Vietnam - The most investor friendly country in ASEAN

1. Lawyer in Vietnam Oliver Massmann
The most investor friendly country in ASEAN
Oliver Massmann
Vietnam is the most investment worthy place in ASEAN – this is a common response of
many foreign investors when being asked about their investment plan in the upcoming years.
This is not an exaggeration about Vietnam’s current investment environment as well as its
potentiality but is in fact based on valid and practical grounds, where improved economic
diversification, international integration, reformed investment legislation and good economic
policy must be counted.
Economic recovery and stable development
According to a recent statistics by the General Statistics Office, GDP growth of Vietnam over
the first six months is quite high, at 6.28%. This is the highest growth for the past five years
and could be far over the targeted growth for 2015. Not only the Vietnamese Government is
optimistic about the economic development of the country this year, other international
organizations also provide positive forecast about Vietnam’s GDP growth in 2015. For
example, ANZ maintains its forecast about Vietnam’s GDP growth to be at 6.5% in 2015 and
2016 based on positive signals such as increased domestic demand, increasing attraction of
foreign direct investment of the manufacturing industry and consumer confidence index
reaching a new peak in June. Vietnam is also the only country among the nine East Asian
countries that World Bank raises its GDP forecast in 2015 compared with its previous
forecast at the end of 2014. “The world in 2050”, a study made by PwC, concludes that
Vietnam will have the second highest annual GDP-growth rate worldwide. There will be an
average growth by 5.3% each year, from 2014 till 2050. That means Vietnam will have the
fastest growing economy within Asia till 2050. In addition, the inflation rate is controlled by
the Government with Consumption Price Index to be in the range of 3-5% for the whole year,
which is far below the maximum allowed inflation rate of 5% in 2015. These two important
macroeconomic indices have proved the Government’s success to a certain extent in
recovering and maintaining stable development of the economy.
Government’s sound economic policy and positive results
Together with macroeconomic stability and controlled inflation, the Government of Vietnam
is fiercely improving the business and investment environment and making great attempts to
achieve key economic indicators of top regional countries until 2016. Resolution No. 19/NQ-
CP/2015 of the Government dated 12 March 2015 has set out the Government’s strong
commitments and positive changes to improve the business environment and strengthen the
economy’s ability to compete in 2015 and 2016 by pushing for reforms to reduce time-
consuming and burdensome administrative procedures; enhancing governmental offices’
transparency and accountability; and adopting international standards. Up to 01 January
2015, the total time for tax compliance is reduced to 370 hours per year, which is an
impressive decrease compared with 872 hours annually according to the 2013 statistics. Time
for tax declaration and payment is also reduced to 121.5 hours per year, with possibility of

2. online tax declaration and payment. In 2014, 95% of the enterprises have conducted online
tax payment compared with 65% of previous years.
With the implementation of single window regime at international sea ports, it is expected
that goods clearance time would be reduced from 21 days to 14 days for exports and 13 days
for imports. Enterprises would benefit from the reduction of 10-20% in costs and 30% in
customs clearance time if the national customs single window regime is fully implemented.
Not only in the tax and customs sectors, the Government also managed to reform
administrative procedures in insurance sector. The total time for insurance payment is
decreased by 100 hours, from 335 hours to 235 hours per year.
Vietnam’s regional and international integration
Investors consider that Vietnam’s current efforts to integrate into the world economy by
negotiating many Free Trade Agreements (FTAs) also brings them better investment
opportunities. In particular, Vietnam, together with other 12 countries, including its major
trading partners like Japan and the United States is negotiating the Trans-Pacific Partnership
(TPP) with market size of 800 million people (accounting for 38% of global GDP). Vietnam
would be the largest beneficiary of this trade pact as a result of its strong trade ties with the
United States, and its highly competitive positions in industries such as manufacturing where
China is gradually losing its competitive advantage. Statistics shows that by participating in
the TPP, Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario.
Beside the TPP, the EU- Vietnam FTA will also unlock huge opportunities to Vietnam such
as tariff reductions, trade facilitation, investment attraction, expansion of markets to 27 EU
countries, sustainable development and economic restructuring. 99% of Vietnam’s exports to
the EU will be entitled with 0% import duty, leading to an increase of 30-40% in exports and
20%-25% in imports.
Vietnam and nine ASEAN countries will establish an ASEAN Economic Community (AEC)
by end of this year. This is a potential and dynamic market with over 620 million consumers,
60% of which is under the age of 35. This community, once established, would be the 7th
largest economy in the world – 4th
largest by 2050 if growth trends continue. AEC will be an
attractive single production hub and facilitate international trade. The aim is to remove
barriers to investment and enhance free movement of skilled labours. Investors can have a
production base in one country and sell their products across the rest. Many foreign investors
have started the trend and relocated their production base from other countries, especially
from China, to Vietnam as shown in examples below.
Other FTAs that Vietnam has just concluded are Vietnam – Korea FTA and Vietnam –
Eurasian Economic Union. These FTAs open the doors for Vietnam to export its textiles,
leather, wood furniture, and agricultural products, etc. These FTAs are driving foreign
investors to increase the investment capital and expand their businesses in Vietnam. The
FTAs are expected to create a second investment wave in Vietnam after the first wave when
Vietnam acceded to the WTO in 2007.
Second investment wave in Vietnam

