Business Advantage Vietnam 2010 by Business Advantage International

VIETNAM’S INTERNATIONAL BUSINESS AND INVESTMENT GUIDE

Business Advantage

Vietnam

2010

ABOUT BUSINESS ADVANTAGE VIETNAM 2010 Business Advantage Vietnam is the first international business and investment guide about Vietnam to have a genuinely global distribution. It is designed to provide business leaders around the world with an overview of economic conditions in the country and the opportunities for business, trade and investment. The publication is available both in print, and online at www.businessadvantagevietnam.com. This first edition of Business Advantage Vietnam is part of an ongoing commitment to promoting this important and growing economy. Future editions will be published on an annual basis, with the intention that there should always be an up-to-date resource available on the country.

VIETNAM’S INTERNATIONAL BUSINESS AND INVESTMENT GUIDE

Business Advantage

Vietnam

2010

We’d like to thank our publishing partner, the Ministry of Planning and Investment’s Foreign Investment Agency for its invaluable assistance with preparing this first edition. If you have comments, suggestions, or editorial/promotional http://fia.mpi.gov.vn enquiries relating to future editions of Business Advantage Vietnam, please email us at info@businessadvantageinternational.com. (You can also request additional copies of our publications, or subscribe to our regular South East Asian business e-news service.

We hope you find Business Advantage Vietnam useful and inspiring. Andrew Wilkins Publisher, Business Advantage International

Business Advantage Vietnam 2010 is published by Business Advantage International Pty Ltd Level 27, Rialto South Tower, 525 Collins St, Melbourne, Victoria 3000, Australia tel +61 3 9935 2977, fax +61 3 9935 2750 www.businessadvantageinternational.com This publication is available free online at www.businessadvantagevietnam.com. Additional printed copies can be purchased for AUD$33.00 (incl GST and postage) from the above address or by emailing info@businessadvantageinternational.com © Copyright 2010 Business Advantage International Pty Ltd ISSN 1837-6177(Print) ISBN 9780980608168 Project Director/Sponsorship enquiries: Robert Hamilton-Jones (rhj@ businessadvantageinternational.com) Publisher: Andrew Wilkins (aw@businessadvantageinternational.com) Editorial: Roz Edmond, Jacqueline Bennett Design: Michael Renga Cover images: Business Advantage International, iStockphoto Business Advantage International would like to thank the following for their assistance with the preparation of this publication: Vietnam’s Foreign Investment Agency, especially Bui Quoc Trung and Thai Thu Phuong; and all at Austrade Vietnam, especially Shannon Leahy and Hoa Nguyen.

VIETNAM

Produced in partnership with the Foreign Investment Agency, Ministry of Planning & Investment, Vietnam

DISCLAIMER Business Advantage Vietnam is a general guide to some potential business opportunities in Vietnam and is not designed as a comprehensive survey. The opinions expressed herein are not necessarily those of the publisher and the publisher does not endorse any of the business or investment opportunities featured, nor does it accept any liability for any costs or losses related to dealings with entities mentioned in this publication. Readers are strongly advised to pursue their own due diligence and consult with qualified advisors before making any investment decisions.

CONTENTS

Economic update

Vietnam’s export figures provide a strong illustration of just how far the country has come since the mid 1980s.

Major reforms and a broadening industrial base are just two factors behind Vietnam’s resilience in the face of the global downturn.

Energy & mining Vietnam’s growing energy needs and its strong mineral reserves present significant opportunities.

Directory A one-stop source of addresses and resources relevant to business and investment in Vietnam.

INVESTING IN VIETNAM 9

Trade

Human resources Vietnam has an abundance of high-quality, low-cost labour, but the country still presents its own set of human resources challenges.

Perspectives on Vietnam Business leaders provide their own views on Vietnam’s current business climate.

28 20

Investment assistance & incentives

Banking & financial services Major reforms have opened up Vietnam’s financial sector to foreign players, encouraging stronger competition.

Infrastructure & transport Vietnam’s ambitious economic goals and fast growth demand constant improvements in the country’s infrastructure.

Productive sectors A survey of Vietnam’s key productive sectors, including manufacturing, agriculture and fisheries.

Major hotel and resort developments are occurring in Vietnam on the back of increased business and tourist arrivals.

A summary of the assistance and incentives available to foreign investors in Vietnam.

Tourism development

Business travel guide to Vietnam If this publication has whetted your interest, here are some practical tips for the business traveller to Vietnam.

CREDIT: YINYANG

ECONOMIC UPDATE

ASIA’S NEXT TIGER ECONOMY?

Vietnam has become an export powerhouse on the back of major economic reforms over the past 20 years. Proving itself resilient in the face of the global financial crisis, it is now set on further reforms and the broadening of its industrial base.

he southeast Asian country of Vietnam is the world’s 13th most populous country and, with over 46 million workers, has the world’s 13th largest workforce. Crossing 13 latitudes from north to south, Vietnam is a country of immense natural beauty, and geographic and geological diversity. Under the rule of the Communist Party of Vietnam, the country has been transforming itself since 1986 into a vibrant, modern market economy.

MAJOR ACHIEVEMENTS While this reform process (known as Doi Moi or ‘renovation’) is ongoing, progress has been remarkable in such a short time. Vietnam’s gross domestic product has trebled in the last decade, from US$27.5 billion to US$89.1 billion in 2008, and its very high import and export volumes make it one of the world’s most open economies. As the United Nations Conference on Trade and Development (UNCTAD) 2008 Investment Policy Review of Vietnam puts it: ‘During the 20 years since Doi Moi, Vietnam has undergone an extraordinary transformation from an isolated, poor and collectivised agriculture-based economy into a booming nation on the verge of becoming a new Asian Tiger. It has achieved an extraordinary reduction in poverty and is becoming a significant player in world trade.’

KEY LAWS REFORMED ‘One of the attractions here is a stable government that is becoming more business-friendly.’ says Thomas Siebert, Chairman of the American Chamber of Commerce in Vietnam. Laws encouraging foreign investment and domestic private investment started to appear in the late 1980s. These culminated in July 2006 with a new Law on Investment and a Law on Enterprises, both of which went a long way towards ensuring that both foreign and domestic companies are treated equally under one set of laws. Tax, accounting and land incentives have also been put in place to encourage the development of strategic sectors such as information technology, bio-technology, infrastructure, agricultural

‘One of the attractions here is a stable government that is becoming more business-friendly.’—Thomas Siebert, Chairman, American Chamber of Commerce processing and labour-intensive manufacturing. These incentives apply particularly to businesses locating in Vietnam’s specialised industrial zones and in less-developed provinces. Such incentives, together with competitive labour rates, persuaded US chip manufacturer Intel to establish a major presence in Vietnam (see page 30). Vietnam’s accession to the World Trade Organisation (WTO) in 2007 demonstrates that the country’s Government is committed to continuing the opening up of its economy. In particular, this will involve wide-ranging tariff and subsidy cuts/caps, the opening up of more industry sectors to greater foreign investment (most notably, perhaps, in banking and finance—see page 14), and the gradual privatisation or equitisation of state enterprises.

MAJOR EXPORTER Vietnam is now a major source of the world’s manufactured goods, especially garments and textiles, a major producer of agricultural commodities such as rice, coffee and rubber and has rapidly developing tourism, mining, services and high-technology sectors. This diversity in the economy, partly enabled by rich natural resources, and backed by the development of a dynamic domestic market, is a major reason why investors are attracted to Vietnam.

REGIONAL CONNECTIONS Another attraction is Vietnam’s proximity to southeast Asia’s other major and developing markets. It is no island: China is a fivehour truck drive from Hanoi; Vietnam borders the developing economies of Laos and Cambodia; and it is close to major markets such as Malaysia, Thailand and the Philippines. Many manufacturers with Chinese-based plants have also located a second in Vietnam for redundancy, under a ‘China plus one’ policy.

ECONOMIC UPDATE VIETNAM IN BRIEF Official Name:

The Socialist Republic of Vietnam

Head of State:

His Excellency President Nguyen Minh Triet

Head of Government:

His Excellency Prime Minister Nguyen Tan Dung

Area:

331,690 sq km

Coastline:

3,260km

Capital:

Hanoi

Official language:

Vietnamese

Population:

86.5 million (2009)

Literacy:

90.3%

Currency:

Vietnam dong (VND)

GDP per capita:

US$1109 (2009 estimate)

Major industrial Sectors:

Manufacturing, agriculture

Exports:

Crude oil, marine products, rice, coffee, rubber, tea, garments, shoes, pepper

Major export markets:

USA, Japan, Australia, China, Singapore

Imports:

Machinery & equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement, motorcycles

Major import markets: China, Singapore, Taiwan, Japan, South Korea

CREDIT: JANELLE WARBY

MAIN SOURCE: VIETNAMâ&#x20AC;&#x2122;S FOREIGN INVESTMENT AGENCY

ECONOMIC UPDATE CREDIT: GETTY IMAGES

to incorporate in Vietnam, thanks to new regulations aimed at opening up the financial services sector to foreign investment (see page 14). ‘We see the market growing internally and we see trade growing within the region. We can see pretty strong growth over the next 10 years. Vietnam is entering its most productive period.’ ‘We are focusing mostly on companies that are in cyclical industries such as financials, consumer non-durables and industrials. We believe these sectors should experience a positive earnings bump as demand and trade activities continue to pick up,’ notes Madame Nguyen Thanh Phuong, Chairperson of investment firm Viet Capital. 80 70 60

7.3%

7.8%

8.4%

8.2%

8.0% 6.2%

VIETNAM’S PRIME MINISTER, NGUYEN TAN DUNG

10.0%

8.5%

6.0%

40 4.0%

RECORD LEVELS OF FDI

In 2007, the country reached record levels of foreign direct investment, as more and more overseas companies saw potential in utilising Vietnam’s competitively priced workforce, and in targeting Vietnam’s rapidly growing middle class. This rapid growth put its own pressure on the Vietnamese economy before the global financial crisis, as Dominic Scriven, Director of investment firm Dragon Capital, explains: ‘Vietnam did peak in cyclical terms in the end of 2007— nine months before the rest of the world tipped—due to overheating domestically. That brought about a very rapid process of adjustment. The Government had to impose some fairly restrictive policies.’

STIMULUS PACKAGE

2.0%

2003

2004

2005

GDP (Billion USD)

2006

2007

2008

0.0%

GDP Growth rate (%)

VIETNAM’S GDP GROWTH, 2003 TO 2008 CREDIT: FOREIGN INVESTMENT AUTHORITY

LOCAL MARKET As Vietnam’s economy has expanded, so too have the opportunities to supply the expanding needs of its population. In the past decade alone, the size of Vietnam’s metropolitan middle-to-upper class

That timely intervention was followed in early 2009 by the announcement of a major US$8 billion economic stimulus package targeted primarily at infrastructure and development projects, bank loan subsidies and tax breaks. Speaking to Vietnam’s National Assembly in October 2009, Vietnam’s Prime Minister, Nguyen Tan Dung, said the Government would do its utmost to foster economic growth to exceed the economy’s performance in 2008, promote macroeconomic stability, keep prices down, and ensure social welfare. ‘The Government was quick and decisive in responding to the global financial crisis, putting together a fiscal stimulus package, providing liquidity to the banking system and expanding the creation of credit,’ notes Simon Andrews, Regional Manager for Vietnam, Cambodia, Laos and Thailand at the International Finance Corporation.

FUTURE GROWTH While GDP growth for 2009 was the lowest in a decade, at just over 5%, it was still positive at a time when most of the world’s economies were in recession. Given the relative weakness of its key export markets, Vietnam looks likely to have to contend with slower-than-usual growth in the short-to-medium term. There was, however, a consensus among the business people that Business Advantage talked to in preparing this publication that the worst was over: ‘We are very positive, you can tell by the investment that we are putting in,’ enthuses Thomas Tobin, Chief Executive Officer of HSBC, which in 2009 became the first 100% foreign-owned bank

VIETNAM’S POPULATION HAS GROWN BY MORE THAN 10% IN THE PAST DECADE. SIXTY PERCENT OF PEOPLE ARE UNDER 35.

ECONOMIC UPDATE has grown from 36% of the urban population to 55%. With 60% of the population under 35, there is a strong demand for mobile phones, branded consumer goods and financial services (see box on page 10 for more on Vietnam’s consumer market).

