Investment Incentives in Vietnam’s Central Highlands Region

The Central Highlands have long been a strategic economic, political location in the history of Vietnam. Sharing borders with Laos and Cambodia, this region is one of the most important location for the economic development of Vietnam in the next few years.

A region full of potential

The Central Highlands, or the Western Highlands, is located in the West and South West of Vietnam. The region contains five provinces: Lâm Đồng, Daklak, Dak Nông, Gia lai and Kon Tum. These provinces are expected to show high potential for development in renewable energy, agricultural and tourism in the coming years.

According to the Minister of Public Security’s speech in the fourth conference on investment promotion in Central Highlands total investment capital has reached VND 266 trillion in 2015 with an annual growth rate of 11.3 percent between 2011 and 2015. To date, there have been 140 FDI projects worth US$772.5 million in the Central Highlands. This number is expected to grow significantly in the next few years, especially as the government is trying to improve the region’s infrastructure and paying more attention to renewable projects in its long-term plan of development.

Tourism and agriculture are two important sectors that appeared very promising to foreign investors, especially investors from Korean, Japan, and China. However, Central Highlands are not being fully explored, thus, bringing more opportunities for future investors to enter the race.

Opportunities for renewable energy projects

The Central Highlands is a prominent location for solar potential maps in Vietnam. According to Vietnamese authorities, the total hours of sun in Central Highlands varies from 2000 to 2600 hours per year. Korean Solar power investors in this area are upbeat on the prospects for the region and have published findings indicating a direct solar radiation generation of 5 kWh per square meter. With this in mind, Vietnam’s Central Highlands is an ideal place to develop a solar power plant.

In addition, the region’s wind power capacity could reach 2000MW, which is even more than the second largest hydro power plant of Vietnam in Hoa Binh.

Realizing the favorable conditions for developing renewable energy of this region, Central Highland provinces have issued a number of preferential mechanisms and policies as well as simplified administrative procedures, to attract investors. Daklak is topping the list with 4 projects worth US$3.3 billion from AES Corporation, Vietnam’s Xuan Thien Limited Company, South Korea’s Solar Park Limited and Vietnam’s Long Thanh Infrastructure Development and Investment Company.

Promising land for coffee, tea, and pepper

In addition to its advantages in solar and wind power, the region is also getting more and more popular as a promising land for FDI projects in agriculture. Central Highlands cover an area of 5.46 million ha, in which 2 million ha are used for developing agricultural. Besides, the region contains 74.25 percent of the red basalt soil of Vietnam, making it an ideal place for large-scale production specialized in coffee, pepper, tea, cashew, cassava, rubber.

Realizing the growth potential of this sector, investors from Korea and Japan have launched several projects with advanced agricultural techniques to maximize production in the region. New policies and tax incentives are also available to encourage and attract investments. Although climate changes may appear to be a threat, agriculture will continue to grow and strengthen its position as an important sector of Central Highland’s provinces.

Top destinations for tourism

Dalat, Kon-Tum and Gia Lai are famous destinations for eco-friendly and historical tourism. Cool weather, beautiful natural sight-seeing, historical museums and also the variety of food specialties are the reasons why more and more tourist chose these destinations for a get-away on the weekend. In 2016, Dalat city of Lam Dong province welcomed 5.4 million visitors, an increase of 6 percent compared to 2015. On top of this, the number of international visitors reached 270,000 people with most travelers coming from South Korea, China, Thailand and the United States.

The city also has been ranked by The New York Times as one of top 52 tourist destination in the world. Although the region’s tourism industry used to suffer from the past because of poor infrastructure and facilities, the situation is getting better recently thanks to investments from government also foreign investors. New tourist products with better services are now provided, making the region even more attractive to tourist. Besides, many investments in hotels, amusement park, restaurants are about to kick off in the near future, helping these provinces to fully exploit tourism potential of this region.


The Central Highlands contributes 9 percent of Vietnam’s GDP. Ignoring all the advantages it has developed in its economy, the region still remains poor compared to others. Foreign investment is limited in both quantity and quality. However, with new incentives and support from the government, the investment’s environment of Central Highlands becomes more and more attractive.

Beside many investment incentives such as corporate income tax exemption, land use rental reduction, import tax exemption, etc., FDI projects can benefit from province-specific investment support. For example, investment project in high-tech applied agricultural business can receive support from Kon Tum province for the development of greenhouses and net houses with a support level of VND 50,000 per square.

Each province in the region have different types of support and incentives to attract foreign direct investment, thus to maintain the sustainable growth of the region. In the future, Central Highlands will continue to consolidate its position as an important region in the economic development of the whole country.


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.

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.

TPP Is Now The CPTPP: What Does This Mean For Vietnam?

The original Trans-Pacific Partnership (TPP) signed in February 2016, included the US along with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. By January 2017, the new US administration pulled out of the pact, forcing the remaining members to continue with the agreement, known then as TPP-11. In November 2017, all the existing parties to the agreement met at the APEC summit in Da Nang and reaffirmed their commitment to the agreement, now called as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

TPP to CPTPP: what has changed

The total GDP of TPP members stands at US$ 28.7 trillion, largely due to the US, while the CPTPP’s GDP stands at US$ 10.1 trillion. In terms of GDP, CPTPP will account for 13.5 percent of the global GDP, down from 40 percent had the US stayed in TPP. The market size has also reduced considerably from 822 million to 499 million under CPTPP.

In terms of the agreement text, most of the commitments related to goods, services, procurement, and investment remain unchanged. Only 20 provisions of the TPP have been suspended in the CPTPP. Most of these provisions were in place at the urging of the United States, and are mostly from the Intellectual Property chapter of the agreement such as protection for copyright, patent extensions, protection of data, and offenses regarding the protection of encrypted program-carrying satellite and cable signals.

Apart from the suspended provisions, there are four provisions that are still to be finalized by Brunei, Canada, Malaysia, and Vietnam, which includes:

  • a cultural exception for Canada;
  • exceptions regarding trade sanctions for Vietnam;
  • exceptions for state-owned enterprises in Malaysia; and
  • exceptions regarding coal production in Brunei.

In addition, CPTPP would still have the ISDS legal system, which would allow foreign investors and corporations to legally challenge countries for its violation of investment-related commitments.

Reduced benefits

In comparison to the TPP, Vietnam will have reduced benefits under the CPTPP. According to Vietnam’s National Center for Socio-Economic Information and Forecasting, CPTPP will lead to an increase of 1.32 percent in Vietnam’s GDP, much less than 6.7 percent as predicted under the TPP.

