Stronger capital flow from Singapore

14:00 | 09/08/2018
There is a trend towards rising consumerism in Vietnam, especially in the sectors Singaporean investors are encouraged to engage in by government policies. Jazreel Lim, president of the Singapore Business Association of Vietnam (SBAV), analyses the overall picture of Singaporean investment and the developments expected in the future on the back of several free trade agreements.
stronger capital flow from singapore
Jazreel Lim

Trade and business links between Singapore and Vietnam have always been robust, ever since the countries established bilateral diplomatic relations back in 1973. Singapore has consistently been among the top five foreign investors in Vietnam by value of new investments. According to Vietnam’s General Statistics Office (GSO), Singapore ranked second in 2016, third in 2017, and continued to keep its position in the first seven months of 2018. Broadly speaking, real estate and construction, education, manufacturing, infrastructure, and healthcare have traditionally been the big magnets in the Vietnamese market.

Since the signing of the Vietnam-Singapore Economic Connectivity Agreement in 2005, the level of collaboration and mutual business opportunities from the segments of transportation, investment, trade, and services is evident. Singaporean companies boast great achievements in Vietnam. Successful stories include CapitaLand, with its famous projects (The Vista, and Vista Verde), and Mapletree, all of which are prominent names on the real estate market. Another name, the Vietnam-Singapore Industrial Park (VSIP)–a joint venture between Becamex IDC and Sembcorp–is a good indicator of how the strong relationship between the two governments of Vietnam and Singapore has tightened rapidly.

Investment movements

In addition to the traditional sectors, there appears to be a trend towards rising consumerism in Vietnam, as well as a surge in healthcare and renewable energy. The developments in healthcare and renewable energy could be due to government policies encouraging such sectors. Fast-moving consumer goods and IT are additional centres of attention.

Government reform in opening up sectors which were previously restricted or capped for foreign investment, like pharmaceuticals, healthcare, and state-owned enterprises (SOEs), will influence the focus of investments from Singapore. Besides, the improved business climate, growing population, rising middle-class, and heightened ability to spend are the main factors that drive more Singaporean investment into consumer goods and retail.

Energy is also attractive. Circular No.16/2017/TT-BCT, which regulates solar power projects and provides standard power purchase agreements for such projects, was issued in September 2017 following the Vietnamese prime minister’s Decision 11 in April 2017 announcing incentives and a new feed-in tariff (FiT) for solar power projects in Vietnam. These are active steps taken by Vietnam towards fulfilling its plan for renewable energy to make up 21 per cent of its energy mix by 2030. They are regarded positively by investors, as they emphasise the commitment of Vietnamese policy-makers towards renewable energy and green growth.

Solar power project development, from the identification of a viable site until commercial operation, would typically take more than three years. The current circular stipulates that the feed-in tariff incentive is only applicable for projects with a date of first commercial operation before June 30, 2019. This is a key concern for interested project developers, as they would have to weigh various factors such as the availability of the grid, project delays, and financing costs with the critical question of whether they would be entitled to the FiT incentive.

The ongoing development of the regulatory framework is a key factor influencing investors’ business decisions in Vietnam. Moreover, powerful groups and more small- and medium-sized enterprises (SMEs) from Singapore are also targeting Vietnam. In a recent HSBC report, 86 per cent of respondents were SMEs with annual revenues of up to S$100 million ($73.4 million) and fewer than 200 employees.

Mergers and acquisitions (M&A) are also an effective investment channel for Singaporean and other investors. In the last 10 years (2007-2017), Singapore was in second place in terms of the number of M&A transactions, with 86 deals, and fourth in M&A value, with $1.86 billion. In 2016, total M&A transactions in Vietnam were valued at $5.8 billion, representing an increase of 11.9 per cent compared to 2015. Singapore led the pack in terms of the number of reported deals in 2016 with 20 deals, focusing on real estate and construction, and came second in deal value with $900 million.

Growing interest ahead

According to the HSBC report, around 77 per cent of Singaporean companies said that they have plans to expand abroad, with Vietnam being one of the top three destinations. Investment inflows from Singapore into Vietnam come from both local companies and multinational corporations (MNCs) headquartered in Singapore. Of 37,400 international corporations in Singapore, 7,000 are MNCs. Hanoi, Ho Chi Minh City, Danang, Binh Duong, and Haiphong will remain the most appealing destinations to these investors.

Our members are looking for opportunities in stake sales from SOEs. With recent definitive moves by the government to accelerate the process, more opportunities will be available ahead for foreign investors.

However, the government’s efforts are only a starting point. The key question is whether SOEs are ready to sell. An underperforming stock market in 2018’s second quarter will contribute significantly to a delay in finding strategic investors for several long-awaited SOE divestments, notably Binh Son Refining and Petrochemical, PV Oil, PV Power, and Habeco. If successful, these four state ownership divestments could easily bring in billions of dollars each.

