BUSINESS IN BRIEF 1/2

Russia suspends Vietnamese Tra fish imports

Russia’s Federal Service for Veterinary and Phytosanitary Surveillance (VPSS) has decided to halt importing Tra fish and other aquatic products from 7 Vietnamese businesses as of January 31, 2014.

Nguyen Nhu Tiep, head of the Vietnam National Agro-Forestry-Fisheries Quality Assurance Department (NAFIQAD), said though the Russian side has yet to send an official document to Vietnam, Russian media said its customs agency was required to refuse Vietnamese Tra fish consignments, starting late January.

In December 2013, the VPSS made an inspection tour of 8 processors, two farms and two laboratories of 8 export businesses in HCM City and the Mekong Delta. They found most farms and businesses did not meet Russian specifications for fish imports.

Tiep revealed most Vietnamese Tra fish exporters, plus those under a 2013 Russian ban, have failed to win a license to ship their products to this market.

He said Vietnam has met global quality standards including GlobalGAP and ASC of various markets, and Vietnamese businesses strictly adhere to these regulations.

He admitted that Russia’s import procedures are complex, and the number of Vietnamese businesses eligible to export products to Russia has remained unchanged for the past four years.

Tiep reminded Vietnamese businesses to improve product quality rather than quantity.

VietJetAir to finalise US$6.1 bln deal with Airbus

Low-cost airline VietJetAir’s executive Luu Duc Khanh announced that the company is competing a US$6.1 billion deal with Airbus to  purchase 62 aircraft at a Singapore Airlines Show next month.

VietJetAir and Airbus signed a letter of intent last September to buy 62 A320 aircraft and is likely to order an additional 30 planes.

The budget airline became operational in late 2011 and is Vietnam’s first private airline to conduct both international and domestic flights. At present, the carrier flies to 11 destinations in Vietnam and Bangkok (Thailand).

Last year, VietJetAir received its ninth A320 aircraft under a lease purchase contract. The airline has plans to expand its fleet by purchasing 14 A320s and 42 A320Neos by 2015, as well as six other  A321s accommodating 220 passengers.

PM approves equitisation scheme of Vinamotor

Prime Minister Nguyen Tan Dung has recently approved the equitisation plan of the Parent Company – Vietnam Motors Industry Corporation (Vinamotor).

Accordingly, Vinamotor will be equitised with a charter capital of VND1 trillion (US$47 million), gaining the enterprise registration certificate and its own seal. The company is allowed to open bank accounts in line with the law and operate in accordance with the Enterprise Law.

Vinamotor inherits the rights, duties and legal interests existing before the restructuring and will continue its business operation in the current fields and industries of the Corporation.

For the equitisation of Vinamotor, part of the State capital is to be sold and more shares will be issued to increase the charter capital.

According to the equitisation scheme, 100 million shares, worth VND10,000 each, will be issued, 48.5% of which is State-owned while another 1.5% is preferentially sold to enterprises’ workers and trade unions. The remaining 51% will be publicly sold by auction.

The Prime Minister has entrusted the Minister of Transport to represent the State capital in Vinamotor and to decide the initial auction prices of the shares.

Purchasing power sees threefold increase during Tet

Director of Saigon Co.op Mart’s marketing department Vo Hoang Anh predicts purchasing power will triple in the remaining days of the lunar year.

The price of commodities including vegetables and fruits has remained stable, he added.

Supermarkets in Ho Chi Minh City open all day and mobilize more staff to meet growing customer demand.

On lunar December 29 and 30 supermarkets offered 5-10% discounts  on chickens, duck eggs, pork and Chung (Square cake).

Big C supermarket representatives have forecast that purchasing power will  pick up  in the next few days, especially fresh seafood.

At Lottemart, the purchasing power grew by 10-15% over last year’s same period. The group of products which saw sharp increases include fruit, candy, alcohol, chemicals and fashion products.

In the next few days, the consumption of fresh items such as meat, eggs, vegetables and fruits will rise by 25%-35%.

Supermarket systems and enterprises are offering a series of discounts and promotions to stimulate domestic consumption as the lunar New Year holidays are coming near.

Seafood exports likely to exceed US$6.7 billion in 2014

The Ministry of Agriculture and Rural Development (MARD) reports January’s seafood export turnover was valued at US$552 million, representing a year-on-year increase of 13.9%.

The Vietnam Association of Seafood Exporters and Producers (VASEP) said seafood exports beat set targets to earn US$6.7 billion in 2013, up 9.6% on a year earlier.

The impressive result is largely thanks to the US$3.1 billion in shrimp industry revenue.

