Policies Towards Foreign Direct Investment

Bangladesh actively seeks foreign investment, particularly in the agribusiness, garment and textiles, leather and leather goods, light manufacturing, energy, information and communications technology (ICT), and infrastructure sectors.  It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with promoting supervising and promoting private investment.  The BIDA Act of 2016 approved the merger of the now disbanded Board of Investment and the Privatization Committee. BIDA performs the following functions:

• Provides pre-investment counseling services
• Registers and approves of private industrial projects
• Issues approval of branch/liaison/representative offices
• Issues work permits for foreign nationals
• Issues approval of royalty remittances, technical know-how and technical assistance fees
• Facilitates import of capital machinery and raw materials
• Issues approvals for foreign loans and supplier credits

BIDA’s newly designed website has aggregated information regarding Bangladesh investment policies and ease of doing business indicators: http://bida.gov.bd/  .  

The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs).  BEPZA is the one-stop service provider and regulatory authority for companies operating inside EPZs. In addition, Bangladesh plans to establish over 100 Economic Zones (EZs) throughout the country over the next several years.  The EZs are designed to attract additional foreign investment to locations throughout the country. The Bangladesh Economic Zones Authority (BEZA) is responsible for supervising and promoting investments in the economic zones (EZs).  

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled.  Regulations in the area of telecommunication infrastructure currently include provisions for 60 percent foreign ownership (70 percent for tower sharing).

Four sectors are reserved for government investment and exclude both foreign and domestic private sector activity:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

In addition, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

1. Fishing in the deep sea
2. Bank/financial institution in the private sector
3. Insurance company in the private sector
4. Generation, supply and distribution of power in the private sector
5. Exploration, extraction and supply of natural gas/oil
6. Exploration, extraction and supply of coal
7. Exploration, extraction and supply of other mineral resources
8. Large-scale infrastructure projects (e.g. flyover, elevated expressway, monorail,     economic zone, inland container depot/container freight station)
9. Crude oil refinery (recycling/refining of lube oil used as fuel)
10. Medium and large industry using natural gas/condescend and other minerals as raw material
11. Telecommunication service (mobile/cellular and land phone)
12. Satellite channels
13. Cargo/passenger aviation
14. Sea-bound ship transport
15. Sea-port/deep seaport
16. VOIP/IP telephone
17. Industries using heavy minerals accumulated from sea beach

While discrimination against foreign investors is not widespread, the government frequently promotes local industries and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically-manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms, following a prime ministerial directive.  In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined.

In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.

Business Registration

The Bangladesh Investment Development Authority (BIDA), formerly the Board of Investment, is responsible for screening, reviewing, and approving FDI in Bangladesh.  BIDA is directly supervised by the Prime Minister’s office and the Chairman of BIDA has Minister-equivalent rank. There have been instances where receiving approval was delayed.  Once the foreign investor’s application is submitted to BIDA, the authorities review the proposal to ensure the investment does not create conflicts with local business. Investors note it is frequently necessary to separately register with other entities such as the National Board of Revenue.  According to the World Bank, business registration in Bangladesh takes 19.5 days on average with nine distinct steps: http://www.doingbusiness.org/data/exploreeconomies/bangladesh/   .  

BIDA’s resources on Ease of Doing Business, Investment Opportunity, Potential Sectors, and Doing Business in Bangladesh are also available at:  

• http://bida.gov.bd/?page_id=2532  
• http://bida.gov.bd/?page_id=2532  
• http://bida.gov.bd/?page_id=2313  
• http://bida.gov.bd/?page_id=1384  

Requirements vary by sector, but all foreign investors are also required to obtain clearance certificates from relevant ministries and institutions with regulatory oversight.  BIDA establishes time-lines for the submission of all the required documents. For example, if a proposed foreign investment is in the healthcare equipment field, investors need to obtain a No Objection Certificate (NOC) from the Directorate General for Health Services under the Ministry of Health.  The NOC states that the specific investment will not hinder local manufacturers and is in alignment with the guidelines of the ministry. Negative outcomes can be appealed, except for applications pertaining to the four restricted sectors previously mentioned.

