Mar 31, 2013

Vietnam - The gamble of making outward investment

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VietNamNet Bridge – While Vietnamese businesses have been flocking abroad to seek their investment opportunities, experts fear that the businesses are gambling with their investments.

Making outward investments are a growing tendency among Vietnamese businesses in recent years. A report of the Foreign Investment Agency, an arm of the Ministry of Planning and Investment, showed that by December 20, 2012, Vietnamese had registered 712 outward investment projects with the total registered capital of $12.4 billion.

It is expected that $1-1.5 billion worth of outward investment would be registered in 2013, while the implemented capital would be roughly $1 billion. To date, Vietnam has invested in 60 countries and territories. In 2012 alone, 75 new projects were licensed with the total registered capital of $1.3 billion.

The hazardous gamble

In the report reviewing the 6-year implementation of the Foreign Exchange Ordinance released in 2012, the State Bank of Vietnam expressed its worry about the bleeding of foreign currencies because of the outward investments.

Vietnam’s foreign currency reserves remain modest, while it regularly witnesses the trade balance deficit and the foreign currency supplies remain unstable, which all have put a hard pressure on the dong/dollar exchange rate.

In such circumstances, the remittance of foreign currencies abroad to pour into outward investment projects would make the supply-demand imbalance more serious. If the investors fail with their outward investment projects, Vietnam would lose big sums of foreign currencies.

Dr. Nguyen Van Thuan, Dean of the Finance Faculty of the HCM City Open University, also said the management agencies have every reason to worry, when they can see the big foreign currency outflows at this moment.

Thuan said there has been an inflow of foreign currencies to Vietnam. But the money is just the short term capital depositing at banks under the names of Vietnamese people. This is just the long term investment capital.

Meanwhile, foreign currencies have been remitted abroad by the Vietnamese enterprises which make outward investment, and the foreign invested enterprises in Vietnam which have been trying to evade tax by the transfer pricing.

In the ideal scenario, Vietnamese businesses bring foreign currencies outward to inject in their projects there, make profit and remit profits back to Vietnam. However, Thuan has warned that it would be very difficult to control the capital flow, if they make investment in some countries and from which continue investing in the second and subsequent countries

Thuan has suggested that the State Bank needs to tighten the control over the cash outflow and thoroughly consider the outward investment projects when licensing the investments. The State Bank needs to find out how the investors operate in the domestic market, how is their financial capability and why do they want to make outward investments.

Vietnamese businesses want to “go to the open sea”

“Going to the open sea” is the way Vietnamese use to talk about the high dreams of making money in the world market.

Vietnamese businessmen feel that they need to try playing in the international playing fields in order to earn more money. Hoang Anh Gia Lai Group’s Chair Doan Nguyen Duc said he made a wise move when making investment in Cambodia and Myanmar. If he had not done this, Hoang Anh Gia Lai would have fallen into big difficulties because of the domestic economic difficulties and the frozen real estate market.

Duc, the second richest Vietnamese stock millionaire, said international investment funds keep pouring money into Hoang Anh Gia Lai because they have been attracted by the rubber, sugar cane and real estate projects Hoang Anh Gia Lai are developing overseas.


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