Vietnam: High Potential, High Risks

For example, the government holds big stakes in some prominent firms like Vinamilk (the country’s largest dairy company), Vietcombank and Baoviet Holdings, an insurance and financial services company.

State-directed investments such as those in the Dung Quat refinery or Vinashin, a recently reorganized shipbuilding firm, are highly inefficient, Dapice said. He estimates that 40-50 percent of investments are state-directed.

Although foreigners can buy shares on the Vietnamese exchanges (with certain limits), most stocks are small-cap and illiquid.

“Foreign investors currently own about 30 percent of all stocks, but they recognize that there are macroeconomic risks to investing in Vietnam,” he added.

Foreign exporters can go into many provinces of Vietnam and not face much interference from the state, Dapice indicated.

“However, foreign companies that sell mainly in Vietnam often have to put up with more of the state’s complex rules and regulations,” he said.

Dapice, who also serves as a professor of economics at Tufts University, said Vietnam's economic system is dualistic: the export and domestic sector are quite efficient and use capital pretty efficiently; while some government-controlled enterprises are largely inefficient.

In fact, through the first eight months of 2010, exports have climbed 19.7 percent to $44.52 billion while imports have jumped 24.4 percent to $52.68 billion.

“Most industries in Vietnam are still low-tech: for example, milk producers, fish, shrimp, textiles, shoes, etc.” Dapice said. “However, the state and a few foreign firms are now rapidly expanding in heavy
industries like cement, steel and oil refining. In addition, Intel (NASDAQ: INTC) has invested in a chip-testing and assembly plant. But overall, industry is not yet very sophisticated.”