BUSINESS IN BRIEF 24/2

EY upbeats about VN’s economic prospect

There is an optimistic prospect for the Vietnamese economy in the coming time. With growth held down to about 5% in 2012 and 2013, policy makers will target faster expansion from 2014.

According to the Rapid-Growth Markets Forecast of the Ernst Young (EY), Viet Nam ranked 4th among 25 countries which have fastest growth rates and are vulnerable to seven risks namely current account, external debt, government debt, inflation, growth in credit to GDP, import cover, and currency change over year.  

Viet Nam’s GDP would touch 5.4% in 2014, the forecast said.

The growth rate is set to pick up to the 7% target by 2016 thanks to the Government’s effort to reduce the fiscal deficit and use lower inflation to bring down borrowing costs.  

The multinational professional services firm reported that CPI inflation would stand at 6.5%; current account balance (% of GDP) 1.6%; exchange per US$ (year average) 21,508 in 2014 and 22,000 in 2015.  

EY said that a strong rebound in FDI commitments will underpin the financing of the external deficit that is expected to reappear from 2015.

This will calm concerns about the stability of the Vietnamese Dong (VND) that have resulted from low reserves.

FDI will promote a shift away from textiles and agriculture, the decline of which lie behind the widening trade gap in Q4, 2013.

With capital inflows stabilizing the VND, inflation will continue to subside, ensuring a return to real wage growth in 2014-17.

Businesses, State urged to cooperate when joining TPP

The State and business community should solidly work hand in hand to elevate the competiveness of Vietnamese goods in the international market, in light of signing the TPP.

The Trans Pacific Partnership (TPP) Agreement, which is currently in the final stages of negotiations, is expected to create both opportunities and challenges for Vietnam.

The 12 member nation’s expansive market is expected to account for over 40% of the global GDP and 30% of global trade.

Many economists are predicting that the TPP may be signed this year and say that businesses should be actively equipping themselves with knowledge and necessary capacity to achieve good results in this expanded playground.

Dr Nguyen Duc Kien, Vice Chairman of the National Assembly Committee for Economic Affairs said that Vietnam’s participation in the TPP will open up a huge market for businesses to sell products with differing requirements.

However, to join the playground, businesses need to do their due diligence and improve their knowledge of the international market place.

Dr Kien said that many Vietnamese only see the advantages in joining the international integration process. But the fact shows that there are a number of significant challenges.

For example, the Vietnamese garment and textile businesses will witness spectacular growth in the US market when joining the Free Trade Agreement. However, the seafood industry has encountered impediments in the US market and consecutive anti-dumping lawsuits.

Kien also said that a requirement of joining the TPP, is that businesses should accept the fact that they have to open up the door for commodities from other nations to enter the Vietnamese market – for which they may not be able to compete.

Therefore, the state and business community should closely cooperate in devising policies to help Vietnamese products compete in the international market at the reasonable prices.

Another of the challenges which Vietnam has to face is that the country may have to import cattle feed from other nations, which will increase input costs in the cattle sector sharply, leading to a decrease in profits and competitive edge.

Minister of Planning and Investment Bui Quang Vinh said the TPP offers Vietnam, with its young and hardworking population, an excellent opportunity to both penetrate huge overseas markets and attract foreign investment, noting that it also  poses a number of significant challenges to the country.

“If Vietnam can rise to the occasion and seize the opportunities the TPP presents, it can vastly expand its export markets, and quite possibly enjoy a preferential import waiver of tariffs in the demanding Japanese market”, Vinh said.

Through various TPP mechanisms, the Vietnamese markets will open up to other member nation, which has the potential to result in an expansion of foreign investment inflow into the country.

One of the dilemmas the TPP presents to Vietnam relates to the garment and textile sector Vinh says relates to the fact that currently the country imports 70%-80% of input materials needed by the sector from China.

One of the conditions of the TPP, however, is that Vietnam has to use input materials from other TPP member nations and if it fails to comply with this strict requirement, Vietnamese textiles cannot be exported to other TPP member nations and enjoy preferential treatment.

One of the practical solutions to this problem is for Vietnam to attract big foreign investors to construct factories and manufacture the input materials for the textile industry right in the country, which will provide an economic boost to the economy.

Additionally, Vietnam can increase the value added to the textile industry products by doing the fashionable design in country, he concluded.

Therefore, as a consequence of joining TPP, Vietnam will simultaneously see greater opportunities to both export its products to foreign nations and to attract more foreign investment into the country.

Viet Nam’s livestock industry overly dependent on imported animal feed

In 2013, Viet Nam imported US$4 billion worth of animal feed and other major raw materials because its agricultural land has been producing rice rather than animal feed for years.

The country exported $3 billion worth of rice in the same year.

With 1,000 pigs on his farm, Tran Quang Trung in Thong Nhat District, the southern province of Dong Nai, uses two tonnes of animal feed each day, and 80 per cent of it is imported.

“I have to import 100 per cent of the soybeans and acid amine, but half of the maize grains and fish paste are bought from the domestic market,” he said.

