Tackle corruption to encourage investment in Vietnam

Despite its growth opportunities, the Vietnamese telecoms industry remains relatively unattractive in the short term due to the dominance of state-owned entities in a highly competitive landscape, according to BMI. While the market has made some positive progress in 2011, it retraced those steps when the government decided to give the Vietnam Posts and Telecommunications Group a two-year extension to divest its stake in MobiFone and VinaPhone, as well as allow Viettel to acquire troubled EVN Telecom.

Given that the country's mobile penetration rate has exceeded 100%, subscriber growth is likely to decline in the next few years. By 2016, there will be around 135.035mn mobile subscribers, a penetration rate of 145%. However, subscriber data from Vietnam remains unreliable, especially with figures distorted by multiple SIM ownership and inactive prepaid subscriptions.

In the fixed-line sector, the number of subscribers took a sharper-than-expected decline at the end of 2010, erasing all of the subscriber gains in 2009. The industry will likely continue to deteriorate, with consumers favouring the more convenient mobile alternatives. Meanwhile, the Vietnamese internet and fixed broadband sectors are expected to experience higher growth rates in the next few years, partially due to a low base effect. While the overall internet industry should benefit from the increasing number of consumers accessing the internet via mobile handsets, the same could not be said for the fixed broadband market.

Besides the continued dominance of state-owned entities in Vietnam's high-growth telecoms sector, the Viettel-EVN Telecom deal could also dent foreign investor confidence. Viettel is best placed to efficiently capitalise on EVN Telecom's assets, but would have the lion's share of Vietnam's 3G spectrum allocations and an instant increase in 3G network infrastructure. This would give the firm the ability to offer large-scale 3G services and lease out its assets to alternative providers, thereby further increasing its revenue streams.

Vietnam's real GDP growth for 2011 and 2012 may be much weaker than previously expected due to escalating economic problems in the US, eurozone and China. The slowdown in manufacturing sector growth, which indicates weak demand for Vietnamese exports, may well be sustained over the coming quarters, presenting significant downside risks to growth.

Addressing corruption should remain a priority on the government's agenda over the coming years. An aggressive stance on fighting corruption is consistent with the government's goals on the economic front, with widespread corruption a major deterrent to foreign investment in the country. Therefore, reducing corruption will benefit the overall economy in terms of promoting fair competition and promoting foreign direct investment (FDI) inflows into the country. Being fully aware that eradicating corruption will be crucial to the economic and political outlook for the country, the Vietnamese government is stepping up efforts to deal with the problem.

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