As the country celebrates the historic 40th anniversary of the end of the war with Reunification Day on September 2, there is a strong sense of patriotism. But the nation is also looking beyond the past with a vision of building a modern economy connected to the rest of the world.
"This is the challenge for the country's leaders – to speed up reform. Investors are optimistic this will happen."
Aseem Goyal, Head of Global Transaction Banking, ANZ Vietnam
But at the same time it is facing up to vast new challenges.
Vietnam's economic competitiveness ranking slid six notches in the most recent World Bank survey which would lead some to believe the country is not reforming. In reality, this is more that countries around it are restructuring faster than Vietnam.
This is the challenge for the country's leaders – to speed up reform. Investors are optimistic this will happen. Vietnam has been the most attractive foreign direct investment destination, after the BRICs (Brazil, Russia, India, China), for many years, with annual FDI now topping $US20 billion. Multibillion dollar projects by companies such as Samsung, LG, Formosa and many others have begun to transform this traditional agricultural economy into a critical link in the global supply chain.
From the outside, Vietnam's business environment offers daily challenges and contradictions. But when you dig deeper, you can see the issues are well understood and there is desire to change. This provides plenty of reasons for optimism that Vietnam's return on the global stage as a more modern economy can continue.
Walking through the streets of Ho Chi Minh City, the bustling southern city renamed after the fall of Saigon in 1975, shops selling "pho" are everywhere although today they coexist with the 'Golden Arches' - McDonalds opened their first store here just over a year ago. And while the Vietnamese people are proud of their traditional coffee, it hasn't stopped them giving a lip smacking welcome to the Starbucks Latte.
Ten million motorcycles hit the roads in Vietnam every day, a potentially huge future car market - and so the attention of Japanese and US automakers is intense. The fact half the country's population of 93 million is under 29 years old and the literacy rate is 94 per cent has also not escaped the attention of world's largest multi-national corporations looking to invest.
In fact, Vietnam will soon be Heineken's second largest market globally (after Mexico). Other well-known names such as Nestle and Pepsi have recently announced significant expansion plans for the country.
While the large and often inefficient state-owned enterprises dominate vast sectors of the economy, there is also a new breed of entrepreneurs. These are the ones entering the 'billion dollar turnover club', complying with international governance standards while proclaiming their desire to be the 'biggest and best'. No doubt some of these companies will be the MNCs of tomorrow.
We recently invited some of the country's top corporate executives to share their thoughts on how Vietnam can make it easier for companies to do business. My key takeaway from these discussions was there is general recognition of the progress and positive change in the last two years.
However, in order for the benefits of these changes to be felt broadly, the view of these corporate leaders is that more coordination is needed amongst the various government departments, requiring a change in mindset of people who are executing the policies on a day to day basis.
The participants highlighted the well-known day to day example of the overly complicated tax system. Just one example: paying for a business meal involves a clunky tax receipt. And thousands of businesses have to submit these VAT receipts. The obvious question is: “Why?"
As the CEO of one of the Big Four accounting firms put it "government departments ask all the questions to be safe but who is really going to review this?" Another senior executive of a FMCG company added behavioural change is one thing but also not everyone is in line with the digital revolution.
There is hope. The Government is apparently drafting new accounting laws which will allow data to be provided digitally and the Tax Department has launched significant initiatives to bring tax payments online. It is actively asking companies to go electronic. No doubt they are looking at the 900 hours or so each business spends on tax administration every year.
And finally there is reform of the country's banking sector which includes numerous small and large players that, in the past, have gotten into trouble over lax lending and governance standards. Today's consequence is tight regulatory restrictions primarily impacting the same local corporate customers who would benefit from good banking services.
In the absence of appropriate regulations to govern modern banking solutions (like supply chain finance, access to USD financing and liquidity management) these companies can only rely on traditional bank funding. A CEO of one of the country's largest agricultural firms laments they are bound by local regulations and, as a result, their cost of doing business is higher. So how can they be competitive?
Again, there is reason for optimism. The issues are well recognised and while caution is understandable given the past experience, lately, the government has initiated a consolidation of the banking sector to make smaller banks merge and become more efficient. The central bank also wants to ensure local banks understand the risks associated with the products they sell and have proper procedures in place to manage the risks.
Vietnam is at an historic crossroads but its leaders are well aware of the opportunity in front of them and the challenges they need to overcome.
Aseem Goyal is Head of Global Transaction Banking at ANZ Vietnam.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
15 Oct 2014