VIETNAM GETS SECOND STOCK EXCHANGE

CHALLENGES AND REFORMS Notwithstanding its impressive economic achievements, there are challenges to doing business in Vietnam. The 2010 World Bank Doing Business survey lists Vietnam 93rd out of 183 world economies for ease of doing business. Particular areas of concern for the World Bank were lack of investor protection and the bureaucracy surrounding taxes. Lack of capacity in infrastructure, which partly caused the overheating of 2007 and even now causes power cuts, continues to be an issue, and is one reason why foreign direct investments, while impressive on paper, are not always fully disbursed. ‘Foreign investment is surging, reaching US$71.7 billion in 2008. However, disbursement inefficiencies and infrastructure limitations meant only US$11.5 billion was actually disbursed,’ notes Richard Burrage, Managing Director of market research company Cimigo.

FURTHER REFORMS The Vietnamese Government is aware of the need to reform business-related processes and in 2007 commenced Project 30, an ambitious plan to reduce red tape by 30%, and improve the performance and responsiveness of Vietnam’s bureaucrats. This project is due for completion by the end of 2010, by which time it is expected that individuals and organisations will be able to access an online database of all administrative procedures and related forms for all Government levels across the country.

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The continued progress of Vietnam financial markets reached a major milestone in June 2009 with the formal re-launching of the Hanoi Securities Trading Centre as the country’s second stock exchange. While the Ho Chi Minh City Stock Exchange (HSX) will remain the country’s main marketplace for listed stocks, the Hanoi Stock Exchange (HNX) will focus on listed medium and small shareholding companies and government bonds. Also launched at the same time was Vietnam’s new Unlisted Public Company Market—or UPCoM—which is designed for security companies seeking to sell unlisted shares.

Works in Australia

Works in France

Works in UK

Works worldwide

We’re doing business with more customers worldwide than ever before, with 8,000 relationship managers providing support and advice in over 60 countries and territories. Find out how HSBC can partner with you now at 1800 555 528 (toll-free) / (84 8) 3520 3333 HSBC Bank (Vietnam) Ltd., The Metropolitan, 235 Dong Khoi Street, District 1, Ho Chi Minh City, Vietnam

Business

hsbc.com.vn/commercial

Issued by HSBC Bank (Vietnam) Ltd.

ECONOMIC UPDATE ‘Vietnam must continue to develop its corporate governance and transparency, especially in public services, but I think the Government understands that,’ says ANZ’s Chief Executive Officer in Vietnam, Thuy Dam. In a related area, Vietnam has recently ratified the UN Convention Against Corruption and in 2009 issued a national strategy to combat what many see as widespread corruption. A revision of the country’s labour laws is also under way (see page 9).

CONSULTATION WITH BUSINESS While the typically consensual approach to decision-making in Government may mean reforms don’t occur as quickly as they could, improved ongoing dialogue between the Government and the business community, through its very active chambers of commerce, is likely to deliver more business-focused outcomes in future. ‘We have a very good dialogue with the Government,’ asserts Ashok Sud, Vice-Chairman of the European Chamber of Commerce. ‘We are invited to give our views.’ A single window for investment approvals is on many business people’s wish list.

POSITIVE OUTLOOK As Vietnam’s economy emerges from the economic slowdown, what kinds of opportunities should we expect in the country’s next phase of development? ‘I see opportunities in consumer goods and services, and also in infrastructure, although care is needed there,’ says ANZ’s Thuy Dam (see page 22). ‘Health and education are potential areas for investors since the living standard of Vietnamese people has been significantly improved in recent years, which means their demands for these services become more consistent,’ adds Bui Thi Mai, Vic e-Chairman and Chief Executive Officer of Habubank (which became Vietnam’s first private bank back in 1989). In spite of labour law reforms, Vietnam’s competitiveness in exports is also likely to continue for some time: ‘Vietnam’s labour costs are still competitive, and although they will rise as Vietnam’s workers move up the skill curve and as the country expands its infrastructure, Vietnam should remain competitive in exports for some time,’ notes the International Finance Corporation’s Simon Andrews.

VIETNAM’S ADMINISTRATION The Socialist Republic of Vietnam is divided into 63 provinces and cities, inclusive of five centrally-run cities (Hanoi, Hai Phong, Ho Chi Minh City, Da Nang and Can Tho). In keeping with the country’s culture, Vietnam’s leadership is consensual rather than autocratic. The governing structure of Vietnam consists of four levels: central, provincial, district and communal.

At local government level (ie in provinces, districts and communes), the people directly elect the People’s Council for five-year terms. People’s Committees, which are elected by the People’s Councils, are state’s administrative agencies at local level.

CREDIT: CARAVELLE

The central level comprises the National Assembly, the country’s President, the Government, the People’s Supreme Court and the Supreme People’s Procuracy (responsible for legality and compliance).

The National Assembly is the highest representative organ of the people and the highest organ of state power. The people directly elect members of the National Assembly to working terms of five years. The National Assembly has the authority to elect the country’s President, the Prime Minister, the President of the People’s Supreme Court and the Director of the Supreme People’s Procuracy.

THE REUNIFICATION PALACE IN HO CHI MINH CITY.

INVESTING IN VIETNAM

HUMAN RESOURCES

he appeal of Vietnam’s labour market is perhaps best illustrated by the fact that even Chinese firms are outsourcing to Vietnam (as do many from Singapore, Taiwan and South Korea). Indeed, wages in Vietnam are below those of southern China and productivity is increasing briskly, albeit from a low base.

MOTIVATED & EDUCATED WORKFORCE Moreover, Vietnamese employees are considered motivated, adaptable and entrepreneurial, while professionals typically speak English, and possibly another foreign language as well. Literacy is over 90% and the percentage of girls attending school is high. The country’s demographics are also noteworthy: its population is expected to grow to 90 million by 2010 and around 60% is aged under 35.

LABOUR LAW REFORM Accessing this labour pool is not necessarily straightforward, however. It may be easy to hire people, but it is certainly not so easy to fire them. Overall, labour laws can be misinterpreted. ‘The Government is in the process of reviewing and rewriting Labour Law, and [we are] one of many key organisations providing input,’ says Thomas Siebert, Chairman of American Chamber of Commerce in Vietnam. The Government is also prioritising education, including planning an overhaul of the school system.

CREDIT: CARAVELLE HOTEL

Vietnam’s abundance of high-quality, low-cost labour is underpinning its exceptional economic growth, but the country still presents its own set of human resources challenges. There are also constraints in the tertiary and vocational training sectors, which are struggling to keep pace with an economy that is not just growing fast but also becoming more sophisticated.

FINDING THE RIGHT CANDIDIDATES

As a result, candidates for roles requiring specific skills or management experience are often hard to find and can if anything cost more than elsewhere in the region. Tom Vovers, General Director of HR2B Talent Recruitment JSC, whose client base includes many of Vietnam’s leading corporates, reports that at present those companies’ ‘greatest demand is for sales people’. Of course, if a company simply cannot find the right Vietnamese candidate they can always source an expat—albeit at a likely premium. According to Tom Vovers, the extent of the cost of such an exercise will depend on whether the expat is Vietnam-based or needs relocating. He notes, however, that the current trend is to replace expats with local employees. In this environment, it is little wonder that there is a migration of talent from the public service to the more lucrative private sector.

INVESTING IN VIETNAM

PERSPECTIVES ON VIETNAM

Business leaders provide their own views on Vietnam’s current business climate. ‘Investing in an early-stage emerging market such as Vietnam will bring with it a fair share of challenges and difficulties. Lack of transparency is one of the principal ones. We believe the best investors, foreign or domestic, can mitigate transparency risk by getting to know the businesses and management teams of companies they invest in extremely well. It can also be useful to partner or identify the right parties to work with who have experience in working with and investing in local companies. —Madame Nguyen Thanh Phuong, Chairperson, Viet Capital ‘Each sector of Vietnam’s economy has its own advantages and investment prospects but the most attractive sectors are finance, banking and securities market, construction, real estate and information technology. Health and education are potential areas for investors since the standard of living of Vietnamese people

has been significantly improved in recent years, which means the demand for these services becomes more consistent. A stable political system, abundant human resources with a cheap labour force are other certain advantages that encourage more investors to come to Vietnam.’ —Madame Bui Thi Mai, Vice Chairman of Board of Directors & Chief Executive Officer, Habubank ‘Generically, the reason people focus on Vietnam is because it has a large population with good demographics. It is fairly competitive with a government that is overwhelmingly committed to stability. People talk a lot about that around the world but looking at the history of Vietnam adds a particular reason why the Government and society as a whole are keen on stability.’ —Dominic Scriven, Director, Dragon Capital ‘Patience is required, as it is in all markets in Asia. You’ve got to take the longer term view but potentially Vietnam is a very prosperous market.’ —Bruce Dover, Chairman of the Australia-Vietnam Chamber of Commerce

A CONSUMER MARKET FULL OF OPPORTUNITY Richard Burrage of market research company Cimigo profiles Vietnam’s growing consumer market. The middle to upper class across Vietnam’s key cities has grown to 5 in 10 urban households from a mere 2 in 10 in the year 2000. Six key cities account for 40% of the urban population. Yet urban Vietnam represents just over a quarter of Vietnam’s 87 million people. Reaching the Vietnamese consumer is therefore not always easy. Vietnamese are a progressive, driven and optimistic people who do not dwell on the past but look to a future. Both consumer and business confidence is extremely high. The vast majority of Vietnamese—given the young population— have only seen personal economic circumstances improve. Disposable incomes create an increasing desire to experience new opportunities. Youths are more brandand ad-savvy than the older generation, who increasing look to youth to translate the consumer world for them. Fortunately for marketers, success is imbued in pride (commonly referred to as ‘face’), which has to be visual to be recognised. This leads to considerable conspicuous consumption. In the two metropolitan cities—Hanoi and Ho Chi Minh City—more consumers have a mobile phone and have used the internet than those who have not. Telecommunications, financial services, property, health and education services will grow exponentially over the next decade as WTO requirements provide for greater access to services— particularly telecommunications and financial services. Getting brands on the shelf is no easy task, once you move away from key cities. While wet markets still dominate household shopping, the consumer brand world has changed rapidly with the influx of modern trade

environments: franchised restaurants, retail chains, department stores, supermarkets and hypermarkets. As a channel, the modern trade is growing exponentially in sales and in 2009 accounts for an estimated 20% of retail sales. Cimigo expects it to account for nearly 40% of retail sales in 2010. Seven considerations critical to consumer success 1. Understand your market size. There are five million urban households, 2.7 million of which are in the urban consuming (upper-middle) class, which translates to 12.2 million people, who are widely dispersed. 2. Have a long-term perspective. Understand the Vietnamese, their needs and the regional differences. 3. Provide products to suit not only the senses but also the pocket. Consider small pack sizes and cheaper pack formats. 4. Ensure wide availability and coverage to maximise your opportunities to sell. Successful companies in Vietnam have achieved very strong distribution and channel management. 5. Focus resources: do not dilute them across irrelevant line extensions. 6. Do not underestimate the local competition: they caught up about three years ago! 7. Looking to partner locally? Key local companies do not need your money. Vietnam is awash with money. Expertise, technology and experience count!

Richard Burrage (richardburrage@cimigo.com) is the Managing Director of market research company Cimigo. He has spent the last 12 years in Vietnam assisting in the development of numerous brands.

INVESTING IN VIETNAM ENCOURAGING THE RIGHT KIND OF INVESTMENT Vietnam’s Government has put in place a series on incentives to attract and encourage the kind of foreign direct investment most likely to drive the country’s future development. Vietnam’s Ministry of Planning and Investment (MPI) is the agency of the Vietnamese Government responsible for development planning, investment and statistics. As well as helping to shape and administer Vietnam’s economic and development policies, the MPI is also responsible for both domestic and foreign investment, Vietnam’s industrial parks and other special economic zones, and the ‘establishment and development of enterprises and mass economic sector’.

FOREIGN INVESTMENT AGENCY The Foreign Investment Agency (FIA) sits under the MPI and has responsibility for the management of foreign direct investment (FDI) activities in Vietnam. Its responsibilities include: • shaping Vietnam’s FDI policies • monitoring and management of FDI • licensing and management of outward-bound investment, and • investment promotion and international cooperation.

