Ambitious Vietnam woos investors

Published: Friday, 16 February, 2007, 10:43 AM Doha Time
By Grant McCool

HANOI: Vietnam is thinking big. After a transformational year for the economy in 2006, investors have barely paused for breath in early 2007 to cash in on one of the world’s most-exciting emerging markets. From Haiphong and Hanoi in the north to Ho Chi Minh City in the south, the government and foreign investors have ambitious plans to help develop the Southeast Asian country’s poor infrastructure and fledgling financial services.

The new money is welcomed by the communist-run government and the markets, but there are also concerns that a rapid flow of indirect investment has overheated the immature stock market and could lead to capital or currency controls.“The government is considering various options but the last thing they want to see is discouraging investment,” said Il Huong Lee, representative of the International Monetary Fund in Hanoi.

“The market is still small and they don’t want it to be swamped with short-term investors.”Vietnam’s six year-old Ho Chi Minh City Securities Trading Center rose 144% in 2006 and is up 43% this year, partly driven by foreign funds chasing profits in an economy growing at a rate of more than 8%. The VN Index lists 107 companies for a total market capitalisation of $15.6bn.

The investment rush has sparked speculation authorities might impose controls to limit the cash flowing into the economy, possibly after the Lunar New Year holiday that falls next week. Strong flows can fuel inflation and put pressure on the local currency to rise, but some representatives of firms who encourage foreign investment say they do not expect any controls to be drastic.

Others doubted Hanoi would copy Thailand, whose military appointed government imposed penalties in December on foreign investors withdrawing assets within a year. The Thai experience prompted a 15% sell off on the Bangkok stock exchange in one day.

Fast economic growth, an 84mn population where half are under 35 years old, low labour costs and political stability are all part of the mantra recited by economists and foreign investors as reasons for taking business to Vietnam. Its attraction is no longer a secret, especially since Hanoi signed a new trade deal with former enemy the US, won entry to the World Trade Organisation and hosted the Asia-Pacific Economic Cooperation summit last year.

Commitments of foreign direct investment (FDI) reached a record of more than $10bn in 2006, the government says, but overall the trend of actual disbursements has been slow. In 2004, FDI was $1.6bn and rose to $2.02bn in 2005, according to the UN Conference on Trade and Development.

Businesses also say there are risks in a still-basic economy with annual per capita income of just $720, a financial system lacking transparency and legislation that is opaque to many outsiders. “The work so far must not be seen as an end in itself, but the first steps on a long road leading to Vietnam’s emergence as a true Asian Tiger,” said Nicholas Greenfield, director of the Hanoi office of the European Chamber of Commerce. – Reuters