Preferential export taxes offered by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are expected to be promulgated this month. However, the tax reduction is only one of the incentives for Vietnamese goods when entering markets, not a ‘lifesaver’ for businesses, said the Ministry of Industry and Trade (MoIT).

The Ministry of Finance (MoF) submitted a decree on preferential export tariffs and special preferential import tariffs of Vietnam under the CPTPP from the period January 14, 2019 to December 31, 2022.

Under the decree, the MoF and General Department of Customs tried to compare the taxes of free trade agreements (FTAs) with the CPTPP so that businesses can choose appropriate preferential tax rates.

The preferential tariffs include two country groups. One group has implemented the CPTPP since the end of 2018, including Canada, Australia, New Zealand and Singapore and another group will start from 2019. Accordingly, when enterprises import goods, they need to read the tariff to understand the tax reduction schedule. For example, if the goods are imported from Australia, the roadmap is the second year, while imports from Mexico will come under the first year.

It is expected that the tax reduction would be applied to some 300 products. However, businesses are required to have preferential certificate of origin (C/O) to enjoy the preferential tariffs. C/O in CPTPP is a certificate that can be issued to multiple shipments on condition of not exceeding 12 months and can be issued to many different importers.

Earlier, Canada immediately eliminated tariffs on fishery products, especially key products of Vietnam. Rice and products containing rice, coffee, green tea, fruit and vegetables also saw the majority of tariffs eliminated at the time the commitments started.

According to the MoIT’s Import-Export Department, many exporters of garment and textile and leather shoes have taken advantage of the C/O principles under the CPTPP when exporting to Canada. In the Japanese market, the majority of seafood products which Vietnam has an advantage, such as frozen and processed shrimp, enjoy zero tax right after the CPTPP took effect.

However, the MoIT said the tax reduction is only one of the preferential items for Vietnamese goods. Businesses still have to ensure their products meet quality and technical standards as well as have certificates of origin from importers.

Pham Thiet Hoa, director of the Investment and Trade Promotion Centre of HCM City (ITPC), said import and export activities of local businesses are subject to control of CPTPP's both incentives and strict requirements.

Among 10 members of the CPTPP, Vietnam signed FTAs with seven countries, of which four countries have relatively high bilateral import-export turnover, reaching nearly 7 billion USD. For countries that have not signed bilateral FTAs such as Canada or Mexico, export turnover stood at 4.6 billion USD and 3.4 billion USD in 2018, respectively. Particularly, in the first quarter of 2019, Vietnamese goods exported to Canada reached 864 million USD, up 42.7 percent over the same period last year.

However, for these markets, Vietnam's exports account for only 1-2 percent of the total import turnover of each country. With a large market capacity and the difference in tax incentives before and after the CPTPP took effect, Canada and Mexico will be potential export markets for Vietnamese enterprises. In particular, Vietnamese industries which have advantages such as footwear, textiles, aquatic and wood products are predicted to have high export growth rates, if they make good use of incentives.

In reality, Vietnamese enterprises have often only paid attention to trade issues such as quality, quantity of goods, time of delivery and receipt, but neglect the legal factors such as applicable law and provisions on dispute resolution. In order to limit this, even at the negotiation stage, Vietnamese enterprises need to actively agree with partners on these components as a way to prevent possible disputes.

After four to five months of CPTPP implementation, Vietnam's trade with some member countries has increased compared to the same period last year. For example, Vietnam's trade with Canada was increased by over 70 percent, Mexico over 8 percent. With Japan, Vietnam has an agreement within ASEAN, but trade in the past four months has also increased by 4 percent.

Maritime bank recognised of meeting Basel II standards

The Vietnam Maritime Commercial Joint Stock Bank (MSB) has been given an approval from the State Bank of Vietnam (SBV) to apply Basel II standards, raising the total number of Vietnamese banks meeting the global norms to nine.

To meet the standards, the MSB has adopted a risk governance model based on big data analysis using artificial intelligence to seek and assess potential clients for credit card products. Accordingly, clients could apply online for credit cards within 24 working hours without submitting income statement or visiting its branches or transaction offices.

Basel II is the second edition of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on banking supervision. Basel II, which comprises minimum capital requirements, supervisory review and market discipline, aims to enhance competition and transparency in the banking system and make banks more resistant to market changes.