The gains from tariff elimination will reduce from 6.79 percent to 1.1 percent as a share of its GDP. Exports are forecasted to grow by 4 percent under CPTPP, while under TPP, Vietnamese exports were predicted to grow by 15 percent. Imports will also reduce from 10.5 percent to 3.8 percent in comparison to TPP.

Gains for Vietnam

Even without the US, CPTPP will still contribute to the Vietnam’s economy and trade, and most importantly, will lead to numerous policy reforms. Vietnam will have access to newer markets and can expand their exports to countries such as Canada, Mexico, and Peru with whom it does not have a trade agreement. Exports are forecasted to grow by 4 percent.

Labor-intensive industries such as garments and footwear will benefit the most from increased exports. There will also be an increase in imports, but the effect will be minimal, as Vietnam already has trade agreements with most of the members of the CPTPP.

In addition, CPTPP will lead to numerous institutional reforms such as labor reforms leading to an easier and faster integration into the global supply chains. It will also push Vietnam in improving regulations, introducing administrative reforms, and investing further in innovation to remain competitive.

Without the US, CPTPP also helps its members in reducing their dependency on major economies such as US and China for a successful trade agreement.

Entry into force

Once six members out of the 11 ratify the CPTPP, it will come into force among those ratifying nations. After the ratification requirements are met, it would take another 60 days for it to enter into force. Most of the tariff reductions on goods will be in effect when the agreement comes into force, as well all provisions for services and investment. The members are pushing for a mid to late 2018 deadline for entry into force.


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.

Vietnam’s Biggest IPO Ever Just Debuted; This Is What You Need To Know

Vincom Retail

On November 6, Vietnam’s (VNM) largest IPO, Vincom Retail listed its shares on the Ho Chin Minh Stock Exchange under the ticker VRE. The stock received a lukewarm response on debut as trading remained light with merely 800 shares exchanging hands, and the stock closing 0.1% below its issue price.The listing is one of the largest IPOs ever on the Ho Chin Minh Stock Exchange

The mall operator offered 1.9 billion shares at a price 40,600 Vietnamese dong per share, at the top end of the IPO’s pricing range of 37,000 dong to 40,600 dong per share. The share sale raised $706 million, in what is slated to be Vietnam’s biggest equity offering till date. The Warburg Pincus-owned fund WP Investments III, Credit Suisse and other individual shareholders sold their shares through the IPO. Vingroup , the largest shareholder in Vincom Retail, did not sell any shares.

Foreign investors, including the Singapore sovereign wealth fund GIC, acquired 415 million shares equivalent to 21.8% of the shares offered in the IPO. Post the public issue, Vingroup will remain Vincom’s biggest shareholder with 36% stake.

The stock, however, listed slightly lower than its issue price at 40,550 dong per share, valuing the company at $3.4 billion. In the following five days of trade (as of November 15), shares of the company have gained nearly 10% from their listed price of VND 40,550. The company’s market value has subsequently increased to $3.7 billion.

Despite the lackluster debut, analysts opine that the success of this IPO will pave the way for other Vietnamese firms to seek listings and the government to pursue its privatization targets.

“Foreign investors are clearly showing strong interest in the market in Vietnam,” said Nguyen Thanh Lam at Maybank Kim Eng Securities.

Is the company lucrative?

Vincom Retail, established in 2013 started out with three malls in Vietnam. Currently, the company operates and owns 41 malls across 22 cities throughout the country with a gross retail floor area exceeding 1.1 million sq. meters. They now account for 60% of retail space in Hanoi and Ho Chi Minh City, according to research by Colliers International. The company plans to expand to 200 malls by the year 2021.

In 2016, the company reported revenues of $277 million (6.3 trillion dong) and net profits of $105 million (2.4 trillion dong). The company’s revenues grew at a CAGR of 81% between 2014 to 2016 as per reports by Vietnamese research firm Saigon Securities.

However, in 2017, the company forecasts revenues to decline 28% to $202 million (4.6 trillion dong) and net profits to depreciate 13% to $92 million (2.1 trillion dong). The company attributes this decline to the renewal of leases and ongoing construction of several malls. For 2018, Vincom Retail targets revenue growth of 75% and profit growth of 55%.

Vietnam: The Major State Divestments Of 2017 And Which Companies Are Next

For the last few years, equitisation continues to be a focus for the Vietnamese government. The government hopes that equitisation will increase the efficiency and improve the management of the State-owned enterprises (SOE) which have been suffering from inefficiency for years. In addition, the much required capital raised from divestments will also assist the government to reduce its growing debt and fund infrastructure projects. In August 2017, the government released Decision No.1232/2017/QD-TTg approving a list of 406 state-owned enterprises to be divested during 2017-2020.

2017 Divestment Policy

The new decision not only lists the 406 approved companies marked for divestments but also includes mechanisms to accelerate and increase the efficiency of the divestment process. This has been included to address issues faced by investors during previous divestments, such as delay in the transfer of ownerships and lack of clarity in valuation.

There is also a provision allowing the rate of divestment and number of divested entities to increase in the next four years depending on the market.

Divestments until now

The number of SOEs has decreased drastically from 6,000 in 2001 to 700 in 2016. The number of industries with State investment has dropped from 60 in 2001 to 19 in 2016.

Divestments in 2016

In 2016, 56 enterprises were approved for equitisation. The total value of these firms was US$ 1.5 billion (VND 34 trillion), of which the State capital was valued at US$ 1.07 billion (VND 24.4 trillion). The stakes sold to investors were worth US$ 307.7 million (VND 7 trillion), those sold to workers were worth US$ 17.16 million (VND 388 billion), and shares sold at public auctions were worth US$ 189 million (VND 4.3 trillion).

Businesses under State Capital Investment Corporation (SCIC), state-owned holding company were able to earn more revenues than expected such as Bao Minh Joint Stock Company (148 percent higher than the planned revenue), Binh Minh Plastic Joint Stock Company (131 percent), Vietnam Construction and Import-Export Joint Stock Corporation, and Vinaconex (114 percent).

Return on equity for firms such as Vinamilk and FPT Telecom were also higher than expected, at 42 and 29 percent respectively.

Divestments in 2017

As of September 2017, total revenue from divestment is expected to add VND 19 trillion (US$ 835.2 million) to the budget based on the value of the share of state capital expected to be divested from 135 enterprises. Based on share prices on the stock exchange, it can reach up to VND 29 trillion (US$ 1.28 billion).

The total number of approved SOEs stands at 375, with a total capital of VND 108.5 trillion (US$ 4.8 billion). Total capital expected to be divested during 2017-2020, stands at VND 64.5 trillion (US$ 2.8 billion). These figures exclude SOEs belonging to the Ministry of National Defence, Ministry of Public Security, Ho Chi Minh City People’s Committee, the State Capital Investment Corporation (SCIC), and SOEs selling capital under the PM’s separate decisions. If we include the SOEs under the mentioned government agencies, then the total state-owned capital can be over VND 100 trillion (US$ 4.4 billion) at least.

