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  Foreign Investment

Investment ceiling must shatter

Financial analysts share the view that lifting the 30% ceiling on foreign ownership in Vietnam’s private enterprises, and raising the foreign ownership ratio to 49% in advantageous fields, would be prudent.

Foreign ownership of domestic firms was capped at a time when foreign indirect investment was not welcome in Vietnam. However, as Vietnam opens itself to the international community, the regulation should be adjusted.

According to Tran Dac Sinh, Director of the HCM City Securities Trading Centre, investors smell a rat in investment opportunities in equitised and private enterprises, as they can only hold up to 30% of the total chartered capital. To date, only 11 out of 24 listed private companies have foreign ownership anywhere near its 30% ceiling.

He pointed out that the regulations that limit foreign ownership has served only to lower foreign share holdings, which hampers enterprises in their efforts to free up capital.

Nguyen Hoang Hai, Secretary General of the Vietnam Association of Financial Investors (VAFI) agreed, adding that the cap has been an obstacle to attraction of strategic investors, who offer capital, management skills and technology to local enterprises.

In the banking sector, for example, contributions by foreign investors to joint stock banks is negligible, as their share holdings give them no managerial leverage in the firms they have invested in.

“If foreign investors could hold a higher percentage of shares, they might be more inclined to help banks improve their operation and to restructure,” Mr Hai said.

Christ Freund, Managing Director of Mekong Capital, pointed out that the limit is one of the main reasons that foreign indirect investment is low in Vietnam.

Foreign direct investment claims 4% of GDP, while foreign indirect investment stakes out just 0.05%.

The limit on foreign ownership should apply only to specific sectors, particularly those related to security, said Tran Hong Dom, Director General of Transimex Saigon Company. In the defence industry, foreign ownership is barred completely, or allowed at just 5% of the chartered capital of any given contractor.

In sectors defined as “sensitive”, which include banking, insurance, aviation and telecommunications, the maximum percentage of ownership available to foreigners should be 49%. Any other sector should be open to unlimited foreign indirect investment.

Dang Van Thanh, Deputy Chairman of the National Assembly’s Committee for Economy and Budget applauded these ideas, although he declined to comment on a percentage that should be applied.

He said the policy on loosening the conditions for foreign indirect investment should step into line with international practice.

Vietnam is striving to attract more foreign investment, both direct and indirect, so the policies should be reworked, he said.

Vietnam Net - (13/08/2004)


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