Earlier, Vietcombank, ACB, MB, TPBank, VPBank, VIB, OCB and Techcombank were recognised to achieve the norms.

Along with the MSB, BIDV and Sacombank were chosen by the SBV for piloting the standards since 2014.

Americas becomes fastest growing trade partner of Vietnam

The Americas was the fastest growing trade partner continent of Vietnam in the first five months of 2019, with expansion of over 22 percent, according to the General Department of Vietnam Customs.

Trade between Vietnam and the continent reached 29.7 billion USD in the January-May period.

Meanwhile, Asia remained the biggest trade partner of Vietnam, which accounted for 66 percent of the country’s total trade. Import-export revenue of Vietnam and Asia hit 133.68 billion USD, up 7.5 percent over the same period last year.

In the period, import-export revenue between Vietnam and Europe was 26.23 billion USD, and Oceania was 3.91 billion USD, a rise of 1.6 percent and 9.1 percent respectively.

Local logistics sector amid Industry 4.0

Vietnamese logistics firms are embracing technology to optimise their costs and improve their competitiveness, according to experts.

According to the Vietnam Logistics Business Association (VLA), the fourth industrial revolution and breakthroughs in technology have brought about many changes in the logistics industry.

Keeping up with technological trends to keep pace with the global industry is essential.

But experts said the number of companies using advanced technologies was modest.

They said the industry needed to invest more in technology to improve its service quality.

Speaking at a recent seminar on Smart Logistics held on the sidelines of the first Vietnam International Port, Infrastructure and Logistics Exhibition & Conference in Ho Chi Minh City, Dr Ngo Van Nhon, chairman of the Vietnam Quality Association of HCM City, said Vietnamese logistics firms only provided some preliminary services in the logistics services chain.

These were single services and not highly integrated, with only a few large players offering a closed service chain.

The inconsistency in the infrastructure had limited the development of the logistics industry, he said.

According to Nguyen Duy Anh, deputy head of academic affairs at the HCM City University of Technology, Vietnamese logistic enterprises mainly cater to small supply chains such as delivery, storage for rent, and customs declaration.

International operations are mostly handled by foreign companies.

Nguyen Manh Cuong, deputy director of the Agency for Southern Affairs at the Ministry of Science and Technology, said Vietnam ranked 39th out of 160 in the World Bank’s 2018 Logistics Performance Index, a big jump from two years earlier when it was 64th, and third in Southeast Asia after Singapore (7th) and Thailand (32nd).

The country targets a rank of 30th-35th by 2025, according to Cuong. The sector targets annual growth rate of 15-20 percent and a share of 8-10 percent in the country’s GDP by then.

According to the VLA, the sector, which contributes around 5 percent of GDP now, has more than 4,000 local and foreign companies.

The latter account for just 1 percent in terms of numbers but have a 12.7 percent market share.

To realise the targets, delegates urged logistics companies to focus on improving their technology and logistics platform and increase digitisation and human resource training to meet the sector’s development demand in the coming time.

Upcoming debt maturity puts Vietnam under growing repayment pressure

Most of the five year-maturity debts, including those of ODA, would reach their respective maturity by 2020, putting Vietnam under growing pressure for repayment, according to Vo Huu Hien from the Department of Debt Management and External Finance under the Ministry of Finance (MoF).

Vietnam’s graduation from the International Development Association (IDA), the World Bank’s fund for low income countries, in 2017 has led to less favorable loan terms, Hien said at a press briefing discussing Vietnam’s public debt on June 7.

However, as its financing needs for further development are still growing, a decline in concessional loans is expected to force Vietnam to tap in the capital markets, Hien added.

As of the end of 2018, Vietnam’s public debt hit the lowest since 2015 at 58.4% of the GDP, much lower than the projection of 63.9% made by the Ministry of Planning and Investment (MPI) last August and the ceiling of 65% of the GDP set by the National Assembly.

Additionally, government debt was lower than the threshold of 54% of the GDP, while the country’s debt repayment in 2018 accounted for 15.9% of total budget revenue, lower than the 25% limit. Foreign debts stood at 46% of the GDP, lower than the 50% cap.

With all debt indicators under control, the MoF attributed the result to high GDP growth rate and stable macro-economic conditions.