In here, we will discuss the major divestments in the shipping, oil & gas, beverage, and airlines industry.

Shipping and Ports

Vinalines, the country’s largest shipping company is aiming to reduce its stake in ocean shipping companies, but will maintain ownership in marine logistics companies to ensure the development of marine logistics network and reduce losses in ocean shipping companies. In addition, the company is also divesting its stake in ports.

Vinalines’ seaports earned VND307 billion ($13.58 million) in profit in the first half of 2017, while marine logistics companies earned VND838 billion ($37.06 million) in profits. Ocean shipping companies witnessed a loss of VND904 billion ($39.98 million).

Vinalines is due to make an initial public offering (IPO) in December this year and make its debut as a joint stock company in April next year. Currently, it owns a fleet of ships with a capacity of more than two million tonnes, accounting for 25 percent of the nation’s total capacity.

Oil and Gas

Vietnam National Oil and Gas Group (PetroVietnam) will complete the divestment from several subsidiaries by 2020. They are allowed to retain their entire holdings in only the parent company PetroVietnam, National Southern Spill Response Centre (Nasos), and PetroVietnam Manpower Training College.

Subsidiaries being divested until 2019 include PVI Holdings, Phuoc An Port Investment and Exploitation Oil and Gas JSC, Green Indochina Development JSC, SSG Real Estate JSC, PetroVietnam Trade Union Finance JSC, PetroVietnam Construction Joint Stock Corporation, and PetroVietnam Maintenance and Repair JSC. In addition, stakes in PetroVietnam Gas Corporation, PetroVietnam Transportation Corporation, Binh Son Refinery and Petrochemical Co., Ltd., and PV Power will also be reduced to less than 50 percent.

In addition, stakes in PetroVietnam Gas Corporation, PetroVietnam Transportation Corporation, Binh Son Refinery and Petrochemical Co., Ltd., and PV Power will also be reduced to less than 50 percent.

PetroVietnam reported a revenue of VND247 trillion ($10.8 billion) in the first six months of 2017, up VND31.5 trillion ($1.3 billion) compared to the same period last year, including an after-tax profit of VND13.1 trillion ($572.8 million), up VND2.6 trillion ($113.6 million).


Vietnam Airports Corporation (ACV) and Vietnam Airlines (VNA) are going to divest large stakes for future funding requirements. ACV will sell off 20 percent of its state stake in 2018 and 10.4 percent in 2019, while VNA will sell 35.16 percent in 2019, thus reducing state ownership in the firms to 65 percent and 51 percent, respectively.

These divestments offer a chance for foreign investors to enter the aviation market. There already is a considerable interest from investors for both the entities. The aviation industry in Vietnam contributes US$6 billion annually to the GDP and grew 29 percent year on year in terms of passengers in 2016.

Already Paris Aeroport has become ACV’s strategic investor and ANA has acquired 8.8 percent stake in VNA for VND2.38 trillion ($108 million).


The two state-owned breweries, Saigon Beer Alcohol Beverage Corp. (Sabeco) and Hanoi Beer Alcohol Beverage Corp. (Habeco) have already attracted considerable interest from foreign investors. The beer market grew 9.3 percent in 2016 in comparison to previous year.

Already firms such as Heineken, San Miguel, Thai Beverage Public Company, Asahi Group Holdings and Kirin Holdings have shown interest.

Later in the year, the government will release further details about their divestment plans.


Other major divestments include Vinamilk, Vietnam Southern Food Corporation (Vinafood), Vietnam Urban and Industrial Development Investment Corporation (IDICO), Vietnam Rubber Group (VRG), companies under Vietnam Electricity Corporation (EVN), Song Da Corporation, and MobiFone.

Changes in divestment policy

The 2017-2020 plan is different in various aspects from the 2011-2015 plan. In the 2011-2015 plan, only SOEs in real estate, securities, finance/banking, insurance, and investment funds were allowed to be divested. This led to revenues from sales to be confined within the SOEs and only changed the investment portfolio of SOEs.

In contrast, for 2017-2020, the divestment will lead to a change in the state’s portfolio of assets. From now onwards the sales revenue from divestments will be directed towards public investments projects unlike in 2011-2015, when revenue was held by the SOEs, leading to an increase in the state capital in the business.

In the recent divestment policy, the government has also added a provision to divest in instalments, with the rate fixed at 20 to 36 percent of the total holding. This has led to an increase in the number of divested SOEs.

Investment challenges

The major investment hurdles faced by foreign investors include unfair valuations, unable to acquire a controlling stake, and delays in transfer of ownership.

Investors have often highlighted the delay in the process of transferring stakes from ministerial or provincial people’s committee level to SCIC that handles divestments. To reduce delays, the government in their recent decision, has asked the people’s committees in each city/province to report prior to the 25th of the last month of each quarter as well as on December 25 each year, to the Steering Committee for Enterprise Innovation and Development, Ministry of Finance (MoF), and Ministry of Industry and Trade (MoIT) for progress.

According to a recent study by the Central Institute for Economic Management and the American Chamber of Commerce (AmCham), divestments in SOE has been slower than expected as it has failed to attract strategic shareholders, especially international investors. Investors have highlighted the limitation in foreign ownership as the major reason to not invest.

In addition, the lack of transparency in the divestment process, unreasonable evaluation of enterprises, poor management, existing company liabilities, and incompetent staff were highlighted as the other factors affecting investor’s sentiments.

Need to do more

The government needs to attract strategic shareholders, especially international investors to invest in the SOEs. This will not only bring in the much need foreign capital, but also lead to value addition such as newer technologies, administrative skills, and access to newer markets, which will lead to a more sustainable growth.

To do so, the government has to increase transparency regarding regulations, reduce red tapism, and incorporate international practices for determining the business value and transaction cost of shares to ensure clarity. The government has to ensure that sufficient time is given to foreign investors for their due diligence prior to bidding to increase chances of investment. Foreign investors are the key to these divestments, bringing in the much-needed capital.

Investment considerations

Equitisation offers investors an opportunity to enter the market in major industries such as food & beverage, telecommunications, aviation, energy, shipping, and retail and invest in companies with a dominating market share.

Investors should ensure clarity about management control, corporate governance practices, technology transfer, organizational structure, and future options for increasing stake in the SOEs.

In addition, investors should carefully identify the decision makers to influence negotiations. Decision makers in SOEs not only includes the management members, but also the government officials in agencies overseeing the divestment process.