Trung’s farm is typical of the Vietnamese animal husbandry industry, where 70 per cent of animal food is imported.

Last year, the country spent $3 billion on imported animal feed and another $1 billion on raw materials including maize, soybeans and wheat for animal feed.

Viet Nam last year imported 1.4 million tonnes of soybeans, worth $834 million; 2.26 million tonnes of maize, worth $690 million; and 1.7 million tonnes of wheat, worth $584 million, which was a significant increase from 2012.

In January this year, 582,000 tonnes of maize, worth $150 million, were imported, a six-fold increase in quality and 4.6 times the value compared with the same period last year.

“Viet Nam only produces rice bran and cassava, and for the rest, we depend on imported animal feed,” Pham Duc Binh, vice chairman of the Viet Nam Animal Food Association, told Tuoi Tre (Youth) newspaper.

“This is the result of a deviation from agricultural production that has been underway for a long time. Viet Nam is an agricultural nation, but almost 100 per cent of the feed for pigs and chickens must be imported. There is no grassland for grazing cows, so milk and beef must also be imported,” Le Ba Lich, chairman of the association, stated.

Animal feed has been imported for many years, but the authorities have yet to find a solution, despite the fact that Viet Nam has significant potential for producing these products.

Lich suggested that Viet Nam should make a master plan for part of the country that will focus solely on producing raw materials for animal feed. Low-yield rice plots could be converted to cultivate maize and soybeans, which are the most important feed grains.

Viet Nam has focused all its resources on developing rice; therefore, its maize and soybean capacity is very low and cannot compete, according to Dr Henry T. Nguyen, director of the US-based Missouri University’s National Soybean Biotechnology Research Centre.

But there is an opportunity for Viet Nam to improve the situation if the country invests in planting maize and soybean hybrids.

“From a country that once suffered widespread starvation, Viet Nam has become one of the world’s leading rice exporters. It could do the same again with soybeans and maize,” he added.

Bamboo, rattan sector face short supply of materials and capital

Although it has the potential for development, Viet Nam’s bamboo and rattan sector is still facing challenges, particularly a shortage of raw materials and capital.

Luu Duy Dan, chairman of the Viet Nam Trade Villages Association, attributed the lackadaisical performance to poor strategic planning in the domestic handicraft sector while talking with Thoi bao Kinh doanh (The Business Times) newspaper.

The indigenous development of the craft businesses, backward technology and poorly-designed products made it difficult for Vietnamese bamboo and rattan items to compete with products from other countries in international markets, he explained.

Dan said poorly designed policies and schemes for raw material development for the sector also led to problems in the production of bamboo and rattan products, including training, labour problems and environmental pollution.

Currently, materials for bamboo and rattan products are being gradually exhausted. Many firms may have to import materials to fuel their production. So far, there is no feasible programme to resolve the situation.

Importing materials from foreign countries, including Indonesia, Laos and Cambodia at high prices, has pushed prices of finished products on Viet Nam’s market higher than the original production cost.

In addition, the growing area of bamboo and neohouseaua are often located far from the producers, thus increasing the cost of transportation.

Nguyen Van Trung, director of Hoa Son Handicraft Ltd Co, noted that most of the Vietnamese bamboo and rattan items for export were interior decoration products that are not as competitive as products from other regional countries.

In addition, investments in the domestic craft businesses remain subdued. The businesses are poor in applying modern technology, leading to products with low added value. About 95 per cent of locally made products are produced in craft villages. Most of them are small-sized businesses with limits on competitiveness and innovative capacity.

A representative of a craft village from former nothern Ha Tay Province remarked that despite high demand in the market, especially for high-quality products, craft businesses are unable to further invest in expanding their production. They also face difficulties in accessing loans from banks.

According to the Import-Export Department of the Ministry of Industry and Trade (MoIT), most of the handicraft businesses are small-sized and do not have sufficient capital to upgrade their technology and expand their production scale.

As a result, their product designs are poor and not competitive in both the domestic and the international markets.

Industry insiders add that the shortage of capital and raw materials is still a large challenge for the domestic bamboo and rattan processing industry.

Nguyen Ton Quyen, general secretary of the Viet Nam Timber and Forest Products Association, said the association has formulated policies to develop the sector, however, to resolve the existing problems there still is a need for raw material planning, tax preferences and bank loans.

The Ministry of Agriculture and Rural Development noted that the country is now home to more than 2,000 craft villages. Out of these, the highest number is that of bamboo and rattan craft villages.

Currently, the sector contributed about US$300 million to the country’s total export turnover per year, as Viet Nam’s bamboo and rattan products are sold in 120 countries and territories.

Vietnamese pharmaceuticals eye Cambodian market

Vietnamese pharmaceutical production has been strongly developed in recent years. It has accounted for 50 percent of Vietnam ’s drug needs and is seeking for its overseas markets.

Vietnamese medical drugs have been exported to neighbouring Cambodia in recent years, winning the enthusiastic support of local consumers.