3. It is no longer in theory. Vietnam is actually benefitting the most from growing wages in
China, with more and more manufacturers shifting their production to Vietnam. foreign
investors of a number of high-tech investment projects in Vietnam have decided to increase
the investment capital and expand their production activities to timely grab the opportunities
that FTAs create when they come into effect.
Recently, Bel Vietnam, a famous producer of French cheese in Vietnam has started
constructing a 17,000 m2
new factory in Binh Duong with the total investment capital of
US$17 million. The factory is expected to come into operation by June 2016 and full
operation will be in 2020 with its capacity to be 9 times as much as the old factory.
According to the General Director of Bel Vietnam, the new factory will be used as a regional
supply centre, focusing on South East Asian market to take advantage of the AEC. The new
factory will also serve as an R&D centre for products of the group.
LG Group is another case. Its initial investment capital was US$ 300 million to build a
factory in Hai Phong. However, it then decided to increase the capital to US$ 1.5 billion. The
factory is the largest complex in the region in an area of 800,000 m2
, which will manufacture
and assemble high tech products such as TVs, mobile phones, vacuum cleaners, etc. for
export and domestic consumption.
Samsung in its export-oriented investment strategy announced its increase in investment
capital by US$ 3 billion on 10 November 2014. Samsung is currently operating US$ 1
billion, US$ 2 billion and US$ 2.5 billion plants in Thai Nguyen and Bac Ninh Province. The
additional US$ 3 billion is used to expand the US$ 2 billion plant to produce handsets. This is
another example of production shifting away from China as a result of South Korea’s low
exports to this country.
Other investors in textile sector are also preparing their entry into Vietnam’s market to grasp
the advantages of the upcoming TPP. Since members of the TPP do not include China, India
and Thailand, who are the direct competitors of Vietnam in the textile industry, Vietnam will
have price related competitive advantage over these countries due to tax preferential
treatment that TPP countries grant to Vietnam. This is critical considering the fact that China
and the EU are still studying about the possibility to negotiate an FTA with each other. Up to
now, Itochu Group from Japan has purchased 3% of Vinatex’s shares at US$ 9.25 million and
invested in certain textile projects in Vietnam. A Taiwanese textile group has also increased
its capital investment by US$ 320 million to conduct a complete production process in
Vietnam. It is expected that with the TPP, Vietnam’s textile export turnover will reach US$
30 billion in 2020 and US$ 55 billion in 2030. Not only in the textile industry, there has
recently been a range of relocation of production facilities for low value goods such as
footwear from China to Vietnam as investors search for lower production costs. According to
2014 statistics, more than 70% of foreign direct investment projects in Vietnam was in the
manufacturing and assembly processing sectors. This number has already included low value-
added textile and material manufacturing from China.
New investment legislation
At the same time, the Government is really aware of the importance of institutional reforms
in improving the business climate. It is becoming more important when the new trade pacts
are coming into effect very soon and institutional reforms are among conditions of these
agreements. New laws considered the most liberal and investor-friendly in the region, such as