INVESTMENT INCENTIVES Incentives to encourage investment in Vietnam come in varying forms, including: • preferential corporate income tax rates • exemption from, or reduction of, corporate income tax • import duty exemptions • exemption from taxes on royalties • exemption from, or reduction of, land use or land rental fees • privileges awarded to build-operate-transfer (BOT), buildtransfer-operate (BTO) and build-transfer (BT) projects and projects in special economic zones. Investments in geographical areas of Vietnam that face difficult socio-economic conditions are more likely to qualify for some of the above investment incentives.

SECTORS TARGETED BY INCENTIVES The Vietnamese Government has identified strategic sectors that qualify for its investment incentives. Typically, investments that

involve a higher level of value-adding and processing, employ a lot of people, or focus on much-needed infrastructure, skills or technology are those most likely to qualify (see page 12).

INVESTMENT GUARANTEES In order to encourage investment, the Vietnamese Government provides investment guarantees, including the commitment that investors’ assets will not be nationalised or confiscated; that intellectual property rights will be protected; that capital and assets can be remitted abroad and that investors will be protected in the event of changes in law or policies.

INVESTMENT APPLICATION PROCESSES While Vietnam continues to open up more and more of its economy to private investment, there are still several sectors where investment is conditional, both for domestic and foreign investors. These sectors include banking and finance, publishing, health, real estate, mining and education. For foreign investors, there are additional conditional sectors, which include broadcasting, telecommunications, logistics, port/ airport operations and tobacco production. If the investment is under 300 billion dong (US$16.21 million) and is not in a ‘conditional’ sector, Vietnam’s investment registration process is relatively straightforward and, according to FIA figures, takes about 15 working days to process. For larger investments, and those in conditional sectors, the registration process is more rigorous, requiring a further investment evaluation process of between 20 and 40 working days and additional explanatory statements. Full information is on the FIA website (details below). Further information Foreign Investment Agency 6B Hoang Dieu Street, Hanoi Tel + 84 8048461 Fax +84 4 37343769 http://fia.mpi.gov.vn

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Hanoi Building Commercial Joint Stock Bank

Address: 15 - 17 Ngoc Khanh, Ba Dinh District, Hanoi, Vietnam Tel: (844) 38 460 135/36 - Fax: (844) 38 235 693 Email: mysay@habubank.com.vn - Website: www.habubank.com.vn

INVESTING IN VIETNAM KEY SECTORS TARGETED FOR INVESTMENT INCENTIVES Investment incentives are available for projects that focus on the following activities:

• C onstruction and development on infrastructure or important projects

• Production of new materials or new energy

• D evelopment of facilities in educational, training, medical, gymnastic and sports sectors

• P roduction of high-tech, bio-technology or infotechnology products

• Development of traditional trades.

• C ultivation and processing of agricultural, forestry and aquatic products (eg making salt)

In addition, Government support is available for investments that deliver the following economic benefits:

• P roduction of man made strains, new seeds and breeds of animals

• Technology transfer • Training support

• U se of, or research and development on, hightechnology or modern technology

• I nvestment supporting services (eg consultancies, training, market research, design and testing centres)

• Protection of ecological environment

• C onstruction of infrastructure outside special economic zones.

• Production of manufactured mechanical products

• Employment of large numbers of employees

INVESTING IN VIETNAM VIETNAM’S INVESTMENT PROMOTION CENTRES

FOREIGN DIRECT INVESTMENT IN VIETNAM, 1988 TO 2008

80.000

1800

70.000

1600

million US$

1200

50.000

1000

40.000

800

30.000

600

20.000

400

10.000

200

No. of projects

1400

60.000

Total Investment

Disbursement

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

No. of projects

Investment Promotion Centre for North Vietnam 65 Van Mieu Road, Hanoi Tel +84 4 38458149 Fax +84 438437927 http://ipcn.mpi.gov.vn Investment Promotion Centre for Central Vietnam 102 Quang Trung Street, Da Nang Tel +84 5113889689 Fax +84 5113889679 http://centralinvest.mpi.gov.vn

TOP 10 COUNTRIES & TERRITORIES INVESTING IN VIETNAM

35.000

In addition to the Foreign Investment Agency’s head office in Hanoi, Vietnam also possesses three key Regional Investment Promotion Centres, which also fall within the Ministry of Planning & Investment.

2.500

30.000 2.000 25.000

Investment Promotion Centre for Southern Vietnam 178 Nguyen Dinh Chieu Street, Ho Chi Minh City Tel +84 89306671 Fax +84 893055413 http://sfic.vn

1.500

20.000

15.000

1.000

10.000 500 5.000

0 Chinese Taipai

Korea Malaysia Republic

Japan

Singapore British/ Virgin Islands

United States

Total registered capital (USD million)

Hong Kong

Thailand

Canada

Others

Total number of projects

TOP 10 RECEIVING PROVINCES

40.000

3.500

35.000

3.000

30.000

2.500

25.000 2.000 20.000 1.500 15.000 1.000

10.000

500

5.000 0

0 Ho Chi Ba Ria Minh City Vung Tau

Ha Noi

Dong Nai

Binh Duong

Ninh Thuan

Total registered investment (USD million)

Ha Tinh

Thanh Hoa

Phu Yen

Hai Phong

Others

Total number of projects

SOURCE: FOREIGN INVESTMENT AGENCY

INCREASED CAPITAL REQUIREMENTS ARE LIKELY TO LEAD TO A CONSOLIDATION IN THE NUMBER OF BANKS IN VIETNAM.

BANKING & FINANCIAL SERVICES

REFORMS OPEN UP BANKING SECTOR Major reforms have opened up Vietnam’s banking sector to the world. While the sector is growing quickly, tighter regulation is on the way, and mergers and acquisitions are anticipated. Sector in transformation amid ongoing deregulation Foreign banks begin to incorporate locally Minimum capital requirements to drive consolidation

n spite of a slowdown in 2008 due to global and local factors, Vietnam’s banking and financial services sector is developing at twice the country’s rate of GDP growth, thanks to growing consumer demand, increased internationalisation of the banking system and a more sophisticated range of monetary products and instruments. A 2008 PricewaterhouseCoopers investment guide on Vietnam estimated that the sector had total assets amounting to about US$80 billion.

KEY PLAYERS Over two-thirds of the local banking market is taken by five large state-owned banks, the most extensive being the Vietnam Bank for Agricultural & Rural Development and the Bank for Investment & Development of Vietnam. While they are currently in public hands, it is Government policy to eventually equitise these banks, along similar lines to the Bank for Foreign Trade of Viet Nam— Vietcombank—and the Vietnam Bank for Industry and Trade— VietinBank—which became ‘joint stock’ banks in 2007 and 2009 respectively. Vietcombank is one of 38 private or ‘joint stock’ banks that hold another 25% of the market. This sector includes major players such as Habubank, which became Vietnam’s first joint stock bank back in 1989. In addition, about 50 foreign banking companies have representative offices in Vietnam, and there are about 30 finance and leasing companies. The whole sector is overseen and regulated by the State Bank of Vietnam, the country’s central bank. Vietnam’s Law on Credit Institutions, last amended in 2004, stipulates the services banks may provide.

LOCAL INCORPORATION Until recently, foreign banks were limited in their Vietnamese operations to 30% stakes in local businesses and a maximum of two branches. That all changed in 2008, when the central bank started issuing licenses to international banks to establish their own wholly-owned subsidiaries in Vietnam. This move was in accordance with commitments made by Vietnam on joining the World Trade Organisation in 2007. In January 2009, HSBC (which had been operating in the country since 1992 but has a history in Vietnam going back to

1870) became the first 100% foreign-owned bank to incorporate locally in Vietnam. HSBC was swiftly followed by Australia’s ANZ and London- and Hong Kong-listed Standard Chartered, while South Korea’s Shinhan Bank and Malaysia’s Hong Leong Bank Berhad have also joined the exclusive club of banks licensed by the State Bank of Vietnam to operate as local entities. ‘We think the combination of our local incorporation and our international know-how provides mutual benefit for our customers and us,’ says ANZ’s Chief Executive Officer in Vietnam, Ms Thuy Dam. ‘It is vital to have local knowledge in Vietnam, particularly in financial services, so we are in a fortunate position. Vietnam is not conventional—you can’t just look at balance sheets. You need to take longer to understand the business that you are dealing with. You need to build trust and get to know the management.’ Standard Chartered’s Chief Executive Officer in Vietnam, Ashok Sud, explains the significance of the move: ‘As a local bank, we can offer products that foreign banks may have restrictions on, such as the ability to take deposits in dong from local customers beyond a certain cap. In Vietnam, there is now a fairly level playing field in terms of what local and foreign banks can do. Local incorporation ensures it stays that way.’

GOVERNMENT ENCOURAGEMENT ‘The Government’s been open to bringing foreign investors into the banking sector and establishing privately-owned banks,’ notes Simon Andrews, Regional Manager for Vietnam, Cambodia, Laos and Thailand at the International Finance Corporation. ‘When you look at the role of financial intermediation in the development of an economy, it’s a critical step, and the Government’s willingness to allow foreign banks to come in and take significant stakes in domestic banks and also to set up their own operations in Vietnam is an encouraging sign. They clearly see the private sector as playing a key role in allocating capital efficiently.’

FOREIGN INVESTMENTS As Andrews notes, foreign banks have been active not just in setting up their own subsidiaries, but in investing in local banks and financial institutions. This has benefits for both local and foreign companies. Deutsche Bank has a strategic cooperation agreement with Habubank, which involves a major knowledge transfer project due for completion by the end of 2010. ‘The project includes several sub-projects of treasury management, credit risk management, market risk management and operational risk management,’ says Madame Bui Thi Mai, Vice Chairman of Board of Directors and Chief Executive Officer of Habubank. ‘The project was within the framework of strategic

BANKING & FINANCIAL SERVICES ‘The Government’s willingness to allow foreign banks to come in and take significant stakes in domestic banks and also to set up their own operations in Vietnam is a very encouraging sign.’ —Simon Andrews, Regional Manager for Vietnam, Cambodia, Laos and Thailand, International Finance Corporation cooperation agreement between the two banks, aiming to advance Habubank’s operational and risk management competence.’ As well as taking over the Royal Bank of Scotland’s Vietnam business in 2009, Australian bank ANZ has made strategic investments in private bank Sacombank and Saigon Securities Incorporation, Vietnam’s largest securities company. ‘We think you have to put your money where your mouth is, so we’ve made local investments ourselves,’ says ANZ’s Thuy Dam. HSBC has also invested in a leading local bank, possessing a 20% stake in the Vietnam Technological and Commercial Joint Stock Bank—Techcombank. It is also the sole foreign strategic partner of the BaoViet Finance-Insurance Group, Vietnam’s largest insurance company. In a vote of confidence in the insurer, HSBC increased its stake to 18% in October 2009. ‘We see that as part of our strategy to participate in the fast growth of the local banking system. We can also grow our branding,’ says Thomas Tobin, Chief Executive Officer of HSBC’s Vietnam operation. HSBC shares an ATM network with Techcombank and sells BaoViet’s insurance products to its customers in order to have greater exposure to what Tobin calls ‘a very fast-growing market’ Standard Chartered has a strategic partnership with Vietnam’s largest private sector bank, Asia Commercial Bank. Another investor in Asia Commercial Bank notes its meteoric rise, and also the returns that can be achieved from astute investments in Vietnam’s financial sector. ‘We invested in them in 1996. It was a group of Vietnamese academics who got together to build a bank,’ Dominic Scriven, Managing Director of investment firm Dragon Capital, told Business Advantage. ‘They are now one of the largest and safest financial institutions in the country. They are a source of successful returns for us.’

CONSOLIDATION ON ITS WAY While the sector is projected to grow by 15% or more per annum over the next five years, more structural changes are expected. In 2010, banks operating in Vietnam will need a minimum capital requirement of three trillion dong (US$180 million) as part of Government plans to reduce the number of joint stock banks by about half. Regulations governing mergers and acquisitions in the sector are also forthcoming. It is therefore unlikely Vietnam will have as many as 38 private banks for much longer. ‘There will be some consolidation—that is a natural progression for some banks. Some of the small ones will have to raise the capital to meet the minimum capital requirements of the State Bank of Vietnam,’ says Thomas Tobin. At the time of writing, the industry is still waiting to see what legislation or guidelines will govern consolidations.