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.


Vietnam Rises 14 Places In The World Bank’s Ease Of Doing Business Rankings

Vietnam climbed 14 places to 68th amongst 190 economies in the latest World Bank’s Ease of Doing Business 2018 rankings. It ranked fifth amongst ASEAN countries, with Singapore, Malaysia, Thailand, and Brunei leading the group. As per the report, significant improvements were made in the area of paying taxes, trading, enforcing contracts, access to credit, and electricity reliability.

The ranking measure the effectiveness and quality of regulations based on starting a business, resolving insolvency, enforcing contracts and paying taxes, as well as trading across borders, protecting minority investors, getting credit and registering property, along with getting electricity, dealing with construction permits and labor market regulation. The report covers the period from June 2 last year to June 1 this year.

ASEAN Rankings

In terms of the number of reforms implemented, Vietnam along with Indonesia leads amongst the global economies in implementing 39 reforms, the most in the last 15 years. Within the ASEAN region, Vietnam ranked fifth, after Singapore, Malaysia, Thailand, and Brunei.

Cambodia, Lao PDR, and Myanmar ranked the lowest at 135th, 141st, and 171strespectively.

Major reforms

The report highlights significant improvements in five indicators:

Getting electricity

The reliability of power supply has increased due to the implementation of a Supervisory Control and Data Acquisition (SCADA) automatic energy management system that monitors power outages and restoration. The SCADA systems were set up between the subsidiaries of Electricity of Vietnam (EVN) and ABB and Siemens in the last two years. Improving the power network and reliability are key to the 10-year roadmap for smart grid development as laid out by the government in 2012.

Vietnam ranked seventh in getting electricity amongst ASEAN countries, ahead of only Cambodia, Lao PDR, and Myanmar. Malaysia, Singapore, and Thailand led the rankings. In comparison to previous year, Vietnam’s ranking jumped from 96th to 64th, up 32 places, amongst all global economies.

Getting credit

Access to credit was strengthened by the adoption of a new civil code that broadens the scope of assets used as collateral. The new civil code came into effect on 1 January 2017.

Among the ASEAN nations, Vietnam tied with Singapore at the fourth place. Brunei, Malaysia, and Cambodia led the rankings. Since last year, Vietnam jumped three places in the global rankings to 29th.

Paying taxes

Paying taxes were made easier with the abolishment of the mandatory 12-month carry forward period for Value Added Tax (VAT) credit. In addition, the introduction of an online platform for filing social security contribution boosted the rankings. This year was the fourth year in a row that recognized the progress in tax reforms. Components of the indicators include the number of tax payments, time, total tax rate, and post-filing index (VAT refunds and corporate income tax audits).

Vietnam ranked fourth amongst its ASEAN peers, with Singapore, Thailand, and Malaysia leading the ranks. Paying taxes witnessed the highest growth amongst all indicators. Out of the 190 economies, Vietnam ranked 86th globally, a significant jump of 81 places from its previous year’s ranking at 167th.

Trading across borders

Import and Export procedures were made easier with the upgrading of the automated cargo clearance system and increasing the operating hours of the customs department. This has led to shorter customs clearance times and more transparency in customs procedures. This indicator also jumped last year with the implementation of an electronic customs clearance system.

In trading across borders, Vietnam follows Singapore, Thailand, and Malaysia at fourth place. Vietnam slipped one place in its global ranking to 94th.

Enforcing contracts

Enforcing contracts were made easier with the adoption of a new code of civil procedure and a new law on voluntary mediation. The commercial mediation law, which came into effect on 15 April 2017, has simplified the mediation process without the need for complicated legal procedures.

Singapore, Thailand, Malaysia, and Brunei lead the ASEAN rankings, with Vietnam in the fifth place. In comparison to the previous year, Vietnam’s global rankings increased from 69th to 66th.

Other indicators

Dealing with construction permits

In dealing with construction permits, Vietnam’s rank jumped four places to 20th, with the only change being in cost, which is calculated as a percent of warehouse value.

Registering property

Registering a property rank dropped from 59 to 63.

Protecting minority investors

The rankings jumped from 87th to 81st  this year, with minor changes in the sub-indicators.

Need to do more

The country ranked the lowest in resolving an insolvency and starting a business at 129thand 123rd respectively. Both indicators dropped since last year from 125th and 121strespectively. However, both witnessed a climb in scores.

For starting a business, the cost of official fees and fees for legal or professional services has increased from 4.6 percent to 6.5 percent of income per capita. However, the number of days to register a firm has reduced from 24 to 22.

With respect to resolving an insolvency, only one sub-indicator has changed in comparison to previous year. The recovery rate has changed from 21.6 to 21.8 cents on the dollar. The recovery rate calculates how many cents on the dollar secured creditors recover from an insolvent firm at the end of insolvency proceedings.

Going forward

According to the World Bank’s report, in 2003, an average businessperson in Saigon spent 61 days and 31.9 percent of their per capita income registering a new company. Now, it’s just 22 days and 6.5 percent of per capita income. This has been the result of numerous reforms aimed at streamlining business regulations. Vietnam along with Indonesia leads amongst the global economies with 39 business reforms, the highest in the last 15 years.

Going forward, the focus should be on improving the public infrastructure, increasing support for the development of the domestic private sector, and reducing the regulatory and administrative burden on enterprises.


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.

Chinese FDI In Vietnam: Growing Economic Ties, Despite Strains

For the past 25 years, Chinese investments in Vietnam and bilateral trade between the two nations has grown steadily despite issues such as the South China Sea and increasing cooperation between Vietnam and countries such as US, India, and Japan. The Chinese mainland has emerged as the eighth largest investor in Vietnam, with the actual FDI much higher if we include their affiliates in Hong Kong and Macau. Over 60 percent of all Chinese FDI focuses on manufacturing and processing, with a majority of the investment focused on labor-intensive industries.

Trade agreements

Both countries are parties to the ASEAN China FTA, which created the largest free trade area in the world. Apart from ASEAN China FTA, both countries are currently negotiating the Regional Comprehensive Economic Partnership (RCEP), which includes the ASEAN member states, and the six states with which ASEAN has existing free trade agreements, which include Australia, China, India, Japan, South Korea, and New Zealand.

Bilateral trade

Trade volumes between the two nations have increased significantly in the last few years. Vietnamese exports to China increased at a faster pace in comparison to its imports. According to Chinese statistics, its exports to Vietnam grew by an average annual rate of 18 percent during 2010-2016, and its imports from Vietnam grew by 26 percent.

