Nurturing indirect foreign investment

Vietnam Investment Review; April 16, 2001 (more than 10 years ago) -- Vietnam could boost its coffers with much indirect foreign investment via the emerging stock market and growing domestic private sector. Reality? It rather depends on whether some recent thinktank suggestions become policy.

SOME possibilities for attracting strong inflows of indirect foreign investment can be seen in two drafts produced by the Ministry of Planning and Investment.

The first suggests some foreign-invested enterprises (FIEs) be allowed to list on the stock exchange, with the first firms going public on a trial basis. This would hopefully lead to plenty of extra capital being injected into these firms.

The second draft identifies 40 types of domestic private firms, including services companies, which should be permitted to sell up to 30 per cent of themselves to foreign investors.

For FIEs wanting to list, the MPI recommends that their capital base must remain at least 30-per cent foreign. Otherwise, says the ministry, the firms would have to operate under the Enterprise Law, which was activated last year to cover purely Vietnamese firms.

Jolly good idea too

Reacting to the MPI's draft identification of 40 domestic private-firm types which could go partly foreign, an attorney, Pham Nghiem Xuan Bac, was very upbeat,

Bac, managing Partner of Vision & Associates, said: "It is a positive move to boost foreign investment in Vietnam, as well as development of the private sector here.

"A strong private sector will absorb labour redundancies which may be the result of the acceleration of the equitisation and restructuring process and which may create difficult social issues ... [though it would promote the economy's efficient cy and competitiveness]."

Officials of the MPI were quick to outline how the firms would have to "keylock" stake sales to foreign entities at a maximum 30 per cent, because foreign investors must not be allowed to dominate the country's financial and economic structure.

On this point, Minister of Planning and Investment Tran Xuan Gia said: "When we talk about the ratio between foreign capital and domestic investment in Vietnam's financial structure, it is naturally a little complicated."

Presently, domestic investment sources, both state and non-state, account for 60 per cent of investment in the country.

Official development assistance (ODA) and FDI account for the rest (around $16 billion has been accumulated from these sources in the past five years).

For the coming five-year period, said Gia, it would be tough to make ODA and FDI cover one third of the $60 billion of investment being targetted.

A misleading notion?

Asked whether focusing much more on indirect foreign investment was appropriate, Vuong Quan Hoang, a financial expert for the World Bank's International Financial Corporation, said: "Clearly this notion of categorising between direct and indirect foreign investment is vague and misleading.

"Investment is investment, with the money being spent and associated with some risks. One should not care whether it is `direct' or `indirect.'"

Added Hoang: "The boosting of investment via the stock market depends on whether such a market can really generate substantial investment prospects for investors at reasonable risk.

"In addition, all investments will not come across easily. Investment approaches will require more open...

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