Chris Malone: «This Time it's Different in Vietnam»

Chris Malone, Boston Consulting Group

Chris Malone, Boston Consulting Group

Vietnam has the potential to be an economic powerhouse. However, it frequently regresses scaring off international investors. But recent changes might see the country change, says Chris Malone of Boston Consulting Group in an interview with    

Chris Malone is a Partner and an Economic Development Expert in Boston Consulting Group’s Ho Chi Minh office in Vietnam. His twenty-year career has spanned both the Middle East and South East Asia, where he has advised government and business leaders on issues relating to economic growth, institutional transformation and business strategy. recently met with him.

Mr. Malone, the Vietnamese economy has been winning many plaudits recently, is it deserved?

Vietnam has made significant improvement in its fundamentals. For instance, it has lowered inflation from the high teens in 2011 to under 1 percent in 2015, and this has been whilst the economy has picked up significantly, growing at more than 6 percent at present. The government has clearly stepped up its game in managing the economy in recent years.

We have been here before. Vietnam was booming and opening up a few years ago and then the direction changed, is it different this time?

We believe the overall trend for Vietnam's development will continue to be good, and there is limited evidence pointing to a change in direction. The country has recently signed the TPP agreement, which when approved by all countries will give Vietnam unprecedented access into several large economies including the US and Japan. The TPP is also likely to facilitate investment into Vietnam, with some estimates anticipating up to a 30 percent increase in flows, and an overall increase of 1 percent to GDP every year for a decade.

«Regulations are still catching up»

On the other hand, there are reforms that are required if Vietnam is to achieve this growth potential. The business environment and investment environment must improve at both the national and provincial level, and there are gaps in the country's performance on infrastructure, governance and labour markets when compared to other ASEAN peers.

Are regulations on banks and asset managers being calibrated in line with the economic progress?

Regulations are still catching up with economic progress. The government has acknowledged the demand to strengthen both its capital and debt markets; however, in recent years, there has been limited progress. Bank credit still provides roughly 80 percent of capital for enterprises in Vietnam compared to, say, 45 percent in Thailand and 55 percent in Indonesia.

We believe further opening of the economy through TPP and the Asian Economic Community will create competitive forces that will put pressure on the government, as well as banks in Vietnam, to migrate faster toward regional and international norms.

Some entrepreneurs in Vietnam are doing well. How do they invest their wealth?

The majority of investment is still being put into the real estate market, and traditional bank deposits. Beyond that, many wealthy individuals look to diversify some of their exposure to Vietnam by seeking international capital markets.

«Moving capital and investment overseas still bears some restrictions»

The capital markets in Vietnam are still quite thin and feature a number of equitised state-owned enterprises which are an unlikely place for Vietnamese entrepreneurs to place their capital. We have seen some experimentation in Exchange Traded Funds (ETF) and mutual funds, but uptake has been quite low.

Is there a formal legal channel for the new wealthy in Vietnam to invest overseas?

Moving capital and investment overseas still bears some restrictions. Of course for some there are ways around these restrictions but regulatory scrutiny limits the volume associated with these channels.

What are the most practical ways for overseas investors to tap into the Vietnamese success story?

Foreigners are permitted to invest in Vietnamese stock markets (up to the legal limit imposed on foreign holdings) and in property markets. The Vietnam stock market performed relatively well this year and last – albeit against a weak set of peers. Ongoing equitisation of state owned enterprises should deepen capital markets, along with the new regulations aimed at developing a derivates market.

«Currently there are only a few dozen fintech start ups in the country»

Are you seeing any signs of a domestic fintech scene emerging?

Fintech is still very nascent in Vietnam. Currently there are only a few dozen fintech start ups in the country, and many of them experience difficulty in getting to scale. On the other hand, the fundamentals look quite good, with Vietnam having completed a leap-frog past Thailand and Indonesia in terms of mobile penetration and the number of people who have made a purchase online using a smartphone.

And there are some market signals that suggest that technology could be an area to watch in Vietnam. In a recent survey conducted with Japanese IT companies, 30 percent of them said they would like to outsource activities to Vietnam, a higher proportion than for India, China and Thailand.

Chris Malone, a Partner and Managing Director at the Boston Consulting Group, is an expert in the field of competitiveness and economic development. His work in Vietnam has included a number of provincial economic strategies, addressing issues such as tourism promotion, industrial development and agricultural productivity.

He has led both the creation and the transformation of a number of agencies within the economic systems of governments in the Middle East and South East Asia, working with heads of state and minister-level clients to modernise and upgrade institutional capabilities.

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