign stakes in the Bangladeshi capital market remain low is because they “are not allowed to participate in the local IPOs (there are lotteries and if you manage to get shares the yields are substantial as pricing is normally too cheap).” Hugger further suggested, “Bangladesh should privatize some of its state holdings to local and foreign investors.”

Room for improvement

Hugger highlighted bureaucracy and a cumbersome IPO process, as reasons for the limited interest to date amongst local companies to publicly list on the Bangladeshi market.

A Decade of change

James Bannan, Frontier Markets Fund manager at Coeli Asset Management, sees massive improvement in terms of foreign representation in the Bangladeshi capital market. “When we started investing 10 years ago, foreigners were less than 2% of the market, and there was basically no sell side coverage and there was no data on Bloomberg.  From there to where we are today has been a massive improvement,” Bannan told Frontera.

Bannan highlighted stronger governance, improved transparency, and better corporate access as the key requirements towards increasing Bangladesh’s appeal to a broader investor base.

Bangladesh also scores low on the Buffett Indicator. Part 4 of this series sheds light on this.



The Frontera interview with Majedur Rahman, Managing Director of the Dhaka Stock Exchange was conducted by Abraham Sutherland.

Two Key Regulations To Be Passed On The Dhaka Stock Exchange Over The Next 6 Months

The Dhaka Stock Exchange: poised for a brighter future

Frontera recently spoke with Majedur Rahman, Managing Director of the Dhaka Stock Exchange where he shared his insights on reforms that are currently being undertaken to ensure a better capitalized future for this frontier market (FM) (BBRC).

There are currently only 3 main indices for the Dhaka Stock Exchange. These are as follows:

  1. The Dhaka Stock Exchange Broad Index (DSEX) is a broad market index, designed to reflect the broad market performance of the Bangladesh stock market. The index has a base date of Jan 17, 2008, and base value of 2951.91. Financials and textile sector companies dominate the DSEX.
  2. The S&P Bangladesh BMI Shariah Index is a Shariah-compliant benchmark covering large-, mid- and small-cap stocks of companies domiciled in Bangladesh. The healthcare sector commands a 43.7% weight in the index, followed by telecommunication services at 15.9% (as of October 31). The index has a base date of Jan 17, 2008, and base value of 1000.
  3. The Dhaka Stock Exchange 30 Index (DSE 30) represents 30 leading companies from the Bangladesh stock market. Together, these 30 blue-chip stocks account for around 51% of the total market capitalization of the Dhaka stock exchange. The index has a base date of Jan 17, 2008, and a base value of 1000. Pharmaceuticals, chemicals, and banks dominate this index.

Stocks such as BRAC Bank Ltd (DSE: BRACBANK), City Bank Limited (DSE: CITYBANK), Beximco Pharmaceuticals Ltd. (DSE: BXPHARMA) (BXP.L), Grameenphone (DSE: GP), IDLC Finance Limited (DSE: IDLC), LankaBangla Finance Limited (DSE: LANKABAFIN) figure amongst the top Bangladeshi stocks.

Two more offerings from the Dhaka Stock Exchange over the next 3 months

Rahman told Frontera that the Dhaka stock exchange is already in the process of adding two more offerings over the next 3 months, a bulletin board and an OTC (over-the-counter). This means the Dhaka stock exchange could soon see market makers and short sellers added to the list of participants. There is also the SME index which would allow small and medium-term enterprises to list. Initially, only qualified institutions would be allowed to trade in these stocks.

Two key regulations to be passed over the next 6 months

Currently, short selling is prohibited on the Dhaka stock exchange. The exchange is in talks with an organization to serve as a central counterparty to such transactions. Once that is in place (expected within the next 6 months), short-selling and day-netting may come sooner to this Asian stock market (EEMA) (VPL), than expected. Consequently, the DSE would have 2 regulations to pass:

  1. a securities lending and borrowing scheme, and
  2. regulation relating to short-selling and market makers

With the 3-phased development plan (see chart above) in place, the Dhaka Stock Exchange is on a clear maturation path.

Frontera also spoke to Rahman about the share of foreign investment and the Buffett indicator as pertains to the Bangladeshi market, which are covered in Part 3 and 4 of this series.



The Frontera interview with Majedur Rahman, Managing Director of the Dhaka Stock Exchange was conducted by Abraham Sutherland.

Bangladesh Stock Market Capitalization Has Grown By 50% Over The Past 4 Years

Bangladesh stock market: 3rd largest in South Asia

Bangladesh’s stock exchange is the 3rd largest exchange in South Asia (EEMA) (VPL), with its market capitalization falling directly after the Indian (EPI) and Pakistani (PAK) stock exchanges. In the US, exchange-traded funds such as the iShares MSCI Frontier 100 ETF (FM), and the Columbia Beyond BRICs ETF (BBRC) have about 5% exposure to the Bangladesh stock market. Stocks included are Square Pharmaceuticals Ltd. (DSE: SQURPHARMA), BRAC Bank Ltd. (DSE: BRACBANK), Grameenphone Ltd. (DSE: GP), Olympic Industries (DSE: OLYMPIC), and Beximco Pharmaceuticals Ltd. (DSE: BXPHARMA) (BXP.L).

