1. The summary of Vietnam’s outward investment after 20 years

By February 2011, Vietnam invested in 575 projects and 55 nations and territories in the world with total registered capital of more than 23.7 billion USD of which enterprises’ capital was more than 10 billion USD. This indicates Vietnam’s enterprises’ competitiveness and growth, reflecting the change from segmented production scale and backward production methods to strategic and modern ones after 2 decades of development, contributing to bring Vietnam’s products and brands closer to the world market.

On reviewing the whole course, Vietnam’s outward investment has 3 main phases:

Phase 1 during 1989-1998: small and segmented. Before the Decree No. 22/1999/NĐ-CP on April 14 1999 by the Government on overseas investment regulations, Vietnam’s enterprises invested in 18 projects abroad with total registered capital of more than 13.6 million USD, whose average scale was 0.76 million USD. The reason for outward investment in this time was enterprises’ imperatives. Early in the 1990s, Vietnam’s inward FDI continuously increased, especially in textile and garment sector, while the export quota led to overcapacity. Besides, such policies as “forest close”, prohibition of inshore fisheries to preserve natural resources and environment also affected enterprises in processing and consumer goods sectors. Thus, in order to make up for the shortage, some Vietnam’s enterprises expand their business to neighbor countries. Pioneers in this activity were private companies in localities which share the same boundaries with Laos and Cambodia, on the basis of bilateral cooperation agreements between 2 countries.

Phase 2 during 1999 – 2005: big change in quantity and quality. Vietnam had further 131 outward investment projects with total registered capital of over 559.89 million USD, up 7 times in terms of project number and 40 times regarding registered capital from 1989 – 1998; average capital per project was also up high at 4.27 million USD/project.

This progress was thanks to the Decree No. 22/1999/NĐ-CP and other instructional documents by the Government, marking the milestone for legal basis of Vietnam’s enterprises overseas investment, creating conditions for this activity to be effective.

Besides, in 2005, the Government proposed to the National Assembly to legitimize outward investment activity which became effective in July 2006, including enterprises outward investment. After that, the Decree No. 78/2006/NĐ-CP by the Government on September 09 2006 on Instructions for Implementation of Investment Laws 2005 with 4 main targets: i) suitability for realities; ii) clearer and more specific regulations; iii) State management efficiency enforcement; and iv) administration procedure simplifications. The Decree No. 78/2006/NĐ-CP also regulates that investors and enterprises of all sectors (including foreign invested enterprises) can invest abroad and have their own responsibilities in their business, can choose or change management methods and investment methods most suitable to them and protected by Vietnam’s laws; minimizes unreasonable and unnecessary regulations against the principle of free business, troublesome to investment activities, and with commitments in bilateral and multilateral agreements taken account of, especially the principle of national treatment and most favored nations. Besides, the Decree also regulates the possibilities of governmental departments to investors and enterprises, instructs the implementation of that relation and provides measures when there is violence on either side (investors or governmental departments and staff).

Thus, thanks to Investment Laws 2005, the legal frame of overseas investment was more complete; also, the Decree No. 78/2006/NĐ-CP on August 9 2006 on outward investment replaced the Decree No. 22/1999/NĐ-CP; investment procedures, meanwhile, are regulated specifically and simply in the Decision No. 1175/2007/QĐ-BKH on October 10 2007 by the Ministry of Investment and Planning.

Phase 3 from 2006 till now: booming. Since September 9 2006 (one day after the Decree No. 78/2006/NĐ-CP was issued) unti the end of 2007, Vietnam’s enterprises invested in 100 overseas projects with total registered capital of over 816.49 million USD; though the number of projects equalled 76%, capital volume increased nearly 1.5 times, and average capital per project rose nearly 2 times compared with the phase of 1999 – 2005, at 8.16 million USD/project. This trend continued strongly in 2008 with total registered capital of more than 3 billion USD for 113 newly approved projects and 10 capital increasing projects.

In 2009, due to the global economic recession, initial investment plans were cut down with expected capital of about 2.8 billion USD. But fact went differently from forecasts when Vietnam’s enterprises saw this as a chance to expand markets and seek for new investment opportunities. As a result, in 2009, overseas investment of Vietnam’s enterprises reached 7,2 billion USD for 457 projects both newly approved and capital increasing in more than 50 nations and territories, equivalent to 143% of plan and 214% compared with the course of 1989 – 2008 regarding the volume of capital. This was a positive result in the context that global FDI sharply dropped under the impacts of economic recession followed by the massive collapse of companies. This was attributable to the lagging effects on Vietnam’s economy of world and regional economy’s impacts, though Vietnam’s economy was quite open regarding trade proportion.

In 2010, the number of approved projects strongly declined compared with the year 2009 with only 107 projects and registered capital only reached 2.926 billion USD, nearly equal to that in 2008, with about 900 million USD realized. But this was considered as a great effort of Vietnam’s enterprises, especially when global economic downturn placed us before sizable challenges for development due to high inflation and the imperative of restructuring toward sustainability and effectiveness instead of increasing capital and cheap labor as before.

Table 1: VIETNAM’S OUTWARD INVESTMENT ACCORDING TO PHASES

Source: Foreign Investment Agency, Ministry of Investment and Planning.

