Demand intensifies for changes to entice substantial investment in Vietnam over the long haul
In a recent statement, Trinh Quynh Giao, CEO of PVI Asset Management, highlighted the importance of improving Vietnam's sovereign credit rating to attract foreign capital. This emphasis on credit rating improvement is crucial as it could lead to a decrease in borrowing costs for domestic companies, as illustrated by the example of Masan.
To attract quality foreign capital, Vietnamese companies must align with international standards, including for environmental, social, and governance criteria and transparent English-language disclosures, according to Nguyen Phan Dung, deputy general director of SSI Asset Management.
Vietnam's high savings rate and low-interest environment present a unique opportunity to mobilize idle capital. With around $3.04 trillion in bank deposits, substantial idle capital exists among the public in Vietnam. Financial education initiatives have attracted significant interest among younger generations, with teenagers showing interest in investing small amounts from an early age.
Dung believes that policy reform could significantly unlock long-term capital and draw in greater foreign inflows into the stock market. He stated that Vietnam's ongoing review of tax legislation is a crucial moment to embed mechanisms that favor long-term investment behavior.
Tax incentives and policy reforms in Vietnam's economy can significantly attract long-term foreign investment into the Vietnamese stock market by offering strategic advantages and creating a favorable investment environment.
Tax Incentives
- Sector-and Scale-Based Incentives: Vietnam has shifted its focus toward offering tax incentives based on sectors such as high-tech, digital industries, renewable energy, and R&D. This shift aligns with national priorities like digital transformation and green growth, attracting quality foreign investment in these sectors.
- Incentives for High-Tech Industries: Tax incentives for high-tech and digital industries encourage foreign investors to invest in these sectors, contributing to Vietnam's transition from low-cost manufacturing to a technology-driven economy.
- Support for Supporting Industries: Incentives for R&D and supporting industries, such as automotive and energy-saving, help attract foreign investment in these strategic sectors.
Policy Reforms
- Administrative Reforms: Vietnam's ongoing administrative restructuring and the piloting of a one-stop investment support centre model enhance transparency and efficiency, bolstering foreign investors' confidence in the country's investment environment.
- Streamlined Procedures: The application of streamlined "green lane" procedures for strategic investment projects reduces bureaucratic hurdles, facilitating faster and more efficient investments.
- Stock Market Reforms: Vietnam's stock market reform plan, including the launch of the Central Counterparty Mechanism by early 2027, aims to elevate the stock market from "Frontier" to "Emerging" status. This status change is expected to attract significant foreign capital, potentially up to $5 billion, as institutional funds and other investors seek emerging markets for investment.
In conclusion, by offering sector-specific tax incentives and implementing policy reforms that streamline investment processes and enhance the stock market's appeal, Vietnam is creating a robust and attractive environment for long-term foreign investment. A successful upgrade of Vietnam's stock market to emerging market status could be a major catalyst for attracting international capital. However, it is important to address weaknesses in the system, such as the lack of expertise and structured processes among advisors, as seen during the 2022 bond market crisis.
- To attract more personal-finance investments from foreign investors, individuals in Vietnam should seek to understand international business practices and sustainable investment strategies aligning with environmental, social, and governance (ESG) criteria.
- The improvement in Vietnam's business credit rating and tax incentives for high-technology industries, digital, renewable energy, and R&D sectors can ultimately lead to lower borrowing costs for Vietnamese companies and foster long-term foreign investment in these areas.