A foreign investor also must register its company with the Registrar of Joint Stock Companies and Firms (RJSC&F) and open a local bank account under the registered company’s name.  For BIDA screening, an investor must submit the RJSC&F Company Registration certificate, legal bank account details, a NOC from the relevant ministry, department, or institution, and a project profile (if the investment is more than USD 1.25 million) along with BIDA’s formatted application form.

Other Investment Policy Reviews

In 2013 Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD) and can be found at: http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=444&Sitemap_x0020_Taxonomy=Investment percent20Policy percent20Reviews percent20(IPR);#20;#UNCTAD percent20Home  .

Bangladesh has not conducted an IPR through the Organization for Economic Cooperation and Development.

A Trade Policy Review was last done by the World Trade Organization in October 2012 and can be found at:  https://www.wto.org/english/tratop_e/tpr_e/tp370_e.htm  .

With EU assistance, Bangladesh conducted a trade policy review, the “Comprehensive Trade Policy of Bangladesh” which was published by the Ministry of Commerce in September 2014.  Current Bangladesh government export and import policies are available at: http://www.mincom.gov.bd/site/page/30991fcb-8dfc-4154-a58b-09bb86f60601/Policy  .

Business Facilitation

The Government has had limited success reducing the time required to establish a company.  BIDA and BEZA are both attempting to establish one-stop business registration shops and these agencies have proposed draft legislation for this purpose.  In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes.  Expected streamlined services from BIDA include: company registration, name clearance issuance, tax certificate and taxpayer’s identification number (TIN), value added tax (VAT) registration, visa recommendation letter issuance, work permit issuance, foreign borrowing request approval, and environment clearance.  BIDA started its online one-stop service (OSS) on a trial basis in January 2018. Businesses are currently getting 15 types of services online. BIDA aims to automate 150 processes from 34 government agencies once the OSS becomes fully operational.

Companies can register their business at the Office of the Registrar of Joint Stock Companies and Firms:  www.roc.gov.bd  .  However, the online business registration process is not clear and cannot be used by a foreign company to attain the business registration as certain steps are required to be performed in-person.  

In addition, BIDA has branch/liaison office registration information on its website at: http://bida.gov.bd/  .  

Other agencies with which a company must typically register are as follows:

• City Corporation – Trade License
• National Board of Revenue – Tax & VAT Registration
• Chief Inspector of Shops and Establishments – Employment of workers notification.

The company registration process now takes around 15 workdays to complete.  The process to open a branch or liaison office is approximately one month. The process for a trade license, tax registration, and VAT registration requires seven days, two days, and three weeks, respectively.  

Outward Investment

Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947.  As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the 1947 Act by adding a “conditional provision” that permits outbound investment for export-related enterprises.  Private sector contacts note that the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.

Capital Markets and Portfolio Investment

Capital markets in Bangladesh are still developing and the financial sector remains highly dependent on bank lending.  Current government policy inhibits the creation of reliable benchmarks for long-term bonds and prevents the development of a tradable bond market.  

Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE).  The Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance, regulates both.  As of March 2019, the DSE market capitalization stood at USD 48.6 billion.

Although the GOB has a positive attitude towards foreign portfolio investors, participation remains low due to limited liquidity and the lack of publicly available and reliable company information.  The DSE has attracted some foreign portfolio investors to the country’s capital market; however, the volume of foreign investment in Bangladesh remains a small fraction of total market capitalization.  As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors and Bangladeshi firms increasingly rely on capital markets to finance investment projects.  In March 2017, the government relaxed investment rules making it possible for foreign investors to use local currency to invest directly in local companies through the purchase of corporate shares.

BSEC has formed separate committees to establish a central clearing and settlement company, allow venture capital and private equity firms, launch derivatives products, and activate the bond market.  In December 2013, BSEC became a full signatory of International Organization of Securities Commissions (IOSCO) Memorandum of Understanding.

BSEC has taken steps to improve regulatory oversight, including installing a modern surveillance system, the “Instant Market Watch,” that provides real time connectivity with exchanges and depository institutions.  As a result, the market abuse detection capabilities of BSEC have improved significantly. A new mandatory Corporate Governance Code for listed companies was introduced in August 2012. Demutualization of both the DSE and CSE was completed in November 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously.  All these reforms target a disciplined market with better infrastructure so that entrepreneurs can raise capital and attract foreign investors.

