Foreign indirect investment (FII) in Vietnam might rise to new highs, as it is a vital financial source for domestic joint-stock firms, if the country lifts a critical financial restriction, experts said.
In general, FII is money from foreign sources deposited in domestic banks, or purchases of stocks and/or bonds issued by domestic companies.
In 1999, FII made up only 0.2% of total foreign investment in Vietnam but was up to 2.3% in 2003, estimated Mekong Capital, a private equity company specialising in investment in leading private businesses in the Indochinese region.
The figure was about 30 to 40% in other regional countries, according to Mekong Capital.
FII may grow two to four times larger than the current levels, but the government needs to remove the curbs in the volume of shares foreign investors are permitted to hold in domestic joint-stock companies, said Dominic Scriven, director of Dragon Capital Group, an investment banking institution.
Currently, Vietnam only allows a foreign investor to hold a share maximum of 30% in a Vietnamese enterprise.
“The restriction has limited investment into domestic companies that do not have a strong financial capacity,” commented Nguyen Hong Nam, deputy chief executive of Saigon Security Corporation.
“The limitation should be eased, that is what investors care about the most,” he said.
Christ Freud, Mekong Capital executive director, said he saw no benefit in the restriction of foreign investment into domestic companies. It only cuts back the flow of foreign capital into the country, antagonising Vietnamese firms coping with a shortage of funds, Freud said.
Also, it makes the Vietnamese investment environment less attractive, obstructing the country’s integration progress into the global economy, said Tran Du Lich, head of the HCM City Economics Institute.
An increase in the volume of shares foreign entrepreneurs can hold will help Vietnam compete with regional countries like Thailand and Singapore to lure more investment, Scriven said.
The government should expand the volume of shares foreigners may hold in domestic join-stock firms to 49%, suggested Lich.
According to Scriven’s estimates, such a rise would help Vietnam lure more US$300 million in FII.
He said the country is fully capable of stepping up FII as its economic growth is stable, while its exports are very competitive.
In late December last year, deputy finance minister Le Thi Bang Tam reportedly said the government has ordered the finance ministry to amend the regulation on the restriction by increasing the number of shares foreigners can hold.