Investors should be wary of Vietnamese practices

Vietnam is attracting more FDI as investors take advantage of opportunities, but they also need to be cautious.

Despite a record of poor corporate mismanagement and widespread corruption, Vietnam is attracting strong foreign direct investment (FDI). During the first four months of this year the country received $8.2 billion of inward flows, a 17% increase over the same period in 2012, according to the country's Foreign Investment Agency.

But investors need to beware.

They should expect to pay for government licences for almost everything, and once set up, not be surprised about the scale of related party payments, where staff direct supply contracts to family and friends.

“Corruption is endemic, but it is perhaps because of an unsurprising short-termism that characterises many of early middle-age entrepreneurs, who have often grown up in a challenging and traumatic environment, and hence want everything now,” says Ian Roberts, a partner at Blackpeak, a strategic advisory and consultancy firm. “It’s not helped by a relatively under-developed legal system.”

Blackpeak recently expanded its corporate investigations practice in Greater China and its disputes resolution business in Southeast Asia to meet growing demand from financial investors and corporations.

“Foreign firms should resist the temptation to give in to corrupt practices; instead they should retain their reputation by displaying honesty and integrity, by hiring and rewarding honest local staff,” says Roberts, who spent several years based in Vietnam. “There is a lack of domestic capital in Vietnam and the country’s financial sector is under-developed, so there is limited competition for foreign entrants into several sectors.

“It is a young country with few embedded business elites; there are raw opportunities for international companies to market and brand their products and services.”

Roberts prefers those sectors “where the private sector is prevalent”, such as consumer goods, agriculture — Vietnam exports rice, coffee and pepper — and fisheries. Light manufacturing and fisheries are also attractive sectors.

And the best route for investors is private equity. However, they “should find people they trust and who appreciate long-term value”, warned Roberts.

Certainly, Vietnam needs FDI in order to grow, and the ministry of planning and provincial authorities are actively seeking it. Notable current projects include the $2 billion Samsung plant in Thai Nguyen province and a $2.8 billion investment by a Japanese group in the Nghi Son oil refinery in Thanh Hoa province.

Tax incentives are provided by local governments in the central regions. Improved infrastructure in the north and south economic zones are an inducement. The Tho Xuan airport has been developed in Thanh Hoa province, and highways have been built linking Hanoi and Lao Cai, Lang Son and Thai Nguyen in order to help develop the northwestern economic zone.

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