Meanwhile, state budget revenue in 2018 was 7.8% higher than the estimate and the budget deficit was kept lower than the estimate of 3.7% of the GDP, relieving pressure for government in further borrowing.

Vietnam’s tightened control on government-guaranteed debts is also a factor contributing to a reduction in public debt, said the MoF’s representative.

In the coming time, the MoF expected a greater focus on developing Vietnam’s domestic capital and government’s bond markets, as well as attracting long-term investors joining Vietnam’s markets.

At a discussing session at the National Assembly on May 22, Deputy Prime Minister Vuong Dinh Hue said the government is not considering taking additional loans due to high repayment pressure.

Minister of Finance Dinh Tien Dung said it is too early to say Vietnam’s public debt is at safe level, especially when the available fund could only cover the interest rate, not the principal amount.

More importantly, the efficiency of projects financed by public investment fund, including state budget, government bonds or ODA, remains questionable, Dung continued.

Customs agency to tackle US-bound foreign goods forging Vietnam’s origin

Vietnam’s customs agencies would step up efforts in preventing foreign goods from forging Vietnamese origin and later being exported to the US, Europe or Japan, according to Nguyen Van Can, director general of the General Department of Vietnam Customs (GDVC).

Can made the statement amid the escalation of the US – China trade war and experts expressing concern over the growing trend of foreign goods finding ways to secure Vietnam’s certificate of origin (C/O) in a bid to enjoy preferential treatments from the participation of Vietnam in free trade agreements and evade trade barriers from import markets.

According to the GDVC, goods prone to origin certificate fraud are mostly textile, fishery, agricultural products, steel, aluminum, processed wooden products, among others.

Can referred to the case of Chinese goods which were first imported to Vietnam, and later changed the packages labelling “Made in Vietnam”. Those goods would later be exported to US, Europe or Japan.

In this context, the GDVC is expected to tighten its monitoring and checking procedures to identify goods violating rules of origins, aiming to protect domestic production.

Hoang Thi Thuy, head of Custom Control and Supervision Department under the GDVC, said custom agencies have identified dozens of cases of origin certificate fraud. In 2017, Haiphong’s Custom Department found company named INTERWYSE importing 600 speakers and phone chargers from China but with the “Made in Vietnam” printed in their packages.

The US Custom Department has also fined FINEWOOD Vietnam company for exporting wood products forging Vietnamese origin to the US.

An analysis conducted by Nikkei earlier this month showed that while Chinese exports of machinery, electrical equipment and some other products to the US have shown particularly sharp declines, shipments of such goods from China to the US via Vietnam, Taiwan and Mexico rose during the same period.

In January-March 2019, exports of the five items from China to Vietnam, including machinery and parts, electrical equipment and parts, furniture, toys, and automotive equipment and parts, rose by US$1.5 billion, or 20% year-on-year, while exports of the five items from Vietnam to the US surged by US$2.7 billion, or 58%.

Nikkei also noted the items exported from Vietnam to the US that have increased sharply since the introduction of punitive tariffs to items including timber, textiles and a raft of other upstream goods. While this involves the shipment of raw materials, the place of origin can be more easily disguised on upstream items as they are less recognizable than finished products.

Do Van Sinh, member of the Economic Committee under the National Assembly, warned Vietnam could be targeted by US sanctions for faked made-in-Vietnam products.

Deputy Prime Minister Pham Binh Minh said at a hearing held by the National Assembly last week such trend is putting Vietnamese brands and also the customers at risks, as most goods with unclear origin come with questionable quality.

Additionally, countries may reconsider importing Vietnamese goods, causing negative impacts on the economy, Minh added.

The Deputy PM said the Ministry of Industry and Trade is responsible for tackling origin certificate fraud and expected to draft new regulation with stricter penalty for such violations.

Currently, Vietnam does not have specific regulations and criteria for products to be certified as made-in-Vietnam, and customers do not have appropriate measures to verify the products.

Existing requirements are mainly related to label, geographical indications and brands, while there are no standards to determine whether a product is considered to be made-in-Vietnam.

As of present, made-in-Vietnam products must be partly or wholly produced in Vietnam.

