Vietnam: A closer view

vcp.com

Vietnam: A lack of capital combined with improving fundamentals for long-term growth.

The global financial crisis significantly reduced capital inflows to Vietnam and thereby, transformed the landscape of Vietnam's capital markets. With the disappearance of "free money," domestic companies are left with the unenviable task of raising capital from a banking system that has reduced lending growth, local private equity funds that are out of money and underdeveloped equity and bond markets.

With Vietnam’s government planning to restart the equitization process of many SOEs, there will be an increasing number of companies looking for capital in a constrained domestic market. Domestic companies will need to reassess their funding strategies and shift their focus to the capital markets and investors abroad.

Despite the recent global economic weakness, investors recognize that Vietnam is one of the most promising areas to invest, due to:

  • 90 million people with a young demographic profile, characterized by:
    1. Very high literacy rate (94%) and high trainability
    2. Abundant workforce—over 70% of population under the age of 40
    3. Increasing urbanization with over 30% of the population living in big cities
  • Political and social stability—one-party government, with no strong religious history
  • Strong growth in GDP per capita from US$1,230 in 2009 to US$1,911 in 2013
  • Commitment from Vietnamese government to supporting and reforming business environment for foreign investors and the private sector
  • Strong FDI historically—with FDI disbursement exceeding US$10 billion in 2013
  • Lower costs than China—companies diversify manufacturing and assembly from China to Vietnam
  • One of the few opportunities to invest in a long-term growth country at attractive valuations

Vietnam’s economy has experienced a fair share of difficulty in the last few years, however, key economic indicators are showing that the fundamentals of Vietnam’s economy are improving:

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