Vietnam has some mighty odds stacked against it in terms of being purveyors of the Islamic finance scene — its socialist system and a twice-devalued currency in a span of five months. However, the republic is also touted to be an emerging market with much potential, NAZNEEN HALIM learns.
In 2008, the Islamic markets were rife with talk about tapping new and emerging markets. And Southeast Asia was on everyone’s lips. Regional Islamic finance giant Malaysia was revved up and hungry to diversify beyond its borders and optimize its geographical advantage to these emerging markets, Vietnam being one of them.
Banks such as AmIslamic Bank, Asian Finance Bank, as well as law firms such as Zaid Ibrahim & Co (Zico) and Singapore-based Allen & Gledhill were all enthusiastic about the prospects of tapping this ex-French colony at the time. Former CEO of AmIslamic Bank Ahmad Zaini Othman had revealed in a press statement that he felt countries such as Australia, the Philippines and Vietnam were on the bank’s radar.
The bank, according to Zaini, was looking at expanding its Islamic finance reach in Vietnam via the property market. However, two years on, it seems the talk has remained just that.
Shortly after the launch of its affiliate, ZI Shariah Advisory, in June 2008, Malaysian law firm Zico established its presence in Vietnam and Dubai. Zico’s Vietnamese foray was in conjunction with Allen & Gledhill Singapore, and was the first joint venture law firm of its kind to be licensed in the country.
However, Megat Hizaini, Islamic finance partner at Zico in Kuala Lumpur, revealed that all has been quiet in Ho Chi Minh City since last year. “Vietnam’s economic problems and lack of interest in general from the government and the private side have stalled any sort of activity for now. Things have slowed down since (last year), and this stretches beyond Islamic finance.”
Real prospects
The republic has come a long way since the 90s, when it was considered a poor country with a per capita income of US$380 and Human Development Index value of 0.682. Its current per capita income surged to US$2,933 in 2009, and gross domestic product is expected to grow to 5.3% this year from 4.6% in 2009. Rating agencies Standard & Poor’s and Moody’s have both accorded BB and Ba3 ratings to the government’s bonds, with a negative outlook.
Since the global financial crisis, the government has managed to maintain the strength of the Dong and execute a relatively successful loan subsidy program for state-owned enterprises. The Vietnamese real estate market is also expected to bounce back in the second quarter of this year, starting with Ho Chi Minh City. The city’s real estate market is said to be the most developed market in the country, leading market trends throughout Vietnam.
Doan Chi Thanh, director of the Real Estate Gate Limited Company, said: “We expect the market to go up in the next two months, particularly with the dominance of the low- and medium-priced housing sector.” Short-term investments and central business district properties are expected to be among the most favored investment trends looking forward.
According to Thanh, market players are also said to be closely watching the government’s macroeconomic policies with regards to the property market.