Cambodia is seen as a ripe market for the Vietnamese pharmaceutical sector to reach as the country welcomes a large number of foreign companies and tourists every year.

A representative of Phnom Penh-based F.D.Pharma Col, Ltd said apart from traditional markets such as Malaysia , Indonesia , China and Thailand , the company is also importing made-in-Vietnam pharmaceutical products.

The company’s import revenue from Vietnam exceeds 1 million USD per year, a fairly large number compared with Cambodia ’s population of 13 million people.

However, due to limited investment in marketing, Vietnamese medicines in the market are struggling to compete strongly with those from China , India and Thailand .

Additionally, a range of difficulties regarding international payment has hindered Vietnamese companies from expanding their operations in Cambodia , resulting in their low export values.

According to Nguyen Quoc Dinh, Chairman of Management Board and Deputy General Director of Imexpharm Pharmaceutical JSC, since the end of 2012, his company has successfully accessed the Cambodian market.

However, as fake and low-quality products have also flooded into the country and payment risks have grown, the company currently has no plan to expand its operation this year and will instead focus on maintaining its momentum from 2013, he said.

Apart from Imexpharm, other companies such as DHG Pharmaceutical JSC and Domesco Medical Import-Export JSC are also furthering their reach in the neighbouring country.-

Fast moving consumer goods firms report high profits

The 2013 financial reports of many fast moving consumer goods (FMCG) firms released to date indicate that they have gained fairly good profits compared to 2012 in spite of high sales expenses and production costs, according to The Saigon Times Daily.

The financial report of Lix Detergent Joint-Stock Company shows that sales and service revenues in the fourth quarter and the whole 2013 increased by 5 percent and 10 percent respectively over the corresponding periods of 2012.

However, the company had to shoulder growing costs, with the production cost rising more than 4.8 precent and sales expenses up 22.7 percent. Yet its net profits of 2013 reached more than 68.7 billion VND (3.23 million USD), a rise of 15 percent year-on-year.

Other listed enterprises such as Net Detergent Joint-Stock Company enjoyed similar results. Its financial report for the last quarter of 2013, pending auditing, shows that the total sales and service revenues rose 3.6 percent over 2012.

Even though the production cost did not fluctuate, the company had to spend more on sale expenses and management costs by 23.9 percent and 17.9 percent respectively compared to 2012. Overall still, its net profits reached 56.76 billion VND in 2013, a rise of nearly 700 million VND compared to 2012.

For Tuong An Vegetable Oil Joint-Stock Company, its net profits reflected in its financial report are over 65.58 billion VND, a rise of 3.1 percent compared to 2012 despite growing sales costs. The report also indicates that the production cost in 2013 rose by over 6 percent year-on-year.

Vinamilk Joint-Stock Company, as a giant in the FMCG sector, also reported higher sales expenses and production cost.

According to Mai Kieu Lien, General Director of Vinamilk, the company’s net profits of the fourth quarter dropped by 10.8 percent compared to the same period of 2012, but its net profits for the whole 2013 reached 6.53 trillion VND in 2013, a rise of 12.2 percent year-on-year.

Tax policy reform supports economic growth: analysis

Tax solutions played an important role in supporting and facilitating enterprises to overcome difficulties, become stabilised and improve businesses in 2013.

With the same targets for 2014, tax policy will continue to be studied, more aggressively reformed and supplemented to solve problems for enterprises, supporting economic growth. Analysis by the Vietnam Business Forum, the weekly magazine of the Vietnam Chamber of Commerce and Industry (VCCI).

Being effective from January 1, 2014, the amended Corporate Income Tax (CIT) Law has more regulations to create higher preferences for enterprises, attractions and investment incentives. For example, CIT is reduced to 22 percent (from 25 percent), enterprises having total earning of under 20 billion VND (950,000 USD) per year had a tax rate of 20 percent from July 1, 2013. These factors help enterprises to be capitalised for re-investment. Besides, CIT reduction will improve competition capacity of Vietnam in attracting foreign direct investments (FDIs).

Apart from CIT reduction, the amended CIT also controls and adjusts advertisement and promotion costs from 10 percent to 15 percent of total cost, which is highly accepted by enterprises.

“FDI enterprises mostly benefit from these preferences. But, in the development of the market, if enterprises’ products are well known by customers, enterprises must have big promotions and large advertisement campaigns,” said Mac Quoc Anh, Vice President and General Secretary of the Hanoi Association of Small and Medium Enterprises.

Being recognised as a breakthrough, the Law amending and supplementing Value Added Tax Law (VAT Law) also adds some products and services to un-taxed products and services. This amendment reduces costs for taxpayers. Furthermore, it helps reduce procedures, declarations and simplifies tax management activities.