Major imports

Over 70 percent of Chinese imports into Vietnam are intermediate goods such as machinery, electrical and electronic products, textiles and fabrics, base metals and minerals, and chemicals. In the last 2-3 years, other goods such as plastic and clothing products for consumer purposes also accounted for a small part of Chinese imports in Vietnam.

In the first seven months of 2017, China has emerged as the largest exporter to Vietnam at US$ 31.59 billion, an increase of 15.3 percent compared to the same period in 2016. The below information is the percentage share of different product in total imports.

Major exports

Major Vietnamese exports to China include machinery, electrical and electronic products which account for more than half of the total exports. Other products include food items, cotton, fuel, and oil products.

Vietnam’s exports in the first seven months of 2017 stood at US$ 15.62 billion. The below information is the percentage share of different product in total exports.

Chinese FDI in Vietnam

China’s first FDI in Vietnam was in 1991 when a Guangxi enterprise (China) joint ventured with a Vietnam group to open Hoa Long restaurant in Hanoi. Since then, Chinese FDI has increased, although not consistently. For example, China’s FDI in Vietnam in 2012 was US$ 312 million, while in 2013; it rose to US$ 2.3 billion. China’s 2016 FDI in Vietnam accounted for 7.7 percent of the total FDI at US$1.88 billion.

Cumulative FDI

As of March 2017, the cumulative Chinese FDI stood at US$ $11.19 billion for 1,616 active projects. The average capital per project was US$6.9 million, much lower than the overall average. Chinese investment is mostly in the processing and manufacturing industry, accounting for 61.4 percent of total investment capital, followed by production and distribution of electricity, gas, and water, and air conditioning at 18.2 percent and real estate at 5.6 percent.

Binh Thuan province attracted the most FDI, with total registered investment capital of US$2.03 billion, for only seven projects, accounting for 18.1 percent of the total FDI from China.

Market entry strategy for FDI firms

As much as 80 percent of all engineering, procurement, and construction (EPC) contracts in Vietnam are awarded to Chinese contractors, accounting for 18.4 percent of total registered capital to be in the form of build-operate-transfer (BOT), build-transfer (BT), and build-transfer-operate (BTO) contracts. In a close second, joint ventures, business cooperation contracts, or joint stock companies account for 15 percent of the total registered capital. In terms of FDI, investments from affiliates in Macau and mostly Hong Kong have outweighed FDI from the Chinese mainland.

Commercial presence

There are numerous ways to establish a commercial presence in Vietnam.

  • Representative Office

This is the most common form of presence in Vietnam for foreign companies, particularly those in the first stage of a market entry strategy. A representative office cannot conduct commercial or revenue generating activities.

  • Limited-liability Company

It may take the form of either:

  • A 100% foreign-owned enterprise; or
  • A foreign-invested joint-venture enterprise between foreign investors and at least one domestic investor.
  • Joint-stock Company

A joint-stock company is a limited liability legal entity established through a subscription for shares. By law, this is the only type of company that can issue shares. A joint-stock company may be either 100 percent foreign-owned or a joint venture between both foreign and domestic investors.

  • Partnerships

A partnership can be established between two individual general partners.

  • Business Cooperation Contract (‘BCC’)

A BCC is a cooperation agreement between foreign investors and at least one Vietnamese partner in order to carry out specific business activities.

  • Public and Private Partnership Contracts

A Public and Private Partnership (‘PPP’) contract is an investment form carried out based on a contract between the government authorities and project companies for infrastructure projects and public services.

Major FDI projects

Overall, the Chinese mainland is the eight largest investor in Vietnam, with the US$1.76 billion Vinh Tan 1 power plant being the biggest investment. In addition, other major projects include the US$400 million Viet Lan Tire Plant in Tay Ninh province and the US$337.5 million Vietnam-China Mining and Metallurgy project in Lao Cai province.

In the textile industry, Texhong Group built a US$300 million fiber plant in Quang Ninh Province in 2013. To further their investments in 2014, they also started building the Texhong Hai Ha Industrial Zone with a total investment of US$215 million and another US$300 million for a few more textile plants in the zone.

Some of the other major projects in Vietnam include the Hung Nghiep Formosa Dong Nai Textile Limited Company project in Nhon Trach Industrial Park, Viet Luan tire project in Tay Ninh province, Tan Cao Tham rubber processing plant, the Vietnam-China Mining and Metallurgy project in Lao Cai province, the Thai Nguyen iron and steel plant extension, the Cat Linh- Ha Dong urban railway project, and the Da River water pipeline project.

Vietnam’s Competitive Advantages

Vietnam’s current competitive advantages are very similar to that of China’s around 10 to 15 years ago; low wage, low-tech, and export-focused manufacturing. As China moves up the value chain, Vietnam is taking its place and emerging as an alternative for investors.

Major advantages in Vietnam include:

  • Low minimum wages

According to Trading Economics, the average minimum wage in 2016 in Vietnam was US$136/month, while in China it was much higher at around US$300/month. Wage difference has led numerous labor-intensive industries such as textiles and footwear to shift their manufacturing hubs to Vietnam;

  • Trade agreements

Chinese investors increased their investments in the last few years in the anticipation of the Trans-Pacific Partnership, which was unfortunately canceled under the new US administration. However, while China pushes for their own China EU FTA, the EU Vietnam FTA is expected to be ratified, hopefully by next year, offers investors an alternative way to reach the EU market;

  • Infrastructure and connectivity

Vietnam has over 100 ports throughout the country, with major ports being the Hai Phong, Da Nang, and Ho Chi Minh City. In anticipation of growing exports, ports in Vietnam are currently undergoing upgrades to increase capacity.

In addition, the railway infrastructure also is a major component of the economy. In the first quarter of 2017, 166,200 tons of freight was shipped by rail on the trans-border line, which was a 66.2 percent increase from the same period last year, and a 12-year record.

Around 60 percent of the rail network in Vietnam are in the Northern provinces, with several new railway lines proposed to increase the connection between the North and South.

The need to do more

In the last two decades, Vietnam has implemented numerous investor-friendly reforms to attract investments, but going forward it needs to do more. The country needs to develop their support industries and move up the value chain.  The government has introduced incentives policies for the development of support industries and aims to meet 45 percent of local production demand by 2020, and 70 percent by 2030.

Vietnam also needs to move up the value chain and not just highlight itself as an alternative to China. The country lacks R&D investments and high-skilled labor and needs to make changes in the education sector, IP protection laws, and high-tech investor-friendly policies for a sustainable growth. As of now, manufacturers investing in Vietnam still have to rely on the Chinese mainland or other neighboring regions for high-tech production processes.