Vietnam urged to act rapidly or risks falling in middle-income trap

Vietnam’s economy is narrowing the development gap with other countries, but the risk of falling into the middle-income trap remains latent if the country does not take prompt action, according to Sebastien Eckhardt, lead economist of the World Bank mission in Vietnam.

Vietnam’s golden population structure, of which the proportion of laborers doubles the dependent population, would last for the next 22 years, and Vietnam’s growth potential is diminishing unless substantial reforms are made, Eckhardt said at a workshop discussing Vietnam’s growth quality in the 2021 – 2030 period on June 7.

At the meeting, the World Bank’s Director in Vietnam Ousmane Dione said the world is changing at a rapid rate and Vietnam must catch up at the earliest with this opportunity or it risks being left behind.

Dione said Vietnam is facing with a fast-aging population, a slowdown in productivity and low growth rate in investment expenditure, which are exerting negative impacts on Vietnam’s mid-term growth potential.

The country’s current growth driving forces are expected to play a more diminished role in the next decade, Dione added.

So the question would be the government should to have a right mindset and appropriate policies, ensuring the country’s sustainable and environmentally-friendly growth in the future, he stated, adding his strong belief for Vietnam to achieve its goal towards prosperity.

Minister of Planning and Investment Nguyen Chi Dung acknowledged Vietnam’s current pace of socio-economic development has not been matched with its growth potential and advantages, coupled with the lack of sustainability.

The foundation expected to help Vietnam become a modernized industrial country has not been as expected, while the country’s productivity and competitiveness remain at modest level, Dung continued.

Additionally, Dung pointed to the lack of breakthroughs in developing high quality workforce and infrastructures, not to mentioned the widening gap between the rich and the poor.

Dung requested international supports for Vietnam to identify and project future trends that could have direct impact on Vietnam’s economic growth.

Moreover, a comprehensive assessment is required to evaluate bottlenecks for Vietnam’s development over the last five years, including solutions to realize the country’s growth potential.

Vietnam is seeking recommendations in policies in terms of human resources and infrastructures development, green growth and sustainable development.

The World Bank’s Eckhardt said Vietnam’s government should enhance its monitoring capability and tighten control on the capital pouring into the real estate sector and for consumption.

Eckhardt noted the Vietnam should not over-depend on the banking sector, but deepen the capital market to support enterprises accessing capital in long-term.

More importantly, the government must enhance competitiveness of the state-owned enterprises through privatization and fair competition, Eckhardt asserted.

Vietnam named among countries with highest female labor-force participation rates

Vietnam has one of the highest female labor-force participation rates (the proportion of women who are in paid work or looking for it) in the world, The Economist reported.

In Vietnam, some 79% of women aged 15 to 64 are in the labor force, compared with 86% of men.

That figure is higher than in all the members of the Organization for Economic Cooperation and Development (OECD) except Iceland, Sweden and Switzerland, and ten percentage points above China, Vietnam’s northern neighbor.

The different sexes gravitate towards different types of work. Men tend to take jobs in corporations or organizations that confer status, whereas women tend to be more enterprising.

In terms of the sex of new business owners across 54 countries, Vietnam had the highest ratio of women to men: 1.14 to 1, according to the Global Entrepreneurship Monitor.

Nevertheless, businesses owned by women tend to be informal and women make up 55% of the self-employed.

But as the economy shifts from farming to manufacturing, working women are becoming more independent.

A recent report from the Mekong Development Research Institute, a think-tank, finds that new roads in the Mekong Delta over the past decade have made it easier for women to work in nearby textile and packaging factories, while their husbands stay at home and tend the family farm. Women in the region now earn more than men, and the balance of power between them and their husbands has shifted.

Along with high female labor-force participation rate, the proportion of women in senior managing positions in enterprises operating in Vietnam was ranked second in Asia at 36%, only behind the Philippines at 37.46, according to Grant Thornton in its 2019 Women in business report.

Nguyen Thi Vinh Ha, Grant Thornton’s head of Advisory Services, said Vietnam’s second ranking in Asia is hardly a surprise, given the important role of Vietnamese women in the economy.

In a broader perspective, Vietnam currently has a series of female leaders holding positions of major influence in the society, Ha added.

However, the report also pointed to some challenges to female leaders in Vietnam, including the lack of opportunity for job progression, opportunity to establish working relation, and family responsibility.