According to assessment of the General Department of Taxation, the current number of 450,000 enterprises is expected to increase in the near future. In order to restrict some enterprises using transparent policy in establishing enterprises to trade receipts, using invoices to discount or have tax refund, leading to bad effects on the business environment, the law amending and supplementing the Law of Value Added Tax adds regulations: Enterprises with revenues from 1 billion VND and above per year will be applied VAT discount method, and ones with less than 1 billion VND will have to pay VAT directly and use sale invoice since January 1, 2014, and are not allowed to use VAT invoices.

Besides these new regulations to support, solve difficulties and create facilities for enterprises, some unreasonable points still exist and authorities should continue to repair and make these regulations really be practical.

According to some enterprises, together with final accounts of enterprises CIT, annually the Ministry of Finance publishes circulars guiding retroactive for previous taxes which make difficulties for enterprises, or problems relating to procedures of VAT refunds, excise tax, costs, etc.

“Authorities need to guide more specifically to prevent tax fraud; and for some real cases, they also should create facilities for enterprises,” said Nguyen Thi Cuc, head of the Council of Tax Advisors.

In 2014, the two new amended and supplemented laws are implemented with favourable policies and tax incentives. Ngo Huu Loi, Director of Tax Policy Department, Ministry of Finance, said that although some guides need repairing, the formerly and being effective tax policy are designed to reduce administrative procedures, costs for tax payers.

However, in order to actively deal with challenges and take advantages of opportunities, enterprises need have appropriate business strategy, and take this current experience for more steady steps ensuring competitive capacity.

Under the request of the Vietnam General Department of Taxation, tax departments need propagate and explain to enterprises and co-operatives methods of applying VAT and guide them to solutions of sales invoice orders to use from January 1st 2014.

For cases of using direct methods and not using VAT invoice, tax agencies must recheck enterprises not using discount methods, and if the inappropriate use of VAT invoices is discovered, they must have right solution methods following regulations of laws.-

Public opinion defeats controversial flat bill

Apartment owners are welcoming the removal of a proposed plan to limit ownership of apartments to just 70 years.

According to the Housing and Real Estate Market Management Department under the Ministry of Construction, the body which is revising the Law on Housing, the removal was the result of strong public opinion on the issue.

Nguyen Van Manh, a Hanoian living in the Trung Hoa Nhan Chinh apartment building said that the limitation on ownership had been hugely unpopular.

Many of those who are already living in residential apartments registered their concerns that the properties they have bought using their savings would have to be returned to the government after a fixed period.

According to Pham Sy Liem, deputy chairman of the Vietnam Federation of Civil Engineering Association, the Ministry of Construction had aimed to decrease the price of apartments.

Liem said that a regulation insisting that property be forfeited after a number of years would only lead to buyers shunning apartments and choosing to buy houses with no fixed period of ownership.

Liem claimed the regulation would discriminate against residential apartments, saying that the limited period of ownership, if approved, should also be applied to houses as well.

“Despite the government encouraging people in cities to live in apartment buildings, the regulation would have had the opposite effect,” he said. He added that in many other countries apartments were actually given priority because they saved land.

Liem added that the regulation may have emerged from difficulties in re-constructing old buildings, but said it should not add to the current difficulties facing real estate inventories.

However Nguyen Van Duc, deputy director of Dat Lanh Real Estate agreed with the proposal, claiming that the average lifespan of a building should be set at 70 years.

“Reality from other countries like Singapore and China show buildings from 50 to 60 years are demolished and rebuilt, so we should do likewise in Vietnam,” Duc said.

Moreover, Duc said that if the lifespan of apartment buildings was limited to 70 years, the land use tax would be less, and the price of apartments would become more affordable.

Former deputy minister of Natural Resources and Environment Dang Hung Vo said the limitation was a measure to protect the rights of buyers because it can help reduce the price of apartments, solving the housing issue for low-income earners.

However, Vo urged that a detailed roadmap was needed for the regulation.

“The important thing is to change people’s awareness and thinking about buying apartments,” he said, “It’s necessary for them to understand that owning an apartment is for only a limited amount of time and the government should have clear regulations on the people’s rights after they return their old apartments.”

Huawei launches three new products in Vietnam

The leading mobile phone manufacturer, Huawei, yesterday officially introduced three new products to the Vietnamese market: smartphone Huawei Ascend G610, smartphone Huawei Y320 and the MediaPad 7 Youth tablet.

The launch of Huawei’s three new products is part of the company’s strategic investment and development plan for the medium and low range IT products market segment in Vietnam.

A recent study by Mediacells showed that of the 17.22 million smartphones projected to be sold in Vietnam in 2014, 14.2 million, equivalent to 82 per cent, will be sold to first-time smartphone users. In fact Vietnam is ranked third among countries with the fastest growing total of first-time smartphone users. This means that there is increasing diversity in the mobile phone market segment.

Acknowledging this trend, Huawei decided to develop a line of multi-functional smartphones at a reasonable price-point to satisfy the demand of many Vietnamese consumers.