China became Vietnam’s fourth largest shrimp and seafood importer with purchases growing by 49% and 37% respectively.

VASEP believes that provided shrimp exports stay above US$3 billion,  seafood exports in 2014 are likely to better last year’s totals.

Recovering international demand will buoy fish, squid, octopus, and other seafood exports.

The US is still Vietnam’s leading seafood importer, accounting for 21.26% of the market, followed by Japan (16.21%) and South Korea (7.44%).

Vietnam Experiences Increase in Starter Companies

The Ministry of Investment and Planning reported an increase in starter companies in January 2014.

Compared to December 2013, regions around the country have experienced a drastic increase in starter companies.

The Mekong Delta increased 48.6 percent, Red River Delta increased 9.9 percent, the midland and mountainous areas increased 11.8 percent, the north central and central coastal provinces increased 29.1 percent, the highlands increased 6.7 percent, and the southeast areas increased 11.6 percent.

About 6,900 new companies set up with total capital of VND43,700 billion (US$2 billion), an increase of 15.7 percent.

This is an increase of 11.5 percent of capital for starter companies since December 2013.

The figure of starter companies increased by 27.7 percent with a 79.5 percent increase in capital compared to last year’s.

The report estimates 2,400 firms reopened in January with 648 companies in the Red River Delta and 951 companies in the southeast area.

Endeavour to boost economic restructuring

One of the key tasks for 2014 is focused on equitizing State-owned enterprises (SoEs) to push up economic restructuring.

Prime Minister Nguyen Tan Dung has described arranging leaders and managers in their right positions as a decisive factor behind the success of failure of the economic restructuring process.

Dung stressed that it is imperative to replace those who are incapable in restructuring the economy and withdrawn investment capital from areas outside the core businesses of state-owned corporations and economic groups

He said the government’s implementation of plans to restructure the entire economy has remarkably improved the economy at both macro and micro levels. But generally, Vietnam’s socio-economic development is still facing many challenges, particularly a slow growth rate.

At a Vietnam Development Partnership Forum in Hanoi, the Government leader reiterated the government’s determination to intensify economic restructuring, creating an impetus for Vietnam’s sustainable development in the future.

Dung said the Vietnamese Government will continue economic restructuring and revising the growth model so that the national economy can enjoy higher competitiveness and develop sustainably.

“We’ll muster our strength to fulfil key missions, stabilize the macro-economy, control inflation, maintain the growth rate to ensure GDP growth of 5.8% in 2014 and 6% in the following year, and continue to stabilize the exchange rate and maintain export growth.”, he said.

In 2013, the Vietnamese government focused its economic restructuring master plan on improving institutions and policies and reforming the growth model. Top-priority fields included public investment, financial and credit organizations, and state-owned enterprises.

Transport Minister Dinh La Thang said the current difficult period is a chance to eliminate weak businesses which fail to compete in the new economy.

There should be a close coordination in managing the financial, monetary and fiscal policies to ensure credit growth, allocate monetary in a reasonable manner and speed up the progress of disbursement.

2013 is the first year the Ministry of Industry and Trade has implemented a government resolution on restructuring state-owned corporations and economic groups.

Industry and Trade Minister Vu Huy Hoang says his ministry has implemented the government’s directive to restructure enterprises and ensure the rights and responsibility of the state owner in economic groups, corporations, and companies under the Ministry’s management.

The efforts have initially improved the efficiency of state-owned enterprises. To date, about 80% of SOEs have made profits totalling 33% of GDP.

Regarding investment restructuring, especially public investment, the government has directed the adjustment and allocation of investment capital for key projects and counterpart capital for ODA-funded projects. Control has been tightened for newly-launched projects while scattered investment has gradually been eliminated.

A mechanism of investment management decentralization is being improved to increase responsibility of provincial authorities and investors while private investment is enhanced. So far, the level of non-state investment has increased to 62.6% in the 2011-2013 period from 61.3% of 5 years ago.

Initial results have been recorded in implementing comprehensive measures to restructure credit institutions. Weak banks have been restructured. Four state commercial banks have been equitized. Bad debts have gradually been checked, with the monthly rate increasing by 2.5% over the past 8 months, a remarkable decline compared to the 3.9% level of the same period last year.

Looking back on progress made in 2013, Planning and Investment Minster Bui QuangVinh highlighted the Government’s efforts to keep a check on inflation, keep price index lower, stabilize the macroeconomy and ensure goods supply-demand.

Total State budget revenue in 2013 is estimated at VND798,000 billion, meeting 96.9 percent of yearly estimates and up 6.4% from the previous year.