INSURANCE SECTOR EXPANDING Vietnam has one of the fastest-growing insurance markets in the world, in spite of losses made by the sector in 2008 due to the global financial crisis. Currently, there are 37 local insurance businesses in Vietnam, and about 30 foreign companies with representative branches. Major players include BaoViet, Vietnam’s largest insurer, United Insurance Company (UIC), PetroVietnam Insurance (PVI) and PJICO. As Vietnam has developed economically, so Vietnamese businesses and individuals have shown a greater interest in insurance products, with some estimates suggesting total insurance premiums paid in Vietnam have increased by more than five times since 2000. With less than 10% of the population currently purchasing insurance, more growth is to be expected. Interestingly, BaoViet is using its strength in the insurance market and its strategic partnership with international bank HSBC as a springboard into other financial markets, with plans to add banking, real estate and healthcare operations to its growing financial services portfolio.

EXPANDING PRODUCT PORTFOLIOS A feature of Vietnam’s banking sector is the increased sophistication of both the business and retail banking markets. For example, in 2008, Habubank was the first local joint stock bank to introduce a wealth advisory service, aimed at selling tailored financial solutions to high net worth customers.

IMPROVED BANKING INFRASTRUCTURE While the market in Vietnam is still cash-oriented, the internationalisation of the banking sector is driving investment into technology and with it, electronic banking. ‘We are leading the market in electronic banking,’ notes HSBC’s Thomas Tobin, observing the slow but steady development of this capability within Vietnam’s financial service sector. HSBC has recently deployed its modern HSBCnet platform for corporate customers. ‘Foreign banks have more advantages over Vietnamese banks in terms of financial capability, technology, operations and management experience,‘ notes Madame Bui Thi Mai, Vice Chairman of Board of Directors and Chief Executive Officer of Habubank. ‘Being fully aware of that fact, Vietnamese banks have focused on improving financial capability via increasing chartered capital, investing in modern technology, developing hi-tech products and services and expanding operation network to win more market share. The participation of foreign banks in Vietnam’s market will force domestic banks to make thorough reforms in their daily management and operations.’

STRONG GROWTH PROSPECTS Corporate finance is likely to drive major growth in the sector, as Standard Chartered’s Ashok Sud explains: ‘The corporate sector has a huge requirement for long term financing of projects and infrastructure. It gives opportunity for banks like ours that specialise in these areas.’ In addition, in spite of the growth in the retail sector, still only an estimated two million Vietnamese have personal bank accounts. Such factors clearly explain why foreign banks have been so keen to enter the Vietnamese market, and why the sector looks set for double digit growth for the foreseeable future.

TRADE

CREDIT: JASON CORDELL

AN EXPORT-BASED ECONOMY Vietnam’s export figures are a stark illustration of just how far the country has come since the mid 1980s.

ince it commenced its economic reform programme in 1986, Vietnam’s exports have soared. Export revenues have risen by an average of about 20% a year over that period, and by 2007 were 60 times higher than in 1986, at US$48.4 billion. Today, exports constitute around 80 per cent of Vietnam’s GDP. Significant agricultural products are rice, coffee, pepper, rubber and cashews. Vietnam is also a major player in the global garment and seafood markets.

STAR PERFORMER In 2008, Vietnam’s largest export markets were the USA ($11.6 billion), ASEAN ($10.2 billion), the European Union ($10 billion), Japan ($8.8 billion) and China ($4.2 billion). Vietnam’s export growth has, if anything, only gained in strength in recent times, until the global financial crisis inevitably applied the brake. Even in these circumstances, Vietnam has outperformed its regional competitors (revenues fell a modest 10% year-on-year in the first half of 2009) and looks likely to rebound strongly.

TOP 10 EXPORT MARKETS OF VIETNAM IN 2008 AND PRIOR YEAR COMPARATIVES

And yet, the country still runs a persistent trade deficit (as a comparison, imports in 2008 were $80.4 billion), although at around 11% it is a far cry from the 300% of 1986. The principle beneficiaries are China, Singapore, Taiwan, Japan and South Korea. This apparent paradox is inevitably complex, but is largely explained by imports of materials and plant required for the country’s rapid industrial development, including large scale foreign investment projects. At the same time, a significant portion of foreign direct investment in Vietnam is actually export oriented, which itself bodes well for future export growth. Further impetus to the expansion of Vietnam’s two-way international trade was supplied by the country’s accession to the World Trade Organisation on 11 January 2007. Import duties on inputs for domestic manufacturing have been reduced and its services sector has finally been liberalised. Since 1986, Vietnam has also greatly increased the sophistication of its exports, with less emphasis on exporting commodities and more on adding as much value as possible onshore. It is estimated that just 40% of exports today are in the form of commodities. The Government now hopes to accelerate that process. Looking ahead, trade promotion agency Vietrade told Business Advantage that Vietnam’s aim is to continue to improve the quality of its exports, to add more value onshore and to build a stronger ‘Made in Vietnam’ brand. A global promotional strategy is currently in development—the first of its kind that Vietnam will have undertaken. (For more on Vietnam’s productive sectors, see page 28.)

11 10 9 8 USD Billion

AN UNLIKELY TRADE DEFICIT

ADDING MORE VALUE LOCALLY

7 6 5 4 3 2 1 0 US

Japan

Australia

China

CREDIT: GENERAL STATISTICS OFFICE

‘Today, exports constitute around 80 per cent of Vietnam’s GDP.’

Singapore

Germany

Malaysia

U.K.

Taiwan

Indonesia

TRADE OPPORTUNITIES TO PROVIDE GOODS AND SERVICES TO VIETNAM

AUSTRADE’S TONY BURCHILL

Vietnam’s dynamic economy provides a wide range of export opportunities for foreign companies. Tony Burchill, Senior Trade and Investment Commissioner for the Australian Trade Commission (Austrade) in Ho Chi Minh City, highlights some areas of particular interest.

Building & construction Vietnam’s building and construction industry has to a large extent driven the growth of Vietnam, contributing a significant proportion of Vietnam’s foreign direct investment. While some major projects did go on hold, or slow, as a result of the global economic downturn, residential and commercial development projects have again picked up in mid 2009 and long term growth rates are strong in the industry—good news for foreign building material suppliers, construction and associated service companies. Tourism infrastructure will continue to grow, especially around the urban centres of Ho Chi Minh City, Hanoi and the coastal region of Da Nang. As a rapidly developing economy, Vietnam’s transport infrastructure, in the form of roads and ports, will continue to be an important part of Vietnam’s growth story. Resources & energy Vietnam’s oil industry is well-developed, given a history of Russian–Vietnamese collaboration in the industry. While Vietnam’s upstream oil industry has thus far offered most equipment and service opportunities, the commissioning of Vietnam’s first oil refinery in Quang Ngai Province in 2009 signals the start of an era of increased downstream petrochemical activity in Vietnam. Natural gas is seen as an even more promising industry for those looking for growth in Vietnam, given the large untapped gas reserves off Vietnam’s coast and Vietnam’s emerging energy crunch, which will drive further exploration and production of energy resources. Despite its abundance in natural resources, Vietnam’s mining industry offers fewer opportunities in terms of mining exploration. However, opportunities certainly exist in terms of mining equipment and services supply. Professional services Vietnam’s rapid commercial and industrial growth has led to an increase in the need for professional services. International legal services firms, human resources and accounting practices have all benefited from Vietnam’s growth. There are increasing opportunities for an array of business consulting firms through the many multilateral project activities that occur in Vietnam, including those of the Asian Development Bank and World Bank. Education & training Furthering one’s education and lifelong learning are entrenched cultural values in Vietnam. Increasingly, more education and training providers are recognising Vietnam’s growing demand for quality higher education and vocational training. Vietnam remains one of the fastest growing international student markets for Australia, growing at a year-on-year rate of over 50% in 2009.

DIRECTORY

USEFUL INVESTOR RESOURCES FOR VIETNAM The following directory provides useful contact details and resources for those seeking to do business in Vietnam. Details may be subject to change. USEFUL CONTACTS & FURTHER READING Given the size and dynamism of the Vietnam economy, there is a surprising lack of high quality up-to-date information available in English. However, the following sources are recommended.

LOCAL BUSINESS MEDIA & ONLINE RESOURCES

OTHER USEFUL PUBLICATIONS

The Vietnam Times (www.vietnamnews.vnagency.com.vn) The local English language daily, with a strong business focus. Vietnam Business Forum (www.vibforum.vcci.com.vn) Magazine/news service of the Vietnam Chamber of Commerce. Vietnam Economic Times Well-regarded monthly business magazine. Vietnam Investment Review (www.vir.com.vn) Vietnam Investment Network (www.investinvietnam.vn) Provides the latest business and investment related news for Vietnam on its investment portal. Central Institute for Economic Management (www.ciem.org.vn/home/en) Also has a useful Vietnam Economic Portal at www.vnep.og.vn.

Vietnam Investment Guide 2009 (Foreign Investment Agency). Available from http://fia.mpi.gov.vn. Doing Business 2010 Vietnam (World Bank). Available from www.doingbusiness.org. Viet Nam: A Guide for Business and Investment (PricewaterhouseCoopers Vietnam, May 2008). Available from www.pwc.com/en_VN/vn/publications/assets/ vietnam_guide.pdf. The document includes a complete list of embassies and high commissions in Hanoi and a list of consulates in Ho Chi Minh City. ‘Halfway from rags to riches: a special report on Vietnam’ (in The Economist, 26 April 2008). Remains relevant as an excellent general picture of where Vietnam’s economy is positioned today. Vietnam’s Foreign Investment Outlook, 2nd edition (Vietnam Economic Times, 2009) An overview of business conditions, and contact details for a large number of Vietnamese companies arranged by sector. Lonely Planet Vietnam (Lonely Planet, 2009, ISBN 97810741043068) Useful practical information, and not just for backpackers.

Further information on ministries is available from the Vietnamese Government web portal, www.chinhphu.vn.

VIETNAM’S GOVERNMENT DEPARTMENTS Ministry

Location

Telephone

Website

Ministry of Foreign Affairs

1 Ton That Dam, Hanoi

+84 4 38452980

www.mofa.gov.vn/en

Ministry of Planning & Investment

6B Hoang Dieu, Hanoi

+84 4 38455298

www.mpi.gov.vn

Ministry of Finance

28 Tran Hung Dao, Hanoi

+84 4 22202828

www.mof.gov.vn

Ministry of Agriculture & Rural Development

2 Ngoc Ha, Hanoi

+84 4 38468161

www.mard.gov.vn

Ministry of Transport

80 Tran Hung Dao, Hanoi

+84 4 39424015

www.mt.gov.vn

Ministry of Construction

37 Le Dai Hanh, Hanoi

+84 4 38215137

www.xaydung.gov.vn

Ministry of Industry & Trade

54 Hai Ba Trung, Hanoi

+84 4 38258311

www.moit.gov.vn

Ministry Science & Technology

39 Tran Hung Dao, Hanoi

+84 4 39439731

www.most.gov.vn

Ministry of Environment & Resources

83 Nguyen Chi Thanh, Hanoi

+84 4 38343005

www.monre.gov.vn

Ministry of Information & Telecommunication

18 Nguyen Du, Hanoi

+84 4 39437004

n/a

Ministry of Justice

58-60 Tran Phu, Hanoi

+84 4 37336213

www.moj.gov.vn

Office of Government

1A Hoang Hoa Tham, Hanoi

+84 4 38043579

n/a

Viet Nam Chamber of Commerce & Industry

9 Dao Duy Anh, Hanoi

+84 4 35742022

www.vcci.com.vn

Ministry of Culture, Sports & Tourism

51-53 Ngo Quyen St, Hanoi

+84 4 38692252

DIRECTORY COMMERCIAL SUPPORT AGENCIES IN VIETNAM Organisation

Telephone

Website/email

American Chamber of Commerce (Amcham)

+84 4 39342790

info@amchamhanoi.com

Austrade

+84 4 38317755 /+84 8 38299387

info@austrade.gov.au.

