Pledged FDI down, but disbursement goes well

CA - Vietnam’s pledged foreign direct investment (FDI) capital dropped 28 percent year on year to $9.89 billion, while disbursed FDI capital increased 2 percent year on year to $8.2 billion in the first 9 months of this year.

So, it is unlikely that Vietnam would not reach this year's target of $20 billion FDI capital attraction this year, according to newswire Vneconomy.

However, disbursed FDI capital in the same period increased slightly, showing that the improvement of FDI inflow quality is on the right track.

The disbursed FDI capital this year may reach $11-11.5 billion as targeted, said Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.

The country’s FDI capital disbursement was estimated to reach $900 million in September, bringing the total figure in the first 9 months of this year to $8.2 billion.

Vietnam granted investment licenses for 675 new FDI projects with a total pledged capital of $8.23 billion and allowed 178 existing projects to increase the investment by $1.66 billion in January-September.

Statistics also showed foreign investors have been more interested in processing and manufacturing industry, production and distribution of electricity, and construction. The FDI inflow into industry and manufacturing sectors increased 50 percent year on year, while that into real estate and service sector saw a significant reduction.

Licensed FDI projects in Vietnam in January-September were also certified to be capable in potential and performance, said Do Nhat Hoang, head of FIA.

Vietnam targets to draw about $17 billion pledged FDI and $9-11 billion disbursed FDI capitals next year.

FII inflow to fall

38 corporations and 9 largest investment funds from the US headed by JP Morgan have expressed little interests in the Vietnam economy given the current health of its stock market.

If the market’s shortcomings are not addressed in the short- and medium-term, the opportunity for foreign indirect investment (FII) capital may slip away, Le Xuan Nghia, Deputy Chairman of The National Financial Supervisory Committee, told Dau Tu Chung Khoan newspaper.

It is the small scale stock market and its poor quality products that has deterred the US largest corporations from coming up with a specific disbursement plan, Nghia said.

With the impossibility in purchasing listed shares totaling $50 billion and withdraw capitals in a single trading session, the opportunities for big investors were dimmed.

But these investors were not taken by surprise by fact given by Nghia since their initial survey had showed that it was hard to uncover any opportunities in the Vietnam’s stock market.

As a result, since assuming that the improvement in the market scale, liquidity and commodity quality could not be realized in the short-run, they would almost give up plan to purchase listed shares and turn to potentially capitalized large corporations in aviation, telecoms and mining.

However, this opportunity could hardly be realized if only a modest stake proportion of 5-10 percent was allowed to be offered.

It would mean insignificant improvement in post-equitization stage with lower-than-expected business efficiency as well as higher risks due to state-controlling ownership at those joint stock companies, Nghia said.

The proper ratio of stake can be offered to foreign investors would differ, but it should range from 30-40 percent. Prospective investors would also expect equitization to be carried out via listing on the stock market for transparency reason.

Also, the abolition of price management and monopoly should strongly be required during the state-owned enterprises reform process with the application of international standards in corporate management coupled with the orientation of readiness for international competition.

Vietnam would lose a golden opportunity to attract substantial FII particularly given the promising forecast for the US and Europe strong economic recovery starting in 2014 if moving on this way, Nghia said.

Earlier, Truong Dinh Tuyen, former Minister of Industry and Commerce, member of the National Monetary and Financial Advisory Council, has proposed to the Prime Minister that the recent provision on initial public offerings (IPO) with 5-10 percent proportion of stake can be sold out would hardly bolster the reform process of state-owned enterprises due to the failure in supplementation of high quality commodities to the stock market.

As a result, business management improvement along with operational efficiency enhancement would probably beyond the reach.

Unless timely remedies to speed up the capitalization process as well as to increase the stock market scale and liquidity are available, FII capital could hardly be fully absorbed.

Foreign indirect investment into Vietnam's stock market and through purchases of stakes in Vietnamese companies in the January to September period totalled $1 billion, according to Bloomberg.