Market capitalization: up 50% over 4 years

The Dhaka Stock Exchange has come a long way from its 2011 abyss. Market capitalization stood at $31.8 billion in FY13. It has already grown to about $49 billion currently. “The biggest changes have been in terms of regulation and market transparency,” remarked Majedur Rahman, Managing Director of the Dhaka Stock Exchange in a recent discussion with Frontera. Notable changes include:

  1. The revival of the Bangladesh Securities and Exchange Commission (BSEC) over the years, and;
  2. The demutualization of the Dhaka Stock Exchange which took place in 2013; ownership, to a large extent has been separated from management.

Reforms have kicked in

Previously, the broker-dealers owned the Dhaka Stock exchange, Rahman told Frontera. In 2013, under an act of the Parliament, the stock exchange was demutualized with 40% of the ownership staying with the broker-dealers, and 60% being offloaded to strategic partners, the public, and institutions. Since then, a lot of key regulations have been passed including:

  • In 2013, the BSEC introduced the TREC (Trading Right Entitlement Certificate) Regulations for traders.
  • In 2015, the DSE (Dhaka Stock Exchange) and the CSE (Chittagong Stock Exchange) introduced new listing regulations.

Dominant sectors

Key drivers for the Dhaka Stock Exchange over the past few years have been the economy growing at a consistent growth rate of above 6% over the last 7 years, combined with the government’s initiatives to list state-owned enterprises. There are currently 298 listed companies on the Dhaka Stock Exchange with companies from the Insurance (47) and textile (47) sectors dominating the capital market (see chart above). The market currently trades at an average P/E of 16. On an average over the past 10 years, there have been 15 new listings on the exchange every year.

In Part 2 of this series, Rahman shares his perspectives on the two key regulations that are expected to be passed by the DSE over the next 6 months.



The Frontera interview with Majedur Rahman, Managing Director of the Dhaka Stock Exchange was conducted by Abraham Sutherland.

A China-US Trade War: Good News For Asia

An editorial in the South China Morning Post this week has discussed the potential for a looming trade war between the China and the US. In the editorial, Scott Kennedy, a deputy director at the Freeman Chair in China Studies and director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies, lays out how the US may be preparing itself to battle with China over what Washington DC and President Donald Trump have labelled “unfair practices”. Kennedy writes that the US is in the process of building regulatory mechanisms to support the US in the event of a major trade conflict.

This comes as China has removed Skype from the Chinese app stores, citing security and legal concerns. To be fair, given what we’ve learned over the past few years concerning US surveillance, that should hardly come as a surprise: if the US spies on its own citizens, it is sure to have infiltrated software used in global communications. Isolating American influence is a strategy increasingly being played out by both China and Russia, with Russia also about to block Facebook. LinkedIn is already restricted in both countries.

The isolation of America continues via trade, and some of it not necessarily inflicted upon it by either Beijing or Moscow. The pull back from the Trans-Pacific Partnership by the Trump administration was an ill-thought out and inaccurate reaction to a perceived loss of American jobs. Yet those jobs – unless American workers really want to be engaged at Bangladeshi wage levels making garments – are never coming back. Economies constantly need to adapt and evolve. Denying the wage differences between Asia and the United States is fool-hardy – products will simply cost the American consumer more to have them carry a “Made in the USA” label and an entire supply chain industry will be damaged.

The TPP, meanwhile, has been reinvented as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), excluding the US, and will benefit other Asia Pacific nations, Vietnam among them. What should have secured basic, cheap imported products from Asia, which US manufacturers could have added value to in terms of design, innovation and completion, will now be the remit of high-end Japanese, South Korean and Australian businesses instead.

Washington DC’s rhetoric as regards the potential for a trade war, therefore, alarmingly fits in with the new American isolationism. But as the West is starting to learn from imposing sanctions upon Russia, a trade war between the US and China will only strengthen Chinese capabilities to secure trade and supply routes elsewhere. It will be to Asia and Eurasia’s benefit, in fact, if this does happen. China has a free trade agreement with ASEAN that has been expanding in volume by just under 20 percent per annum and is expected to reach US$1 trillion by 2020. China runs a trade surplus with ASEAN by a considerable margin; a China engaged in a trade war with the US would see that imbalance partially removed as it would seek to buy more from ASEAN members.

Other countries likely to benefit would be India, whose China trade has a long way to go to reach true potential, and would receive a large boost from a China on the hunt for new supply chains. Russia too, and especially in light of the upcoming China-EAEU Free Trade Agreement being signed can also be expected to receive a boost in bilateral trade. The China-Russian corridor has been growing at over 30 percent this year, partially because Western sanctions have motivated Russia to look east for trading partners.

Washington DC needs to think very carefully about engaging with a trade war with China. Such a move would be tantamount to a temporary burst of sanctions and tit-for-tat retaliation. Under such circumstances, China will fast track its Belt & Road infrastructure development reach to secure alternative supplies, and boost its trade with Asia.