Australian Chamber of Commerce and Industry

+84 4 37150395

auschamhn@fpt.vn

Belgian Luxembourg Chamber of Commerce

+84 8 38219916

info@beluxcham.com

British Business Group

+84 8 38243754

www.bbgv.org

Canadian Chamber of Commerce

+84 4 35130266 / 84 8 38243754

www.canchamvietnam.org

China External Trade Development Council (CETRA)

+84 4 38231216

twtc@hcm.vnn.vn

Department of Export Promotion of Thailand

+84 4 37330671

n/a

European Chamber of Commerce and Industry

+84 4 39362420 / +84 8 38455528

www.eurochamvn.org

France Chamber of Commerce and Industry in Vietnam

+84 4 37152229 / +84 8 39973928

www.ccifv.org

German Industry and Commerce (DIHP)

+84 4 38251420 / +84 8 38239775

www.vietnam.ahk.de

Flanders Investment and Trade Office in Vietnam

+84 4 393346172

www.flanderstate.com

GTZ Office Vietnam

+84 4 39344951

www.gtz.de/vietnam

Hong Kong TDC Vietnam

+84 8 38235883

hochiminh.city.office@tdc.org.hk

Japan External Trade Organisation (JETRO)

+84 4 38250630

n/a

Korea Trade Promotion Agency (KOTRA)

+84 4 38315177

n/a

MATRADE Hanoi (Malaysia)

+84 4 37347521

n/a

Nordic Chamber of Commerce (Nordcham)

+84 4 37714216

secretariat@norcham.org.vn

Singapore Trade Development Board (TDB)

+84 4 38233965

n/a

SME promotion (GTZ) in Vietnam

+84 4 38224901

www.sme-gtz.org.vn

Taipei Economic and Cultural Office

+84 4 38335505

suggest@teco.org.vn

US Commercial Service

+84 4 38242422 / +84 8 38204089

www.buyusa.gov/vietnam/en/

Vietnam Association of Foreign Invested Enterprises

+84 4 8437925

www.vafie.org.vn

Vietnam-US Trade Council

+84 4 39361700

usvtc@usvtc.org

VIETNAM’S FOREIGN INVESTMENT AGENCY The Foreign Investment Agency (FIA), under Vietnam’s Ministry of Planning and Investment, is responsible for foreign direct investment in Vietnam, acting as a de facto investment promotion agency. Contact details: 6B Hoang Dieu Street, Hanoi. Tel: +84 8 048461 Fax: +84 4 37343769 http://fia.mpi.gov.vn

VIETNAM

VIETNAM’S INTERNATIONAL BUSINESS AND INVESTMENT GUIDE

Business Advantage

Vietnam

Business Advantage Vietnam, Vietnam’s international business and investment guide, is also online.

2010

For the full publication, and other business resources, visit www.businessadvantagevietnam.com http://fia.mpi.gov.vn

HA LONG BAY IN NORTH-EASTERN VIETNAM IS A UNESCO WORLD HERITAGE SITE

CREDIT: JANELLE WARBY

TOURISM DEVELOPMENT

A MUST-SEE DESTINATION

Vietnam was ranked just 89th in the world in the World Economic Forum’s 2009 travel and tourism competitiveness index, and the country spends relatively little on international marketing. So how come its visitor numbers have soared in recent years? Wide array of tourism assets Global hotel operators arriving in numbers Tourist visa system still an obstacle

n 2007, Vietnam registered a record number of visitor arrivals (4.2 million), an increase of 16% on the year before, generating more than US$4 billion in revenues which in turn contributed 4.5% of the country’s GDP. In one sense, Vietnam is simply starting to cash in on its natural assets. The country is endowed with beautiful unspoilt beaches, outstanding natural landscapes and historical monuments set in a mainly tropical climate.

IMPORTANT EMPLOYMENT SOURCE Tourism is a stated priority for the Vietnam Government, whose current development plan for the industry ends in 2010. This is not because Vietnam lacks viable alternatives but because of the potential the sector has to provide employment for the country’s youthful and rapidly-growing population away from the main industrial centres. The tourism sector already employs one in ten Vietnamese workers. During the past decade, Vietnam has emerged as the destination of choice for the young Western professional wanting to stray just a little bit off the beaten track. All the same, the majority of its visitors are located in its own, highly populated region. After the USA, its largest markets are China (from where many travel overland, rather than by air), South Korea and Japan, suggesting such growth can be sustained. Domestic tourism is also expected to take off over the next decade, given Vietnam’s compelling demographics, rising disposable incomes and the advent of low-cost domestic flights.

FOREIGN OPERATORS TAKING AN INTEREST Such progress has attracted the attention of the world’s leading tourism operators. InterContinental, which did not manage any properties in Vietnam until 2007, has major plans in the country (see box), while Swiss-based Movenpick recently opened two upmarket business hotels in Hanoi and Ho Chi Minh City. Singapore’s Banyan Tree announced it will build a large resort near the historical Vietnamese city of Hue at an estimated cost of US$900 million. When fully developed, the 280-hectare beachfront Laguna Hue resort will comprise seven hotels with a total of 2,000 rooms, a golf course, residences and convention facilities. The resort is about one hour’s drive from Hue, an ancient imperial capital in central Vietnam and a UNESCO heritage site. The first phase of the project, comprising two hotels, the golf course and residences, is expected to open in 2012 and will cost around US$200 million, the Singapore firm said in an August 2009 statement. Almost simultaneously, Starwood Hotels & Resorts Worldwide (which already manages properties under its Sheraton brand in Vietnam) announced it would open the 350-room, 22-storey Le Méridien Saigon for owner Tien Phuoc & 990 Company Limited, also in 2012.

DOMESTIC OPERATOR HAS AMBITIOUS PLANS Interestingly, this process is not all one way. Domestic travel giant Saigontourist Holding Company announced in mid 2009 that it was to buy a 252-room hotel in San Francisco, California from none other than the Intercontinental Group. The state-run firm, which also has interests in duty free shops, transport, construction and training, sees the drop in global property prices as a chance to

TOURISM DEVELOPMENT ‘In the second half of 2009, major international hotel operators have shown they have lost none of their appetite for Vietnam.’ expand internationally. It is already looking at other properties, and intends to evolve into hotel management in due course. The global recession has inevitably had an impact, but there is every reason to believe that this sector will return to rapid growth sooner rather than later. Indeed, in the second half of 2009, major international hotel operators have shown they have lost none of their appetite for Vietnam. Saigontourist is also continuing to invest in local properties, including beach resorts.

CORPORATE HOSPITALITY OPPORTUNITIES For proof that Vietnam is already capable of reaching the highest standards in hospitality, you don’t need to look further than Ho Chi Minh’s iconic Caravelle Hotel (in which Saigontourist has a stake). Famous as a base for journalists during the Vietnam War, in

2006 it was voted one of the 100 top luxury hotels of the world by the prestigious Robb Report. Caravelle’s General Manager John Gardner identifies the Meetings, Incentives, Conferences and Events (MICE) market as a potential growth opportunity: ‘Vietnam has not promoted MICE as much as other countries in the region.’ The opening of the InterContinental Asiana Saigon, with its massive ballroom a few blocks from the Caravelle, will in any case undoubtedly add to the city’s MICE credentials.

NEW INITIATIVES There are certainly signs that the Vietnamese Government is finally starting to realise the importance of international marketing for this sector. A comparatively high profile ‘Hidden Charms’ campaign was launched in 2007/8, and the national tourist board, VNAT, recently called on the Government to channel some of its economic stimulus package into a similar initiative. The other major area of constraint is the visa situation for shortterm visitors. The current procedures make last minute travel to Vietnam impractical, and are an inconvenience at the best of times. Experts estimate that fixing this alone would result in the tourism sector expanding by 10%.

CASE STUDY: DRIVING VIETNAM’S TOURISM BOOM

INTERCONTINENTAL’S PHIL RILEY

Premium hotel management company InterContinental Hotels Group is heavily involved in Vietnam’s tourism development boom with seven properties under development in the country. Business Advantage spoke with InterContinental’s Regional General Manager Phil Riley about the prospects for growth in Vietnam’s tourism and hospitality sector.

United Kingdom-based InterContinental Hotel Group (IHG)—the world’s largest hotel group by number of rooms—launched its brand in Vietnam with the award winning InterContinental Hanoi Westlake hotel in 2007 and added a second, the InterContinental Asiana Saigon in Ho Chi Minh City (featuring Vietnam’s largest ballroom), in 2009. That the group, which manages the hotels on behalf of investors, currently has seven other projects under development in Vietnam, indicates the strategic importance it places on the country. ‘We see Vietnam as one of our expansion countries, alongside Thailand and China,’ says Phil Riley, Regional General Manager for IHG in Vietnam. ‘We see strategic value in Vietnam given its growth. We see a willingness to get on and do things there. Foreign and local investors are stepping up to commit to expensive tourism projects.’ For Riley, Vietnam combines the pleasantries of the Thai culture with the commercial astuteness of the Chinese. Politically stability and Vietnam’s joining the World Trade Organisation in January 2007 has also helped

create a strong investment climate in the hospitality sector. ‘Looking around the horizon, there is nothing but cranes,’ he tells Business Advantage. ‘Tourism is growing; Australians, Americans and Canadians are coming here; the Vietnamese Government is changing the visa requirements.’ While the flagship Hanoi and Ho Chi Minh hotels aim to service the business and MICE (meetings, incentives, conferences and events) markets, Riley says four of IHG’s future projects will be coastal properties designed to appeal mainly to the tourism market. Riley feels there could be even more development outside Vietnam’s two major cities: ‘The challenge for tourism is the need for further infrastructure and people being able to move around the country more easily.’ With its management agreements tending to last for at least 15 years, IHG tends to take a long-term view with the development of the properties it manages: ‘We like to get them at the planning stage,’ says Riley. ‘We like them to be built efficiently so we are not wasting money later. We have a design and engineering team who are involved for the year before the general manager goes in. They’ll recommend architects, interior designers, mechanical engineers. These guys know our standards and they make it a lot easier. We hope to save the money of the investors and make money for them instead.’ Notably, two-thirds of the investors behind IHG’s Vietnamese properties are local investors and most, according to Riley, already have investments overseas. For Vietnam’s tourism sector, IHG’s experience and the ambition of local investors look like a winning combination.

UPGRADING VIETNAM’S MORE THAN 140,000 KM ROAD NETWORK IS A MAJOR PRIORITY FOR THE GOVERNMENT

INFRASTRUCTURE & TRANSPORT

DRIVEN TO EXPANSION While Vietnam’s infrastructure is basically sound, its rapid rate of economic growth, exportfocused industrial base and ambitious economic goals demand constant improvements. Here we provide an overview of current developments in Vietnam’s infrastructure. Public works struggling to keep pace with sustained high economic growth Telecommunications deregulation a big success Ambitious plans to create regional aviation hub

nfrastructure constraints are frequently cited by business leaders as the biggest obstacle to doing business in Vietnam. On the surface, this seems odd as there is so much infrastructure development occurring, financed both by the state budget and also development assistance. But, to a large extent, such public works indicate the country is making up for lost time—not an easy task when the economy is growing so fast. While particular areas of concern are power supply (see page 26) and roads, there are indications that the Vietnamese Government is taking a new approach to raise the capital necessary to finance future infrastructure projects. ‘Infrastructure is one area where a significant amount of capital will be required and the expectation is that the private sector will have a big role to play in providing that capital,’ Simon Andrews, the International Finance Corporation’s Regional Manager for Vietnam, Cambodia, Laos and Thailand, told Business Advantage.

ROADS & RAIL International railways and highways connect Vietnam to China, Mongolia and Russia, and plans are under way to connect Vietnam to the Trans-Asia Railway and highway network. The national road system covers more than 140,000 km. Upgrading this network is a major priority for the Government, as road congestion is an increasing problem, particularly in the southern part of the country. At the same time, the Government has also recognised that it needs to improve the maintenance of existing roads. In 2009, transport ministry estimates indicated an average annual investment of 66.8 trillion dong (US$3.7 billion) was needed to improve transportation capacity. Alternatives to road transport include a rail system comprising of 3,200 km of single-track lines and a well-developed 32,000 km network of inland waterways. There are two principal inland waterway systems that service the two key industrial areas in the north and south of the country.