Meanwhile total budget spending hit more than VND986,000 billion, fulfilling 100.8 percent of yearly estimate, a 8.9% improvement on a year earlier. Budget overspending is equivalent to 5.3% of GDP.

Public investment, government outstanding debts, foreign debts were within in safe limits. In addition, VND interest rates has seen steep falls, bringing interest rates on mobilized loans down 2-3 percent year-on-year and lending interest rates down 3.5 percent, equivalent to the levels recorded in the 2005-2006 period.

PM Dung has stressed human factors is crucial to the fulfilment of all tasks for 2014, requiring greater efforts to scrutinize cadre selection and human resource training.

Vietnam-ASEAN trade turnover down

Vietnam’s import-export turnover with  ASEAN member states dipped in 2013 compared to the prior year but still maintained a positive growth rate.

Specifically, the export-import growth rate with ASEAN soared by 19.4% in 2010, 28.8% in 2011, 9.4% in 2012, and 3.5% in 2013.

Export turnover to the market hit US$18.47 billion in 2013, a year-on year increase of 4.4% and imports were US$21.64 billion, up 2.7% over 2012’s figure.

Two groups of commodities took the lead with export sales of US$4.42 billion, up 47.2% including telephones, computers, and electronics and components.

However, some commodities dropped remarkably in export turnover including rice (down 51.3%) and crude oil (down 14.4%).

Rice exports to the Philippine and Indonesian market experienced a sharp slump in 2013.

Vietnam – South Asia 2013 trade turnover reached US$6.2 billion

Viet Nam’s total trade turnover with countries in South Asia last year reached US$6.2 billion, posting a 30 per cent increase over the previous year.

Figures from the Ministry of Industry and Trade’s market department for Africa, West Asia and South Asia showed that bilateral trade between Viet Nam and the region had a higher growth rate than others.

Viet Nam’s export turnover to the region was estimated at $3.25 billion, increasing 35 per cent against 2012′s imports worth $2.95 billion, representing a 20 per cent year-on-year increase.

In the region, India was Viet Nam’s largest trade partner, with an average export turnover growth rate of 40 per cent in the past five years. Since the signing of the ASEAN-India Trade in Goods Agreement (AITIG), the two countries’ trade turnover saw a continuous increase.

Viet Nam’s key exports to India have been diversified with increased value.

Vietnamese industrial products including telephones, spare parts, machines, computers, electronics and their accessories accounted for a high percentage of exports to India.

The total export turnover of these products last year was $1.5 billion, accounting for 70 per cent of the country’s total exports to India.

Export turnover to Pakistan also saw an average rise of 20 per cent per year in the period 2011-12. Pakistan mainly imported tea, pepper, seafood, cashew and steel from Viet Nam, with turnover of $181 million, increasing 4 per cent in comparison with the year 2012.

Pakistan’s exports to Viet Nam saw a 34 per cent decline over the previous year as Viet Nam reduced imports of products that serve the garment and textiles, leather shoes and cotton industries.

Statistics from the General Department of Customs also revealed that last year’s total bilateral trade turnover between Viet Nam and Sri Lanka had reached $155 million.

Viet Nam’s staple exports to the country were cotton, rubber, electric cables, mobile phones and spare parts. Its imports included cattle food, materials for making leather shoes, and pepper.

For Bangladesh, Viet Nam’s total export turnover last year was more than $500 million, surging 42 per cent over 2012. All of the exported items including cotton, garments and textiles, machines and spare parts saw an increase in the growth rate.

However, investment co-operation between Viet Nam and the region was still limited in comparison with other regions.

By the end of last year, India had 77 projects invested in Viet Nam, with total capital of $250 million, while Sri Lanka had 9 projects; Pakistan, 10 projects; and Bangladesh, 2 projects.

Vietnamese businesses invested in only three projects in India, with total capital of $860,000, and invested in one project in Bangladesh.

Viet Nam and countries in the region have targeted strengthening their multi-faceted co-operation efforts in the future to better exploit their full potential.

PM approves Bac Bo Economic Zone’s development plan

The northern Bac Bo (Tonkin) Key Economic Region will be developed into a system with core and satellite urban areas to motivate the development of neighbouring regions.

This follows the signing of Decision 198/QD-TTg by Prime Minister Nguyen Tan Dung last Saturday regarding the master plan of the economic and social development of the Bac Bo Key Economic Region by 2020 with orientation until 2030. The plan aims to increase the role of the region as a political, economic, cultural, scientific and technology centre of the country.