Stark contrasts in Vietnam’s automobile industry

The Hanoitimes - Not only did VinFast successfully catch international attention but it also highlighted the “national pride” among the domestic consumers.

While Vietnamese private automakers achieve breakthrough development, state -owned automotive enterprises remain sluggish or are operating at a loss despite being offered considerable incentives, Thanh Nien newspaper reported.

Recently, VinFast, a unit of conglomerate VinGroup, has conducted the first test runs of its sedan, SUV and hatchback before handing them over those to the customers this June.

According to VinFast’s General Director James DeLuca, VinFast has made an unbelievable long stride result in just nearly two years while other automobile manufacturers in the world would need 36 to 60 months to do the same.

To better brand identity and make it more appealing globally as well as in the Vietnamese market, VinFast decided to present VinFast cars at the Paris Motor Show, one of the world’s busiest automobile events, and quickly named Vietnam on the map of the world’s automotive industry.

Another success story is Truong Hai Auto Corporation (THACO). Statistics from the Vietnam Automobile Manufacturers Association (VAMA) showed that THACO remained on the throne in term of car sales with the sales of its assembled Kia, Mazda, Peugeot, Thaco Bus, Thaco Truck (excluding BMW and MINI) reaching 8,148 vehicles in April, up 1% compared to the previous month.

In 2015, THACO left Toyota behind to become the largest car seller in the domestic market despite being weaker than the latter in both brand identity and financial potential.

According to French car expert France-based Khuong Quan Dong, VinFast had smart and daring strategies to shorten its road to the world’s market by joining in one of the world’s most well-known automobile exhibitions.

Not only did VinFast successfully catch international attention but it also highlighted the “national pride” among the domestic consumers.

The expert expected the Vietnamese government would create smooth and favorable policies for nourishing and developing sustainable automobile industry.

Contrary to the efforts and breakthroughs of some private enterprises, state-owned ones are suffering escalating loss.

VEAM, which stands for Vietnam Engine and Agricultural Machinery Corporation, is one of the biggest Vietnamese businesses in mechanical engineering, machine building, and truck assembly and manufacturing with the VEAM Motor brand (VM).

Recent reports of its Supervisory Board revealed that nearly half of the corporation’s offshoots ran at a loss in 2018, many of its daughter companies have suffered losses for years that needed to be put into special supervision, even filed for dissolution and bankruptcy.

By the middle of 2018, VEAM and its member units’ losses amounted to nearly VND380 billion (US$16.3 million).

In fact, as early as in 2010, the business reported losses worth VND37 billion (US$1.6 million) but not until one year later did the corporation decide to arrange meetings and work on resolution on “manufacture orientation” with the view to become profitable in 2016.

According to the Inspectorate of the Ministry of Industry and Trade, between 2010 and 2013, although sales of goods and services of VM amounted to nearly VND8 trillion (US$343 million), the company posted a loss of VND331.8 billion (US$14.2 million).

Vietnam’s fiscal deficit forecast to remain wide at 5.7% in 2019

Vietnam's fiscal deficit is forecast to remain wide at 5.7% of GDP in 2019, relative to the revised 5.9% deficit estimate in 2018, according to Fitch Solutions.

In the first quarter of 2019, the country’s fiscal deficit came in at 5.9%.

According to Fitch Solutions, revenue collection growth continues to face downside pressure from lower tariff collection and the slow progress of state-owned enterprise (SOE) divestment. That said, falling government bond yields of new debt should somewhat help ease the expenditure burden from interest payments.

Fitch expected Vietnam's continued pursuit of trade liberalization to weigh on tariff revenue growth, while the country's resilient economic growth outlook, particularly amid the ongoing US-China trade dispute, will support stronger import growth over the coming quarters.

However, Vietnam has been actively pursuing an open-door trade policy, with 11 Free Trade Agreements signed and in effect to date, with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) being the latest agreement which was ratified on January 14.

Another 13 agreements are currently in negotiations or in consultative study. The elimination of most tariffs lines under these agreements implies that while imports growth is likely to see significant upside over the coming quarters, this is unlikely to translate proportionately into tariff revenue growth.

Additionally, the progress of SOE privatization remains slow, and this would also weigh on fiscal revenue collection.