However, domestic market is becoming narrower due to the presence of many companies from all over the world, the scarcity of a range of inputs, plus high transportation costs caused by unpredictable oil price and tariff barriers (technical and non-technical). Consequently, so as to quickly and effectively penetrate into a market, outward FDI is the first choice of enterprises. Thus, in the first 2 months of 2011, while the domestic economy encountered many problems, Vietnam’s enterprises invested overseas more than 1.26 billion USD into 16 projects; though 300 million USD lower than the inward volume in the same period, that was 93 times higher than that in the phase of first 10 years when we started to invest abroad. Meanwhile, total outward volume in the period 1999 – 2005 equals to only about 58% of registered capital in the first 2 months 2011. Notably, average capital per project was raised much higher than before, at 79 million USD/project, while that of inward FDI projects into Vietnam in the same period was only 14,6 million USD/project.

This boom, in our point of view, was thanks to increasing financial capacity and managerial experience of enterpises after a long time of accumulation, while not to forget the catalytical role of the Scheme “Promoting Vietnam’s outward investment” approved by the prime minister in February 2009 which determines investment priority sectors and immediate supports for investment actitivity abroad. This is considered as the “launch base” for Vietnam’s enterprises to integrate into the international market with strategic scale and vision. Besides, while in early stages, this activity happened quite spontaneously with the participation of mostly small and medium sized enterprises or private companies canvassing such as Sacombank or Hoang Anh Gia Lai, in some three years now, large State economic groups have become the leaders in expanding to markets beyond Vietnam’s border. Investment capital of 5 groups only: Petro Vietnam, Vinacomin, Rubber, Viettel, Song Da Corporation accounted for up to 67% of total volume abroad of all economic sectors.

2. Flow direction of Vietnam’s outward investment

Regarding invested sectors

Vietnam’s investment abroad (regarding capital volume) concentrates in mining or energy with some projects of more than 100 million USD, for instance the Xekaman 3 Hydroelectricity in Laos with total investment of 273 million USD, petroleum exploration and exploitation project in Algeria with 243 million USD, or that in Madagascar with about 117 million USD…. Second important sector is agriculture – forestry – fishery, the strength of Vietnam’s enterprises, or agricultural products such as fertilizer. Among projects in this sector, most noteworthy is the cooperation between the PetroVietnam Fertilizer and Chemicals Joint Stock Company (PVFCCo) under the PetroVietnam and the Office Cherifien des Photphates (OCP) in Casablanca, Morocco for a project of 600 million USD to establish a plant for manufacturing DAP and Amonia fertilizer which will be supplied to Vietnam’s and regional market. This is considered as the most considerable investment project abroad of Vietnam so far. Besides, there are a number of small and medium – sized projects for planting rubber or industrial trees in Laos and Cambodia. Manufacturing and services abroad also attracts Vietnam’s investment with increasing number of projects and volume of capital. Examples are the project of Viettel Group in Cambodia with the capital of 27 million USD into mobile network, and Viet So Investment Joint Stock Company (VSI JSC) with a project whose value is 35 million USD for building rent offices in Russia…. Projects in other sectors such as art and entertainment, finance and banking, real estate, wholesale and retail, warehouse and yard… are also invested by Vietnam’s enterprises (See more in Table 2). Recently, 3 projects only in electricity production and distribution, water supply, air conditioner accounted for up to 97% (about more than 1.2 billion USD) of total outward volume in the first 2 months of 2011.

Note: Others include healthcare and social supports; accommodation and food and drink; construction, transportation and warehouse; education….

Source: Foreign Investment Agency, Ministry of Investment and Planning.

Regarding localities

Besides strengthening and maintaining their operations in traditional areas in Laos, Cambodia, Russia, Algeria, Vietnam’s enterprises also started successfully in new markets highly competitive and tech-savvy as well as capable of project implementation and management in the US, Japan, Hong Kong, Taiwan – currently leading investors in Vietnam, or Latin America countries such as Venezuela, Cuba, Peru, Africa and Middle East countries such as Mozambique, Iran, Iraq….

By the end of the year 2010, Laos attracted the most FDI from Vietnam with 195 projects and 4 million USD of capital, followed by Cambodia and Venezuela (See more in Table 3). However, basing on recent happenings, Cambodia is emerging as the number 1 candidate to attract Vietnam’s enterprises when enterprises of both countries signed a cooperation agreement with value of up to 6 billion USD.

3. Prospects in the next 5 years

It is forecasted that in the coming time, investment among developing countries will continue to increase through greenfield investment or M&A. Sectors of interests remain mining, manufacturing, banking, hospitality, wholesales, retail …. This has its roots in the imperatives of emerging markets where booming growth prolongs and new inputs must be found. Outward investment is also the quick way to circulate capital when competition is tough and labor is no longer cheap as before in the domestic market, or simply to amortize the rest of production lines of no or little benefit when operating at home. Vietnam is a later comer as international investor, yet is no exception. According to the assessment of the Foreign Investment Agency, Vietnam’s enterprises’ investment will be booming in the next 5 years with expected average capital increase of 500 million USD per year. State economic groups such as PetroVietnam, Vinacomin, Viettel, EVN, Bank of Investment and Development (BIDV), Song Da Corporation … will remain the key flows of Vietnam’s capital into the world.

The presence in highly demanding such as Japan and US is encouraging, reflecting the confidence and maturity of Vietnam’s enterprises, yet developing markets in Asia, Africa, and Latin America are the real strategic destinations of Vietnam’s enterprises. Beside the countries we are now present, there are a number of other potential markets which have good relations with Vietnam such as Myanmar, Mongolia, the Central Asian states of former USSR, Caribbean countries or capital-thirsty area in Western and Central Africa now in need of capital from Vietnam.

[1] Until February 28 2010