4. the new Enterprise Law, Investment Law and a decree on Public Private Partnership, have
been adopted. Barriers to business and investment are removed to pave the way for an open,
transparent and full-of-opportunity environment for foreign investors. The 2014 Investment
Law makes a great attempt to reduce the number of prohibited business activities and
conditional business activities. More importantly, the 2014 Investment Law for the first time
includes provisions regulating M&A activities. Accordingly, starting from 01 July 2015,
foreign investors will not need to undergo lengthy investment certificate procedures when
buying stakes in Vietnamese target companies. The change will hopefully end years of
uncertainty and frustration faced by foreign investors eyeing Vietnam market entry or
expansion via M&A. The second wave of M&A seems to already start in 2014 when six
deals are reportedly made every week. The total M&A deals in 2014 was 313 with value of
US$2.5 billion, a 15% increase compared with the previous year. Notable deals in 2014
include the acquisition of 19 Cash & Carry and their related real property of Metro by Berli
Jucker with deal value of US$ 879 million; Vingroup bought 70% of Ocean Retail
Company’s capital; Mondelez International bought 80% of Kinh Do JSC’s capital in sweets
manufacturing section at US$370 million; and Standard Chartered Private Equity acquired a
significant minority stake in An Giang Plant Protection JSC at US$90 million. The business
community highly hopes that total value of M&A deals could reach US$20 billion in the
second wave (2014-2018).
Meanwhile, the 2014 Enterprise Law grants certain flexibilities for investors to manage their
entities in Vietnam by allowing multiple legal representatives and carry out all types of
business activities provided that they are not prohibited by law.
Potential privatization market
In addition, the Government aims at privatizing 289 state-owned enterprises in 2015 and
highly emphasized on substantive and efficient privatization. The number of commercial
banks is forced to be reduced to 13-15 in 2017 and smaller banks under the pressure of
competition and capital requirements will look for new foreign investors to achieve
expansion. The Government is also aware that privatization process must increase the number
of shares sold and ensure a win-win solution for both investors and the government. During
the 2000- 2013 period, the number of state-owned enterprises fell by almost 50% from 5,800
to 3,135. Privatization was reported to be successful with over 80% growths in earnings,
while 40% had growth of over 10% following privatization. These successes drive foreign
investors in their investment in these very potential areas.
Relaxed foreign ownership in public listed companies
In an attempt to ease burdens on investors, on 26 June 2015, the Government issued Decree
No. 60/2015/ND-CP to provide more flexibilities in foreign ownership ratio in public listed
companies, up to 100% in certain cases. Decree 60 also allows foreign investors to make
unlimited investment in Government bonds, bonds guaranteed by the Government, bonds of
the provincial authority or enterprises. Foreign investors may also invest in securities
investment fund certificates, shares of securities investment companies, non-voting shares of
public listed companies, derivative securities, and depository receipts without any limit.
Government’s reduced monopoly over distribution and production of power, petrol and
coal

5. In Vietnam’s energy market, EVN has long been known as the state monopoly in
transmission and distribution of electricity. Vietnam still features the Single Buyer Model
with EVN’s purchase of all electricity generated from on-grid independent power projects.
Investors find it extremely hard to negotiate the Power Purchase Agreement with EVN.
Meanwhile, EVN keeps operating at loss with huge debts to PetroVietnam and Vinacomin.
Although the decree is still in draft, the proposed adoption of the list of goods and services
subject to state monopoly will then limit the power of EVN. The State only maintains its
monopoly over the operation of multi-purposes hydropower and nuclear power plants,
transmission, moderation as well as operation of the national electricity system of big power
plants and those having special importance in terms of socio-economic and national defense
and security. Trading in petroleum and oil is also no longer subject to state monopoly.
With an open and competitive market, foreign investors will find it more attractive to invest
in this sector. They are now no longer required to sell the electricity they generate to EVN but
can sell it to other distribution companies or even transmit/ distribute through their own
system.
Foreign investors will also no longer face obstacles in negotiating the power price with the
EVN. According to a recent report by Ban Viet Securities Joint Stock Company, although
power retail price in Vietnam has doubled during the past ten years, from VND 781/kWh (3.5
US cents/ kWh) in 2005 to VND1,622/ kWh (7.3 US cents/ kWh) in 2015, this is still low
compared with other countries like Cambodia, Thailand, and Singapore in the APEC. This is
among major reasons that discourage investors from pooling their capital into the sector.
However, power price is planned to increase from 2016 according to power increase
schedule, which aims to ensure capital recovery and reasonable profits for investors.
Accordingly, power retail price may increase at 8-9 US cents/ kWh in 2020, equivalent to an
increase by 18.4% within the next five years. Power price should also reflect the demand and
supply in the market. Foreign investors then find more incentives when making their
investment decision.
Conclusion
Country Limitation of
market access*
Country Limitation of
market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low
Vietnam ties in first place with Singapore, thus it provides highest possible protection for
investment

6. Vietnam is a country of changes and currently offering increasing opportunities for foreign
businesses. The underlying strength of the economy is reflected in, among others, controlled
macroeconomic indicators, strong productivity gains and extensive integration into regional
and global economy. It is now exactly time for foreign investors to start their business plans
and grasp the upcoming clear opportunities.
***
Please do not hesitate to contact Mr. Oliver Massmann under
omassmann@duanemorris.com if you have any questions on the above. Oliver
Massmann is the General Director of Duane Morris Vietnam LLC.
INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz;
THANK YOU VERY MUCH!