The first five months of 2019 saw only 30 SOEs being approved for privatization out of a total of 127 SOEs the government had targeted to privatize by 2020.

Meanwhile, 87 SOEs have completed their divestment process from 2017 to May-2019, and this contributed VND8.7 trillion (US$373 million) to the state coffers.

Fitch stated three factors will likely continue to hold up the privatization process. First, the sheer scale of SOE businesses and their assets make business valuation a tedious process, particularly after the government issued more stringent regulations on valuation and the review and appraisal of land prices in 2018.

Second, SOE managers could also be hesitant to push forward with the privatizationprocess as this would likely imply more frequent financial reporting. Given the generally poor operational efficiency of most SOEs, increased transparency into these SOEs could negatively impact the privileges these managers currently enjoy. Third, slowing global growth and elevated trade disputes between US and its major trading partners bodes poorly for risk sentiment, and this will likely continue to weigh on the already poor investor interest in Vietnam’s SOE stock market listings.

Indeed, the valuation as measure by the Price/Earnings ratio of Vietnamese equities have failed to play catch up relative to its emerging market Asian peers in recent weeks, and "we believe that this suggests poor risk sentiment towards Vietnamese listings."

Falling yields offered on Vietnamese government bonds should help ease the pressure on expenditures from interest payments, which account for about 10% of current expenditures.

Fitch maintained the view that that the wave of global monetary easing in response to slowing economic growth will allow the Vietnamese authorities to issue new debt to both rollover old debt and fund its growing expenditures at lower interest rates.

Moreover, it is expected the global search for yield amid falling yields offered on developed market bonds to increasingly favor relatively higher yielding emerging market government bonds such as those of Vietnam, and this would support demand for the government’s issuance.

Indeed, Vietnamese government bond yields have reversed the uptrend over most of 2018 and begun to decline since the start of 2019 on the back of an increasingly easing global monetary environment, with the Vietnamese 10-year bond yield falling to 4.67% in May, from 5.06% in last December.

Risks to Fitch’s forecast are for a larger fiscal deficit. Another trend under Fitch’s observation in Asia is one of fiscal stimulus amid a weakening economic outlook as in the case of India and Indonesia.

While Fitch still places Vietnam as a regional outperformer with its 2019 real GDP forecast at 6.5%, this nonetheless reflects its view for a deceleration from 7.1% in 2018.

​Accordingly, the slowdown could see the Vietnamese authorities shift its focus to growth support from fiscal prudence at present, pushing expenditures higher.

Steel maker Formosa incurs huge losses despite incentives

Taiwanese-invested steelmaker Formosa Ha Tinh Corp incurred a loss of over VND5.2 trillion (US$200 million) in 2017 and another VND2.7 trillion (US$110 million) in 2018 due to depreciation and interest repayment although the firm has been given preferential treatments.

In 2018, the company’s sales reached over VND64.2 trillion (US$2.8 billion), 13.42% higher than Hoa Phat Group, which is the largest construction steel maker in the country, Tri Thuc Tre news reported.
Formosa is a world-scale project with the actual capital by the end of 2017 amounting to US$12.87 billion.

Categorized as a large-scale project, the company enjoys many favorable policies from the Vietnamese government including income taxes and land rental incentives.

After over a half year of operating the second blast furnace, Formosa produced over two million tons of crude steel including 1.6 million tons for internal consumption, 300,000 tons for the Vietnamese market and nearly 159,000 tons for export. Its crude steel production made up about 40% of the domestic steel market.

According to Vietnam Steel Association’s statistics, Hoa Phat still leads in construction steel sales, taking a 25.7% share of the market while Formosa ranked first in steel roll coil sales with 227,000 tons over the first four months of this year.

In the steel business alone, Formosa’s revenue is nearly 40% higher than that of Hoa Phat. Formosa is the only hot-rolled coil producer in Vietnam at present.

In 2016, Formosa discharged wastewater into the sea along the coastline of three central provinces of Ha Tinh, Quang Tri and Thua Thien –Hue, making thousands of local fishermen and tourism workers jobless.

The incident was reportedly destroying the maritime ecosystem and seafood resources and affecting about 510,000 people, according to government reports.

Late in June 2016, Formosa admitted responsibilities, committed to compensate US$500 million for the Vietnamese government, and pledged to fix the environmental damage.