Accordingly, the urban areas of Bac Ninh, Vinh Phuc, Ha Long and Hai Duong will be the development poles in the system, while Son Tay, Tu Son, Xuan Mai, Chi Linh, Cam Pha, Uong Bi and Mong Cai will become satellite urban areas.

The economic region will have two sub-regions, namely Hanoi Capital Sub-region and the Coastal Sub-region. The Hanoi Capital Sub-region includes Ha Noi and the neighbouring provinces of Vinh Phuc, Bac Ninh, Hung Yen and Hai Duong. The Coastal Sub-region has Hai Phong City and Quang Ninh Province, including the sea, coasts and islands.

The Prime Minister’s decision also sets a target that by 2020, the per capita income in the economic region will be US$5,500. The industrial construction sector is expected to take the lead by accounting for 49.1 per cent of the region’s growth, followed by the services sector at 45.4 per cent and the agricultural, forestry and fisheries sectors at 5.5 per cent. Exports will account for 32 per cent of the Vietnamese exports. .

The region will focus on developing and enhancing the capacity and role of sectors having advantages and competitiveness such as electronics, information technology, telecommunications, mechanics, ship-building and repair, high-quality steel and new construction material, chemicals and pharmaceuticals, food processing, garments and textiles. Priority will be given to industries which have high-quality techniques, low emissions and ecofriendly practices.

By 2020, the region will strive to have 80 to 85 per cent of trained labourers and 80 per cent of communes having national medical standards. The number of poor households is expected to decrease by 2 per cent every year, while the per capita income of the poor will increase by 2.5 to 3.5 per cent every five years.

Aviation market reaches for the skies

Despite facing fierce competition from rivals and economic uncertainty, Vietnam Airlines is taking substantial steps to expand its network.

Vietnam’s aviation market seems set to grow for the forseeable future with greater competition to the national flag carrier Vietnam Airlines likely to come from budget operators.

Vietnam Airlines officially opened a new air route between the northern central city of Vinh and the Laos capital of Vientiane on January 12 using ATR-72 jets on the four flights a week schedule.

The new route was the first of this year, making it the 93rd air route Vietnam Airlines is currently operating, including 29 international and 21 domestic destinations.

This year, Vietnam Airlines plans to open at least three more routes from Hanoi and Danang to Tokyo and from Hanoi to Hong Kong, the airline’s chairman Pham Viet Thanh said in a report sent to the Ministry of Transport late last year.

In addition, it will increase the frequency of flights from Ho Chi Minh City to Tokyo, Hanoi to Fukuoka and from Ho Chi Minh City to Beijing and Shanghai.

The national flag carrier will also add Danang – Can Tho service to its domestic network, cementing its position as the biggest player in Vietnam’s domestic aviation market.

The news underlined Vietnam Airlines’ confidence, despite the severe effect of the global economic recession, and points to the company’s ambition to become one of the largest airlines in Southeast Asia.

The flag carrier’s success marks huge progress from its founding back in 1956, when the government established the Vietnam Civil Aviation Department. The forerunner to Vietnam Airlines operated domestic flights with only five aircraft.

In April 1993, Vietnam Airlines was officially established as the country’s national flag carrier, opening a new chapter for the state-owned carrier.

Since the implementation of the doi moi economic reforms in 1986, Vietnam has become one of the fastest growing economies in the world, providing the context for increased business and leisure travel.

Last year, Vietnam Airlines carried 14.7 million passengers on domestic and international flights and accounted for 40 per cent of international traffic entering the country by air and 61.4 per cent of domestic air travel.

The airline’s revenue in 2013 reached VND54.1 trillion, or $2.57 billion, and although revenue was 1.9 per cent behind the annual target, profits increased 62.4 per cent, reaching VND140 billion or $6.6 million.

Vietnam Airlines chairman Thanh said the result reflected the diversification in business operations, improved efficiency and the gains made possible by a restructured workforce. Vietnam Airlines also sold 24 million Techcombank shares last year.

“We will continue to divest from non-core businesses in line with our approved restructuring plan,” said Thanh, referring to its additional divestments from the Bao Minh Insurance Corporation.

In line with the carrier’s plans to further expand its network, Vietnam Airlines has also increased its fleet.

From five planes in 1956, the airline now has 82 aircraft including modern Boeing 777s, and Airbus A321, A320s combined with smaller ATR-72s which mainly serve the domestic market.

Vietnam Airlines’ expansion plans became more ambitious when it signed a range of record breaking contracts with Boeing and Airbus from 2005 to 2008.

Vietnam Airlines purchased four Boeing 777s and put the aircraft into operation in 2009 and 2010.

