Doing Business in Vietnam - A Look at FDI and FII

Let's talk a little bit about foreign direct investment (FDI) and foreign indirect investment (FII) to Vietnam. A lot of attention has been paid to FDI but not much has been mentioned about FII until recently.

First of all, what is the different between the FDI and FII?

With FDI, the foreign money goes directly into activities such as purchasing physical assets, merger and acquisition, and international franchising. The relationship between the domestic partner and the foreign investor is usually long term and the foreign partner does have some control over the management of the business.

On the other hand, FII injects capital into the financial market by purchasing shares in a company or acquiring the shares through an initial public offering (IPO).

FII provides companies in Vietnam access to new sources of capital. The companies sell their shares to foreign institutional or individual investors. At the moment, the majority of the FII capital is coming from overseas private equity funds (a pool of money from small investors) and not from the individual investors.

The 2007 forcast for FII is at US$5.5B, which is smaller than that of FDI at US$13B. However, the potential for FII is much greater than for FDI. At the moment, some experts are saying that only 0.05% of the total available capital by foreign private equity funds has been invested in Vietnam. As large IPOs enter the market, I am expecting FII to catch up with or surpass FDI in the next 3-5 years.

Currently, an estimated of US$4-5B worth of FII is waiting to be pumped into Vietnam. Part of that money will be used to purchase IPO shares of big banks and corporations such as Vietcombank, BIDV, MHB, and Incombank.

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