Future of bilateral relations

Going forward, China has to focus on their existing projects in Vietnam to gain consumer confidence to be successful in the Vietnamese market. Recent China-backed projects in areas such as urban railway, metals, textiles, and energy have suffered from quality concerns, delays, and cost overruns leading to public scrutiny.

In spite of numerous geopolitical differences, both countries will continue to focus on increasing economic cooperation. Vietnam is seeking more investments in high-tech industries, support industries, renewable, clean energy, and tech transfer; however, China will be pushing for a more balanced trade and Chinese companies will continue to invest in industries such as agriculture, aviation, environment, high technology, transport, tourism, and healthcare. Economic exchanges will continue to act as a stimulus for the revival of bilateral relations.


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.


From Vietnam To Vanuatu: Financing The Clean Energy Revolution In Emerging Economies

China faces an unprecedented water crisis; years of overuse, unchecked industrial pollution and urbanisation have pushed its rivers, lakes, wetlands and streams to breaking point, many have dried out or have turned vivid colours through chemical contamination killing aquatic life. Water resources are swallowed up by the enormous demands of agriculture and industrial uses such as cleaning coal. Wells now have to be dug ever deeper to tap supplies, putting more pressure on the water table.

The air in Chinese cities is in a similar sorry state, deadly smog which keep the elderly and infirm at home is increasingly common, even on “good” days the air is often thick with dust and pollutants, the result is a public health disaster with over 1 million deaths attributed to air pollution every year. These scenes are now being repeated across other fast industrialising emerging economies such as India and Indonesia.

Thanks to its recent Five Year Plans and vocal demand from its citizens China is witnessing the start of an unprecedented effort to tackle the huge problems of waste, scarcity and pollution. Where China leads other emerging economies will follow suit, countries like Vietnam, Turkey and Egypt have their own growing problems, but they are not yet on the scale of China’s endemic levels of pollution and waste and have a chance to act before they run out of control. As this environmental crisis gets worse the need to find answers becomes more urgent, which is where environmental technology comes into play.

Environmental technology is a wide ranging sector but includes renewable energy, energy efficiency, public transport or any technology or applications which can reduce pollution, limit greenhouse gas emissions or improve people’s well-being. More often than not these solutions are often fairly obvious, there aren’t many cities that don’t want emission free modern bus fleets or newly installed super-efficient municipal heating systems, but of course not all cities can afford these ambitions.

Budget constraints are a feature of all governments but are even more keenly felt in developing countries, but there are options on the table for cities and states to access funds that will pay for environmental technology.

The Clean Technology Fund is run by Multilateral Development Banks (MDBs) like the Asian Development Bank and African Development Bank, they utilise the fund and invest it their countries of operation working with the governments to help match the money to their national and regional goals. So far US$3.8 billion has been invested – the MDB’s credibility also attracts private money increasing the impact of the project and helping to develop a self-sustaining market for environmental technology.

The Fund has backed everything from Turkish geothermal energy projects to Moroccan solar to public transport in Colombia. These help wean emerging economies away from fossile fuels and towards a more sustainable future. Despite the success and scale of these projects it is still a fraction of what is required to tackle the problems of climate change, pollution and waste that they are designed to solve.

The Scaling Up Renewable Energy Fund is aimed squarely at frontier markets who typically still lack the market for environmental technology but do have fast growing energy needs. Rather than turning to damaging yet tempting fossil fuels the Fund enables countries support the growth of clean energy. By backing early stage projects the Fund can help develop a market and expertise around solar and wind which provides a powerful demonstration effect, which along with the fact it is done in conjunction with MDBs provides a lure for private money even in frontier markets.

When the Pacific island of Vanuatu wanted to develop more sustainable energy sources the Fund backed by the World Bank was on hand to finance a solar powered rural micro grid which aims to connect the scattered population across many islands. The scheme also plans to extend access to electricity to 90% of the population (it was only 25%) by investing in new solar panels, hydro projects and measures such as installing energy efficient modern street lighting. This kind of infrastructure is invaluable for isolated nations like Vanuatu which traditionally face high energy costs.

The World Bank are also on hand to help governments determine the right policies and laws to help encourage clean energy and efficiency such as:

Mandatory standards and labelling of energy efficient white products.

Ensuring tariff and VAT legislations is reformed to make solar panels more attractive.

Legislation enacted to allow Public Private Partnership risk sharing schemes to encourage the private sector into the renewables sector.

These Funds are the ideal bridge between public and private finance as well as creating a market for environmental technologies, without them many projects would be considered too risky. In addition the influence of the MDBs on governments can often bring about real change in policies and legislation which create the right environment for a flourishing environmental technology sector.


Merlin Linehan has worked in development finance within Eastern Europe and Asia, and spends much of his time investigating the risks and opportunities that are created from the ongoing expansion of Chinese businesses that invest overseas in emerging markets.

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

Overlooking Widespread Human Rights Abuses In ASEAN Could Trigger Destabilization

Less than a month after the Association of Southeast Asian Nations (ASEAN) celebrated its 50th anniversary in Manila, Philippines, the UN Security Council called on the government of Myanmar to end its military campaign against the minority Rohingya Muslims. If the region continues to overlook widespread human rights abuses, political stability and economic growth will be at risk.

Each year, tourists descend on the many resorts, shops and convenience stores that have come to form the backbone of the beach town of Bangsaen, Thailand. In 1967, however, Bangsaen was an isolated, little-known village on the brink of becoming a landmark of Asian diplomacy. It was here that five foreign ministers from Indonesia, Malaysia, the Philippines, Singapore and Thailand negotiated and signed the Bangkok Declaration for the foundation of ASEAN, with the purpose of ensuring the stability of the entire Southeast Asian region.

Fifty years later, the organisation has ten members, and ten additional dialogue members that include India and China. Asian economic growth consistently leads global figures, and its populations and enterprises are projected to continue to prosper for decades to come. On its silver jubilee, ASEAN remains firmly dedicated to boosting security in the region, with ongoing tensions over the South China Sea and immediate nuclear threats from North Korea forming the pillars of member discussions. Even so, the organisation has thus far failed to address pervasive human rights violations committed by member countries, with critics warning of rising authoritarianism in the region.

Increasing rights violations

In Myanmar, this month has seen longstanding ethnic tensions erupt into bloodshed after minority Muslim Rohingya fighters attacked police posts and prompted a military crackdown that has seen over 370,000 Rohingya flee their homes. The Rohingya face widespread discrimination and violence at the hands of a Buddhist majority, though the group had received chronically little press attention before recent weeks. Adding to their isolation, the government has repeatedly refused to permit UN investigators entry to the country. Even so, the Rohingya have been labelled the most persecuted minority in the world, at risk of genocide, with the community fleeing in the thousands to Myanmar’s neighbours- especially Bangladesh, Malaysia, Indonesia and Thailand. Despite this, host countries typically refuse to grant Rohingya refugees any legal status; in the weeks before the current escalation, India was in talks with Myanmar and Bangladesh to deport 40,000 Rohingya Muslims.

