Formation and Development of Banking System Providing Ofdi Support Services in Laos

Given that both countries are facing difficulties and have limited financial resources, the governments of Vietnam and Laos must coordinate closely (first in strategy, then in specific plans) in attracting third-party capital and calling for ODA support to develop border infrastructure.

3.3.2.5 Formation and development of a banking system providing OFDI support services in Laos

a. Vietnamese banks lend capital to implement OFDI

The purpose of the loan is to ensure investment capital for developing Vietnamese enterprises in Laos and to ensure timely repayment of loans to the bank.

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The condition for borrowing capital to carry out investment in Laos is that the project owner enterprise must have a head office and legal assets to mortgage in Vietnam, using assets in Vietnam to guarantee the OFDI investment loan in Laos. Then:

- The State Bank shall, based on Government regulations, issue documents providing specific guidance on lending activities for OFDI implementation; clearly stating the requirements for documents for enterprises borrowing capital to implement OFDI and the list of commercial banks eligible for OFDI loans.

- Borrowing enterprises: Must ensure the requirements for loan documents, have legal collateral, have investment and business lines in Laos that are consistent with the investment development strategy of the Vietnamese State.

- Lending banks: Have the capacity of staff and personnel to appraise and conduct field surveys of projects. Comply with the principles and regulations of credit institutions' lending capital and regularly and closely monitor OFDI lending activities. The bank organizes strict appraisal of new investment projects and expansion investment. Lending banks must periodically evaluate the efficiency of capital use of the project; Create favorable conditions for businesses to borrow capital when they have agreed on the policy, disburse according to the investment plan of each committed project.

b. Encourage domestic banks to open branches in Laos

This is a convenient form for lending activities of enterprises to implement OFDI because lending enterprises and borrowing enterprises can easily access the project, understand the project and facilitate project inspection. Investing in Laos in the field of financial banking services to develop OFDI in the industrial sector is necessary and aims to increase and develop the market and customers of domestic banking organizations.

To ensure effective lending and support the OFDI development task of Vietnamese enterprises in Laos, the following methods can be implemented:

Commercial banks proactively research and analyze the investment environment in Laos to identify target customers; request permission from competent authorities to invest in Laos according to regulations, ensuring long-term strategies. Before investing, it is necessary to determine business objectives in each specific area, which is to serve customers and facilitate their business activities. The investment perspective is to develop sustainable credit and increase the efficiency of the Bank, develop new markets, build a system of partners who are potential enterprises, properly fulfill commitments to grant and use credit for the right purposes. Headquarters and branches must ensure that they are located in major economic centers of Laos. First of all, the bank prioritizes establishing offices in Vientiane and Pakse because Vietnamese enterprises are mostly concentrated in these two areas.

The State Bank of Vietnam has issued a document with specific instructions on the conditions for opening a Vietnamese bank branch in Laos, clearly stipulating the minimum investment scale of the bank to limit small-scale investment in Laos. It encourages banks to invest in Laos to reach over 50 million USD/branch by 2015.

It is proposed that in the first 5 years, the Vietnamese Government should consider exempting income tax for the branch of the Vietnamese Bank investing in Laos. In the next 5 years, tax should only be collected at a rate equal to 50% of the tax payable in Vietnam, and then tax should be collected according to current law.

c. Interest rate support for Vietnamese OFDI enterprises borrowing investment capital in Laos

Purpose: To reduce project investment costs, support interest rates for businesses to invest in projects that have a major impact on Vietnam's economic development or create political stability on the Vietnam - Laos border.

The subjects eligible for interest rate support are projects that borrow investment capital in Laos and are on the list of projects that the Vietnamese Government has decided to support investment interest rates or projects that Vietnam and Laos have agreed to support interest rates in the Annual Agreement on Investment Development for Vietnamese Enterprises. Interest rate support activities are part of the overall measures to support enterprises to develop OFDI in projects with low internal rate of return (IRR) but high socio-economic efficiency for Vietnam. FIA proposes specific groups of industries or projects that are supported with interest rates when investing in Laos to encourage development in each period. However, in the period of 2011-2020, the Vietnamese State focuses on supporting projects to produce electricity for export to Vietnam, mineral exploitation projects, and projects to build rubber processing factories in border areas adjacent to Vietnam.

