Global research and consultancy firm Oxford Business Group (OBG) on April 25 launched a comprehensive report on the Vietnamese economy.
OBG Chairman Michael Benson-Colpi and Chief Executive Officer (CEO) of HSBC Bank Việt Nam Phạm Hồng Hải, one of the contributors to “The Report Vietnam 2017” spoke to Việt Nam News reporter Nguyễn Linh Anh about the factors that make Việt Nam stand out as an investment destination as well as the challenges that lie ahead.
OBG Chairman Michael Benson-Colpi
Can you give us an overview of the "The Report Vietnam 2017"?
The 212-page report has a good macroeconomic overview and 300 different people provide multiple perspectives. The country as a whole is doing well in terms of its growth rate. The most important thing to say is that there are challenges moving forward, but at the moment, no challenge looks too difficult to overcome. And with the willingness of all the parties to engage together, Việt Nam looks set to have a good few years of growth ahead.
The report lays added emphasis on the manufacturing and tourism industries. Why?
These two areas have been identified as having great potential. The manufacturing industry is off to a good start. It has been building on the initial investments of multinational production centres, and the country is now emerging as a genuine manufacturing focal point. Many companies, particularly Asian companies, have recognised that Việt Nam is a good place for manufacturing operations. By that of course they mean the labour is cheap but they also require labour with certain skills. And they are quite confident about the political environment; investors operating today will still be operating in five or 10 years.
The second industry that has strong growth prospects is tourism, as evidenced by unprecedented levels of international arrivals and rising domestic tourism. There are sparkling new airports and new direct flight routes, which make it very easy to get to Việt Nam now. With over 3,000km of coastline and spectacular beaches, mountainous and highlands popular among adventure tourists, and a vast array of cultural and culinary attractions, the tourism sector has become a major economic growth driver in recent years.
The report mentions the importance of accessing private capital. What do you think can be done to improve the situation?
The first important thing to remember is that problems can’t be solved too quickly and in the wrong way. It seems that the speed of equitisation of State-owned enterprises is slow, but this is much better than it being done too fast. What we see here is the willingness of the government to engage with the private sector and with the international capital market. And when investors from the international banking sector look to Việt Nam, this report offers well researched material to consider.
How do your reports help foreign investors expand their businesses?
You cannot implant the idea of doing something different in the mind of anyone. The reports are available for those looking for opportunities. Whenever they read the report, the opportunities come out. The idea here is that there are about 30 countries in the world that are growing rather fast, and investors can see which of these would be most suitable for expanding their business. The investors will definitely need an overall background of the markets and economies. OBG provides this information, enabling readers to discern the opportunities and operating challenges.
How do you ensure the accuracy of your research?
We talk to wide range of people and allow a wide range of opinion to be shown in the report. This is not a production of a single author working in secret, producing a report for a few rich subscribers. This is an effort of a group of authors working legally, with full knowledge of the government, to gather information by working with all the major statistical agencies.
It is very important that the information we produce is accurate. We have experience in comparing national and international statistics. We are able to make our own judgment and discover what the most up-to-date information is. OBG puts experienced teams of researchers, commercial managers and editorial managers on the ground to gather as much statistical information as possible. We also conduct interviews and dialogues with leading national opinion formers and experts for each report. This gives the company a unique edge in terms of accuracy and coverage.
Chief Executive Officer (CEO) of HSBC Bank Việt Nam Phạm Hồng Hải
What do you think about the current investment environment in Việt Nam? What are the advantages and disadvantages that foreign investors face?
Compared with other countries in the region, Việt Nam is indeed an attractive investment market for foreign investors at the moment. We have political and macroeconomic stability, plus the Vietnamese government has taken many steps to support foreign investors, and this has generated huge advantages, especially in the context of other countries facing difficulties. For example, there are countries that are undergoing an election process this year, which has the potential to lead to political instability.
However, companies investing in Việt Nam are also facing many difficulties in developing and doing business. The difficulties they often face are the overlap in regulations that leads to different interpretations by different regulators in the law enforcement process.
Another obstacle faced by enterprises is labour supply. We have many low-skilled workers, but lack middle and high-level skilled ones, and the cost for these workers is remarkably high. Every year, the minimum wage increases by 10-15 per cent, which is a huge burden for businesses today.
The challenge also remains in working with tax authorities and following government policies. The government should ensure that policies are consistent so that firms can develop long-term business plans of three to five years.
The Government should also consider supporting enterprises in the adoption of advanced technology because this will decide their future competitiveness. If we do not encourage businesses to invest in technology, they will soon fall behind.
The Government has shown determination about being a "enabling government". We really hope that the Government will take drastic actions to remove difficulties for businesses so that they can thrive in the future.
What is your assessment of capital markets in Việt Nam?
When it comes to developing capital markets in Việt Nam, it is clear that most of the capital of the national economy is still dependent on banking system, with 70-80 percent of the capital coming from banks, leading to pressure on the system. Most of current deposits in the banking system are short-term deposits, while the bank is financing a large number of medium and long-term projects. This creates huge liquidity mismatch.
To develop capital in Việt Nam, I think we should promote different investor groups, such as developing mutual funds and pension funds, allowing them to participate in the investment process in Việt Nam. Plus, we need to raise the quality standards of issuers in the market, including bonds and stocks issuers, ensuring transparency and standardising financial information.
In addition, another basic tool for developing capital market is developing a well-functioned local currency derivative market so that investors and issues can proactively manage their foreign exchange and interest rate risks. In order to do that, we need to develop benchmark curves for short and long term VND interest rates.
These are issues that need to be tackled right now so that we can develop a well-functioning capital market in the next 5-10 years, and that will help to address the burdens weighing on the banking system at the present.
What are the areas that have great potential to attract investment and develop in Việt Nam?
The manufacturing industry has been steadily expanding, with export-oriented manufacturing playing a major role in the overall economy. Việt Nam has attracted large sums of FDI in the manufacturing segment. This includes the Japanese electronics giant Canon, Samsung of South Korea and the US chip-maker Intel, all with projects requiring high-skilled labourers. This sector has also received much Government attention and preferential policies.
Another industry with a lot of potential is consumer goods. Việt Nam has a large population with a large proportion of young people, thus consumption demand is high. Alongside this, the retail sector has also drawn investors’ attention. As many as 90 per cent of current sales are conducted through traditional channels rather than through the modern channels, so there is still room for investors to consider investment.
The logistics sector also shows great potential for growth. Given that Việt Nam’s infrastructure is not yet well developed, businesses need teams who can provide good quality logistics services. — VNS