Socialist Republic of Vietnam

The Vietnamese government should expand foreign investors' ownership ratios from the current 30% at local businesses in sectors and industries where full foreign direct investment (FDI) has been made, a financial expert said at a recent investment workshop.

The event was co-organized by the Ministry of Planning and Investment, the National Assembly Committee for Economy and Budget, and the Vietnamese Association of Financial Investors (VAFI), on August 12 in Hanoi.

The government will still restrict ownership ratios of foreign capital in such fields as banking, insurance, aviation and telecommunications. However, it should extend the rate to 49%, suggested Nguyen Hoang Hai, the general secretary of the Vietnam Association of Financial Investors (VAFI).

With a current low foreign ownership ratio, Vietnam is throwing away opportunities to lure more foreign investment via the important foreign indirect investment (FII) channel, economic experts and investors said at the seminar.

During 2002 and 2003, Vietnam attracted $52.1 million worth of FII, equaling to just 2.3% of total foreign direct investment (FDI) the country attracted in the period, according to research results by Mekong Capital, a private equity company specializing in investment in the leading private businesses of Vietnam, Cambodia and Laos.

Meanwhile, according to Mr. Hai, foreign investors have so far poured $200 million in 70 Vietnamese joint stock companies, representing 1.19% of the total FDI in Vietnam while the proportion in other regional countries, such as Thailand, Malaysia and China, ranges between 30% and 40%.

This weakness, however, was also attributed to the fact that most Vietnamese private companies are not yet transparent enough to meet requirements of foreign investment funds, said Mekong Capital CEO Christ Freud.

Tax rates on foreign indirect investment profits from purchases of stocks and bonds are also unclear, discouraging investors, Mr. Freud added.

Sharing Mr. Freud's opinion, Pham Chi Lan, a member of the Prime Minister's Research Commission, said, "the government of Vietnam has not established a clear and transparent policy system to encourage FII."

"The government still hesitates to boost capital sources and financial services to such an extent that FII has been used as a secondary source, supplementing capital for foreign direct invested projects," she added

Furthermore, Vietnamese companies have no incentive to increase FII because of fears of losing company ownership and management power as well as assets, she explained.

The Government should work out a clear and transparent policy as "part of Vietnam's market economy development strategy" to attract more FII, Ms. Lan also said. FII should be considered as a major type of investment in the new investment law now being drafted, she recommended.

Vietnam should also push economic reforms to foster the financial and stock markets and facilitate the development of joint-stock enterprises to step up FII into the country, other experts commented.

Generally, foreign indirect investment into Vietnam includes money from foreign sources deposited in Vietnam's banks or purchases of stocks and/or bonds issued by Vietnamese companies.

Vietnam's stock market has been operational for more than four years now, but only has the participation of 24 firms with total market capital of VND3.4 trillion ($219.1 million) despite there being 200 businesses qualified for listing. (Young People Aug 13 p3, Econet Aug 13 p2, VNA Aug 13)