Interest rate support activities for Vietnamese OFDI enterprises are proposed as follows:

1. The State issues documents regulating policies and guidelines on investment interest rate support (on interest rate support levels and total support amount for each period).

2. The State Bank of Vietnam assigns the task of supervising and implementing investment interest rate support to 1 Vietnamese commercial bank.

3. The Vietnamese commercial bank works with the Lao commercial bank to implement the policy (the Lao commercial bank must be a Vietnamese bank investing in Laos) to agree on the goals, the contents to be implemented and the responsibilities, obligations and rights of the parties.

4. Implement interest rate support under the interest rate support supervision of the State Bank.

5. Adjust commitments, evaluate program implementation, draw lessons, and propose solutions to the Vietnamese government so that interest rate support achieves its goals.

The capital for interest rate support is drawn from the state budget (possibly ODA support for Laos), approved by the government in accordance with the objectives of each period. This capital is assigned to the Ministry of Finance to manage and approve the interest rate support target for each specific industry/project.

d. Conditions for implementing the solution:

The Government needs to issue a Decree regulating the lending of capital for OFDI implementation by Vietnamese banks; regulations on guarantees and interest rate support for OFDI implementation loans. The State Bank of Vietnam and the Ministry of Finance shall issue Circulars guiding the implementation. Every year, the Government shall request the National Assembly to approve the budget estimate for interest rate support for OFDI sectors/projects in Laos so that relevant agencies can organize notification, implementation and monitoring.

Chapter 3 Conclusion:

The business environment in Laos is changing rapidly but is not separate from the regional and world economic context. Along with the trend of international economic integration and investment continuing strongly, the OFDI capital flow of Vietnamese enterprises into the industrial sector in Laos is forecast to continue to grow rapidly. It is expected that by 2020, the potential to attract investment and opportunities for investment in the industrial sector in Laos for Vietnamese enterprises will be very diverse, especially in the hydropower, mining and mineral processing sectors. Therefore, the State and Vietnamese enterprises need to focus investment resources on these sectors.

To achieve investment goals, it is necessary to clearly define the viewpoints in investment activities of Vietnamese enterprises in the industrial sector in Laos. The specific viewpoint when investing in Laos is to have a system.

Clear, synchronous and consistent laws; maintaining domestic macroeconomic stability, political stability and maintaining the value of the Vietnamese currency; well managing OFDI activities of enterprises according to current regulations.

Proposed solutions to develop OFDI of Vietnamese enterprises in the industrial sector in Laos have focused on two main groups: solutions of Vietnamese enterprises and solutions of the Vietnamese State. In which:

The solutions of Vietnamese enterprises focus on: Building a business-level strategy for OFDI in Laos to increase project investment efficiency and select optimal investment sectors. Increasing labor quality and project management quality of Vietnamese enterprises in Laos. Expanding linkages and cooperation between enterprises to overcome weaknesses in investment of Vietnamese enterprises.

The Vietnamese government's solutions focus on: Issuing a Decree regulating investment in Laos by Vietnamese enterprises to uniformly manage investment activities of enterprises in a key investment area. Establishing a Southeast Asia OFDI Management Board under FIA to manage OFDI in a more specialized and effective manner. Supporting interest rates for Vietnamese OFDI enterprises to borrow investment capital in Laos for projects such as hydropower, rubber processing, and mineral exploitation in the Vietnam-Laos border area.

The above proposed solutions will overcome weaknesses, enhance strengths, and contribute to the sustainable development of investment activities of Vietnamese enterprises in the industrial sector in Laos by 2020.

CONCLUDE

Reality shows that in the period 2005-2010, investment activities of Vietnamese enterprises in Laos have been strong. It is forecasted that in the coming years, Vietnamese enterprises will continue to invest more strongly in the industrial sector in Laos to take advantage of available advantages. To anticipate and support this inevitable trend, the researcher finds that proposing comprehensive solutions from enterprises and State management to develop OFDI in the industrial sector in Laos is urgent at present.