In the same vein, the Philippine President Rodrigo Duterte has refused to discuss the topic of human rights abuses with the US Secretary of State and, given the US-Philippine partnership targeting a military insurgency in the Philippines’ southern island, social justice advocates would be foolish to hold their breath. This despite the fact that since Duterte’s so-called war on drugs began last year, widespread violence has resulted in the deaths of some 5,000 to 8,000 people. Duterte has also blocked the UN from conducting an independent investigation into the violence, thus far labelling his critics “crazies” and insisting that he shouldn’t be trivialised by upholding human rights standards. With sustained approval ratings, his campaign to reintroduce the death penalty may indeed be successful; the violence continues unchecked.

In Vietnam, authorities have broadened a crackdown on dissidents in recent years. In July this year, prominent human rights defender and activist blogger Tran Thi Nga was sentenced to nine years in prison on charges of conducting propaganda against the state in accordance with the controversial Article 88 of the penal code. The law has proven an effective tool of the government in silencing activists, along with reports of government sanctioned harassment and intimidation techniques.

ASEAN values versus national actions

Authoritarianism in the region runs counter to the otherwise liberal economic goals of Asia’s rising tigers: Vietnam has embarked on a decade-long campaign of labour and market reforms in a bid to attract foreign capital, with FDI flows rising as much as 6 percent in the first half of 2017 to $6.15 billion. At the same time, the Philippines’ Duterte is embarking on an ambitious goal of infrastructure spending at 7 percent of GDP, valued at $160 billion, by 2020. Bordering Bangladesh, China, India, Laos and Thailand, Myanmar represents a mammoth of untapped economic potential, but FDI flows will remain volatile as long as the bloodshed continues.

In most cases, human rights abuses are tied to failings in judicial independence, indicative of state support of illegal activities and poor protection for firms who seek to conduct transparent operations. Moreover, repression of the media and journalists frequently goes hand in hand with unsustainable, unbalanced economic development, such as a dependence on raw materials and energy resource revenues.

Poor governance throughout the Asian region, combined with skyrocketing economic growth and a burgeoning middle-class, sets the stage for political and social discontent to emerge in the near term. As the ASEAN community has become more integrated over the past fifty years, there has been increased pressure to implement the organisation’s vision of a “people-centred” community of nations. The finalisation of the ASEAN Charter at the end of 2008 sparked debate about utilising grassroots participation and bolstering civil society groups- in response, the group articulated the ASEAN Vision 2015, setting lofty goals for the widespread protection of human rights in a just, democratic environment. The stark reality of 2017 shows a clear trend in the opposite direction, and a disturbing reticence on the part of ASEAN’s leadership.


Article as appears on Global Risk Insights:

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

Vietnam To Divest In 406 State Owned Enterprises By 2020

Vietnam is planning to divest 406 state-owned enterprises (SOE) by 2020, with 135 scheduled for 2017 alone. Changes in foreign ownership limits, a growing economy, and a strong performing stock market have attracted considerable interest from foreign investors for earlier SOE’s divestments. However, a lack of transparency and the slow progress of divestments have been hampering investor sentiment.

Some of the big-ticket divestments include Vietnam Engine and Agricultural Machinery Corporation (VEAM), Airports Corporation of Vietnam (ACV), Vietnam Airlines, PVOil, and PVTex. Since its inception in 2006, SCIC has divested in over 900 enterprises. In 2016, SCIC divested from 60 business and in turn achieved an impressive 2.58x return.

Major divestments

2017 divestments

Vietnam Engine and Agricultural Machinery Corporation (VEAM), a company under the Ministry of Industry and Trade (MoIT) is the only major SOE undergoing divestment this year. The minimum divestment target has been set at 52.47 percent with another 36 percent divestment by 2020. Other divestments in 2017 include 92.98 percent in Vietnam Sugar Corporation, 91 percent in Quang Ninh Clean Water JSC, and 95.59 per cent in Son Tay Water Supply company.

The Ministry of Construction and Ministry of Transport has the highest number of companies being divested, at six each in 2017. The Ministry of Industry and Trade (MoIT), the Ministry of Labour, Invalids and Social Affairs, and the Ministry of Health each have only one company being divested in 2017.

The State Capital Investment Corporation (SCIC), a state-owned holding company will divest in four SOEs, which includes Licogi Corporation (40.71 per cent), Dien Bien Construction Investment and Consulting JSC (64.5 per cent), Tuyen Quang Minerals JSC (51 per cent), and Tuyen Quang Mechanical JSC (39.24 per cent).

2018 and onwards

Major divestments planned for 2018 include 24.86 percent in Vietnam National Petroleum Group (Petrolimex), 46.88 percent in Vietnam Pharmaceutical Corporation JSC (VinaPharm), 20.62 percent in Viglacera Corporation, 81.71 percent in Hanoi Plastics JSC, and 46.9 percent in Thong Nhat Electromechanical JSC.

Others include, 53.48 percent in Vinatex, 57.92 percent in Vietnam Steel Corporation, 64.65 percent in Vietnam Plastics Corporation, and 20 percent in Vietnam Medical Equipment Company.

In the aviation sector, Airports Corporation of Vietnam (ACV) will be divesting 30.4 per cent in 2 phases, 20 per cent in 2018, and 10.4 per cent in 2020, while Vietnam Airlines will divest a minimum of 35.16 per cent in 2019.

Future potential divestments

Most companies in the agriculture and forestry sector have not been earmarked for divestment as of now, but are under consideration. Other enterprises under consideration include ones under the Ministry of Defence, the Ministry of Public Security, the People’s Committee of Ho Chi Minh City, and SCIC, as well as Habeco, Sabeco, Giao Thong Hospital, Vietnam Satellite Digital Television Co., Ltd., and Vietnam Television Tower Company.

Transfer of ownership issues

Prior to divesting its stakes in SOEs, the Vietnamese state first transfers ownership of key enterprises from the ministerial or provincial peoples committee level of governance to the SCIC, which then handles the sale of shares to private investors. Over the years, the process of transferring ownership from various ministries and committees has been a slow process. In most cases, ministries hold on to the SOE’s, arguing that the enterprises are necessary for the local economy, while sometimes, ministries only prefer transferring failing enterprises. In few instances, the SCIC has hesitated to acquire ownerships of struggling enterprises. Since 2013, 173 enterprise out of 234 SOEs transferred to the SCIC have failed to complete the transfer due to delays.

