Vietnam's Enterprises Push Outward Direct Investment

As assessed by the Foreign Investment Agency (FIA) and Ministry of Planning and Investment (MPI), investment outflows have grown at an unprecedented rate thanks to incentives and priorities offered by the Government. Most recently, the Government has promulgated the Decree on Investment Outflows, in which procedures are much simplified. The figure of 249 projects with the total investment value of US$1.39 billion during the past 16 years has partly reflected the strongly increasing trend among domestic enterprises.

 

Leading the offshore investment wave is PetroVietnam National Corporation (PetroVietnam). Last year, the group participated in a power station project in Laos worth US$1.8 billion and still has the ambition of multiplying projects in this neighbouring country in the coming years. Furthermore, enterprises operating in other fields such as agricultural and forestry product processing, informatics, and telecommunications also conduct dynamic investment projects overseas.

 

In 2007 alone, there are 64 outward investment projects with total registered capital of US$391.2 million, up 77 per cent in the number of projects. Of which, the agriculture-forestry-fishery sector occupies the biggest share with 17 projects and capital value of US$156.8 million, equivalent to 40 per cent of total offshore investment capital and 27 per cent of total number of projects. The projects in this sector are mainly cultivation of industrial trees such as rubber and cashew in Laos, of which the biggest project is rubber planting on 20,000 hectares with registered investment capital of US$81.99 million by Vietnam-Laos Dau Tieng Rubber Stock Company. In the second rank is the industrial sector with 23 projects and capital value of US$147.1 million, mainly investing in heavy industry including oil and gas. The biggest project in this sector is the oil and gas exploration and drilling project in Madagascar with capital value of US$117.3 million by the Oil and Gas Development Investment Corporation. The rest is investment in service. The two biggest projects are the trade centre project worth US$30 million in the United States by the Transport Engineering Construction and Business Investment Stock Company 584, and the project on establishing and developing a VOIP-technology telecom network providing telephone and mobile network service worth US$27 million in Cambodia by Viettel.

 

To date, Vietnam’s outward investment projects have operated in 35 nations and territories. Of which, Laos is the nation receiving the majority of projects from Vietnam with 86 projects and total investment of US$583.8 million (accounting for 35 per cent of projects and 42 per cent of registered capital), mainly in the area of thermo-electricity, rubber tree planting, and mineral mining, followed by Cambodia with 27 projects and capital of US$88.4 million, and Russia with 12 projects worth US$48.1 million. Additionally, some big projects in oil and gas exploration and drilling in Africa (Algeria, Madagascar) by PetroVietnam worth US$360.36 million should also be mentioned. Some other countries in Eastern Europe, North Africa, Latin America and the Middle East are becoming appealing investment destinations for many domestic enterprises.

 

Outward investment projects are not only expanding in area but also diversifying their investment structure. While Vietnam’s enterprises used to simply conduct commercial business, they now shift to manufacturing highly competitive products which are accepted by local consumers in other countries. As a result, market share and business of enterprises gradually open up. The industrial sector is leading with 40.16 per cent of total number of projects and 64.3 per cent of registered capital, followed by the agriculture-forestry-fishery sector occupying 21.3 per cent and 20.57 per cent respectively. The rest of investment is poured into the service sector.

 

Some outward investment projects have started to gain efficiency such as PetroVietnam’s oil and gas exploration and drilling projects in Algeria and Malaysia with investment of US$150 million. These projects continue to expand investment size after discovering an oil stream of 5,100 barrels per day in Algeria and another of 3,100 barrels a day in Malaysia. Moreover, several projects are operating effectively abroad like Xekaman 3 hydro-power project in Laos which is building components as planned with total realised investment of US$100 million; projects of growing industrial trees and rubber tree in four provinces in southern Laos by Vietnam Rubber Corporation and Dac Lac Rubber Company worth more than US$60 million; some projects in the service sector by Trung Nguyen Coffee Ltd., Co. in Singapore; or FPT’s software project in Japan.

 

This is the first time Vietnam has undertaken a project boosting investment outflows composed by the FIA. This project will focus on promoting overseas investments from domestic enterprises, particularly in crucial fields like oil exploitation, hydro-power, industrial material tree cultivation and mineral mining. The project will pay much attention to encouraging investment in specific fields and areas of activity, as well as making policies on investment promotion.

 

However, as analysed by a specialist from the MPI, there are two points of view about boosting outward investment. The first argues that investment promotion should not be discussed at this moment in time, since investment outflows are seen as a foreign currency drain. Vietnam should focus on attracting investment inflows. In contrast, the second viewpoint considers investment outflows necessary to expand domestic enterprises’ reach into international markets. In fact, this viewpoint is becoming more appropriate to the situation, especially since Vietnam has joined the WTO and enterprises can fairly compete with overseas firms. In addition, after a long period of renewal and development, Vietnam’s enterprises have had some accrual, and thus are able to invest abroad to meet their growth demand.

 

This issue has been concretised in the Investment Law 2005 valid in July 1, 2006. The guiding Decree No. 78 also gave more space for outward investment activity. The FIA pointed out that as domestic enterprises’ financial potential keeps increasing together with economic growth, they will naturally expand exporting markets and strengthen economic and technical cooperation. As a result, outward investment is their first option. It is expected that in the next few years (2008 – 2010), offshore investments of domestic enterprises will make annual increases of US$500 million on average. A number of projects are being negotiated and actively carried out in such fields as oil and gas in Southeast Asia and Africa; electricity in Laos and China; mineral mining in Laos; telecommunications in Laos, Cambodia, Hong Kong, Singapore and the United States; transportation in Singapore, Hong Kong and Russia; and exporting and importing business, and commerce in the United States, EU, Japan and China. These activities prove the diversification of investment outflows which have become a new trend for domestic enterprises.