The Demutualization Act 2013 also directed DSE to pursue a strategic investor who would acquire a 25 percent stake in the bourse.  DSE opened bids for a strategic partner in February 2018 and, in September 2018, the Chinese consortium of Shenzhen and Shanghai stock exchanges became DSE’s strategic partner after buying a 25 percent share of DSE for taka 9.47 billion (USD 112.7 million).  

According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts.  Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.

Money and Banking System

The Bangladesh Bank (BB) acts as the central bank of Bangladesh.  It was established on December 16, 1971 through the enactment of the Bangladesh Bank Order-1972.  General supervision and strategic direction of BB has been entrusted to a nine-member Board of Directors, which is headed by the BB Governor.  BB has 45 departments and 10 branch offices.

According to the BB, four types of banks operate in the formal financial system: State Owned Commercial Banks (SOCBs), Specialized Banks, Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs).  Some 59 “scheduled” banks in Bangladesh operate under the full control and supervision of the center as per the Bangladesh Bank Order 1972. The scheduled banks including six SOCBs, three specialized government banks established for specific objectives like agricultural or industrial development, 41 PCBs, and nine FCBs as of March 2019.  The scheduled banks are licensed to operate under Bank Company Act 1991 (Amended 2013). There are also five non-scheduled banks in Bangladesh, established for special and definite objectives and operating under Acts that are enacted for meeting up those objectives.

Currently, 34 non-bank financial institutions (FIs) are operating in Bangladesh.  They are regulated under the Financial Institution Act, 1993 and controlled by the BB.  Out of the total, two are fully government owned, one is a subsidiary of an SOCB, 15 are private domestic initiatives, and 15 are joint venture initiatives.  Major sources of funds of these financial institutions are term deposits (at least three months tenure), credit facilities from banks and other financial institutions, call money, as well as bonds and securitization.

The major difference between banks and FIs are as follows:

FIs cannot issue checks, pay-orders, or demand drafts,

FIs cannot receive demand deposits,

FIs cannot be involved in foreign exchange financing,

FIs can employ diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.

Microfinance institutions (MFIs) remain the dominant players in rural financial markets.  According to the Bangladesh Microcredit Regulatory Authority, as of June 2017, there were 783 licensed micro-finance institutions operating a network of 17,120 branches with 29.2 million members.  A 2014 Institute of Microfinance survey study showed that around 40 percent of the adult population and 75 percent of households had access to financial services in Bangladesh.

The banking sector has had a mixed record of performance over the past several years, but the sector has maintained overall healthy growth.  Total assets in the banking sector stood at 62.5 percent of gross domestic product at end of September 2018. The gross non-performing loan (NPL) ratio was 11.45 percent at end of September 2018.

On December 26, 2017, the BB issued a circular warning citizens and financial institutions about the risks associated with cryptocurrencies.  The circular noted that using cryptocurrencies may violate existing money laundering and terrorist financing regulations and that users may incur financial losses.  According to the BB, the circular did not constitute a ban. Bangladesh foreign exchange regulations, which limit outward payments, largely prevent the use of cryptocurrencies in Bangladesh.  The BB issued similar warnings against cryptocurrencies in 2014.

Foreign Exchange and Remittances

Foreign Exchange Policies

Free repatriation of profits is legally allowed for registered companies and profits are generally fully convertible.  However, companies report that the procedures for repatriation of foreign currency are lengthy and cumbersome. The Foreign Investment Act guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses.  The central bank’s exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. The Bangladesh Investment Development Authority may need to approve repatriation of royalties and other fees.

Since 2013, Bangladesh has tried to manage its exchange rate vis-à-vis the U.S. dollar within a fairly narrow range.  Until 2017, the Bangladesh taka traded between 76 and 78.8 taka to the dollar. The taka has depreciated relative to the dollar since October 2017 reaching 84.25 taka per dollar as of March 2019, despite ongoing interventions from the Bangladesh Bank.  The Bangladesh currency, the taka, is approaching full convertibility for current account transactions, such as imports and travel, but not for capital account transactions, such as investing, currency speculation, or e-commerce.

