Vietnam Seeks Foreign Investment, Restructures Economy

September 30, 2013 Posted by Vietnam Briefing Reading Time: 2 minutes

Sept. 30 – At a meeting in New York this week, Vietnamese Prime Minister Nguyen Tan Dung stated that the country will ensure that additional foreign ownership be allowed in Vietnam’s state-owned banks and that state-owned enterprises (SOEs) are also now going to be subject to much more market competition.

Prime Minister Dung, who spoke with a consortium of prominent members of the U.S. business community at the meeting, also further reiterated Vietnam’s desire to join an upcoming trade agreement (i.e., the Trans-Pacific Partnership) to further expedite and revitalize the country’s now stagnant economic growth.

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Specifically, Vietnam’s plans include devaluing the country’s currency – the Dong – by 2 percent by the end of the year due to the government’s belief that it is overvalued against the dollar.

Additionally, foreign companies are now allowed to own up to 49 percent of Vietnamese banks. This may help as Vietnam’s banks have struggled under a large amount of bad debt as of late, with the majority of bad debt having been taken on by state banks.

Current ownership rules state that the maximum foreign ownership amount for banks is 30 percent for a group and 20 percent for single foreign investors.

Additionally, Vice Minister of Planning and Investment Dao Quang Thu stated that Vietnam is considering providing tax-breaks to foreign companies that conduct business in the country. Among the areas Prime Minister Dung is encouraging foreign investment in are infrastructure construction projects such as transportation, telecommunications, energy, healthcare and education.

Further, in order for Vietnam to strengthen its political relationship with the United States and gain further access to the U.S. market, it must continue to remove its protections on state companies. Prime Minister Dung understands this, as he explained that Vietnam’s state enterprises need “to operate in the market economy… [so] we will treat them as equal to other enterprises.”

Vietnam has greatly reduced the number of SOEs throughout the country, which now number at 1,300 after reaching a high of 12,000. The main focus of the remaining SOEs will be on infrastructure projects within the country.

Companies that will be available for foreign firms to buy shares from will now include the following SOEs:

Vietnam Posts & Telecommunications Group;
Vietnam Oil & Gas Group; and
Vietnam Airlines Corp.

If the Trans-Pacific Partnership is signed, Vietnam expects to see a significant boost to its economy and exports. The U.S. has already signaled that it will give Vietnam “deferential” treatment during the negotiations.

Vietnam is also currently negotiating five other free trade agreements with areas such as the European Union and the Customs Union of Russia.

According to the Ministry of Planning and Investment, the Vietnamese economy is predicted to grow by 5.4 percent this year and by 5.8 percent next year. While this would make for three years of consecutive growth, the country’s banks still have the highest level of bad debt within the group of Southeast Asian nations.

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