PORTS While Vietnam has 11 major seaports, including Ho Chi Minh City in the south, Hai Phong in the north and Da Nang in the centre, it would be fair to observe that port capacity and facilities have not kept pace with the country’s economic growth. More container ports are planned and a massive project is under way to reduce traffic congestion in inner Ho Chi Minh City by relocating its eight port facilities to outlying areas by 2020. The

INFRASTRUCTURE & TRANSPORT ‘Infrastructure is one area where a significant amount of capital will be required and the expectation is that the private sector will have a big role to play in providing that capital.’

from a number of companies, including the military-run Viettel, VNPT still claims over 50% of the mobile phone market. The issuing of four licenses for new 3G mobile phone networks in mid 2009 should provide further impetus for this sector, with Vietnam’s young population expected to lap up the new services 3G’s additional bandwidth will bring. In 2008, Vietnam launched its first telecommunications satellite. With a price tag of US$200 million, Vinasat 1 will help improve telecommunications services to rural areas.

first new facility to open under this project will be the US$366 million, 38-hectare Saigon Premier Container Terminal, which was nearing completion at the end of 2009 and was due to open in 2010. It will be operated by Dubai-based DP World, the world’s largest marine terminal operator. Although public–private partnerships appear to offer a logical way to speed up the development of key infrastructure projects, a model has yet to be found that is both acceptable to the Government and attractive to potential private investors.

TELECOMMUNICATIONS The telecommunications sector has grown at around 30% annually for the past few years, as deregulation in the mobile area in particular, has taken effect. In 2009, the number of internet users was estimated to be in excess of 20 million, while the number of mobile phone users had shot up to about 50 million. VNPT is the incumbent telecommunications operator. It achieved a turnover of US$3.2 billion in 2008—a 19% increase on the previous year. In spite of the advent of serious competition

PLANS EXIST TO RELOCATE HO CHI MINH CITY’S EIGHT PORT FACILITIES BY 2020 TO EASE CONGESTION.

INFRASTRUCTURE & TRANSPORT RAPID ACCELERATION IN AVIATION VIETNAM AIRLINES PLANS TO TREBLE THE SIZE OF ITS FLEET OVER THE NEXT DECADE.

Things are moving fast in Vietnam’s aviation sector, with the country determined to become a regional air services hub sooner rather than later. ‘Vietnam’s economic development is driven by a powerful desire to catch up and overtake its neighbours as quickly as possible,’ notes Dominic VIETNAM AIRLINES PRESIDENT & CEO, DR. Scriven, Managing Director of PHAM NGOC MINH investment firm Dragon Capital. Nowhere is this more evident than in the aviation sector, where there is rapid infrastructure development, significant deregulation and a national carrier, Vietnam Airlines, in the process of reinventing itself. Massive infrastructure investment The opening of the gleaming new international terminal at Ho Chi Minh City’s Tan Son Nhat International Airport in late 2007 was a major milestone. Similar in design to Bangkok’s Suvarnabhumi Airport (which opened in 2006), this state-of-the-art facility can handle up to 10 million passengers a year. The opening of Tan Son Nhat Airport is just the start of a much bigger plan. A feasibility study is currently being conducted for a massive new international airport in Dong Nai Province, about 50 km north-east of Ho Chi Minh City. Long Thanh International Airport will be built in two stages at a total cost of US$8 billion. With four runways and three passenger terminals, it is expected to be one of the busiest airports in the world once completed in 2015. At that point, the existing international terminal at Tan Son Nhat Airport will switch to handling domestic passengers only. A larger international airport is also planned for Hanoi, while the country’s third international airport, at Da Nang in central Vietnam, is already undergoing an upgrade. A new terminal will accommodate up to four million people a year, while one of its runways is being extended. Vietnam Airlines on the up Against the backdrop of this development, the country’s national carrier is intent on taking its place at the top table alongside the world’s major international carriers. In 2008, Vietnam Airlines carried nearly nine million passengers and earned revenues of around US$1.5 billion. The fact that this represented growth of more than 30% over the previous year gives some indication of the airline’s ambition and also

‘Long Thanh International Airport will be built in two stages at a total cost of US$8 billion. With four runways and three passenger terminals, it is expected to be one of the busiest airports in the world once completed in 2015.’ the staggering growth in Vietnam’s aviation sector. Even in the first half of 2009, the airline managed to maintain that level of growth in the face of a collapsing global aviation market. Besides servicing 20 domestic destinations, Vietnam Airlines currently provides regular services to regional neighbours Laos and Cambodia and globally to Australia, Europe and Japan. Its grand plan is to have 150 aircraft in operation by 2020 (compared to about 50 at present), and to add key routes such as Mumbai, Shanghai and London to its global network. New planes, new alliance Accordingly, the airline has signed purchase and leased contracts for almost 90 new aircraft, which include 20 Boeing 787 ‘Dreamliners’, 14 new-generation Airbus A350-900s, four A330-200s, 37 A321-200s and 11 ATR 72-500s. In terms of service, the airline already enjoys a good reputation for its international business class service. It is now intent on improving its economy class offering to match that of the world’s leading players. It is also on the point of joining the Delta Airlines/Air France–led SkyTeam Alliance. In April 2009, it signed a preliminary agreement, outlining its intention to undertake exclusive discussions to become a part of the world’s second largest airline alliance during the year 2010. ‘The agreement reaffirms Vietnam Airlines’ position as a major carrier in the Southeast Asia region,’ Dr Pham Ngoc Minh, President and Chief Executive Officer of Vietnam Airlines, said at the time. If all goes according to plan, the airline will be a major global carrier within a decade. Competition in the skies Nor is Vietnam Airlines any longer a monopoly, either domestically or internationally. Vietnam has rather belatedly deregulated its airline sector, with new entrants rushing in. Vietnam Airlines now competes with the likes of low-cost airline Jetstar Pacific, a joint venture between the Vietnam Government and Australia’s Qantas Airlines, and Indochina Airlines domestically, while Jetstar Asia, Tiger Airlines and Air Asia have all obtained international landing rights. Vietnam’s accelerated aviation development will assist the country directly in terms of visitor arrivals and transit passengers. But it will also make it easier and cheaper to do business, for Vietnamese and foreigners alike.

INFRASTRUCTURE & TRANSPORT

LOGISTICS PROVIDERS MAKE NEW INVESTMENTS Several foreign companies are rising to the challenge of providing next-generation logistics services to Vietnam. In doing so, they are not only improving the enabling environment for business, but are sending a clear signal that Vietnam is a long-term strategic focus. As Vietnam’s economy continues to grow and freight volumes increase, so too does the pressure on the country’s logistics networks. In July 2009, international logistics specialist TNT opened a 3000-square metre International and Domestic Operations Centre in Ho Chi Minh City. Located next to Tan Son Nhat International Airport, the facility features state-of-the-art technology for freight processing, tracking and security, including X-ray scanning machines, radiofrequency shipment tracking systems and automated weight and volume scanners. ‘Vietnam bridges Southeast Asia and China and the additional Ho Chi Minh City International and Domestic Operations Centre is critical in expanding TNT’s presence and connectivity in the region,’ Chris Spanjaard, Operations Director, Asia said in a recent statement. TNT also has an operations centre in Hanoi.

Meanwhile, competitor DHL has also been busy, announcing in July 2009 a new joint venture, DHL Global Forwarding (Vietnam) Corporation, with Vietnamese partners including Oriental Logistics. As part of a fiveyear, US$10 million investment in new services, the new entity will create the first Fashion and Apparel Centre for Excellence in south east Asia. ‘The fashion and apparel industry is one of the core focus areas for DHL Global Forwarding in Asia Pacific,’ said DHL Global Forwarding South Asia Pacific’s Chief Executive Officer Amadou Diallo in a recent statement. ‘This industry contributed nearly US$2.6 billion to Vietnam in the first four months of 2009 alone, with US$9.5 billion in exports projected for 2009.’ Finally, Gannon International, the diversified US firm that is the largest lessee of warehouse space at Ho Chi Minh City’s port and has a logistics arm that distributes goods and raw materials across Vietnam, has recently entered into an agreement with Vietnamese company Tin Nghia to develop a 600-hectare industrial park in Dong Nai Province (see page 29 for more on Vietnam’s industrial zones).

CONCRETE WORKS AT DUNG QUAT INDUSTRIAL ZONE, SITE OF VIETNAM’S FIRST OIL REFINERY

CREDIT: HOANG DINH NAM/AFP/GETTY IMAGES

ENERGY & MINING

AN ENDLESS THIRST FOR POWER

A lack of affordable energy is one of the most serious threats to Vietnam’s economic prospects.

Large deposits of oil, gas, coal and minerals New legislation needed to boost mineral development Power shortages a brake on economic growth

ENERGY Rapid economic growth, urban drift, and improving living standards have all contributed to a growing demand for electricity in Vietnam. At the same time, a large rural electrification project has brought power to over 90% of Vietnam’s homes. As a result, electricity is in short supply, including in the country’s key industrial zones, and there is an upward pressure on pricing. The Vietnam Textile and Garment Association, for instance, reports that one of the biggest challenges facing its members is the cost of electricity during the peak morning period. Power generation Hydro power presently accounts for about 40% of Vietnam’s electricity generating capacity but, as it depends on heavy rainfall, Vietnam is working to reduce its reliance on this generation source. Consequently, the contributions of gas-fired turbines (around 37%) and coal (11%) are increasing. Over the last few years, an array of large power plants have been put into operation, such as the Pha Lai thermo power plant (with a capacity of 440 MW), the Tri An hydroelectric power plant (400MW) and Hoa Binh hydroelectric power plant (1,920 MW). Struggling to meet demand Demand for electricity has been increasing at around 15% since the mid 1990s and currently that necessitates adding a total of 2,000 MW per annum. While demand is set to drop back to 12%

by 2011, monopoly operator Electricity Vietnam (EVN) is still struggling to keep up. Large and profitable though it is, EVN can only supply 40 to 50% of the investment required to increase the power supply to adequate levels. Donor funds are making up some of the shortfall, but private investment in the sector is also essential. Vietnam’s banks are establishing an appetite for the sector, and EVN’s state-owned peers, Vinacomin (coal/minerals) and Petrovietnam (oil/gas) have become involved. Foreign investors are still currently under-represented. Hesitant foreign investors In 2003 the $450 million, 720-MW, Phu My 3 power plant, owned by a consortium led by UK’s BP, became Vietnam’s first foreign-invested, build-operate-transfer (BOT) project. In general, however, private power developers remain reluctant to invest without sovereign guarantees for a transparent pricing framework. A mechanism needs to be found that is acceptable to both the Vietnamese Government and such foreign investors. Reforming the sector will also encourage private investment. This is happening, albeit slowly. It will involve EVN’s electricity generating units being transformed into independent companies and, eventually, the creation of a fully competitive electricity market. In anticipation, a new power sector regulator (ERAV) has been created. Bridging the gap One short-term remedy for power shortages is to import supply. Vietnam already imports from China and has signed memoranda of understanding with another neighbour, Laos. A longer-term remedy is finding new forms of energy. Currently, renewable energies other than hydro power make up only a tiny part of Vietnam’s power supply compared to other energy sources. The Vietnamese Government hopes to raise the volume of power contributed by renewable sources such as wind power, solar

ENERGY & MINING A PETROCHEMICAL INDUSTRY EMERGES

Crude oil exports, however, are a sizable contributor to the state budget, destined mainly for China, Singapore, Japan, Britain and the US (around 11 million tonnes in 2009). However, oil exports are actually falling as the country sets aside more crude oil for onshore processing. Vietnam inaugurated its first oil refinery in February 2009—a major milestone. The Dung Quat refinery enables Vietnam to produce its own refined products, rather than importing, and also to undertake exports in this area.

‘Demand for electricity has been increasing at around 15% since the mid 1990s and currently necessitates adding a total of 2,000 MW per annum.’ energy, geothermal power and biofuels to 5% by 2020. Vietnam is considered to have excellent potential, particularly in geothermal power.

MINING & PETROLEUM Coal aside, Vietnam’s mining sector remains relatively undeveloped, but there are signs this is set to change. Vietnam’s mining sector has huge potential, but outdated technology and an unattractive legislative framework has meant that mineral operations have tended to remain on a fairly small scale. Foreign participation has been limited, despite the existence of significant reserves of coal, bauxite, iron ore, tin, copper, nickel, titanium and gold. The Vietnam Government is currently looking at revising its Mineral Law with a view to opening up the sector. Coal for electricity The most abundant mineral in Vietnam is coal, with reserves estimated at three billion tonnes. These reserves are controlled almost entirely by the state-owned Vietnam Coal and Mineral Corporation, Vinacomin. Vinacomin supplies the domestic market, in which coal remains the main means of generating electricity, and handles 97% of Vietnam’s coal exports (consisting of about 20 million tonnes per year, mainly to China and Japan). Vietnam’s soaring energy demand is increasing the domestic demand for coal, which in turn has led to plans to scale back coal exports. To address this, Vinacomin announced in 2009 that it would begin extracting coal from the country’s largest deposit, at the Red River Delta Coal Basin in the north of the country. This massive resource is estimated to be 20 times larger than any other deposit in the country. Its development will consist of 11 different projects that Vinacomin has announced will be undertaken with various foreign partners.