Remittance Policies

There are no set time limitations or waiting periods for remitting all types of investment returns.  Remitting dividends, returns on investments, interest, and payments on private foreign debts do not require approval from the central bank and transfers are done within one to two weeks.  For repatriating lease payments, royalties and management fees, some central bank approval is required, and this process can take between two and three-weeks. If a company fails to submit all the proper documents for remitting, it may take up to 60 days.  Foreign investors have reported difficulties transferring funds to overseas affiliates and making payments for certain technical fees without the government’s prior approval to do so. Additionally, some regulatory agencies have reportedly blocked the repatriation of profits due to sector-specific regulations.  The U.S. Embassy also received complaints of American citizens not being able to transfer the proceeds of sales of their properties. There is no mechanism in place for foreign investors to repatriate through government bonds issued in lieu of foreign currency payments. Bangladesh is not involved in currency manipulation tactics.

The Financial Action Task Force (FATF) notes that Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance (AML/CTF) commitments.  The Asia/Pacific Group on Money Laundering (APG), an independent and collaborative international organization based in Bangkok, conducted its mutual evaluation of Bangladesh’s AML/CTF regime in September 2018 and found that Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but that Bangladesh still faces significant money laundering and terrorism financing risks.  The APG reports are available online: http://www.fatf-gafi.org/countries/#Bangladesh  .

Sovereign Wealth Funds

The Bangladesh Finance Ministry first announced in 2015 that it is exploring the possibility of establishing a sovereign wealth fund for the purposes of investing a portion of Bangladesh’s foreign currency reserves.  In February 2017, the Cabinet initially approved a USD 10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) that will be created with funds from excess foreign exchange reserves. The government claims the BSWF will be used to invest in “public interest” projects.  Bangladesh does not currently follow the Santiago Principles, a voluntary set of 24 principles and practices designed to promote transparency, good governance, accountability, and prudent investment practices while encouraging a more open dialogue and deeper understanding of sovereign wealth fund activities.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Policies Towards Foreign Direct Investment

Vietnam continues to welcome FDI and foreign companies play an important role in the economy. According to the Government Statistics Office (GSO), FDI exports of USD 175 billion accounted for 72 percent of total exports in 2018 (compared to 47 percent in 2000).

Despite improvements in the business environment, including economic reforms intended to enhance competitiveness and productivity, Vietnam has benefited from global investors’ efforts to diversify their supply chains. Vietnam’s rankings fell in the most recent World Economic Forum Competitiveness Index (from 74/135 in 2017 to 77/140 in 2018) and World Bank Doing Business Index (from 68 in 2018 to 69 in 2019), but its raw scores improved compared to prior years. According to the 2018 Organization for Economic Cooperation and Development (OECD) Investment Policy Review, Vietnam has an “average” level of openness compared to other OECD countries, though it is second to only Singapore within ASEAN. The OECD ranked Vietnam’s openness to FDI as higher than that of South Korea, Australia, and Mexico.

Vietnam seeks to move up the global value chain by attracting FDI in sectors that will facilitate technology transfer, increase skill sets in the labor market, and improve labor productivity, specifically targeting high-tech, high value-added industries with good environmental safeguards. Assisted by the World Bank, the government is drafting a new FDI Attraction Strategy for 2030. This new strategy is intended to facilitate technology transfer and environmental protection, and will supposedly move away from tax reductions to other incentives, such as using accelerated depreciation and more flexible loss carry-forward provisions and focusing on value-added qualities instead of on sectoral categories.

Since the Prime Minister included the Provincial Competitiveness Index (PCI) as a target for improving national business competitiveness in Resolution 19 in 2014, PCI has become a major measurement for provincial economic governance policy reform. In January 2019, a new Resolution 02 also included PCI targets as a means to improve the business and investment environment in Vietnam.