Notably, China’s new Administrative Measures for Outbound Investment by Enterprises,  which was released on August 4 this year, already specify encouraged areas. These include:

This signals that China is also prepared for a trade war with the US should it come to pass. With alternative supply chains, free trade agreements, and nearby Asian nations keen to close their trade gap with China all in place, any resulting conflict would be a huge boost for the Asian and Eurasian regions, and potentially spell disaster for the US economy. The way out for American manufacturers? Set up alternative production facilities in Asia, and fast.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Why Saudi Arabia’s New Cyber Security Authority Will Need The Private Sector To Succeed

Saudi Arabia’s National Cyber Security Authority is a first step towards fulfilling the aims of Vision 2030. However, it cannot succeed without stronger public-private partnerships, better information sharing, and clear legal frameworks regarding data security and privacy.

Saudi Arabia recently announced the creation of a National Authority for Cyber Security. The Authority will be chaired by the Minister of State Musaed Al-Aiban. Also heading the Authority will be the Saudi President of State Security, Chairman of General Intelligence, Deputy Minister of Interior, and Assistant Minister of Defense. According to Minister Al-Aiban, the Authority aims to enhance the protection of networks, IT systems, and data through regulatory and operational tasks. The Authority will also seek to attract human resources in the cybersecurity field and build partnerships with the private sector.

Cybersecurity: a strategic national interest

The National Cyber Security Authority continues an ongoing trend by the Kingdom of elevating the issue of cybersecurity to national importance. Saudi Arabia’s Vision 2030 agenda called for diversifying its economy away from oil and gas and promoting growth in its so-called ‘knowledge economy’. Much of this growth will be fueled by digitization – including IT innovation, big data projects, smart city initiatives, and cloud-based services.

Yet technologically-oriented growth will generate a new set of heightened cybersecurity risks. The Kingdom is already the most-targeted country in the Middle East when it comes to malicious cyber activity. The Saudi government is particularly vulnerable, as demonstrated this year by the Shamoon 2.0 virus, which penetrated state-owned energy enterprises, as well as a range of cyber-attacks that targeted the National Aviation Authority, the Saudi healthcare sector, and other public sector institutions.

Developing capabilities

In February 2017, the Kingdom launched the Saudi National Cyber Security Center (SNCSC), which sought to improve government- and critical national infrastructure resilience to cyber threats, as well as develop internal capabilities. Through the SNCSC, the Kingdom has also aimed to attract cyber expertise and technologies from abroad. The new Cyber Security Authority likely aims to complement the SNCSC’s tactical enhancements by generating broader national strategies and regulatory frameworks.

The National Cyber Security Authority is a welcome development. Attracting human capital is clearly necessary – the Middle East ranks in the bottom half of regions globallyfor cyber education and training, despite MENA countries having some of the highest Internet and smartphone penetration rates worldwide.

Creating a centralized national institution regarding cybersecurity is also needed. Saudi Arabia has tended to focus on investing in national cybersecurity technologies without producing clear strategies to deter, detect, and mitigate genuine cyber threats to public institutions. The Authority should accordingly encourage inter-agency information-sharing and planning regarding imminent cyber threats to national infrastructure.

The private sector’s need for regulation

The ability of the Authority to improve cybersecurity outside the public sector will not be significant in the short term. Saudi Arabia’s strategies and laws affecting data security in the private sector are vague and antiquated. The term “personal data” remains undefined in Saudi law, and private institutions are forced to create their own ad-hoc rules regarding data security. Most legal frameworks affecting private sector cybersecurity focus on discouraging online activism or insults to religious and moral tenets, and do not offer standards to deter and mitigate genuine cyber threats.

The Authority’s aim to build relationships with the private sector has the potential to follow in the footsteps of Dubai’s 2017 Cyber Strategy, which relies on collaboration between international, public and private sector stakeholders to create national cybersecurity laws and standards that are universally implementable. However, there are obstacles to fostering such collaboration within Saudi Arabia.

Central to any public-private cybersecurity cooperation must be information-sharing, and the Saudi government – like many states in the region – is likely to initially resist exposing internal cyber breaches and vulnerabilities out of fear of signaling weakness to the public. The legacy of the Saudi government’s robust surveillance presence and use of cyber power against journalists, activists, and private entities may also breed distrust among companies to cooperate with the government on cybersecurity. This is augmented by private companies’ existing fear of unilaterally exposing their own IT weaknesses to competitors. Ultimately, the public-private partnerships called for by the Authority will require concerted effort on the Saudi government’s part.

For the Kingdom’s National Cyber Security Authority to be effective, the Saudi government must foster trust within the private sector and create incentives for public-private information sharing. It must then build upon that collaboration to generate clear laws and regulatory frameworks that promote sound cybersecurity practices throughout the country. As Saudi Arabia advances towards its digitized future outlined in Vision 2030, the success of the Kingdom’s cybersecurity strategy will depend on whether the Saudi government’s partnership with the private sector can be realized.


Azhar Unwala is an analyst for government and corporate clients in Washington, D.C. As originally appears:

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.