State-run Petrovietnam, Vietnam’s largest corporation, dominates this sector domestically, and has established a substantial portfolio of projects internationally. BP and ConocoPhillips are just two international companies currently in joint ventures with Petrovietnam within Vietnam. Meanwhile, the Vietnamese Government has already planned the construction of second and third oil refineries. The second installation will be at Nghi Son in Thanh Hoa Province, about 1,200km north of the country’s oil fields, with the third planned for Long Son in the south. The Long Son refinery is expected to commence operations in 2015.

Environmental concerns in the Highlands The other big mining story in 2009 involved a proposed US$460 million bauxite project planned by Vinacomin and a Chinese partner, Chalco, in one of Vietnam’s rural Central Highlands provinces. Environmental concerns over how bauxite from the world’s third largest deposit would be converted into alumina (from which aluminium is produced) led the Vietnamese Government to review the project. At the time of writing, it is not entirely clear if the project will proceed and, if so, in what form. Nonetheless, a range of foreign mining companies have plans for Vietnam, including aluminium producers Alcoa (US) and Rusal (Russia) as well as Australian gold miner, Axiom. Along with Vinacomin, which has diversified into metallic minerals, such companies are forming of a significant and growing market for international mining services firms.

Vietnam’s aim is to become self-sufficient in terms of oil and gas as soon as possible. Thus, although it has proven gas reserves of 6.8 trillion cubic feet, it currently produces only for domestic supply.

HYDRO POWER PRESENTLY ACCOUNTS FOR ABOUT 40% OF VIETNAM’S ELECTRICITY GENERATING CAPACITY.

CREDIT: ISTOCKPHOTO

PRODUCTIVE SECTORS

GEARED FOR EXPORT One of Vietnam’s strengths is the sheer diversity of its economy. Often assisted by competitive investment incentives, its export-focused manufacturing, agribusiness and fisheries sectors are continuing to develop, with an increased emphasis on high technology and value-adding.

A favourite location for multinational manufacturers and processors Vietnam a major global supplier in agricultural and fisheries sectors Goal is to increase degree of onshore processing and encourage high-tech sector

MANUFACTURING Low-cost and plentiful labour along with its motivated and literate workforce have helped Vietnam become a magnet for investment in the manufacturing sector, much of it located in the country’s dedicated industrial zones. China-plus-one Multinationals have rushed to establish manufacturing and processing plants in Vietnam, sometimes as part of a ‘China plus one’ strategy. This involves adding a second or third production base outside China so as not to be at the mercy of fluctuations in China’s labour and resources market. For example, a number of Taiwan companies have, over the past few years, migrated parts of their manufacturing operations to Vietnam. Adding greater value The next phase in the country’s development is involving more sophisticated operations, with greater added value. As such, Intel’s major investment in the sector represents an important landmark (see page 30). The country already has around 750 software processing companies.

Labour intensive If electronics and computer components are the future, then the present is very much about textiles, garments and footwear. With over two million workers, about a quarter of all industrial employment and more than 2,500 enterprises, the textiles and clothing industry represents a key source of industrial employment and is a leading industry for overall growth and industrialisation. This sector’s annual exports are around US$8 billion, second only to crude oil. International clients include Itochu Corporation, J C Penney, Kmart, Lee Cooper, Li & Fung, Sara Lee, Sumitomo, Tommy Hilfiger, Victoria’s Secret, and Walmart. Advanced production technology Even here, high technology remains the key factor moving forward. The Vietnam Government’s Master Plan for Textile and Garment Development 2001–2010, first introduced in 1998, encourages the use of more advanced production technology, and the production of higher value products. Another growth area is the plastics industry, including the manufacture and export of products such as roofing sheets, packages and household utensils.

‘The next phase in the country’s development is involving more sophisticated operations, with greater added value.’

PRODUCTIVE SECTORS VIETNAM’S INDUSTRIAL ZONES

‘By the end of 2008, Vietnam had a total of 219 of these special zones, housing FDI projects with total disbursed capital exceeding US$16 billion.’ BIEN HOA 2 INDUSTRIAL ZONE IN DONG NAI PROVINCE.

Vietnam introduced special administrative zones in the early 1990s, in order to attract foreign direct investment, stimulate exports and encourage investment more evenly across the country. These industrial parks are bounded within defined geographical boundaries, in accordance with government regulations and often provide investment incentives. They fall into the following categories: 1. Industrial Zones, which are designated areas specialising in manufacturing industrial products and providing services for industrial manufacturing. 2. Export Processing Zones, which specialise in the production of goods for export. 3. More recently, High-Tech Zones have been introduced, specialising in conducting high-tech research, development and applications.

Incentives can include tax holidays, reduced levels of corporate income tax, waiving of duties and taxes for plant and production inputs and preferential rates of land rental. There is no doubt these zones have played an important role in developing local production and attracting foreign investors. By the end of 2008, Vietnam had a total of 219 of these special zones, housing foreign direct investment projects with a total disbursed capital exceeding US$16 billion. Typical industries include textiles, garments, electronics, plastics and food processing. In 2008 alone, 40 new industrial zones were established, with a total land area of 15,675 hectares, and a further eight industrial zones were expanded by a total of 2,810 hectares. Ba Ria-Vung Tau was the leading province in terms of foreign investment in 2008, receiving US$4.5 billion. It was followed by Bac Ninh Province in the north (US$1.14 billion), and Binh Duong Province (US$1.08 billion) and Dong Nai Province (US$1.01 billion) in the south.

4. Economic Zones.

THE CHAROEN POKPHAND GROUP, THAILAND’S LARGEST AGRIBUSINESS CONGLOMERATE, IS INVESTING AT LEAST US$3.6 BILLION IN VIETNAM. ABOUT HALF OF THE PROPOSED INVESTMENT WILL GO TO PROPERTY AND RETAIL BUSINESSES, WITH THE BALANCE GOING TO MOBILE AND FIXED-LINE TELECOMMUNICATIONS BUSINESSES, ACCORDING TO THE COMPANY. CP GROUP IS A MAJOR SHAREHOLDER IN CP VIETNAM LIVESTOCK, A MAJOR FOOD AND FEED COMPANY PLANNING TO LIST IN VIETNAM IN 2010 TO RAISE FUNDS FOR FURTHER EXPANSION.

PRODUCTIVE SECTORS CASE STUDY: INTEL’S MASSIVE PLANT NEARS PRODUCTION Now expanded into a US$1 billion investment— representing the largest foreign investment yet made in Vietnam—the plant was nearing completion at the time of writing. Once operational, it will be Vietnam’s largest computer equipment and manufacturing plant, employing 4000 staff and produced 600 million chipsets each year.

During a 2009 visit to Vietnam, Intel’s Chairman Craig Barrett stated that the first products would come out of the new plant—only Intel’s seventh such facility around the world—in 2010.

CREDIT: PICHAIYO

When US microchip manufacturer Intel announced back in 2006 that it would build an assembly and testing facility in Saigon Hi-tech Park in Ho Chi Minh City, there was surprise in some quarters, given Vietnam was not known as a manufacturing centre for high technology components.

Intel’s decision to invest in Vietnam was assisted by some favourable investment incentives designed to attract hightechnology businesses to Vietnam, including a tax holiday and lower corporate tax rate.

AGRICULTURE & FORESTRY Among the rapidly-growing industrial sectors in Vietnam, perhaps none is more important to the country than agriculture. Seventy percent of Vietnam’s populace lives in rural areas, and, even in today’s industrialised nation, half the workforce depends on agriculture, forestry or fisheries for its livelihood. Bouncing back The farm sector was on its knees in the mid 1980s, after attempts at collectivisation went badly awry. Today, the country is among the world’s largest exporters of agricultural commodities as varied as coffee, rice, rubber and black pepper. It helps that Vietnam has fertile soil, large tracts of arable land, and substantial annual rainfall, but this counted for little until the

‘Even in today’s industrialised nation, half the workforce depends on agriculture, forestry or fisheries for its livelihood.’ late 1980s when the Vietnamese Government decided to allocate farming land equally among the people, in the form of long leases. Consolidation likely While progress since then has been spectacular (see details below), the sector is not without its challenges. It is unlikely that such high growth will be sustainable without a degree of consolidation in what is presently an extremely fragmented structure.

PRODUCTIVE SECTORS This could be good news for foreign companies, which could see a raft of new opportunities emerging in a sector that has hitherto attracted relatively little foreign direct investment. Foreign involvement to date has been limited to supplying inputs, such as animal feed. There is also potential to add a lot more value to Vietnam’s produce on-shore. For instance, as things stand most of the coffee Vietnam exports is currently unprocessed. Vietnam’s growers have also been slow to adapt to the increasing demand from global consumers for crops that are organic, sustainable and have certifiable origin. Finally, climate change looms as a particular threat given the proliferation of low-lying farmland. Rice Vietnam is one of the largest exporters of rice in the world, with revenues of US$1.5 billion in 2007. Rice is the country’s key agricultural commodity, in terms of food security, employment and export earnings. Rice paddies cover half of all agricultural land in Vietnam and production involves nearly 80% of the country’s farm

population. Principal export markets are Asia and Africa, with the Philippines its largest client. Coffee Vietnam has leveraged ideal climate and environmental conditions, low production costs and high yields to become the second largest exporter worldwide after Brazil. It mainly produces the Robusta variety and exports around 95% of its production. Remarkably, export values increased from US$501 million to over US$2billion in 2007, as the price of coffee rose. The largest destination markets are Belgium and Germany. Rubber Rubber production is another key sub-sector. Although roughly half Vietnam’s exports are taken by China, it still supplies around 40 countries in total. Exports may be worth some US$1.4 billion annually, but there is significant potential to develop this sector, with plans in place to upgrade outdated technology in order to add additional value onshore.

PRIVATISATION PROVIDES GROWTH OPPORTUNITIES FOR VINAMILK In December 2005, Vinamilk was finally listed on the Ho Chi Minh Stock Exchange (HSX code: VNM), although Vietnam’s State Capital Investment Corporation maintains a 47.6% shareholding on behalf of the Vietnamese Government. The company is now Vietnam’s third-largest listed company. ‘As a particularly Vietnamese characteristic, it is run completely by women,’ notes Dominic Scriven, Managing Director of investment company Dragon Capital, a longterm investor in Vinamilk. ‘There have been ups and downs, but that is to be expected. Their contribution to society as a whole, not just in terms of providing a product, is that they provide three million glasses of milk free every day for children who otherwise wouldn’t get it. It is a company that has changed, made a success of change and everyone has made a lot of money.’

VINAMILK’S HEADQUARTERS IN HO CHI MINH CITY.

Dairy company Vietnam Dairy Products Joint Stock Company—Vinamilk—is a former state-owned enterprise now grown into one of Vietnam’s largest companies under a corporatised structure that allows for private shareholding. Founded in 1976 as the Southern Coffee Dairy Company, the company now known as Vinamilk was managed by a string of government departments before finding itself in the vanguard of the Vietnamese Government’s privatisation moves in December 2003, when it formally became a shareholding company—known locally as a ‘joint stock company.’

With Vietnamese consumers becoming more and more attracted to Western, non-traditional foodstuffs such as dairy products, Vinamilk looks well-placed for the future, recently announcing a pre-tax profit of over 2 trillion dong (US$112 million) for the nine months to October 2009—a 78% increase on the corresponding period in 2008. Continuing to grow by acquisition, it is now the leading enterprise in Vietnam in manufactured milk and dairy products, with a national market share of 39%, and it competes strongly with international competitors such as Nestlé. While domestic sales have accounted for 80% of Vinamilk’s profits in recent financial years, it also now exports to countries as diverse as Iraq, Australia, Cambodia, Kuwait and the United States. While not all of Vinamilk’s projects have been an unqualified success—the company sold out of its brewing joint venture with US giant SABMiller in March 2009 after disappointing results—Vinamilk continues to invest in its core business. A new, multi-functional plant in the southern province of Binh Duong is due to open in early 2010.