Diversified investment options to help give Vietnam market status upgrade

The introduction of covered warrants and government bond future contracts are expected to help Vietnam garner an MSCI Inc. upgrade to emerging-market status from its current frontier level, Bloomberg reported.

It is the latest step taken by the Vietnamese government, aiming to increase the market’s liquidity by becoming more appealing to foreign funds.

Meanwhile, the government is also under the process of overhauling its Securities Law.

Nguyen Duc Thong, director of derivatives at SSI Securities, the country’s largest brokerage, told Bloomberg this is a signal that Vietnam’s policy is changing and becoming more open to new products.

Covered warrants are expected to help boost the market’s liquidity, which is still “very small,” he added.

Previously, the foreign-ownership limits have been eased for some industries while the government is working to speed up the process of reducing state capital in companies.

SSI will issue six covered warrants codes based on four underlying shares - FPT, Mobile World Investment, Hoa Phat Group and Military Bank , said Thong, who believes the new product will attract more institutional investors and make domestic retail investors more sophisticated.

The Ho Chi Minh City Stock Exchange, the country’s main bourse, plans to start covered warrants trading June 28, the State Securities Commission said last month, while government bond future contracts are scheduled to be available next month. This will help diversify investment products in the stock market, provide tools to prevent risks for investors and boost foreign investment inflows, according to the market regulator.

The benchmark VN Index has gained 7.8% this year after falling 9.3% in 2018. The measure lost 2% in May, its biggest monthly loss since December as intensifying trade tensions hurt market sentiment. Foreign investors have bought a net of US$343 million worth of Vietnamese shares this year through June 10, according to data compiled by Bloomberg. That’s compared with net foreign inflow of US$1.8 billion in 2018 and US$1.08 billion in 2017.

​Less than 10 securities firms have so far registered to issue covered warrants. Twenty-six stocks can be used as underlying equities for covered warrants, according to the Ho Chi Minh City bourse, including Refrigeration Electrical Engineering, SSI Securities, FPT, Masan Group, Mobile World Investment and Military Bank.

Mirae Asset forms strategic partnership with VinaCapital Ventures

Following the partnership, Mirae Asset, one of the world’s leading asset managers overseeing USD375 billion in assets, will invest an undisclosed amount in VinaCapital Ventures.

VinaCapital Ventures, the technology investment company of VinaCapital, on Monday announced the formation of a strategic partnership with Mirae Asset – Naver Asia Growth Fund, a US$1 billion joint fund by Korea’s financial group Mirae Asset and Korea’s internet company Naver, stated the former in a statement.

Following the partnership, Mirae Asset, one of the world’s leading asset managers overseeing more than USD375 billion in assets, will invest an undisclosed amount in VinaCapital Ventures, while
technology firm Naver will work with VinaCapital Ventures and its portfolio companies to help them grow and potentially expand beyond Vietnam.

“We are excited to collaborate with Mirae Asset and Naver not simply for the financial investment but for the opportunity to access the experience and technologies that will help our investee companies reach
their potential,” said Tran Nhat Khanh, partner at VinaCapital Ventures at the Vietnam Venture Summit on June 10.

Charlie (Choonghwan) Lee, head of Outbound Investment at Mirae Asset Capital, which is the general partner of the fund, said, “We are delighted to partner with VinaCapital, which is one of the pioneering
venture capital investors in Vietnam. We share their belief that the opportunities in this country are enormous, and we look forward to working with them and their investees to achieve even greater success.”

Launched in 2018, VinaCapital Ventures is a US$100 million technology holding company that invests in the next generation of Vietnamese and Southeast Asian startups.

Vietnam’s newly merged payment start-up NextPay plans US$30 million in fundraising

NextPay, a newly merged payment startup from Vimo Technology and mPOS, is in talks with investors to raise about US$30 million and anticipates closing the round soon, Bloomberg reported.

The merging between two local start-ups Vimo Technology, a mobile wallet provider, and Vietnam mPOS Technology, which develops portable point-of-sale technology, aims to add scale in the market where cashless payments are booming.

The capital will help the company as it plans an expansion into Myanmar and Indonesia in 2020.

Nguyen Huu Tuat, chief executive officer of mPOS, will become CEO of the combined entity. Nguyen Hoa Binh, who founded the two Hanoi-based startups, will be NextPay’s chairman.