To reduce the delays, the government has asked people’s committees in each city and province to report prior to the 25th of the last month of each quarter as well as on December 25 each year to the Steering Committee for Enterprise Innovation and Development, MoF, and MoIT for progress.

Foreign investment

For the past few years, foreign investors have shown considerable interest in Vietnamese assets, driven by a growing economy and a surging middle-class. On top of this, the lifting of foreign ownership limits in previously restricted sectors and lack of big-ticket domestic investors have opened up opportunities for foreign investment. With the recent announcement of 406 divestments, investors will have further clarity in making investment decisions and will increase the investment efficiency.

In spite of this, foreign parties have been quick to point to the slow pace of divestments, lack of financial transparency concerning the listed SOEs, and unrealistic SOE valuations as significant dampers on the opportunity. Because of these concerns, strategic investors are increasingly wary of acquiring smaller equity stakes, as it does not offer management control and allows the state to be the controlling stakeholder.

Going forward, SCIC has to offer larger stakes during divestments of its larger and profitable enterprises to attract considerable investment and increase corporate governance transparency.

Changes going forward

Moving ahead, the government needs to speed up the divestment process, increase transparency, and provide higher share for investors to attract foreign investment. Future divestments will provide the country the much-needed capital to address its expanding budget deficit, which has been increasing due to falling oil prices, rising expenditures, and high public debt.

Despite all the challenges and issues, investors ought to look out for big-ticket divestments in sectors driven by the growing domestic demand and rising urban income, such as consumer goods, energy, airlines, and telecom.


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.

Inaccessible Markets: Which Frontier And Emerging Countries May Soon Be Tracked By More ETFs

Of the 24 countries classified as emerging markets by MSCI, there are 13 which have only a single dedicated ETF available to US investors. The list includes major markets like South Africa, which houses the sixth largest stock exchange in emerging markets and has a market cap of over $1 trillion.

The iShares MSCI South Africa ETF (EZA) – the only ETF tracking the South African market that is traded on US exchanges – tracks the MSCI South Africa Index, which is comprised of 53 constituents. There are no sector or theme-based funds tracking the market even though there are 18 indices on the local exchange, according to Bloomberg data.

The MSCI South Africa IMI Index, which has 111 constituents across various market caps could be an interesting option for an ETF with an even broader based exposure to a market which is currently underrepresented.

It’s not to say that ETFs investing in South Africa or other countries with just one dedicated fund like Chile are not attracting investor interest. Aside from the six largest Chinese ETFs out of the 31 funds focused on China (KBA) (PEK), the EZA and iShares MSCI Chile Capped ETF (ECH) are bigger than all others. They are larger than ETFs investing in Argentina (ARGT) (AGT) and Colombia (GXG) (ICOL) as well, both of which have two ETFs each tracking their markets.

In the graph above, single country ETFs like that for Turkey (TUR), Thailand (THD), and a frontier market like Vietnam (VNM) all feature among the largest funds in this segment.

Untouched corners

The MSCI country indices for Hungary and Czech Republic, both emerging markets, have done well in YTD 2017, having returned 35% and 18% respectively. However, there are not currently ETFs listed on US markets that would allow investors to partake in the strong performance of these countries.

The broad-based fund route does not help either. The most exposure one could get for these countries is 4.7% for Hungary and 2.5% for Czech Republic.

As far as frontier markets are concerned, there are only three countries with dedicated ETFs out of the 33 that MSCI classifies in that category – Argentina, Vietnam, and Nigeria.

Time for a relook?

There remains noticeable pockets in the frontier and emerging markets universe that can be turned into investment avenues.

Investor interest should not be a big hurdle, as the lone ETFs tracking some of the larger markets have had good traction and are considerably larger than a majority of funds tracking much bigger and popular markets.

The launch of the AGT in April this year made Argentina the first frontier market to have two ETFs tracking it. Its asset size growth would be of interest to fund companies looking at launching single-country funds for similar or even larger markets except for China, India, and Brazil.

Thus, it may be time to relook at the present offerings and think about deepening the number and scope of offerings for markets which have done well over the medium to long-term and can thus find traction.

Time Is Ticking: Will Vietnam’s Government Meet Its Lofty IPO Goals?

IPOs in Vietnam

In the past one year, 157 share issues (including rights issues, FPOs, and IPOs) have been announced in Vietnam, for an aggregate deal value of $1.9 billion. Of these, 43% of deals were from the industrial sector, while 23% of them were by financial firms.  Vietnam stock markets have witnessed only 5 IPOs listings in the first half of 2017 and the government has set forward an ambitious target to privatise 39 companies during the rest of 2017. By 2020, the Vietnamese government aims to divest stakes in 137 state-owned companies through IPOs.

The country’s remaining divestment portfolio includes three subsidiaries of PetroVietnam, Vietnam’s leading oil company and a $1.1 billion (VND 24 trillion) unit of Vietnam Electricity. As per government sources reported by DealStreetAsia, 20 companies slotted to be divested are currently undergoing valuations, while 14 are in the process of finalising their pricing.

Thien Bui, market strategist at Viet Dragon Securities Company stated, “If the processes are as reported, though it is an ambitious plan, we still expect that the government will achieve its plan. Moreover, we look forward to ‘key’ deals such as Binh Son Refinery, PV Oil, and Idico, which can attract investors.”

Deals that are expected to close by end of 2017 include divestments of Vinamilk (VNM), subsidiaries of PetroVietnam, and brewers Sabeco and Habeco. The government is planning to sell-off its entire 82% stake in Habeco, while its stake in Sabeco will likely be divested in two phases of 54% and 36%.

The divestment plans for large Vietnamese corporations including Vietnam Post and Telecommunications (VNPT), telecom operator MobiFone, Vietnam National Coal – Mineral Industries (Vinacomin) and Vietnam National Chemical Group however still remain uncertain.

Vietnamese IPOs have been criticized in the past due to the tiny stake typically made available in public offerings. Now, government-owned companies are offering controlling or substantial minority stakes to strategic investors. Companies like PV Oil, Binh Son Refinery and Petrochemical have been negotiating with large companies from Russia, Middle East and Asia for sales of their stakes. Meanwhile, energy firm PV Power’s IPO has garnered substantial interest from large investment corporations such as BNP Paribas (BNP.TI), Standard Chartered (STAN.L), SembCorp (U96.SI), GIC, Nexif, and Keppel Infrastructure (KPLIF). Binh Son Refinery’s IPO is also slated to debut in November this year, while PV Power aims to raise $600-700 million through an IPO listing later in August.