The airline and the Vietnam Aircraft Leasing Company two years later signed a memorandum of understanding with Boeing for the order of 12 next generation 787-8 Dreamliners.

The first aircraft will be delivered next year, while just last October, Vietnam Airlines signed a contract to buy 40 engines from General Electric, which will be installed on its ordered Boeing 787 Dreamliners.

The airline has also ordered 10 new generation A350-900 aircraft and 20 Airbus A321 aircraft from Airbus. Thirteen of them have been delivered.

“The airline expects to operate 101 and 150 modern aircraft in 2015 and 2020, respectively, taking solid steps integrating into the global aviation industry as a leading regional carrier,” Vietnam Airlines states on its website.

Although Vietnam Airlines is currently the biggest player in Vietnam’s aviation market, it still faces competition. Several years ago, the state-owned airline accounted for over 80 per cent of domestic market. But now, the fledging low-cost carrier VietJetAir is emerging as a rival.

Vietnam Airlines revealed in a report to the Ministry of Transport that its domestic market share had reduced from 68.7 per cent in early 2013 to 61.4 per cent at the year end. In terms of the domestic and international market, its market share had declined 2.7 per cent.

“The competition in Vietnam’s aviation market is becoming fiercer. This is a challenge,” said Thanh.

The biggest challenge comes from the growth of low-cost carriers. In the domestic market, Vietnam Airline faces the challenge of VietJetAir which last year announced an ambitious plan to buy and lease 100 Airbus aircraft by 2022 to serve its network expansion. Across the Southeast Asian region as a whole, Vietnam Airlines statistics showed that low-cost carriers had grown 20 per cent within 2013 and accounted for 50 per cent of market share.

Meanwhile, the increasing expansion of foreign airlines to Vietnam is pressuring Vietnam Airlines in terms of the international market. “The network expansion of Middle Eastern airlines such as Emirates, Etihad and Qatar has put pressure on European and Asian airlines, including Vietnam Airlines,” said Thanh.

However, the outlook is not so grey for Vietnam Airlines. Thanh said huge opportunities awaited as the economy continued to grow and Vietnam was luring increasing numbers of foreign investors, while tourist numbers seemed to be growing.

In addition, an equitisation roadmap has been mapped out for this year as the airline plans to sell a 30 per cent stake to a foreign strategic partner and private investors. The equitisation is expected to make Vietnam Airlines more competitive. The initial public offering plan is now under the consultancy of Citigroup, Morgan Stanley and two other Vietnamese firms.

Thanh claimed the airline would take the initiative to adjust its business plan and improve service quality to four-star standard by 2015 to make it more competitive.

VSIP Haiphong gears up for early year FDI inflows

A rash of large scale investment projects at the outset of 2014 has many hoping that the year will yield a bumper crop of foreign direct investment to Vietnam.

Over a week ago, Huynh Quang Hai, a member of VSIP Group’s board of directors received a revised investment certificate to raise the total investment capital of the Vietnam-Singapore Industrial Park Haiphong (VSIP Haiphong) from $145.9 million to $268.2 million.

“We have increased investment for scope expansion and to improve the infrastructure as we prepare for a new wave of investment in the park,” said Hai.

Hai revealed that many investors, including some in urban zone development, have worked with VSIP Haiphong to lease land and open production facilities.

VSIP Haiphong was set up in January 2010 and includes an industrial park (IP) and urban zone. Big foreign investors such as Japan’s Kyocera and Fuji Xerox have settled down in the park.

“We have grown into one of the leading IPs in the north. It is the right time for us to expand to match our burgeoning development needs,” said Hai, adding that the IP’s total area would increase from 468 hectares to 748ha after the expansion.

In the northern province of Vinh Phuc, another investment hotspot, early January this year saw Korea-backed Sindoh Vina become the first foreign investor licensed to do business in the province through a $30 million project to manufacture office equipment. The project is slated to be commissioned from January 2015 employing around 500 staff.

“We chose Vinh Phuc because the province has a good investment climate and favourable geographical location. More importantly, the provincial authorities showed their commitment to upholding investors’ rights,” said Sindoh Vina member of the Hwang Joon board of directors.

On January 14, Vung Ro Petroleum and the Rockefeller family-backed Rose Rock Group signed cooperation agreements to develop a luxury resort community in the central coastal province of Phu Yen’s Vung Ro Bay. The project has an estimated investment capital fund of about $2.5 billion.

“We are extremely excited to be embarking on this mega project and are very pleased to be working with Rose Rock Group, a strong and reliable partner who will help us to ensure the success of this development,” said Kirill Korolev, chief executive officer and general director of Vung Ro Petroleum. “Our plan is to create a vibrant community for Vung Ro to make the most of the area’s natural beauty and provide a world class destination for discerning residents and visitors.”

