I live in Singapore, which has just announced that GDP growth of 9% at least can be expected. Singapore has recovered from the global financial crisis significantly better than many countries. Why is this? Manufacturing growth is significantly up and the work ethic and the inflow of Direct Foreign Investment are some of the reasons. Banks did not suffer considerable toxic investments. China also is experiencing enormous growth and literally is holding up the economies of many parts of the western world. One only has to look at sectors of the economy to realise why the buying power of the people of China has accelerated. Like Japan after the second world-war, domestic buying of domestic production shelters economies from weakening purchasing by other economies.
Is it therefore surprising that Vietnam and its adjacent countries of Cambodia and Laos might present exciting growth?
Many believe investing in Vietnam is like investing in China 10 years ago. Who would not like to go back 10 years? Vietnam’s financial reforms have changed the landscape where 100’s of government owned businesses have been privatized. The Vietnam stock exchange index in 2009 moved up from just over 300 to near 500. Vietnam exports rice, pepper, oil and cashew nuts. Vietnam oil production ranks fourth in Southeast Asia. By 2009, almost 220 million tons of crude oil and 37 billion cubic metres of natural gas were produced. The value was some US$53 billion. Some 8 billion of foreign capital for exploration and production was attracted. There is a meaningful peripheral industry associated with this.
Vietnam: 2010 estimate is 7%. Significant mining exploration with oil wells “spudded” by Salamander Energy are more recent beneficial activities.
Cambodia – from high GDP growth of 10% in 2008, the global decline affected garment exports with 2009 showing 5% and 2010 is estimated at 3%. However, new diversifications and recovering growth will show improvements.
Laos – has been remarkably consistent and 2010 is expected to show 6.4% compared to an average of 7.5% during 2007 – 2009. Landlocked Laos has achieved growth through tourism, the supply of electricity for countries in the lower Mekong River basin, telecommunications, and is now part of ASEAN and AFTA. Recently oil and gas is of importance. Origen Energy and Salamander Energy (listed on the LSE) have an interest in five exploration blocks in Laos, North East Thailand and Vietnam.
The Financial Times recently reported that one local car showroom in Hanoi had just sold eight Bentleys. It said “this is the new face of the Socialist Republic of Vietnam.” Some of the world’s largest groups are in Vietnam. Unilever, international beer groups such as SABMiller, Heineken, Carlsberg, Anheuser Busch, Mobile phone producer Nokia, and a vast array of mining groups are active and profitable. The number of high net worth citizens of Vietnam, Cambodia and Laos is accelerating. But most citizens are living on little a day. However, if it is measured, more and more are rising form the poverty trap as a result of mining, industrialization and commercial activity.
Cambodia and Laos are rather like Vietnam some years ago. While they are all communist regimes, like China, they are adopting pragmatic policies. There is little doubt that like Vietnam they will move in the same direction. They all offer tax holidays and incentives for manufacture, exploration and mining and for creating employment.
The proximity with Singapore, or similarly Hong Kong, with the dedicated knowledge of these areas available, these two are excellent entry points for setting up holding entities for investing in Vietnam, Cambodia or Laos. And as I explained in my article a year or two ago in Offshore Investment, the very favourable tax treatment in Singapore and Hong Kong combined with the lack of Capital Gains Tax, the non taxing of unremitted income, good trust law,etc, is very beneficial.
While there is no Trust law in either of the three jurisdictions, it is expected that this might be introduced in the near future in Vietnam…