Going forward, we are happy to hear that the EU and the ASEAN have announced the resumption of negotiations on a free trade agreement (FTA). An FTA between the EU and the ASEAN is expected to drive trade growth. As ASEAN members, Vietnam and Singapore will benefit from tariff cuts if this potential FTA is signed. And, inevitably, more Singaporean companies will expand to and within Vietnam to cash in on the potential.

Besides, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership is expected to create an investment wave from Singapore to Vietnam. It will create one of the world’s largest free trade blocs.

Olivier Duguet - CEO, The Blue Circle

stronger capital flow from singapore

The Blue Circle has a unique team of professionals with extensive experience in wind power project development, financing, construction, and operation from other countries. I have myself created, financed, and developed the premier wind independent power producer in France between 2000 and 2007. It remains to be seen if The Blue Circle can be successful in Vietnam, but I think we are the best-positioned of all foreign investors present in Vietnam to do so.

Vietnam is a key market for our expansion in Southeast Asia and Dam Nai will be our first operating project in the region. The Blue Circle intends to be an important long-term power producer in Vietnam, with other projects under development. Our Dam Nai project will position The Blue Circle to be one of Vietnam’s wind energy pioneers.

Construction of the project is taking place in phases throughout 2017 and 2018. The Dam Nai project is the first foreign-owned wind power plant in Vietnam. Working with our local partner Do Van Dien of TSV JSC, we identified the site and measured the potential of the project using a 24-year re-modelled mesoscale time series correlated with on-site measurements. The first phase of 6 megawatts (MW) is already operational, while the second phase of 34MW is planned for commissioning in the fourth quarter of 2018. Located in a subtropical zone with long coastlines, Vietnam has many advantages for developing wind power.

We are looking to bridge the gaps in project development in the region by bringing international project development experience, financial expertise, and capabilities together with local market understanding. The Blue Circle focuses on commercially viable and feasible projects through a vertically integrated structure.


stronger capital flow from singapore

This month marks the 45th anniversary of bilateral relations between Vietnam and Singapore and is also the month in which United Overseas Bank (UOB) officially launches our subsidiary bank in Vietnam.

The opening of UOB Vietnam, the first foreign-owned subsidiary bank from Singapore, is a significant milestone for us. Our 20-year presence in Vietnam, together with our extensive regional network that spreads across eight countries in the ASEAN, has enabled us to help companies increase intra-regional investment.

To help the country’s small businesses prosper and grow, we have established dedicated business banking services to enable our customers to manage their operations and to seize overseas expansion opportunities.

UOB Vietnam is also committed to nurturing the local banking talent in Vietnam.

Pine Kyaw - Managing director, Shopee Vietnam

stronger capital flow from singapore

Shopee is an e-commerce platform headquartered in Singapore. We started with the best mobile platform for usage and invested a lot in mobile efforts. The advantage for Shopee is that we built an eco-system around mobile, while other platforms started off on desktops. To an average consumer, this is a small difference, but from a company perspective, the overall strategy, capabilities, and abilities are much different.

We took a first bet on mobile and that is the huge difference-maker for us, resulting in a much cleaner and smoother user experience on mobile. The second thing we pride ourselves on is being more of a social platform than just a buy-and-sell one. Because of the social aspect, plenty of demands are catered to. Shopee tries to solve the issue of trust in online shopping. To protect the buyers, we have the “Shopee Guarantee”. We display the seller’s reputation indexes such as shop rating, response rate, and reviews from previous buyers to give the customers information before making their buying decisions.

JUSTIN HALL - Principal, Golden Gate Ventures

stronger capital flow from singapore

What impresses venture capitalists the most about Vietnam is its tech talents.

We expect to see continued upside on consumer-oriented tech companies, those who take advantage of Vietnam’s young, digital-savvy population. We’ve invested in three local startups so far (Wifi Chua, Appota, and Lozi) and they’re all doing very well. At the moment, we are looking at a dozen promising companies in Vietnam. We want to target Vietnamese companies that have the potential to be regional leaders–we look at their potential to succeed in six markets in the ASEAN.

This can be difficult because most Vietnamese startups want to focus on the domestic market first. Moreover, the ASEAN is not easy to conquer, as a startup can be number one in a market and not in another. Grab is one case of an ASEAN startup that localises very well, depending on the country it operates in.

However, I still want to encourage Vietnamese startups to think about possible ventures outside of Vietnam, as a well thought-out expansion plan will impress Series A investors.

Based on MasterCMS Ultimate Edition Ver 2.8 2018