In 2013, the launch of Huawei’s Ascend G700, the first product within the medium smartphone segment, was well received by consumers. The new Ascend G610 has similar functions but retails at an even lower price of VND3.99 million. The phone has a Quad-core 1.2GHz processor, and a five-inch touch screen with qHD definition and runs on the latest Android 4.2 operating system. With 1GB RAM memory, Ascend G610 is able to run the latest applications and games smoothly while maintaining a stable multitask experience.

For even greater value for money, Huawei’s new Ascend Y320 is one of the best-priced smartphones on the market. For just VND1.89 million, customers get the benefit of a sizable four inch touch screen with dual core processor that helps to increase web browsing speed. The Y320’s extensive app store can satisfy the demand of tech-lovers while the phone has a stylish and contemporary design and is easy to use.

As well as the two new smartphone products, Huawei launched its mid-range tablet the MediaPad 7 Youth, with dual core 1.6GHz. Weighing 350g with a width of 9.9mm, the tablet is a compact yet sturdy and powerful choice. A seven-inch vivid touch screen with 1024x600pixel definition provides a wonderful movie-watching experience. In addition, software such as Word, Excel and Powerpoint is provided with the device allowing users to view and edit documents. The 4100mAh battery provides five hours continuous life for watching movies With a competitive price of VND3.99 million, MediaPad 7 Youth is an ideal choice for technology fans.

“Huawei has realised the potential of the mid-range smartphone market in Vietnam. Smartphones and tablets have become familiar devices to the majority of people. However, there is still a large portion of the population who cannot afford more expensive models. With G610, Y320 and MediaPad 7 Youth, Huawei hopes to satisfy the demand of Vietnamese customers through the quality of the products and also their price,” Allen Wang, director of Huawei Vietnam’s Consumer Business Group, said.

Huawei’s three new products will be distributed by FPT to mobile retailers nationwide. Customers will receive the products faster and more conveniently with quality after-sale-service. The launch of these three products also marks the beginning of a partnerwhip between Huawei and FPT which was signed in January. Consumers can now experience these three new products at Tran Anh media mart, Hoang Ha Mobile World and many mobile phone retailers nationwide.

Many projects launch apartment sales

With positive signals on the real estate market since last year’s second half, some property enterprises are preparing to launch apartments to grasp business opportunities in the early months of the year.

Phu My Hung Corporation said it would offer Green Valley apartments for sale this quarter. The Green Valley project consisting of four buildings of 20-27 floors supplies 546 apartments having an area of 88-194 square meters each.

Phu My Hung has not announced the selling price but said the apartments were for medium-income earners and affordable to buyers with financial supports from banks.

Also in Saigon South, The Park Residence located on Nguyen Huu Tho Street with around 1,000 apartments of 52-73 square meters each has been put up for sales. The selling prices of such apartments start from VND700 million per unit.

The Park Residence’s investor is receiving bookings and will finish the project in 2016.

Meanwhile, in District 6, Him Lam Land Company is about to sell apartments of the Him Lam Cho Lon project located near the district’s administrative center. The project supplying around 1,400 apartments is almost finished.

Khang Dien House Trading and Investment Joint Stock Company is going to launch the sale of Mega Residence townhouses in District 9.

Khang Dien will sound out the market by offering for sale around 160 adjoining houses at a price starting from VND13.5 million per square meter, or some VND1.99 billion per unit.

With its location near HCMC-Long Thanh-Dau Giay Expressway and the belt road and especially a price equivalent to that of an apartment, the investor expects to attract many buyers to Mega Residence in the coming time.

Besides, there are many other projects offering apartments for sale such as Lexington Residence in District 2 at around VND20.6 million per square meter, PARCSpring in District 2 at VND17.4 million, Sunview Town in Thu Duc District at VND11.2 million and An Phu 2 in District 8 at VND16.8 million.

According to Cushman Wakefield, the apartment sales volume was better last quarter, mainly in the budget segment having selling prices hovering around VND15 million per square meter.

Cushman Wakefield forecast the price might continue to decline this year.

In related news, property enterprises said they would develop projects based on their existing land and would not spread investments this year like before.

According to Nguyen Van Duc, deputy director of Dat Lanh Real Estate Company, the company will start the year with a small apartment project having around 150 units in Go Vap District and develop infrastructure for a townhouse project in Hoc Mon District.

Duc said that these were the two final projects on the company’s land left. More projects will be carried out when it can find partners with financial capabilities, he added.

Luong Tri Thin, general director of Dat Xanh Group, said Dat Xanh would not invest in individual apartment projects but develop clusters like small urban areas of 10-20 hectares each. It will be in charge of all investment stages, from investment to construction and distribution.

Dat Xanh earned VND66 billion in profit last year, doubling that of the previous year.

Statistics of the HCMC Department of Construction showed that around 5,000 among the apartment inventory of nearly 14,500 units found buyers last year.

According to market observers, the market will continue to incline towards buyers this year. Finished projects would be more attractive to customers than those under construction.

Hepza sets up job placement center

The HCMC Export Processing Zones and Industrial Parks Authority (Hepza) has established a job placement and assistance center for enterprises operating in such zones, said Ho Xuan Lam, office manager of Hepza.