Tuan said in an interview with Bloomberg that mPOS’s business model is quite similar to Square in the US, in that any merchant can accept payments easily, and Vimo is a mobile wallet similar to Alipay.
The merging of these two businesses into NextPay would provide a one-stop payment solution for merchants, added Tuan.

Vietnam has been promoting electronic payments since 2008. Only about 40% of Vietnam's 95 million people have bank accounts, mostly in urban areas, while there are around 120 million mobile phone
subscriptions, and the telecoms network covers the entire country.

In January, the Vietnamese government issued a document asking the State Bank of Vietnam (SBV) to come up with new ways to encourage the use of e-wallets, such as allowing people to add money to
their wallets without going through a bank account. It also approved a pilot project that enables money transfers and purchases through mobile phone accounts for small transactions.

According to a plan on non-cash payment in Vietnam in the 2016 – 2020 period approved by the Prime Minister, by the end of 2020, the ratio of cash transactions will be reduced from 90% in 2016 to below
10%.

As of September 30, 2018, Vietnam has a total of 18,170 ATMs, up 4% against the end of 2016, and 294,500 point of sales (POS) installed nationwide, up 11.8% compared to the end of 2016, informed
Pham Tien Dung, head of the SBV’s Payment Systems Department.

The country is on track to reach the target of having 300,000 POS by 2020, Dung added.

The merger is aimed at helping NextPay capitalize on the shift. The combined company will have a presence in 11 cities across Vietnam, with more than 35,000 acceptance points. Already, Vietnam has a
young, tech-savvy population where 70% use smartphones.

North Ridge Partners Executive Director Michael Gethen and Chris Tran, the firm’s head of Asia, advised on the deal.

US-based Hanesbrands expands operation in Vietnam

Hanesbrands production bases in Vietnam account for 26% of the company’s total production output and its exports from Vietnam reach US$400 million in 2018.

US clothing company Hanesbrands is expanding its operation in Vietnam, Jerry Cook, vice president of Hanesbrands, said at a meeting with Deputy Prime Minister Trinh Dinh Dung on June 12.

Jerry Cook, who is also chairman of Customs and Trade Facilitation Committee under the US Council for International Business, said he seeks closer cooperation with Vietnam's government agencies in the
fields of customs and taxes.

Cook expressed his thanks to the support from government agencies over the past years, adding US companies highly regarded the government’s effort in improving the business and investment
environment.

Hanesbrands currently has seven manufacturing facilities in Vietnam and employs nearly 12,000 workers. Its bases in Vietnam account for 26% of the company’s total production output and its exports reach US$400 million in 2018.

At the meeting, Deputy PM Dung welcomed Hanesbrands’ decision to expand business in Vietnam and affirmed the government would continue to create favorable conditions for US companies, including
Hanesbrands to do businesses in the country.

The presence of US major corporations, including Hanesbrands, has played a major parts in promoting trade and investment relations between Vietnam and the US, Dung asserted.

According to Dung, the comprehensive strategic partnership between Vietnam and US has been growing strongly in all spheres, focusing on trade, investment and economic relations.

Thua Thien - Hue looks to lure more investment to IPs

Industrial parks (IP) in the central province of Thua Thien - Hue have so far attracted 143 investment projects with a total registered capital of nearly 92 trillion VND (3.94 billion USD), generating jobs for nearly 25,000 labourers, according to insiders.

To lure more investment, local authorities have focused on upgrading and developing IP infrastructure, and applying incentives to investment to hi-tech and added value sectors, and those not labour intensive but environmentally friendly.

Attention has been paid to accelerating administrative reforms to facilitate investors’ operation, providing advice to investors, and training human resources serving the demand of enterprises in IPs.

Amid the Fourth Industrial Revolution, the province gives top priority to developing information technology workforce, high-tech agriculture and bio technology.

It will also prioritise investors with major brands, banks’ prestigious partners, domestic and foreign investment funds, and successful domestic enterprises.

Further attention will be paid to calling for investment from traditional markets such as the Republic of Korea, Singapore, Thailand, Japan, Hong Kong (China), the US, Europe, countries benefiting from Vietnam’s entry to bilateral and multilateral free trade agreements, and investors in China.