Business environment
Vietnam promulgated its first Law on Foreign Investment in
1987. In 1994, diplomatic relations with the United States resumed. In 1995,
Vietnam was admitted into the Association of Southeast Asian Nations and was
accorded favored-nation trading status by the European Union. In 2001 a
Bilateral Trade Agreement with the United States took effect. Vietnam became a
permanent member of the WTO on 7 January 2007.
There are almost over 14,000 active foreign investment
projects licensed in Vietnam, and despite the global financial crisis, its GDP
has grown in recent years. Growth in 2010 was 6.78 percent and 6.3 percent
for 2011. Over the past decade, Vietnam has averaged GDP growth of 7.5 percent
a year.
Vietnam is an attractive investment destination to foreign
companies for many reasons. It has a substantial population (over 87 million
people), with the majority below the age of 30, presenting a tremendous
domestic market for goods and services. The country also enjoys a very high
literacy rate of over 90 percent.
In addition, the Vietnamese Government provides investment
incentives to foreign investors in certain industries and where investment is
undertaken in low socioeconomic regions. The industries include certain areas
of technology, biotechnology, education, infrastructure, and agriculture.
Incentives are also available for investment in industrial zones, high tech
zones, export processing zones, and economic zones. Incentives can include long
term low tax rates, import tax, VAT, corporate income tax (CIT) and personal
income tax (PIT) concessions, and concessions for land use fees and rent.
Currency
The Vietnamese Dong (VND) is the national currency of
Vietnam. The Dong is not freely convertible in the international money market.
The exchange rate between Dong and United States Dollars is set daily by the
State Bank of Vietnam (SBV), the Vietnam central bank, and has been devalued
four times since 2009.
United States Dollars are still widely used in the economy,
despite the SBV’s regulations on the circumstances in which they may be used in
trade and business. It is common for those dealing in foreign exchange to offer
better rates for buying US dollars than the maximum authorized rate.
Competition
Monopolies exist in certain sectors, such as electricity
supply and the supply of aviation fuel. In other sectors such as oil
distribution, SOEs dominate the market. Monopolies and market domination are
not prohibited in Vietnam. Competition is increasing although there are
occasions when the need to protect SOEs or Vietnamese companies leads to
obstacles arising when foreign investors try to introduce competition.
The Competition Law 2004 (Competition Law) deals with the
restraint of competition, abuse of dominant market position, economic
concentration and other “unhealthy” anti-competitive practices. It also sets
out procedures for the resolution of anti-competition cases and measures for
dealing with breaches of the Competition Law.
The Competition Law applies to organizations and individuals
conducting business in Vietnam, including enterprises engaged in the production
or supply of public utility products or services, State monopolies and industry
associations.
Price control
Rates for utilities (for example, electricity, water and
fuel) are set by the Vietnamese authorities. Prices of certain key commodities
are regulated by the Vietnamese Government.
Re-organization of State-owned enterprises (SOEs) The
Government has pursued a policy of selling interests in SOEs through a process
known as equalization. This normally involves the allotment of parcels of
shares to long-term strategic investors and to employees. A minority of shares
may be issued on the stock exchange, although the Government maintains a
majority shareholding.
Under the EL, SOEs were obliged to be equitized by 1 July
2010. While many small SOEs have now been equitized, most of them (more than
1,300) have not been.
Rules governing equalization include that:
- the sale of shares to strategic investors (up to three) and
other investors must not be less than 25 percent of the charter capital of the
relevant enterprise
- the sale of shares to other investors must not be less than
50 percent of the 25 percent referred to
- with respect to enterprises on a large scale with State
owned capital above 500 billion VND or conducting business in specialized
sectors and industries (insurance, banking, posts and telecommunications,
aviation, rare mineral exploitation), the ratio of shares auctioned to
investors must be considered and specifically decided upon by the Prime
Minister or competent authority authorized by the Prime Minister.