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Issue No. 29
February 2000
our third year on the Internet

A Periodic Report to Our Clients

See VVG's  monthly feature on Current Economic Indicators

Current Dispatches

Investment Ideas for 2000.    The Ministries of Planning and Investment (MPI) and Trade (MOT) continue to ask foreign investors to stay the course.  However, while it has been 14 years since the doi moi or renovation program first began,  the leadership of Vietnam first embraced a system of central command economics more than 70 years ago. Some are clearly not prepared to let go.

Former SCCI (predecessor to the MPI) Director Dau Ngoc Xuan, in a recent report examining reasons for the downturn in the FDI community, offered no surprises when he concluded the lack of consensus among Vietnam’s leadership on how to proceed, together with slow progress in furnishing the nation with a proper investment environment, have been pivotal in causing the downturn.

The Bilateral Trade Agreement with the US may not be dead, according to some in Hanoi. It is reliably reported that Vietnam would like to renegotiate the BTA on just a "few points."  It is also well reported that the US team has no interest in re-opening talks but may be willing to listen.

It is projected that should Senator McCain from the Republican side (the former POW during the war years between Vietnam and America), or either of the two Democratic party contenders, win the November 2000 elections, Vietnam will have a receptive ear in the White House come January, 2001.

No one with experience in Washington believes that the BTA will see the light of day there until after the elections.  The most likely date for Congressional hearings will be in the Spring of 2001.

The solutions to Vietnam's increasing FDI are clear, and have been clear for years.  The question to ask: If the Hanoi leadership is paying attention and does understand, do they really want to increase FDI in Vietnam?  Stay tuned.

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Auto Sales Figures for 1999  There are no surprises here.  Less than 7,000 cars were sold last year.  That represents less than 10% of overall plant capacity for the eleven manufacturers. 

Challenges to the success of this key sector include among others: smuggled imports (by land and sea), a shortage of foreign buyers, the refusal of the government to keep their staff in new cars, and the inability of current domestic and foreign owners to upgrade. 

Not to be forgotten is the challenge of selling vehicles that have an average, minimum price of $20,000 to a domestic urban population with  an annual income of under $1,500. Similar vehicles in free markets in Thailand sell for one third to one half the price of cars in Vietnam.

MOI figures (VIR17-23 Jan 2000) are:

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US Insurer seeks its license.  American Insurance Group (AIG) became the first US insurer and only the fourth foreign firm, to seek a license to operate as a fully foreign invested enterprise.  

Now that the MPI has the application, all AIG needs is MPI approval and then to file its application with the Government. 

So keen are they for good news, the local press reported in headlines, “ US firm to get fourth insurance license.”  

It is possible that they know more than is being told.

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Projected bourse still..., projected.  There no shortage of talk or ink on the subject of Vietnam's first stock exchange.  As if to build up interest, the media almost monthly offers another teaser-in-headlines, but we know how to read Vietnamese headlines by now.

T-bill auctions remain "on hold" from early January, and qualifications are now being discussed in drafting regulations that will put a 20% cap on non-Vietnamese ownership of domestic companies traded on the exchange.

Current regulations require a minimum 30% ownership by Vietnamese of any foreign invested enterprise.   As originally drafted, foreign ownership in any joint venture as limited to that same 30% figure.  Soon it became clear that the Vietnamese side would rarely be able to contribute 70% to form a foreign invested company.

Vietnamese organizations still have difficulty meeting that 30% minimum. This results in many foreign partners to Joint Ventures now buying out their domestic partners and converting the enterprise form to a fully owned foreign enterprise.

For Joint Ventures, or fully owned Vietnamese enterprises, to be sold on the stock exchange, ownership laws must be carefully followed.  Vietnam is not alone in this field.

Switzerland allows foreigners to own only non-voting certificates which are themselves then freely traded.  China adopted the Class A and Class B shares, with foreign investors allowed to own only Class B shares that have their own restrictions.  

Complicating the picture in Vietnam is the current initiative to allow foreign invested Joint Ventures to issue shares on the new stock exchange.   Current laws now bar such capitalization opportunities.  However, current talk is that qualified JVs with a registered capital of at least VND 10 billion (($714,000) and a two year track record of profitability may be allowed -- if and when the stock market opens.

It is curious that the foreign invested JVs will need to show substantially greater economic strength than domestic companies seeking to be listed. 

It is clear that more work needs to be done. And no doubt that is why the bourse is still in the projected stage. 

We long before reported that Vietnam must go a long way to building a system of law and crafting both regulations to international standards, and then an enforcement agency to the same high standards, before substantial foreign capital will go to it stock exchange.  All that is clear is that the leadership in Vietnam is still conflicted on if it really wants to open its own bourse.  Please stay tuned.

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