The new job placement center will not only supply labor and organize training course for laborers, but also conduct surveys and provide information on the labor market for enterprises in need, he said.

Many garment enterprises in HCMC are still in dire need of workers owing to the increasing number of orders placed by foreign customers. Nguyen Vo Minh Thu, head of the Labor Management Division under Hepza, said garment and packaging enterprises in such zones are currently seeking to recruit some 8,000 workers.

Lukoil withdraws from oil project over poor prospects

Lukoil Overseas Vietnam B.V, an arm of Russia’s Lukoil, has pulled out of Block MVHN-02 exploration deal due to lower-than-expected production prospects.

Nguyen Quoc Thap, deputy general director of Vietnam National Oil and Gas Group (PVN), confirmed the news in a talk with the Daily on Thursday. However, he did not reveal the contract value of the offshore block.

Lukoil Overseas Vietnam B.V bought a 50% interest in the project in April 2011.

Commenting on Lukoil’s withdrawal from the Block MVHN-02 contract, PVN general director Do Van Hau said it was normal for a company like Lukoil to withdraw when an exploration contract proved to be commercially unviable.

Vietsovpetro, an oil joint venture between PVN and Russia’s Zarunezhneft, is seen as a role model in oil and gas exploration cooperation between the two countries, with a total of over 200 million tons of crude oil extracted by this venture so far.

Other Russian oil and gas companies like Gazprom and Rosneft are also involved in oil and gas exploration and exploitation operations in Vietnam’s continental shelf.

Gazprom EP International holds a 49% interest in Block 05-2 and Block 05-3 production sharing contracts, which saw the first commercial gas pumped on October 4, 2013.

Rosneft is a party in Block 06-1 gas exploration contract and Nam Con Son gas pipeline.

PVN is looking to extract 26.63 million tons of oil equivalent and obtain total revenues of around VND673 trillion, well above the VND666 trillion target assigned by the Government.

Binh Duong opens IPAC

An opening ceremony of the Integrated Political Administration Center (IPAC) of Binh Duong province was held on February 17.

The IPAC complex consists of two, 20-story identical buildings covering 20 hectares of land.  It is located in the heart of Binh Duong New City. The construction includes office buildings for provincial departments and organizations, works for central agencies, guesthouse, a four-star international conference center and other facilities.

The project started in 2012 at a total cost of VND1, 400 billion. It will be open for operation on February 20.

The local authorities announced during the ceremony the Binh Duong New City will be expanding in the near future.

The area is 30 km. away from Ho Chi Minh City and will expand to 4,000 hectares of land.  It has become an industrial, urban service complex.

Roads, highways, bridges and metro services linking the province to Ho Chi Minh City, Dong Nai Province, and neighboring areas will start construction this year.

Binh Duong acquired US$1.32 billion in foreign investment and contributed VND30,000 billion to the provincial budget in 2013.

Central bank’s city branch reports overspending at Tet

The central bank’s HCMC branch reported overspending of over VND34 trillion in January due to the increasing cash demand for payments, wages, bonuses and cash reserves at ATMs during the Lunar New Year holiday, or Tet.

According to a report of the HCMC government, banks in the city provided sufficient capital for enterprises to manufacture Tet products and stabilize the market, and met enterprises’ cash demand for wage and bonus payments.

Before Tet, to meet the money withdrawal demand of employees, especially workers, the central bank’s HCMC branch asked banks in the city to supply more money for ATMs even when those machines still had VND200-300 million available.

According to banks, they provided more money for ATMs and encouraged enterprises at industrial parks and export processing zones to pay wages for their workers in cash to avoid ATM overload.

New challenges for timber exports to EU

Vietnamese timber exports to the EU will face new requirements, including proof that the sources of timber and timber products are not illegally harvested in the near future.

The new requirements were hammered out in bilateral negotiations between Vietnam and the EU for the Voluntary Partnership Agreement (VPA) that are expected to conclude by the end of this year.

The EU Timber Regulation that took effect last last March as well as the Voluntary Partnership Agreements (VPA) are the two-part EU Action Plan of Forest Law Enforcement, Governance and Trade (FLEGT), which is the EU’s initiative to combat illegal logging and improve forest protection. Vietnam is one of EU’s pioneer FLEGT partners in Asia.

The first part of the EU FLEGT Action Plan came into effect in May 2003, and sets out measures to minimise the risk of illegally harvested timber and timber products being placed on the EU market. This is a result of the fact that as much as 19% of timber imports to the EU are allegedly from illegal sources.

In order to better prepare for their business in the EU market and ensure that their products are accepted for import, Vietnamese exporters must buy legal timber, document the source and check their products against the list of products covered by the EU’s timber regulations.

A country that has a Voluntary Partnership Agreement and an operational FLEGT-licensing system based on that agreement can issue FLEGT licenses, verifying products as legal.

