Overseas investments should be encouraged: experts

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A sugarcane field owned by Vietnam's Hoang Anh Gia Lai Group in Attapeu, Laos. HAGL's sugar mill is in the background. Photo courtesy of Tien Phong

Late last month, Vietnam Dairy Products Joint-Stock Co., the nation's largest dairy producer, announced that it had got the business license for a factory in Cambodia.

The company, popularly known as Vinamilk, will hold 51 percent of the stake in the US$19-million joint venture factory, which is being built in the capital of Phnom Penh.

Cambodia, besides New Zealand, Australia, the Philippines and the United States, is a key market in Vinamilk's overseas investment strategy, which is expected to contribute to doubling its annual revenues to $3 billion by 2017.

Vinamilk is one of several large and efficient Vietnamese firms which are seeking to expand abroad because the domestic market is either too small or has become less attractive.

Leading property firm Hoang Anh Gia Lai is building a $300 million multi-purpose complex in Myanmar's biggest city of Yangon. The project includes a five-star hotel and a shopping mall that are expected to be finished in three years, while two office buildings and eight residential blocks will be ready in six or seven years, said Le Hung, general director of Hoang Anh Housing Development and Construction, a member of the group.

The group has also invested in rubber plantations, rubber processing, sugarcane cultivation and electricity production in Laos and Cambodia. Its rubber plantations in Laos and Cambodia cover 60,000 and 23,000 acres respectively.

Nguyen Manh Hung, deputy chief executive officer of military-run telecom Viettel, said: "Overseas investment is necessary despite the risk of competing global groups."

The local market was like a "tight shirt" and, even with a population of more than 90 million, would at some point stop expanding, he said.

Viettel made its first overseas investment in 2006, establishing a telecom network in Cambodia. The subsidiary soon became the biggest network in the country.

It now has projects in Laos, Cambodia, East Timor, Haiti, Peru, Mozambique and Cameroon. It has also announced plans to enter Myanmar and Thailand.

Assessing the trend, former deputy minister of Planning and Investment Nguyen Mai said: "From trying to attract foreign investment, our enterprises now have the capacity to invest abroad. That is progress. Some Vietnamese firms have been successful with their investments abroad."

Since the first overseas operation was reported in 1989, Vietnamese firms have invested $15.5 billion in 59 countries and territories.

Mining tops the list of industries they have invested in, accounting for 30 percent, followed by agricultural processing and electricity. Laos has attracted the largest investment of more than $4.2 billion.

Cambodia, Russia, and Venezuela also account for large investments by Vietnamese firms, which have also established a presence in Africa, not to mention several developed countries like the US, Australia and Japan.

Several firms say their overseas investments have begun to pay off and that they plan to devote more resources to such ventures. 

Information technology group FPT has reported a 30 percent increase in revenues to $90 million from its overseas investments in 2012. The group expects this source of income to increase further and account for 30 percent of its overall profits by 2015. It is present in 11 overseas markets, producing software and providing telecom services.

Lack of support

The Ministry of Industry and Trade has admitted in a report that Vietnamese companies investing abroad have not received enough support from authorities. It said that Vietnamese embassies, consulates, and trade commission offices in many countries do not even know about Vietnamese firms doing business there. Many investors have failed to keep them updated on their activities.

Vietnamese investors become competitors when there are problems in the local business environment, it said. The ministry has proposed the setting up of an overseas investment promotion agency on the lines of Japan's JETRO and South Korea's KOTRA. It has also said that regulations need to be amended to ensure government agencies provide more support to overseas investments by Vietnamese firms.

Do Nhat Hoang, head of the Foreign Investment Agency, acknowledged that overseas investments were still hindered by insufficient and at times contradicting regulations, as well as cumbersome procedures.

An economist said the decree on overseas investment by Vietnamese firms only regulates direct investments. There are no regulations covering other investment models like buying a part of the stake in a foreign firm. Local firms that want to make other kinds of investment need to get approval from the Vietnamese prime minister, who gives a decision on a case-by-case basis.

Hoang said his agency has proposed to the ministry solutions that would improve policies to support and strengthen oversight of overseas investments.

Tap easy markets first

Nguyen Mai said Laos and Cambodia are two markets that are easy for Vietnamese firms to invest in. "We shouldn't think they are small markets. Our firms have limited capital resources, so they should do business that suits their financial capacity.

Venezuela, which has good relations with Vietnam, and traditional markets such as Russia, which has many Vietnamese workers, are very good markets for local investors, he said.

"Vietnamese firms should focus their investment on a few markets first and expand only after doing well in them."

Critics are also warning against indiscriminately investing abroad.

Mai said: "In theory, investment abroad means capital export and labor export. That investment, if used in the domestic market, could help generate jobs here. Thus, in the aftermath of the recent economic crisis, even rich countries like the US reduced investment abroad to cope with unemployment.

"If we invested abroad impetuously without strict controls, the country's need for capital would not be met, affecting our ability to meet socio-economic development goals."

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