Other provinces have also reported granting investment certificates to scores of foreign invested projects in the first month of 2014.

New law sets definition for ‘foreign investor’

A draft investment law clarifying the definition of a foreign investor in Vietnam, aims to improve the investment environment for foreign firms here.

The draft, discussed last week by the Ministry of Planning and Investment (MPI) and the drafting team, defines a foreign investor as an individual with foreign nationality, or an organisation established overseas and operated under overseas laws.

A foreign investor also includes enterprises established in Vietnam with 50 per cent of charter capital held by a foreign individual or organisation, or when 50 per cent of its members are foreign individuals, organisations, limited liability companies or partnership companies.

“The definition of a ‘foreign investor’ is an important foundation for applying investment conditions and procedures to foreign investors. This concept wasn’t clearly defined in the existing Investment Law issued in 2005. This has made it difficult for authorised agencies to apply investment conditions and procedures, salary schemes and land use to foreign investors and enterprises,” said Minister for Planning and Investment Bui Quang Vinh.

Under the existing Investment Law, a business entity would be referred to as a foreign invested enterprise if a foreign investor buys just 1 per cent of its share capital.

Additionally, Decree 102/2010/ND-CP, guiding the implementation of the law, regulated that only enterprises with foreign capital ownership surpassing 49 per cent are required to apply foreign investor investment and operations conditions, and follow the investment procedures applicable to foreign investors.

The lack of clarity led to new enterprises with less than a 49 per cent foreign investor stake being rejected in many cities and provinces across the country.

One victim of conflicting definitions was Mekophar Chemical Pharmaceuticals. Being 4.7 per cent foreign owned, the firm was classified as a foreign firm and it decided to delist from the stock exchange in July 2012, as foreign firms are barred from distributing and selling drugs in Vietnam.

According to the drafting team of the new law, the new minimum stake cap for foreign investors would enable them to enjoy similar investment conditions as locals.

“However, if they are considered truly foreign investors, they will be subject to strict regulations in doing business. For example, if they want to open more than one retail outlet, they will have to fulfill a number of procedures, which is not the case for locally-owned enterprises,” said a drafting team member.

Vinh said the MPI would seek feedback from local and foreign enterprises in Vietnam about the new foreign capital ownership definition.

A US-backed Hanoi-based investment consultant firm representative told VIR that Vietnam’s investment-related regulations, including this new foreign capital ownership cap, were theoretically good. However, implementation of such regulations was another problem.

Her firm has been trying to bring US investors and enterprises into Vietnam, but without success. “US investors are also concerned over a series of obstructions in Vietnam, such as cumbersome investment procedures, weak infrastructure, and unclear policy in attracting foreign direct investment,” she said.

Draft amendments to the Investment Law will be discussed by the National Assembly in May 2014 and expectedly adopted in November 2014.

Risk warnings on NPLs persist

While the State Bank and commercial banks have attempted to tackle non-performing loans, the risk of bad debts increasing in the future remains.

According to State Bank figures, by the end of 2013 the ratio of non-performing loans (NPLs) in the banking system fell to 3.79 per cent, down 1 per cent on the beginning of last year.

According to director of the State Bank Governor’s Office Le Duc Tho, this was the result of commercial bank efforts to actively review and restructure their loans. The Vietnam Asset Management Company (VAMC) also contributed by buying VND40 trillion ($1.9 billion) from credit institutions last year.

Tho said that VAMC was expected to buy more than VND100-150 trillion ($4.7-7.1 billion) worth of NPLs this year. The State Bank would also attempt to speed up its involvement, and keep a close watch on potential bad debts from growing. “Commercial banks are not allowed to conceal bad loans or falsify credit quality,” he noted.

Tho also encouraged foreign investors to buy NPLs from VAMC, which would provide funds to repay the debts to credit institutions.

Some 35 credit institutions have sold NPLs to VAMC, with Agribank and Saigon Commercial Bank having sold the lion’s share.

According to a BIDV Securities Company report on the macro-economy released last week, banks actively settled a huge amount of NPLs by using loan provisions. The growth of NPLs had slowed to 2.2 per cent per month in 2013, instead of 3.91 per cent in 2012.

The ratio of NPLs among commercial banks in 2013 improved compared to the third quarter of last year. Vietcombank and Sacombank’s NPL ratio reduced from 2.98 and 2.25 per cent last September to 2.62 and 1.44 per cent respectively by the end of 2013. VietinBank’s NPLs reduced significantly to 0.82 per cent at the end of last year, down dramatically from the 2.47 per cent recorded three months previously.