Vietnam officially entered into the FLEGT negotiations in May 2010. To date, three rounds of negotiations have taken place. As part of the negotiation process, technical sessions, stakeholder consultations and technical support have being conducted with the aim of concluding negotiations for an EU-Vietnam Voluntary Partnership Agreement (VPA) by the end of 2014.

As part of the effort, three new EU-funded projects worth EUR3 million were launched on February 18 in Hanoi. The aim is to support Vietnam and neighbouring countries in combating illegal logging and to promote the trade of legal timber and timber products as well as improve sustainable use of forests in Vietnam.

“These projects are to support non-governmental organisations as well as small and medium-sized enterprises to contribute to the negotiation and participate in the implementation of the FLEGT’s VPA,” said the head of the EU Delegation to Vietnam, Ambassador Franz Jessen.

Last year, Vietnam took in USD5.5 million from timber and timber product exports, up 15.24% from the previous year.

During the first eleven months of last year, the US was Vietnam’s largest timber and timber products export market, with revenues of USD1.79 million, up 10.26% from the year before. It was followed by China, with revenues of over USD882,000, up 34.64% on year and Japan with revenues of over USD743,000, up 20.97%.

European countries, including the UK, Canada, Germany and France accounted for 9.48% of Vietnam’s timber export markets during the period.

State-owned giants to be audited in 2014

It is expected that 184 companies will be audited in 2014, including 43 state-owned corporations and groups, according to the State Audit of Vietnam.

The number of firms selected for audit this year is 35 more than in 2013.

This year’s list includes big state-owned corporations and groups such as military-run Telecommunications Group (Viettel), Bao Viet Group, Vietnam Cement Industry Corporation (Vichem), Petrolimex Joint Stock Insurance Company (PJICO), the Debt and Asset Trading Corporation (DATC), among others.

The audits will focus on assessment of overall financial conditions and the effectiveness of production, business and non-core investments, particularly concerning the restructuring of state-owned corporations, groups and commercial banks.

After the audits, the State Audit of Vietnam will submit their proposals for better implementing the restructuring to the government and the National Assembly, said Nguyen Huu Van, head of the State Audit of Vietnam.

The audits will be carried out more carefully, with extra attention paid to collect evidences for violations, including corruption at companies.

Van admitted the low quality of a number of previous audits. He said that, after finishing 51 among 149 audits in 2013, the State Audit of Vietnam proposed settling on compensations of VND8.963 trillion (USD428 million), which added VND1.39 trillion to the state budget.

The agency also recommended dealing with wrongdoings of 54 organisations and agencies as well as 13 individuals.

TPP opportunities attract FDI to Vietnam

Foreign companies have continued pouring investment into Vietnam to take advantage of the expected opportunities presented by the Trans-Pacific Partnership agreement (TPP), said a local economist.

Expected opportunities presented by the TPP agreement help to attract more FDI to Vietnam

According to Dr. Nguyen Dinh Cung, head of the Central Institute for Economic Management (CIEM), the signing of TPP is hoped to bring many trade and investment opportunities to Vietnam. The wave FDI coming into the country has been progressing in recent years and is expected to continue for years to come after the agreement is signed.

Professor Nguyen Mai, former Deputy Minister of Planning and Investment, said the higher FDI can be attributed to an improved business climate and political stability in Vietnam along with lower interest rates and better infrastructure.

After the World Bank released its report, “Doing Business 2014”, which showed the investment climate in the country had lost ground compared to last year, the prime minister urged miniseries, agencies and localities to make improvements.

This year, Samsung plans to produce 230-240 million mobile phones in Vietnam. Other large firms also plan to set up research and development centres in Vietnam, which may help to boost the development of supporting industries.

The Foreign Investment Agency predicted that Vietnam would attract a total FDI of USD22 billion, including both the newly-registered and added capital, equal to that of 2013. Of that amount USD13-14 billion is expected to be disbursed.

In January, about USD400 million came in from foreign investors, Singapore contributing the most, with 132.65 million.

EY: Vietnam’s GDP growth rate strong in 2014

Ernst Young (EY) in its latest rapid-growth markets (RGMs) report forecasts Vietnam’s economy to develop strongly in 2014 with a growth rate of 5.4% and reach a peak of 7% in 2016.

With growth held down to about 5% in 2012 and 2013, policymakers will target faster expansion from 2014. They are gradually reducing the fiscal deficit and using lower inflation to bring down borrowing costs. The growth rate is set to pick up to the 7% target by 2016, the report said.

However, the upturn will be slow this year, with rising imports offsetting the impact of stronger export growth, and public sector inefficiency blunting the investment recovery.

A strong rebound in foreign direct investment (FDI) commitments will underpin the financing of the external deficit that is expected to reappear from 2015. This will calm concerns about the stability of the dong that have resulted from low reserves.

FDI will promote a shift away from textiles and agriculture, the decline of which lie behind the widening trade gap in the fourth quarter of 2013, EY commented.

Inflation will continue to subside, ensuring a return to real wage growth between 2014 and 2017. This will strengthen domestic demand and ease social tensions.