Although there are foreign ownership limits (FOL), the government does not have investment laws discriminating against foreign investors; however, the government continues to favor domestic companies through various incentives. According to the OECD 2018 Investment Policy Review, SOEs account for one third of Vietnam’s gross domestic product and receive preferential treatment, including favorable access to credit and land. Regulations are often written to avoid overt conflicts and violations of bilateral or international agreements, but in reality, U.S. investors feel there is not always a level playing field in all sectors. In the 2018 Perceptions of the Business Environment Report, the American Chamber of Commerce (AmCham) stated: “Foreign investors need a level playing field, not only to attract more investment in the future, but also to maintain the investment that is already here. Frequent and retroactive changes of laws and regulations – including tax rates and policies – are significant risks for foreign investors in Vietnam.”

The Ministry of Planning and Investment (MPI) oversees an Investment Promotion Department to facilitate all foreign investments, and most of provinces and cities have investment promotion agencies. The agencies provide information, explain regulations, and offer support to investors when requested.

The semiannual Vietnam Business Forum allows for a direct dialogue between the foreign business community and government officials. The U.S.-ASEAN Business Council (USABC) also hosts multiple missions for its U.S. company members enabling direct engagement with senior government officials through frequent dialogues to try to resolve issues. In addition, the 2018 PCI noted 68.5 percent of surveyed companies stated that dialogues and business meetings with provincial authorities helped address obstacles and that they were satisfied with the way provincial regulators dealt with their concerns.  

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own businesses in Vietnam, except in six prohibited areas (illicit drugs, wildlife trading, prostitution, human trafficking, human cloning, and chemical trading). If a domestic or foreign company wants to operate in 243 provisional sectors, it must satisfy conditions in accordance with the 2014 Investment Law. Future amendments to the law are likely to narrow this list further, allowing firms to engage in more business areas. Foreign investors must negotiate on a case-by-case basis for market access in sectors that are not explicitly open under existing signed trade agreements. The government occasionally issues investment licenses on a pilot basis with time limits, or to specifically targeted investors.

Vietnam allows foreign investors to acquire full ownership of local companies, except when mentioned otherwise in international and bilateral commitments, including equity caps, mandatory domestic joint-venture partner, and investment prohibitions. For example, as specified in the Vietnam’s World Trade Organization (WTO) commitments, highly specialized and sensitive sectors (such as banking, telecommunication, and transportation) still maintain FOL, but the Prime Minister can waive these restrictions on a case-by-case basis. Vietnam also limits foreign ownership of SOEs and prohibits importation of old equipment and technologies more than 10 years old. No mechanisms disadvantage or single out U.S. investors.

Merger and acquisition (M&A) activities can be complicated if the target domestic company is operating in a restricted or prohibited sector. For example, when a foreign investor buys into a local company through an M&A transaction, it is difficult to determine which business lines the acquiring foreign company is allowed to maintain and, in many cases, the targeted company may be forced to reduce its business lines.

The 2017 Law on Technology Transfer came into effect in July 2018, along with its implementing documents Decree 76/2018/ND-CP and Circular 02/2018/TT-BKHCN. These require mandatory registration of technology transfers from a foreign country to Vietnam. This registration is separate from registration of intellectual property rights and licenses.  

Vietnam allows for five years of regulatory data protection (RDP) as part of its U.S.-Vietnam bilateral trade agreement obligations.  However, Vietnamese law requires companies to apply separately for RDP within the 12 months following receipt of market authorization for any country in the world. Specifically, decree No. 169/2018/ND-CP, effective from February 2018, tightened the regulatory process for the registration of medical devices and no longer accepted foreign classification results in Vietnam, lengthening procedural time and increasing expenses for foreign manufacturers.

Vietnamese authorities screen investment-license applications using a number of criteria, including: 1) the investor’s legal status and financial capabilities; 2) the project’s compatibility with the government’s “Master Plan” for economic and social development and projected revenue; 3) technology and expertise; 4) environmental protection; 5) plans for land-use and land-clearance compensation; 6) project incentives including tax rates, and 7) land, water, and sea surface rental fees. The decentralization of licensing authority to provincial authorities has, in some cases, streamlined the licensing process and reduced processing times. However, it has also caused considerable regional differences in procedures and interpretations of investment laws and regulations. Insufficient guidelines and unclear regulations can prompt local authorities to consult national authorities, resulting in additional delays. Furthermore, the approval process is often much longer than the timeframe mandated by laws. Many U.S. firms have successfully navigated the investment process, though a lack of transparency in the procedure for obtaining a business license can make investing riskier.