However, the risk of more NPLs still exists as banks try to expand credit quickly without sufficient risk management. In the last month of 2013, total loans in the banking system jumped by 3.5 per cent, to reach 12.51 per cent over the year. Concerns have been expressed that unrealistic credit growth targets may have led to a lack of attention to the quality of loans being offered, providing a context where NPLs could grow again in the future.

According to VPBank general director Nguyen Duc Vinh, banks were under pressure to extend credit, but were still not being sufficiently careful about whom they were lending to.

“Risk is increasing, but the market still requires lower interest rates, and easier access to loans. This could pose a problem to the banking sector, especially in the next two years,” said Vinh.

Moreover, Circular 02 with stricter regulation on loan classification which will be effective this June is expected to see the categorisation of NPLs possibly double.

Based on a recent report by Vietcombank Securities Company, VAMC’s purchase of NPLs would increase in the second half of the year once Circular 02 was implemented.

Real estate market gets warmer

The real estate market has seen positive developments as numerous social housing projects are carried out to help low-income people have home and give a boost to the market.

According to the Ministry of Construction (MoC), 124 projects are underway to built around 78,700 flats, in which 85 projects are building 51.895 flats for low-income people with a total investment of VND23,822 billion ($1.1 billion) and 39 projects are providing 27,000 flats for workers with an investment of VND6,850 billion ($322 million).

In addition, 57 other projects to develop commercial houses have been reversed to social housing purposes, which are expected to provide around 34,837 flats with an investment of VND20,567 billion ($966 million). Ha Noi is considering to turn 5,478 flats of 15 commercial housing projects into 10,587 flats to serve low-income earners.

The MoC has worked with relevant agencies to process procedures required for the changes in accordance with current legal regulations.

It has also directed localities to speed up investment and approval of social housing projects while working to mobilize more foreign capital and preferential loans for the work.

New year offers real growth prospects

Dang Hung Vo, former Deputy Minister for Natural Resources and Environment talks to VIR about potential solutions to the present real estate malaise.

Looking back over recent years we can see the market experienced a golden period following the introduction of the doi moi economic reforms, which seemed to be characterised by most developers earning super profits. It seemed to be a time when the seller was god and buyers had to beg for the opportunity to buy an apartment. The real estate market acted like a magnet attracting huge amounts of capital. The same situation has occurred in other countries when a subsidised economy transitions into a market economy.

But by late 2008, the property market had entered a depression.

Prior to 2009, the real estate market was either increasing or maintaining its prices. However, the opposite has been true in the last five years as the market has suffered from large inventories, low transactions and sluggish investment turnover.

Many people said that Vietnam’s real estate market had fallen into crisis. However, a foreign property investor I spoke to had a totally different point of view. According to this investor, a crisis is simply when there are no transactions, no credit, no construction activity and no investment.

Looking into the reality of the Vietnamese real estate market, all of these activities are still ongoing, just at a lesser rate than in previous years. It is maybe that Vietnamese people had become used to a market operating at fever pitch, that the come down felt far worse.

Last year the government implemented a raft of policies to address the slump in the property market. At the beginning of last year, the government adopted Resolution 02/NQ-CP.

The first solution addressed investors. Many investors proposed that they should receive financial support from the government. However, providing a subsidy to housing developers obviously wasn’t an option as the state budget had more pressing priorities. That said, the government did allow tax exemptions, slower payment of land use fees, land rent reductions and other measures. These solutions were implemented during the year and helped investors.

The second solution was to focus on increasing the demand and efficiency of the VND30 trillion ($1.4 billion) housing stimulus package.

This package was agreed in early 2013 but it wasn’t until the middle of the year that the Ministry of Construction and the State Bank could agree on how it would work.

The disbursement of this funding has moved at a snail’s pace. One of the reasons was that supply was very weak, while demand increased. Moreover, lenders were facing difficulties in accessing bank loans. Potential homeowners needed to be able to prove they could repay the loans based on their current incomes which proved almost impossible, while internationally this isn’t the case.

In 2006, Professor Muhammad Yunus from Chittagongo University in Bangladesh was awarded the Nobel Prize for his housing bank idea for low-income earners.

In the wider ASEAN region, Thailand, Indonesia and the Philippines have played with many ideas about how to allow lower income earners to afford to buy property without being saddled with huge debts.

We should learn experiences from those countries in order to create a special mechanism for low income earners to borrow money, in order to accelerate the disbursement of the assistance package.

