The Ministry of Finance recently released a draft decree regulating
conditions for investors to open casinos in Vietnam. Mark D. Capasso, executive
director and national practice leader of Hospitality & Gaming Group under
Cushman & Wakefield Vietnam, a consultant real estate firm, exclusively
shared his view on this hot issue with VIR.
According to a recent draft
decree on developing casinos in Vietnam by the Ministry of Finance, an
enterprise applying for a license must develop a fully integrated complex
providing casino operation that falls within the casino operation master plan.
The enterprise must have been
established and operating for at least 10 years. The decree will certainly
narrow the number of foreign developers, but not to an extent that should make
Vietnam worry.
Indeed, most of the developers
that are looking to expand into Asian markets are large players with impressive
track records. Therefore this step will help insure the integrity of the
industry in Vietnam.
The draft decree highlights that
an enterprise may only be permitted to organise casino operation upon having
injected at least 50 per cent of the committed investment capital. This is a
wise move to make sure the developer has “skin in the game” to ensure that the
project is ultimately developed. Some may quibble regarding the high threshold,
but most of the big development companies would want to retain majority ownership
anyway.
The draft decree limits only
foreigners and Vietnamese persons resettling abroad to enter casino while
limiting participation can limit profits, some forms of social control may need
to be implemented to protect the local populace from themselves.
Most developers in situations
like this are used to dealing with such social controls. In the United States,
you cannot have these types of controls but in other countries there is limited
social control on gambling in resorts. It works both ways. The government must
be able to assure the developers that there will be enough demand for the
resort even if social controls are implemented.
Currently under the draft decree,
casino and electronic gaming operation falls into the category under strict
state control in order to assure social order, security and safety. A lesson
from the US is that gaming control is done on a state level via a Gaming
Commission or Gaming Control Board.
Positions on the board are
usually appointed to avoid influence peddling in elections. The commission is
responsible for enforcement of all rules and regulations and is also
responsible for punishment for breaking rules.
The idea is to staff the
commission with people who are above reproach to maintain the integrity of the
industry.
Different states take regulations
to different levels. Many believe that Nevada is the gold standard in terms of
regulation and many other jurisdictions have patterned their regulation and
enforcement on Nevada’s model.
Additionally, almost all gaming
jurisdictions will have a rule that states that if a gaming licence is revoked
in any other jurisdiction, then the licence will be revoked in all
jurisdictions.
One only needs to look at MGM to
see the impact this can have on a company. The State of New Jersey was not
pleased with MGM’s partner in Macau as they believed the partner was not
reputable and put MGM’s licence under review. Ultimately, New Jersey forced
MGM to divest their interest in New Jersey.
The likelihood of finding a
developer will depend on the size and depth of the market and the current and
planned competition that will result from the government’s shift into gaming.
If there are a limited number of
licences granted, or a monopoly is granted the likelihood is higher than if
there are no limit to the licences. The two primary models that Vietnam can
take into consideration would be Macau and Singapore, which both offer
integrated resorts.
However the integrated resort was
not necessarily a requirement of the government, but was driven by market
forces.
There is not much chance for
anyone to invest the required capital that Vietnam is asking for without doing
an integrated resort.
It should be noted that Macau
chose a few developers to build casinos and has been successful.
However in Singapore, a monopoly
was granted to Las Vegas Sands. Both systems seem to be working well.
Generally speaking, there are a
lot of things the government can do to attract foreign investment in this
particular sector, while maintaining strict state control. It will be very
important to provide transportation linkage to and from the property and points
of interest including the airport.
Development incentives may be
important (tax rebates, land concessions, etc.) however they must be very
careful in doling out these incentives as they can often times hurt more than
help.
Only with the right controls and
regulations, gaming and resort development can benefit Vietnam.
Casino development is a long term
investment and generally for substantial amounts as the infrastructure is
extensive.
The government that is
encouraging FDI should provide clear guidelines and legal framework for
investment. Reducing bureaucratic red tape is a clear advantage to any
government and in an emerging market it reduces the risk and improves an
investors’ confidence.
vir.com.vn
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