The main contributions of the thesis can be summarized as follows:

- Systematize theoretical issues in OFDI, study factors affecting the development of OFDI from Vietnam to Laos.

- Analyze the current status of Vietnam's investment development in the Lao industrial sector in the period 2005-2010, and at the same time point out its advantages and disadvantages.

- Proposing strategic and systematic solutions to develop OFDI in the industrial sector in Laos in the period 2011-2020.

Recommendations for further research : Although the thesis has studied OFDI activities of Vietnamese enterprises in the industrial sector in Laos. However, the research on the economic efficiency of the projects is not in-depth; research on OFDI activities in the agricultural, forestry and service sectors in Laos has not been mentioned. Therefore, further research can focus on and clarify issues that have not been deeply explored or proposed in this study.

The above are the research results of the thesis aimed at developing OFDI of enterprises in the industrial sector in Laos. The proposed solutions will contribute practically to the development of investment in Laos in the industrial sector until 2020./.

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LIST OF PUBLISHED WORKS OF THE AUTHOR

1. Nguyen Van An (2007), “Improving State management in Vietnam's foreign investment”, Industry Magazine , (3), pp.23-25.

2. Nguyen Van An (2007), “Discussing the competitiveness of Vietnamese industrial enterprises today”, Foreign Trade Magazine , (4), pp.11-12.

3. Nguyen Van An (2008), “Experience of JETRO and JBIC operations to develop Japanese investment in Thai industry and suggestions for application to Vietnam”, Asia-Pacific Economic Journal , (243+244), pp.30-35.

4. Nguyen Van An (2009), “Industrial investment of Vietnamese enterprises in Laos: Current situation and issues”, Manager Magazine , (70), pp.39-41.

5. Nguyen Van An (2009), “Solutions for developing investment of Vietnamese enterprises in the industrial sector of Lao PDR”, Manager Magazine , (71), pp.57-59.

6. Nguyen Van An (2009), “Improving the competitiveness of Vietnamese industrial enterprises in the Lao PDR”, Manager Magazine , (76), pp.54-56.

I. Vietnamese

LIST OF REFERENCES

1. Ministry of Finance (2002), Circular No. 97/2002/TT-BTC dated October 24, 2002 guiding the implementation of tax obligations for Vietnamese enterprises investing abroad.

2. Government (1999), Decree No. 22/1999/ND-CP dated April 14, 1999 regulating foreign investment of Vietnamese enterprises.

3. Government (2006), Decree No. 78/2006/ND-CP dated August 9, 2006 of the Prime Minister regulating foreign investment.

4. Foreign Investment Agency - Ministry of Planning and Investment (2009), Report on investment of Vietnamese enterprises in Laos.

5. Foreign Investment Agency - Ministry of Planning and Investment (2011) Statistics of investment projects in Laos from 1993-2010.

6. Prof. Dr. Do Duc Binh, Assoc. Prof. Dr. Nguyen Thuong Lang (2008), International Economics Textbook , National Economics University Publishing House, Hanoi.

7. Communist Party of Vietnam (2006), Documents of the 10th National Congress of Delegates, National Political Publishing House, Hanoi.

8. Prof. Dr. Nguyen Thi Huong (2003), International Business Textbook , Volume 1, Labor - Social Publishing House, Hanoi.

9. Associate Professor, Dr. Tran Quang Lam, Dr. An Nhu Hai (2006), Foreign-invested economy in Vietnam today , National Political Publishing House, Hanoi.

10. Associate Professor, Dr. Dao Thi Phuong Lien (2011), “Promoting Vietnam's direct investment in the Lao PDR”, Proceedings of the international scientific conference “Socio-economic development of Vietnam and Laos in the period 2011-2020”, volume 2, pages 193-212.

11. Nick Freeman, Nguyen Van Lan (2006), Corporate governance in Vietnam: The first step of a long journey , International Finance Corporation (IFC), Hanoi.

12. Associate Professor, Dr. Nguyen Bach Nguyet, Dr. Tu Quang Phuong (2007), Investment Economics Textbook , National Economics University Publishing House, Hanoi.

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