Provincial People’s Committees approve all investment projects, except the following:

• The National Assembly must approve investment projects that:
  • have a significant environmental impact;
  • change land usage in national parks;
  • are located in protected forests larger than 50 hectares; or
  • require relocating 20,000 people or more in remote areas such as mountainous regions.
• The Prime Minister must approve the following types of investment project proposals:
  • building airports, seaports, or casinos;
  • exploring, producing and processing oil and gas;  
  • producing tobacco;
  • possessing investment capital of more than VND 5,000 billion (USD 233 million);
  • including foreign investors in sea transportation, telecommunication or network infrastructure, forest plantation, publishing, or press; and
  • involving fully foreign-owned scientific and technology companies or organizations.

Other Investment Policy Reviews

Vietnam went through an OECD Investment Policy Review in 2018. The WTO reviewed Vietnam’s trade policy and the report is online. (https://www.wto.org/english/tratop_e/tpr_e/tp387_e.htm  ).

U.N. Conference on Trade and Development’s (UNCTAD) conducted an investment policy review in 2009. (https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=521  )

Business Facilitation

Vietnam’s business environment continues to improve due to new laws that have streamlined the business registration processes.

The 2018 PCI report found that 75 percent of companies rated paperwork and procedures as simple, compared to 51 percent in 2015. Vietnam decreased duplicate and overlapping inspections with only 10 percent of companies reporting such cases in 2018, compared to 25 percent in 2015. However, many firms still felt the entry costs remain too high and 16 percent reported waiting over one month to complete all required paperwork (aside from getting a business license) to become fully legal. In addition, a 2018 AmCham position paper cited very frequent and largely unnecessary post-import audits as creating burdens for companies. Multiple U.S. companies report facing recurring and unpredictable tax audits based on assumptions or calculations not in alignment with international standards.

Vietnam’s nationwide business registration site is http://dangkykinhdoanh.gov.vn  . In addition, as a member of the UNCTAD international network of transparent investment procedures, information on Vietnam’s investment regulations can be found online (http://vietnam.eregulations.org/  ). The website provides information for foreign and national investors on administrative procedures applicable to investment and income generating operations, including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal and regulatory citations for seven major provinces. The 2019 World Bank’s Doing Business Report stated it took on average 17 days to start a business compared to 22 days in 2018. Vietnam is one of the few countries to receive a 10-star rating from UNCTAD in business registration procedures.

Outward Investment

The government does not have a clear mechanism to promote or incentivize outward investments. The majority of companies engaged in overseas investments are large SOEs, which have strong government-backed financial resources. The government does not implicitly restrict domestic investors from investing abroad. Vietnamese companies have increased investments in the oil, gas, and telecommunication sectors in various developing countries and countries with which Vietnam has close political relationships. According to a government’s most recent report, between 2011-2016, SOE PetroVietnam made USD 7 billion in outbound investments out of a total of USD 12.6 billion from all SOEs.

Capital Markets and Portfolio Investment

While the government has acknowledged the need to strengthen both the capital and debt markets, there has been little progress, leaving the banking sector as the primary capital source for Vietnamese companies. Challenges to raising capital domestically include insufficient transparency in Vietnam’s financial markets and non-compliance with internationally accepted accounting standards.

Vietnam welcomes foreign portfolio investment; however, Morgan Stanley Capital International (MSCI) continues to classify Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets. Vietnam is improving its legal framework in an effort to reach its goal of meeting the “emerging market” criteria in 2020 and attracting more foreign capital. The UK-based FTSE Russell’s decision to place Vietnam on its watch list for possible reclassification as a “Secondary Emerging Market” in September 2018 could also encourage faster reforms.  

