Stronger flows on the horizon
Stronger flows on the horizon
British investments in Vietnam are growing at a steady rate, but regulators believe that there is still a lot of room for improvement as the two countries become closer business partners.
After the UK and Vietnam forged diplomatic ties 45 years ago, British companies have been active investors in the Southeast Asian country. The first wave of investment started in 1988, when UK investors in various sectors such as mining, oil and gas, manufacturing, real estate, and finance entered Vietnam in the hopes of gaining the first-comer advantage in this newly-opened market.
Over the years, British investors have established a strong presence in Vietnam. Well-known names include oil giant BP, carmaker Rolls-Royce, telecommunications group Vodafone, drugmaker GlaxoSmithKline, and financial institutions like Standard Chartered, and Prudential. It is notable that HSBC and Standard Chartered are the first banks to set up a 100 per cent foreign-owned entity in Vietnam, paving the way for lenders from other countries to enter the market.
UK-Vietnam trade relations were given a boost in 2010, when the two countries signed a strategic partnership, aiming to strengthen ties in business, trade and finance. Vietnam became an important partner for the UK in Southeast Asia, driven by regulatory support, Vietnam’s openness to foreign investment, and robust economic growth.
In 1992, the UK was the first donor of official development assistance (ODA) to Vietnam, and it currently remains a steady investor in Vietnam’s development programmes, from healthcare to renewable energy and smart cities, via the UK Vietnam Fund. The Prosperity Fund, set up in 2015, was a regional initiative to improve Vietnam’s business climate, boost financial sector reform, and ensure energy security.
Regarding investment, as of June 20, 2019, the UK is the second-largest European investor in Vietnam (after the Netherlands) with 378 projects worth $3.648 billion. In terms of trade, the UK stands only behind Germany and the Netherlands as the biggest European partners for Vietnam, with two-way trade turnover standing at $6.77 billion in 2018 (up 10 per cent from 2017).
The two countries have so far signed a range of frameworks on double taxation, business and investment promotion, and the UK was also a strong supporter of the EU-Vietnam Free Trade Agreement. In light of the UK’s upcoming departure from the European Union, both the UK and Vietnam have expressed wishes to start negotiations on a bilateral trade agreement.
In Vietnam’s capital market, British investors have also made their mark as a long-time supporter of Vietnamese companies. Established in 1994, the $3 billion Dragon Capital was the first foreign investment fund in Vietnam and remains a major player in the domestic stock market. The fund, together with Vietnam Holding Ltd., and Vietnam Opportunity Fund from VinaCapital, is currently listed on the London Stock Exchange.
Despite these milestones and achievements, experts and regulators pointed out that UK-Vietnam business relations have yet to live up to their potential.
In particular, the UK is the world’s fifth-largest investor with $300 billion of capital, and the country is also one of the world’s prominent financial hubs. Yet indirect investments from the UK to Vietnam stood at only $1 billion via share purchases, and direct capital remains below $4 billion. This is much smaller than that of countries such as South Korea, which pours approximately $8 billion into Vietnam on a yearly basis.
According to Vietnamese Minister of Finance Dinh Tien Dung, the amount of British investment capital in Vietnam at the moment does not reflect the immense potential of the bilateral partnership. This is particularly evident in Vietnam’s financial market, which is growing exponentially and presents ample opportunities for British investors.
A quick look at the numbers made it clear that Vietnam is among the fastest-growing financial markets around the world. Market capitalisation expanded 17 times in the past decade, accounting for 72 per cent of GDP in 2018. By the first quarter of 2019, Vietnam’s stock market was valued at $191 billion, up 10.9 per cent against December 31, 2018 and surpassing the national target.
Since 2016, indirect investments from foreign investors average at $1.98 billion every year – and $1.28 billion has already flown into Vietnam in the first five months of 2019. This number is expected to surge even higher as Vietnam is planning to amend the laws on Investment, Enterprises, and Securities within 2019, making it easier for foreign investors, including those from the UK, to join the domestic stock market.
Minister Dung pointed out some potential changes in the regulations regarding foreign ownership limits, information disclosure in English, bond market development, and the establishment of Vietnam’s stock exchanges. More derivatives products are also slated to enter the market, providing a wider range of options for investors. One highly potential area of investment, for those from the UK, is Vietnam’s equitising state-owned companies (SOEs).
According to the 2017-2020 plan, Vietnam must equitise 140 SOEs and, so far, only 37 companies have finished their transition into private entities. This means there are still a lot of opportunities for foreign investors to join in initial public sales, or strike up strategic partnerships with Vietnam’s industry leaders.
“We strongly appreciate British investors looking to join hands with Vietnam’s SOE equitisation efforts. Besides capital, we hope that investors from the UK, and Europe in general, will help Vietnamese companies improve their standards in corporate governance and technology,” said Minister Dung.
