Grant Thornton: Business climate not improving much

Its survey conducted between December 2015 and January 2016 shows government red tape, constant changes in economic policies, lack of management long-term strategies and corruption continue to plague the investment environment and are the top four concerns cited by investors.

For years the legal framework for business law has been assessed as not well defined, said the report, with too much reliance for its development being placed on decrees and ministerial circulars.

“This causes inconsistent interpretations and implementation among governmental agencies,” said the report. “As a result, it consumes more time and incurs more costs for businesses, as well as creating room for corruption.”

“Certain improvements in bureaucratic procedures have been achieved such as time reduction for new company registration or making tax payments, cited on our last survey report. However, those improvements are considered not sufficient.”

“The needs of a thorough reform in legislation are more and more pressurized since the country is now a part of regional and global economic communities.”

Among the key investment obstacles, ‘Management long term strategies’ is ranked second with 90% of respondents, said the report.

Local businesses, especially private held businesses are often seen as too much focused on their short-term operation and the lack of practice of developing mid-to-long term business plans is not uncommon.

A mid-to-long term plan usually outlines a direction that a business is going to take and also demonstrates a commitment of the management to its shareholders or potential investors, said the report.

Without this, investors find it difficult to envisage the future of the business and the vision of the management.

Regarding their view toward investment activities, the results are unchanged compared to the prior survey result, with 86% of respondents expecting the level of investment activities to increase in Vietnam in the next 12 months.

However, the results indicate participants expect the level of investment activities to increase as a result of state-owned enterprise (SOE) equitization as opposed to transactions arising from ‘private/family owners’.

Overall the results of the survey are trending in the wrong direction for private equity investment in Vietnam as 11% fewer investors have an overall positive assessment of the economy than they did just six months ago.

Retail and Food and Beverage (F&B) are currently considered the two most attractive industries for private equity transactions according to respondents, with 76% of them citing economic growth and industry specific opportunities as the key factors for investing.

On the other hand, ‘Difference in Valuation expectation’ maintained its top position as the key deal breaker.

According to the report, the number of private equity investors that are looking to cash-out on their investments is rising.  Typically, private equity investors hold their investments over a period of 3-5 years and then sell.

Though the number of respondents reporting they expect to be a ‘net buyer’ in 2016 outnumber those that say they expect to be a ‘net seller’— the disparity between the two is shrinking from the last survey.

This means investors are keeping their eye on the exit and are either prepared or are preparing to cash out.

The number of participants forecast as a ‘net seller’ increased to 20% in the report from 14% in Grant Thornton’s previous biannual last survey, which is a statistically significant upswing.

Investing in Vietnam is a real challenge in today’s economy context, said Grant Thornton, “given many risks and persistent problems regarding adequate infrastructure, shortage of skilled labour, and a low income population.”

“A timely and proper reform in both economic and social conditions would be the only way to develop the country in a sustainable way,” the report concluded.