The government is drafting amendments to the Securities Law (revised in 2010) along with decrees, circulars, and guiding documents, and is targeting submission to the National Assembly for approval late in 2019. These will likely include comprehensive changes on securities trading, corporate governance, share issuance, and most notably foreign ownership limits (FOL), to help move Vietnam toward emerging market status.

The State Securities Commission (SSC) under the MOF regulates Vietnam’s two stock exchanges, the HCMC Stock Exchange (HOSE), which lists larger companies, and the Hanoi Stock Exchange (HNX), which has smaller companies, bonds, and derivatives. Vietnam also has a market for unlisted public companies (UPCOM) at the Hanoi Securities Center, where many equitized SOEs first list their shares (due to lower transparency requirements) before moving to the HOSE or HNX. In January 2019, the Prime Minister approved a plan to establish the Vietnam Stock Exchange (VSE) as a MOF wholly state-owned company, which would own both the HOSE and HNX.

There is sufficient liquidity in the markets to enter and maintain sizable positions.  Stock and fund certificate liquidity increased in 2018, reaching an average trading value per session of around USD 280 million, up 30 percent from 2017. Combined market capitalization at the end of 2018 was approximately USD 169 billion, equal to 80 percent of Vietnam’s GDP, with the HOSE accounting for USD 124 billion, the HNX USD 8 billion, and the UPCOM USD 37 billion. Bond market capitalization reached over USD 50 billion in 2018, the majority of which were government bonds, largely held by domestic commercial banks. Insurance firms also were noticeably more active government bond investors in 2018.  

Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.

Local banks charge relatively high interest rates for new loans because they must continue to service existing non-performing loans (NPLs). Domestic companies, especially small and medium enterprises (SMEs), often have difficulty accessing credit. Foreign investors are generally able to obtain local financing.

Money and Banking System

Since recovering from the 2008 global downturn, Vietnam’s banking sector has been stable. However, despite various banking reforms, the sector continues to be concentrated at the top and fragmented at the bottom. Based on its 2018 survey, the central bank, the State Bank of Vietnam (SBV), estimated that 50 percent of Vietnam’s population is underbanked or does not have bank accounts, due to an inherent distrust of the banking sector; the ingrained habit of holding assets in cash, foreign currency, and gold; and the limited use of financial technology tools. However, this SBV estimate appears significantly understated, with the likely percentage being closer to 70 percent.  The World Bank’s The Global Findex Database 2017 (the most recent available) estimated that only 31 percent of Vietnamese over the age of 15 had an account at a financial institution or through a mobile money provider.

The banking sector’s estimated total assets in 2018 were USD 481 billion, of which USD 207 billion belonged to seven state-owned and majority state-controlled commercial banks, accounting for 44 percent of total assets. Though grouped under joint-stock (private) commercial banks, the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-controlled by SBV. In addition, the SBV holds 100 percent of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank.  

In addition, there were nine foreign-owned banks (HSBC, Standard Chartered, Shinhan, Hong Leong, Woori Bank, Public Bank, CIMB Bank, ANZ, and United Overseas Bank), 49 branches of foreign banks, 52 representatives of foreign credit institutions, and two joint-venture banks (Vietnam-Russia Bank and Indovina Bank).

Vietnam has made progress in recent years to reduce its NPLs, but most domestic banks remain under-capitalized with high NPL levels that continue to drag on economic growth. Accurate NPL data is not available and the central bank frequently underreports the level of NPLs. In 2018, the NPL ratio on the banks’ balance sheets reportedly went down to 2.4 percent, from 2.5 percent in 2017, while the off-balance sheet NPL ratio remain unpublished. The SBV attributes the declining NPL level to the uptrend of the property markets and its application of the National Assembly’s 2017 Resolution 42 which helps credit institutions and the Vietnam Asset Management Company (VAMC) to repossess collateral and better manage bad loans. Under its Development Strategy of the Vietnam Banking Sector to 2025, the SBV aims to reduce the NPL ratio at the banks and the VAMC to below 3 percent by 2020 (excluding poorly performing banks under a separate structure.)

Other issues in the banking sector include state-directed lending by state-owned commercial banks, cross-ownership, related-party lending under non-commercial criteria, and preferential loans to SOEs that crowd out credit to SMEs. By law, banks must maintain a minimum-chartered capital of VND 3 trillion (roughly USD 134 million); however, Vietnam is moving towards adoption of Basel II standards in 2020.