However, the investment recovery will be slowed this year because interest rates will fall only gradually, reflecting lingering inflation fears and banks’ caution as they continue to build up bad-debt provisions.

EY also expected 25 RGMs as a whole this year with growth over 5% in 2015. But markets may react negatively to the global monetary tightening expected this year and this would limit growth over the next couple of years.

In addition, as the U.S. begins its tapering of quantitative easing, and with many RGM currencies still under pressure, the risk of capital flight and a sharp slowdown has increased.

In this scenario, gross domestic growth in RGMs falls to 3.7% and 2.8% in 2014 and 2015 respectively. As RGMs falter, growth in advanced economies also decelerates due to weaker external demand and increased volatility in financial markets.

Ministry mulls HCMC-Dong Nai railway construction

The Ministry of Transport on Thursday agreed to develop part of the HCMC-Dong Nai railway before 2020 as this railway link is deemed to be of paramount importance to regional transport.

At a meeting with transport consulting firm Tedi South on Thursday, Deputy Minister Nguyen Ngoc Dong noted that the railway from HCMC to Dong Nai Province’s Trang Bom Town via Binh Duong’s Di An Town would be developed in phases. Dong said that this railway will have strong positive impacts on transport demands in HCMC and the two neighboring provinces, so it must be developed soon.

However, due to financial constraints, the first stretch from HCMC’s Hoa Hung Station to Di An will be developed first, before the year 2020, he said.

The whole railway will be 47.7 kilometers long, and includes one section stretching 6.5km from Trang Bom to Phuoc Tan Station, and the next from Phuoc Tan to Hoa Hung covering 41.2km, with 21.6km of elevated track, according to Tedi South. Along the railway will be 15 stations in all.

Dong at the working session asked Vietnam Railway to conduct studies on the scale and technical specifications of the project, as well as to work with local authorities on preparations for the project execution.

The first section from Hoa Hung Station in HCMC to Di An will be developed between now and 2020. This section includes an elevated part from Hoa Hung Station to Binh Trieu Bridge. The remaining section will be developed after 2021.

Earlier, this project has been included in the list of projects financed by official development assistance loans from Japan, and Vietnam Railway has worked with Japan External Trade Organization over the funding. Tedi South has then worked with Japanese partners to prepare an investment plan for the project costing some US$550 million.

When in place, this railway will facilitate passenger transport between HCMC and other southeastern provinces, and will be connected to the proposed Bien Hoa-Vung Tau railway in the future.

New law to end capital contribution conflicts

A new draft of the Enterprise Law looks to scale down litigation over capital contributions by requiring limited liability companies to finalise their obligations to submit chartered capital within 90 days as opposed to the previous law which mandated three years.

“The move is aimed at cleaning up chartered capital declarations of firms when they conduct business registration procedures. Alongside this regulation, to facilitate better operations, the procedures of hiking capital are also simplified in the draft,” said Phan Duc Hieu, deputy head of the Business Environment Department under the Central Institute for Economic Management, a member of the group that wrote the revised law.

For a long time the three year period to contribute chartered capital has resulted in numerous disputes. One example is the on-going lawsuit between Vietnam Fumigation Joint Stock Company (VFC) and General Import Export Company 3 (Centrimex); the latter was merged to Fococev Foodstuff and Investment Company.

The companies pooled capital to found Hai Yen Company Limited in 2006 to build Novotel Nha Trang Hotel. The offspring had chartered capital of VND60 billion ($2.8 million); of this, 67 per cent came from VFC and 33 per cent from Centrimex.

The two also envisioned later raising Hai Yen’s chartered capital to VND90 billion ($4.2 million).

After the deadline for capital contribution, Centrimex only transferred VND5.77 billion, 30 per cent of its total obligation.

To avoid the hotel project from being revoked VFC pumped more capital into Hai Yen Limited, said general director Truong Cong Cu.

VFC then asked the Khanh Hoa Provincial Court to handle the case. The company has paid 93.6 per cent of the funds needed for Hai Yen’s VND90 billion chartered capital, well above its 67 per cent commitment.

“The dispute has resulted in us impossible to count the profit from hotel business as VFC profit though the hotel has been operating since November 2008,” said Cu.

Also because of the dispute over capital contribution, Hai Yen has been unable to source bank loans surpassing its chartered capital.

This kind of case is quite common. Lawyer Cao Ba Khoat, director of consulting firm K Associates said the period of three years to complete capital contribution was too long and one of the main causes of legal disputes.

“In many cases, disputes are over one member not fulfilling their end of the bargain though the deadline is still pending. Companies are arguing that benefits and obligations are based on real input capital and not commitments,” said Khoat.

Khoat added that in other cases companies’ founding members were refusing their obligations, arguing that capital contributions have not been kept.

There have also been cases where firms intentionally exaggerated their capital contributions as business registration offices find it difficult to check these numbers since company members are solely responsible for keeping their commitments.

The current law poses great difficulties to ensuring companies’ chartered capital is what they announced it would be.

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

BUSINESS IN BRIEF 24/2