The third solution focused on reducing the outstanding stock of high-end properties saddled with bad debt. The Vietnam Asset Management Company was put into operation from the middle of last year. However, the concern now is the exact figures of bad debt have not been released, nor what the structure of these bad debts is. Bad debt was reported in the high-end apartment, villas and semi-detached housing segments at the beginning of last year. However by the middle of this year, it was reported that 70 per cent of the bad debt was associated with land that had not yet had construction work done on it. That means that the issue remains an outstanding problem.

The Ministry of Construction recently finished its draft amended Housing Law and amended Real Estate Business Law which contain measures to reduce high-end property inventories. The real estate market was also slightly opened to foreigners who want to buy properties in Vietnam. It is expected that these laws will be considered by the National Assembly in the beginning of 2014 and could be approved by year-end. These laws could have an impact on the real estate market.

The solution for increasing capital for the real estate market has very significant meaning. Previously the real estate market used to attract capital from different sources, such as people’s savings, funds from small scale investors, capital from corporations, loans from banks, credit, the government’s budget and foreign direct investment.

However, all of the sources have dried up due to the risks inherent in the current market.

Another issue was that the country’s gold savings have not been leveraged into the property market. Figures from local newspapers claim that some 400 tonnes of gold are in the country in the form of people’s personal savings. The World Gold Council claims that this figure could even reach 1,000 tonnes. The question then remains, how to encourage gold to be diverted into the property market?

The final solution is the restructuring of the real estate market. Professionalism overall needs to be increased, particularly in terms of policies, laws, institutions, management, human resources and among investors and end-users.

In conclusion, 2013 was a tough year for real estate market and it will require long term solutions for it to recover.

Master plan on Northern key economic region passed

PM Nguyen Tan Dung has approved a master plan on Northern key economic region development by 2020 with a vision towards 2030 with a view to heightening the status of the region as an emerging national political, cultural, scientific and technological center.

The strategic convergence of national resources and competitive advantages makes the region the nuclear of Red River Delta development, a hub for trade exchange, international integration, and a status marker within ASEAN and the global community.

The region is at the centre of national economic restructuring, growth model renewal, and the next stages of national industrialization and modernization.

As of 2020, average GDP per capita in Ha Noi would touch US$ 5,500. The proportion of agro-forestry and fishery sector would be 5.5%; industry and construction 49.1% and service 45.4%. The region is expected to account for 32% of total national exports.

The number of regional households formally classified as poor would decrease by 2% annually. Poor household per capita income would rise 2.5-3.5 times every five years. At least 80% of regional communes would meet national health standards.

The master plan also set to raise the trained proportion of labor force to 80-85%, with 40-45% of workers receiving specialized vocational training.

Ha Noi – a global finance centre

Under its master plan, service industry, trade activities, and cultural sector are intimately linked to Red River civilization, festival, and spiritual tourism.

It will concurrently focus on modernizing financial and banking services and cultivating a business environment capable of transforming the capital city into a finance centre of international standards.

Key industrial sector

The master plan prioritizes improving the competitiveness of highly localizsed industrial sectors with footholds in the global value chain, including electronics, science and technology, telecommunications, mechanical engineering, ship building, maritime facilities, high quality steel, construction materials, pharmaceuticals, food processing, garments and textiles, and leather and footwear.

The region wants to encourage industrial sectors that are technologically advanced, minimize carbon emissions, and produce environmentally products.

The development of rural areas and agriculture should be linked to the region’s expanding pharmaceutical and food processing industries.

Industry and construction is set to increase by 8.2% for 2011-2015, 10% for 2016-2020, and 9% for 2021-2030.

High-tech agriculture

The region will develop intensive farming to maximize the income value of its cultivated area.

Newly formed fishing industry logitistics centers in Hai Phong, Cat Ba, and Bach Long Vi Island will be in charge of intensifying offshore fishing while subsuming smaller scale inshore fishing into more efficient economic activities.

Cattle and poultry husbandry and aquaculture will be subject to food hygiene and safety and environmental protection regulations. The region will invest in building refrigerated warehousing to serve its exports.

Nuclear and satellite urban centre

The master plan also outlined a network of “nuclear and satellite” municipalities as a framework for regional development. Relatively established urban centers including Bac Ninh, Vinh Phuc, Ha Long, and Hai Duong will support satellite urban areas in Son Tay, Tu Son, Xuan Mai, Chi Linh, Cam Pha, Uong Bi, and Mong Cai.

The Ha Noi sub-region includes Vinh Phuc, Bac Ninh, Hung Yen, and Hai Duong. The coastal sub-region consists of Hai Phong, Quang Ninh, and sea and island areas.

Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR

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