Currently, the total FOL in a Vietnamese bank is 30 percent, with a 5 percent limit for non-strategic individual investors, a 15 percent limit for non-strategic institutional investors, and a 20 percent limit for strategic institutional partners. Prudential measures and regulations apply the same to domestic and foreign banks. To meet the capital adequacy ratio required by Basel II, many banks are seeking overseas capital, and calling for relaxation of the FOL.

We are unaware of any lost correspondent-banking relationships in the past three years. However, after the SBV took over three failing banks (Ocean Bank, Construction Bank, and GP Bank), and placed Dong A Bank under special supervision in 2015, correspondent-banking relationships with those banks may have been limited.

The government is trying to leverage Vietnam’s high adoption rate of mobile and smart phones to promote financial inclusion, increase use of electronic payments, and shift Vietnam towards a cashless society. Although the SBV announced plans to implement a “regulatory sandbox” for financial technology (fintech) activities to inform its future updates to the legal framework, it has not yet published details and has licensed only 26 organizations to provide cashless services. Fintech is rapidly gaining market acceptance as many banks have implemented QR code payments and others have deployed online payment services. Nearly 100 fintech startups have reportedly launched in Vietnam, operating mainly in the e-payments space. However, these startups must overcome many legal mechanisms and policies, such as obtaining licenses.  No foreign e-payments fintech companies have such licenses yet.

Cryptocurrencies remain prohibited as legal tender, preventing the issuance, supply, and use of Bitcoin and other similar virtual currency as a means of payment. Failure to comply can result in criminal prosecution. However, in 2018, the MOJ reportedly submitted to the Prime Minister’s office for approval a crypto-assets proposal, though it has yet to make public any details.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on foreign investors converting and repatriating earnings or investment capital from Vietnam. However, funds associated with any form of investment cannot be freely converted into any world currency.

The SBV has a mechanism to determine the interbank reference exchange rate. In order to provide flexibility in responding to exchange rate volatility, the SBV announces a daily interbank reference exchange rate. The rate is determined based on the previous day’s average interbank exchange rates, taking into account movements in the currencies of Vietnam’s major trading and investment partners.

Remittance Policies

Vietnam mandates all monetary transactions must be in Vietnamese Dong (VND), and allows foreign businesses to remit lawful profits, capital contributions, and other legal investment activity revenues in foreign currency authorized credit institutions. There are no time constraints on remittances or limitations on outflow; however, outward foreign currency transactions require supporting documents (such as audited financial statements, import/foreign-service procurement contracts and proof of tax obligation fulfillment, and approval of the SBV on loan contracts etc.). Foreign investors are also required to submit notification of profit remittance abroad to tax authorities at least seven working days prior to the remittance.

The inflow of foreign currency to Vietnam is less constrained.  There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

Sovereign Wealth Funds

The State Capital Investment Corporation (SCIC) technically qualifies as a sovereign wealth fund (SWF), as its mandate includes investing dividends and proceeds from privatization.  The Ministry of Finance transferred oversight of SCIC and 18 other large SOEs to the Committee for Management of State Capital at Enterprises (CMSC) in November 2018, following the CMSC’s launch in September 2018 and the issuance of the Prime Minister’s Decree 131 defining its functions, tasks, powers, and organizational structure.

As of August 31, 2018, the SCIC had invested in 139 businesses, with nearly USD 866.3 million in state capital (book value). The SCIC does not manage or invest balance-of-payment surpluses, official foreign currency operations, government transfer payments, fiscal surpluses, or surpluses from resource exports. SCIC’s primary mandate is to manage the non-privatized portion of SOEs. The SCIC invests 100 percent of its portfolio in Vietnam, and the SCIC’s investment of dividends and divestment proceeds does not appear to have any ramifications for U.S. investors. The SCIC budget is reasonably transparent, audited, and can be found at http://www.scic.vn/  .

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)

**No local data available

Table 4: Sources of Portfolio Investment

*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)
**No local data available