Private Equity Investors Increasingly Bullish About Vietnam
HCMC – 2014 looks to be a promising year for private equity (PE) investment into Vietnam. Higher prices for companies in North America and political and regulatory risks in China are leading PE investors to emerging markets like Vietnam.
Additionally, the latest GDP figures show that the Vietnamese economy grew by 5.25 percent in the second quarter of 2014; there is also low inflation (less than 6 percent) and low interest rates. All of these factors are making the country a prime place for PE investment.
However, Vietnam’s economy is still facing many challenges including slow reforms in the state-owned sector, a high rate of non-performing loans, and slow bank lending, but this has not stopped PE investors from still feeling confident about the future of the Vietnamese economy.
According to a recent survey conducted by the global consultancy firm Grant Thornton, 48 percent of respondents expressed a positive sentiment towards the Vietnamese economy. This is an increase from the 43.5 percent in 2013.
Even though PE investors are positive about the Vietnamese market, they still have a number of concerns that they want to see the government address. Chief among these worries are low labor productivity, the constant changes in economic policies and the legal system, and a relatively high level of corruption.
PE investors are most interested in investing into Vietnam’s retail sector, closely followed by the food and beverage sector. As a result of rapid urbanization and a large youth population, the retail sector is expected to grow by more than 20 percent per year over the next few years. As a result, many of the world’s leading retailers have expressed great interest in the Vietnamese market.
The real estate/property and hospitality and leisure sectors are also very attractive to foreign PE investors due to the country’s youthful demographics and positive changes in the government’s property ownership laws.
However, while in previous years education was considered an “attractive industry,” this year investors have not shown much interest in this sector due mainly to increasing market competition and barriers from local regulations.
It is clear from Grant Thornton’s survey that, in order to succeed in Vietnam, PE firms will need to understand and adapt to the country’s idiosyncrasies and business customs rather than simply transferring their whole business model from the West and expect it to work over here. PE investors should also plan on making smaller deals when they first enter the market in order to accommodate family groups and state-owned PE firms.
Furthermore, foreign PE firms must also prepare themselves to face difficulties when it comes to encouraging transparency in business activities. Since public information and the quality of information are often very limited, it can be difficult for investors to make fully-informed decisions.
However, despite these obstacles, Vietnam still has over 300,000 small and medium sized enterprises (SMEs), many of which are prime targets for foreign PE investors. The country continues to offer great potential for private equity investors and foreign money pouring into the country shows no sign of stopping.
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