DHVP Research & CCI Indochina www.vietnamica.net

The Vietnamese Economy and Business Environment

Dr. Vuong Quan Hoang vuong@vietnamica.net

Dept of Finance, Centre Emile Bernheim Solvay Brussels School of Economics & Management

The University of Brussels – ULB

Hanoi, March 2012

GDP Growth, 1989-2012

0%

2%

4%

6%

8%

10%

12%

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Source: GSO; 2012: ADB’s forecast, 6.3%

Registered FDI, 1988-2012 Unit: US$ million

-

10,000

20,000

30,000

40,000

50,000

60,000

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Quantity vs. Quality

•

Oct. 2011: 22 FDI

projects incurred bad

debts of US$80 mln

•

Mar. 2012: 50% of

FDI Enterprises

reported losses.

Sources of FDI, 2010

Thailand, 5.8 , 3%

Others, 38.5 , 20%

Chinese Taipei, 22.8 , 12%

Korea, 22.1 , 11%

Singapore, 21.7 , 11%

Japan, 20.8 , 11%

Malaysia, 18.3 , 10%

BVI, 14.5 , 7%

USA, 13.1 , 7%

Hongkong, 7.8 , 4%

Cayman Islands, 7.4 , 4%

Vietnam Stock Markets

Source: GSO

VNIndex: as of the end of the year

Number of listed firms: including Upcom (OTC market)

Vietnam Stock Markets

Vietnam Stock MarketsMktCap/GDP, %

1.20

22.7

40

17.5

48

39

26

-

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011

VSM: Properties / Features•

Two markets: HCMC HSX (est. 2000) and Hanoi HNX (est. 2005)

•

Watchdog: State Securities Commission, under Vietnam Ministry of Finance

•

In their infancy•

100 broker firms

•

1.5 million trading accounts•

600 listed firms

•

Strong herd mentality•

Strong influence by foreign buyers of shares

•

Malfunctioning of the info disclosure system•

Special interest groups

Credit Institutions System (By December 31, 2011)

State Bank of Vietnam

State-

owned Comm. Banks (5)

Joint-stock Comm. Banks (35)

Foreign Banks’

Branches (50)

Joint-

venture Banks (4)

Wholly Foreign-

owned Banks (5)

Finance Companies (18)

Leasing Companies (12)

Foreign Banks’

Rep. Off. (51)

M&A Opportunities

M&A Opportunities

Policy Banks (2)

People Credit Funds (915)

Vietnam Commercial Banks (December 31, 2010)

•

Total Assets: US$175 billion; 167% GDP•

Outstanding Loans: US$125 billion; 125% GDP

•

Non-performing loans (Jun. 31, 2011):–

US$4 billion; 3.1% outstanding loans–

Question of which standards of accounting systems applicable

•

Lending on real estates and securities (Jun. 31, 2011):–

US$12 billion; 12% outstanding loans

•

Problem of Liquidity•

Restructuring banking sector:–

Merger & Acquisition?–

New business methods?

Banking Sector Issues•

Recurring problems of bad debts

•

Liquidity crunch•

Does size matter?

•

Interrelation to other asset markets that gives rise to further complications: real estates, risky assets (equity and bond), speculative assets (foreign currencies, gold)

•

Structural problems•

Special interest groups

•

Does high bank profitability help the economy?•

Has it been under-regulated or over-regulated?

The Charm Is No More Hidden•

First investment funds in Vietnam: early 1990s–

First half 1990s: Eight funds; US$700 Mln.–

After 1997: only two (Vietnam Enterprise Investment Fund run by Dragon Capital Vietnam, and Vietnam Frontier Fund by Finansa)

•

2002-2005: –

Quite period–

Mekong Capital, VinaCapital, IDG, VietFund, PXP Asset Management•

2006-2007: –

Booming period–

More: 22 funds and 17 fund management companies•

2009-2010:–

Closing, exiting, leaving (Indochina Capital exited in May 2009)–

Poor performance (May 16, 2011)•

VMFVF1: 9.8; PRUBF1: 5.3; MAFPF1: 4.1•

Par value: 10

Entrepreneur: Genuine vs. ‘Disguised’

•

Chinese-originated Confucianism

–

Hierarchy

–

Face-saving

–

Relation-based business

•

Social Ranking “Sĩ

– Nông – Công –

Thương”

–

Gentry Scholar/Intellectual Official –

Farmer –

Craftsman –

Trade/Businessman

•

The Hidden Entrepreneur’s Aspiration to Become a Non-Entrepreneur

•

‘Disguised’

entrepreneur:

–

A bunch of ideas and proposals

–

NO risk-taking, NO implementing, etc.

–

Trying to be on the “safe-side”

Creativity?

Strategic Planning•

Many set up and start running a new company with:

–

A list of wishes

–

No business plan

•

New fashion of the Vietnamese large corporations:

–

Doing “big things,”

–

Thinking globally,

–

Developing strategy

•

Strategic planning services: a multi-million dollars market

•

High prices for:

–

Well-known consulting brands (experts, professors)

–

The business owner’s ex-ante strategy

–

Higher prices of equity

What is STRATEGY?

Organized Chaos

-

Relation-based business

environment

- Rent seeking

- The problem of corruption

Welcome to Vietnam!