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What’s behind Vietnam’s outward investments?
It is really a good thing for Vietnamese enterprises to make outward investments to earn fatter profits. However managing the capital outflow remains a problem.
In 2009 the turnover from exporting PE plastic bags to the US was half of what it was in 2008, because the US Department of Commerce imposed the provisional anti-dumping tax rate of 50 percent on products from Vietnam.
An enterprise based in Hai Duong province that suffered from the anti-dumping taxation decided to make outward investment. “It is most favorable to invest in Laos, thanks to its geographical proximity and good relations between the two countries. It is clear that it would be better to make investments in another country than to continue exporting products to the US and bear the high tax rate of 50 percent,” the chair of the enterprise thought.
Outward investment booming
The story of the plastic company mentioned above shows that making outward investments seems to be a good solution to enterprises to expand markets and optimize profit.
While natural resources are being exhausted in Vietnam, big miners have been trying to seek new mines in potential markets in the world. PetroVietnam is a typical example. By September 2010, the economic group had made investment capital contributions to 25 oil and gas projects in 17 countries worldwide. The 18 projects that are now underway alone have the total registered capital of $2.2 billion and the implemented capital of $900 million, accounting for 40 percent of Vietnam’s total outward investment capital.
The Vietnam Coal and Mineral Industries Group (Vinacomin) now has five investment projects in Laos and Cambodia with a total registered capital of over $25 million.
Meanwhile, the Vietnam Rubber Group has 16 ient pronvestmjects in Laos and Cambodia with a total registered capital of $793 million. The Vietnam Post and Telecommunication Group has three projects in Malaysia, Hong Kong and Laos, capitalized at $7 million, and the military telecom company Viettel has five projects capitalized at $251 million.
In hydropower sector, three of Vietnam’s investment projects have received investment licenses with a registered capital of $895 million.
Vietnam’s first outward investment project commenced in 1989, when an enterprise investmented in a project in Japan which had a modest capital value of 0.5 million dollars. After 10 years, by 1999, when the decree on managing outward investment was promulgated, only 17 outward investment projects had been registered and were valued at $13.6 million.
However, it is clear that the number of outward investment projects increased considerably in 2006-2010. In that period, 410 projects with a total registered capital of seven billion dollars have been licensed, showing an increase of 3.1 times in the number of projects and 5.3 times in the volume of registered capital compared to 1999-2005. The scale of outward investments has become bigger with an average capital value of 17 million dollar per project.
How to manage outward capital?
In June 2010, the Ministry of Planning and Investment (MPI) released a document, requesting the owners of 516 outward investments to report on their operations and the progress of their projects. However, the ministry has only received reports from 300 projects. Meanwhile, no reply has come from the other 149 projects and 69 projects are no longer at their registered addresses.
“It is now difficult to assess the efficiency of outward investments because enterprises do not strictly follow the regulations that require them to report to state management agencies, “MPI said
According to the ministry, the difficulties in management have been caused by unsuitable legal framework, which may lead to the misuse of the state’s capital.
In some cases, investors transferred capital abroad to inject and serve their projects. However, the projects later halted operation before the set date, and investors did not report about how they dealt with the transferred capital.
“If Vietnam does not have reasonable measures to supervise capital transferred abroad for outward investment projects, this may lead to a situation in which Vietnam cannot control the volume of foreign currencies flowing out of Vietnam through investment channels,” MPI warned.
Statistics show that the accumulative profit gained from 300 outward investment projects and transferred to Vietnam was a modest $39 million. This means that the profitability of many projects is low, just 0.46 percent for the period of 1989-2010.
Meanwhile, the five big state-owned economic groups (PetroVietnam, Vinacomin, Viettel, Song Da Corporation and Vietnam Rubber Group) have reportedly transferred $1.24 billion abroad to serve their projects. Meanwhile most of the projects still aren’t yielding profits.
vietnamnet, vneconomy
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