PRODUCTIVE SECTORS Fruit & vegetables Significant export fruits include pineapple, banana, mango, lychee, watermelon, longan, dragon fruit and rambutan. Exported vegetables include baby cucumbers, potatoes, onions, tomatoes, beans, cauliflowers and chillies. Exports are mostly in processed form, especially canned but also dried and frozen.

CREDIT: JANELLE WARBY

Spices & nuts Vietnam also has a 5% world market share of the global spice market including being the largest exporter of black pepper in the world. Vietnam is also the world’s largest exporter of cashews, accounting for about 25% of the global market. Forest products Vietnam’s timber output is about three million cubic metres per year. It is home to some 1,500 wood processing enterprises, located mainly in Ho Chi Minh City, Binh Duong and Dong Nai Provinces, and its wood products generate some US$2.4 billion annually.

FISHERIES Vietnam’s fisheries sector is vital to the country’s economy for several reasons. First, it is estimated that the average Vietnamese derives close to half their protein intake from this source. Second, the sector is a major employer, especially of women (who constitute the main workforce it Vietnam’s 300-plus processing plants), with ten percent of the population estimated to depend on the industry. Finally, it is one of the largest export earners, raising close to US$4 billion in 2008.

shrimp, as well as octopus, squid and molluscs. Shrimp accounts for close to half total export revenues, with frozen fish contributing about 20%. Sustainability is one major challenge facing Vietnam’s fishing industry. In 2005, it was estimated that there were around 100,000 fishing vessels in Vietnam, clearly unsustainable, especially when illegal fishing by foreign vessels in Vietnamese waters is factored in. The Vietnamese Government has consequently sought to promote aquaculture to ease the pressure on marine stocks.

CREDIT: JCARILLET

Massive coastline This level of production places Vietnam among the top ten exporters of fish products worldwide. It benefits from a long 3,300km coastline, with huge tidal areas and vast areas of fresh and brackish water suitable for aquaculture. Production is undertaken by offshore, coastal and fresh water fisheries, as well as by aquaculture. Marine products include fish,

‘This level of production places Vietnam among the top ten exporters of fish products worldwide.’

“

Vietnam – The Next Asian Tiger

Some of the top investors in Vietnam are: • Brunei • British Virgin Islands • USA • Canada • Japan • Korea • Hong Kong • Malaysia • Taiwan • Thailand • Singapore • Europe

Some of the attendees include: • Investors • Regulators • Private Equity funds • Infrastructure funds • Pension funds • Investment banks • Fund and asset managers • Insurance companies • Government bodies • Asset consultants • Financial consultants and services • Exchanges • Legal, tax, and accountancy firms • Software and platform solution providers • Real Estate property funds • Capital Owners • Hospitality groups • Operators • Foreign and local developers • Information providers • Rating Agency • Corporate financiers

Produced by:

7 – 10 June 2010, Park Hyatt Hotel, Ho Chi Minh City, Vietnam

Vibrant Vietnam – Asia’s most promising frontier market Vietnam’s stable political environment and high economic growth makes this market an attractive destination, especially for foreign investors. Efforts to simplify the legal system and increasing investment benefits resonate the government’s keen backing to encourage further foreign direct investment into Vietnam. Many large international consultants, investment firms, banks and others have already entered the market giving them an edge over others. What steps are you taking to take advantage of the increasing volume of investments entering Vietnam? Vietnam Investment Summit 2010 is a high-level 2-day forum where government officials, capital owners, foreign and local developers and operators will access direct investment opportunities into the country. The agenda aims at bridging the gap between capital owners’ and foreign developers’ needs and understanding the various parameters that revolve around investing into Vietnam. Your success in this region begins right here! Position your business to: • Establish important relationships and connections with capital owners and investors. Meet industry players of the Vietnamese investment community on a single networking platform • Create a lasting impression by promoting your unique selling points at on-site meetings to key decision-makers • Convey your corporate message effectively to major stakeholders via speaking opportunities • Reduce your marketing costs by investing in a campaign that is directed at your target audience • Attract new businesses, expand your client base and generate new leads for your sales team • Showcase thought-leadership, raise your profile and positioning in Vietnam and Asia

Take on a strategic approach and invest in excellence. Explore sponsorship opportunities and brand yourself at Vietnam Investment Summit 2010. Target your market! Contact Su Ann Chong to discuss your participation options. Tel: +65 63222 783 or Email: suann.chong@terrapinn.com.

SPONSOR NOW! online www.terrapinn.com/2010/vis | email mavis.ng@terrapinn.com | phone +65 6322 2708 | fax +65 6223 3554

THE PRESIDENTIAL PALACE IN HANOI.

CREDIT: JANELLE WARBY

BUSINESS TRAVEL

BUSINESS TRAVEL GUIDE TO VIETNAM Some practical tips and advice for the business traveller VISAS

SAFETY

You should contact your nearest Vietnamese embassy or consulate to obtain a business visa. Allow sufficient time as it can take a while.

While Vietnam is one of the safest countries in Asia, caution should be exercised if walking around the frenetic cities Ho Chi Minh City and Hanoi. Pickpockets and bag snatchers are not unknown. Crossing the road in these cities is an interesting experience, given that there are few traffic lights and a multitude of motorbike riders. You’ll observe how the locals cross very slowly, giving the motorbikes the opportunity to avoid them!

GETTING THERE & AWAY Neither Hanoi and Ho Chi Minh City are yet regional hubs, although the latter’s gleaming new international terminal is befitting of that status. However, both are very well served by a range of international airlines. Besides national carrier Vietnam Airlines (www.vietnamair.com.vn), Singapore Airlines (www. singaporeair.com) also provides frequent international services between Singapore and Vietnam.

GETTING AROUND Domestic flights: The monopoly of Vietnam Airlines on domestic flights has recently been broken. However, the benefit of deregulation for the business traveller thus far has been the improvement in Vietnam Airlines’ own service. Land transport: Taxis are very cheap in Vietnam but the drivers rarely speak English. You are best off using one of the larger companies that your hotel can recommend, and making sure the driver knows where you are going before you set off (have your destination written down in Vietnamese for good measure). Major hotels also offer limousine options.

LANGUAGE Vietnam’s national language is Vietnamese. English is increasingly spoken, especially in the private sector. However, you should always consider whether you need a reliable interpreter for business meetings, especially when dealing with government entities.

CLIMATE Although Vietnam is located entirely in the tropics and subtropics, the climate can vary considerably. The south of the country has a dry and wet season, with the latter lasting from May to September. The north has all four seasons, and winters in Hanoi can be chilly.

HEALTHCARE Though healthcare is not typically up to Western standards, there are foreign-run private clinics in Hanoi and Ho Chi Minh City. One of the larger operators is International SOS (tel +84 83 829 8520; www.internationalsos.com). You should ensure that you have comprehensive travel insurance.

ACCOMMODATION Hanoi and Ho Chi Minh City have plenty of first class hotels, including the following: Ho Chi Minh City (district 1 unless stated) • Caravelle (www.caravellehotel.com) • Sheraton (www.starwoodhotels.com) • Park Hyatt (www.saigon.park.hyatt.com) • Intercontinental (www.intercontinental.com) and • Movenpick (in Phu Nhuan area, www.moevenpick-hotels.com). Hanoi (central business district unless stated) • Sofitel Metropole (www.sofitel.com) • Hilton Opera (www.hilton.com) • Melia Hanoi (www.meliahanoi.com) and • Intercontinental West Lake (www.intercontinental.com). There are also plenty of serviced apartment options for longer stays: for instance, Sherwood Residence (HCMC), Fraser Suites (Hanoi) or the Somerset Group (both).

BUSINESS TRAVEL PHONE NUMBERS: BEWARE THE MISSING DIGIT

CREDIT: HILLARY FOX

From 5 October 2008, fixed-line phone numbers in 55 provinces and cities in Vietnam, including those in Hanoi and Ho Chi Minh City, were given a new prefix, eg “3”. It is important to be aware of this, as many websites or directories had not yet been updated even as of the end of 2009.

RESTAURANTS

CURRENCY

Vietnamese food has made a name for itself around the world. The country’s cities offer a wide array of high-quality international restaurants and all the hotels above have plenty of options in-house. You can find a reasonably up-to-date list of good restaurants in Vietnam at www.frommers.com.

The Vietnamese currency is the dong. At the time of writing (November 2009), it was trading at around 17,860 dong to one US dollar. Note that the US dollar is a bona fide second currency, accepted nearly everywhere (bank notes should be in good condition and smaller bills are preferred). In the main business centres, ATMs are plentiful, credit cards are accepted and the major hotels change money on reasonable terms.

ELECTRICITY Vietnam uses 220V electricity nationwide. In the South, outlets are often US-style flat pins. In the North, many outlets fit round pins. Major hotels provide adapters.

TIME/BUSINESS HOURS/ PUBLIC HOLIDAYS Vietnam has a single time zone, seven hours ahead of GMT/UTC. Business hours tend to be 8am to 5pm with a one hour lunch break. The main public holiday period of the year is Tet, the week-long lunar new year holiday in late January or early February. It is best to avoid business travel to Vietnam in this period. Other major public holidays are New Year’s Day (1 January), Liberation of South Vietnam Day (30 April), International Labour Day (1 May) and Vietnam’s National Day (2 September).

COMMUNICATIONS Mobile phones: coverage in Vietnam’s urban centres is quite good. For visitors, roaming is an option (GSM only), or you can obtain a local SIM card easily and cheaply (ID is required). Local mobile phone tariffs are exceptionally low. Internet: the major hotels provide international standard broadband. There is a trend (led by the Caravelle) not to charge guests for internet access, but not all hotels have followed at the time of writing. Landline: charges, for domestic calls at least, tend to be very inexpensive, even in hotels.

BUSINESS ETIQUETTE IN VIETNAM Displaying good manners and treating people you meet with respect will take you a long way no matter where you are doing business. However, in Vietnam it is nonetheless worth being aware of certain particular characteristics.

side of the table from you and/or your delegation. Note that the most important person is likely to be seated in the middle of the group, and may not enter the room until everyone else is present.

Attire: Business attire generally consists of a suit and tie for men and suit or dress for women. During the hotter months, formal dress for men is a shirt and tie. Open collar shirts and slacks may be worn to more informal meetings, depending on the situation. The trend in southern Vietnam is to be more casual: suit jackets are worn only on very formal occasions and at first meetings.

Names: The surname/family name of the Vietnamese is the first name listed, followed by the middle name and then the first name. However, Vietnamese are usually addressed by their “first name” (the one coming last) rather than their family name.

Consensus: Decision-making by consensus is a strong element of Vietnamese social and political behaviour. As a result, business decisions may take longer than you expect. Face: As in many other Asian countries, Vietnamese place a great deal of importance on saving face. It is especially important never to cause a Vietnamese to lose face in front of others. Meetings: If you are meeting with several Vietnamese business people at once, they will tend to sit on the opposite

Smile: Many foreigners misunderstand the meaning of the smile to Vietnamese. While Vietnamese smile for all the same reasons as people of other nationalities, a smile can also convey nervousness, irritation or a simple lack of understanding. Sources/further information

Trade and Investment of Vietnam: facts and figures (2008/9 edition), published by Vietrade and www.buyusa.gov/vietnam/en/ vietnam_business_etiquette.html.

MINISTRY OF PLANNING AND INVESTMENT FOREIGN INVESTMENT AGENCY

VIETNAM

Why Invest in Vietnam? PEOPLE • Young, hardworking and skilful labour force • Population of 86.5 million people (13th largest in the world) • Highly competitive labour cost

ECONOMIC GROWTH • One of the fastest-growing Asian economies • Foreign investment is a key driver

NATURAL RESOURCES • Abundant mineral and natural resources • Competitive advantages in maritime ports and marine transportation

SECURITY • A stable political and social environment

GEOGRAPHIC LOCATION • V ietnam is located in the centre of Southeast Asia, the fastest growing economic region in the world • Vietnam has a 3,260km of coastline and many sea ports which are ideal for international trade

LEGAL ENVIRONMENT Vietnam’s legal environment has significantly improved in recent years, with the aim of complying with international practices

GLOBAL INTEGRATION • A s the 150th member of World Trade Organisation (since January 2007), Vietnam enjoys vast opportunities for economic growth

http://fia.mpi.gov.vn