Understanding of the Vietnamese Economy and Business Environment 2012

1. DHVP Research & CCI Indochina
www.vietnamica.net
The Vietnamese Economy and Business Environment
Dr. Vuong Quan Hoang
vuong@vietnamica.net
Dept of Finance, Centre Emile Bernheim
Solvay Brussels School of Economics & Management
The University of Brussels – ULB
Hanoi, March 2012

2. GDP Growth, 1989-2012
12%
10%
8%
6%
4%
2%
0%
86
88
90
92
94
96
98
00
02
04
06
08
10
12
19
19
19
19
19
19
19
20
20
20
20
20
20
20
Source: GSO; 2012: ADB’s forecast, 6.3%

3. Registered FDI, 1988-2012
Unit: US$ million
Quantity vs. Quality
60,000
50,000
• Oct. 2011: 22 FDI
40,000
projects incurred bad
debts of US$80 mln 30,000
20,000
• Mar. 2012: 50% of
FDI Enterprises 10,000
reported losses. -
04
06
08
10
12
88
90
92
94
96
98
00
02
20
20
20
20
19
19
19
19
19
19
20
20
20

4. Sources of FDI, 2010
Chinese Taipei, 22.8 ,
12%
Others, 38.5 , 20%
Korea, 22.1 , 11%
Thailand, 5.8 , 3%
Caym an Islands, 7.4 ,
4%
Singapore, 21.7 , 11%
Hongkong, 7.8 , 4%
USA, 13.1 , 7%
Japan, 20.8 , 11%
BVI, 14.5 , 7%
Malaysia, 18.3 , 10%

5. Vietnam Stock Markets
Source: GSO
VNIndex: as of the end of the year
Number of listed firms: including Upcom (OTC market)

6. Vietnam Stock Markets

7. Vietnam Stock Markets
MktCap/GDP, %
60
48
50
40 39
40
30 26
22.7
20 17.5
10
1.20
-
2005 2006 2007 2008 2009 2010 2011

8. VSM: Properties / Features
• Two markets: HCMC HSX (est. 2000) and Hanoi HNX
(est. 2005)
• Watchdog: State Securities Commission, under Vietnam
Ministry of Finance
• In their infancy
• 100 broker firms
• 1.5 million trading accounts
• 600 listed firms
• Strong herd mentality
• Strong influence by foreign buyers of shares
• Malfunctioning of the info disclosure system
• Special interest groups

9. Credit Institutions System
(By December 31, 2011)
M&A
M&A
Opportunities
Opportunities
State-
Joint-stock owned Joint-
Comm. Comm. venture
Banks (35) Banks (5) Banks (4)
Policy
Banks (2)
Foreign Leasing
Banks’ State Bank Companies
Branches of Vietnam (12)
(50)
People
Credit
Funds
(915)
Foreign Wholly Finance
Banks’ Foreign- Companies
Rep. Off. owned (18)
(51) Banks (5)

10. Vietnam Commercial Banks
(December 31, 2010)
• Total Assets: US$175 billion; 167% GDP
• Outstanding Loans: US$125 billion; 125% GDP
• Non-performing loans (Jun. 31, 2011):
– US$4 billion; 3.1% outstanding loans
– Question of which standards of accounting systems applicable
• Lending on real estates and securities (Jun. 31, 2011):
– US$12 billion; 12% outstanding loans
• Problem of Liquidity
• Restructuring banking sector:
– Merger & Acquisition?
– New business methods?

11. Banking Sector Issues
• Recurring problems of bad debts
• Liquidity crunch
• Does size matter?
• Interrelation to other asset markets that gives
rise to further complications: real estates, risky
assets (equity and bond), speculative assets
(foreign currencies, gold)
• Structural problems
• Special interest groups
• Does high bank profitability help the economy?
• Has it been under-regulated or over-regulated?

12. The Charm Is No More Hidden
• First investment funds in Vietnam: early 1990s
– First half 1990s: Eight funds; US$700 Mln.
– After 1997: only two (Vietnam Enterprise Investment Fund run by
Dragon Capital Vietnam, and Vietnam Frontier Fund by Finansa)
• 2002-2005:
– Quite period
– Mekong Capital, VinaCapital, IDG, VietFund, PXP Asset Management
• 2006-2007:
– Booming period
– More: 22 funds and 17 fund management companies
• 2009-2010:
– Closing, exiting, leaving (Indochina Capital exited in May 2009)
– Poor performance (May 16, 2011)
• VMFVF1: 9.8; PRUBF1: 5.3; MAFPF1: 4.1
• Par value: 10

13. Entrepreneur: Genuine vs. ‘Disguised’
• Chinese-originated Confucianism
– Hierarchy
– Face-saving
– Relation-based business
• Social Ranking “Sĩ – Nông – Công –
Thương”
– Gentry Scholar/Intellectual Official –
Farmer – Craftsman –
Trade/Businessman
• The Hidden Entrepreneur’s Aspiration to
Become a Non-Entrepreneur
• ‘Disguised’ entrepreneur:
– A bunch of ideas and proposals Creativity?
– NO risk-taking, NO implementing, etc.
– Trying to be on the “safe-side”

14. Strategic Planning
• Many set up and start running a new
company with:
– A list of wishes What is STRATEGY?
– No business plan
• New fashion of the Vietnamese large
corporations:
– Doing “big things,”
– Thinking globally,
– Developing strategy
• Strategic planning services: a multi-million
dollars market
• High prices for:
– Well-known consulting brands (experts,
professors)
– The business owner’s ex-ante strategy
– Higher prices of equity

16. Organized Chaos
- Relation-based business
environment
- Rent seeking
- The problem of corruption

17. Welcome to Vietnam!