Foreign remittances continue to increase in coming times

Foreign remittances continue to contribute to the socio-economic growth of Vietnam as more investment opportunities present themselves to the overseas Vietnamese community.

Overview

Remittances have been growing rapidly in the past few years to become one of the potential resources for global socio-economic development, especially in the context of high capital demand for economic recovery. The overseas Vietnamese community grew stronger with about 5.3 million people in 2020 in more than 130 countries and territories, with economic, technological, and management potential, so there is a great opportunity for Vietnam to utilize this resource. Along with foreign direct investment (FDI), remittances account for the largest proportion of foreign capital into Vietnam and have tended to increase over the years. 

Compared to official development assistance (ODA) and foreign portfolio investment (FPI), remittances to Vietnam are always of great value and have higher stability. 

For a long time, the Vietnamese government has provided guidelines and issued policies that are beneficial to and attractive to the overseas Vietnamese community. The effort to attract investments and talents, and increase remittances from the Vietnamese community living abroad began to be concentrated at the turn of the twenty-first century, as Vietnam started its reform process with ground-breaking policies to gradually open up and integrate with the world.

With Decision 170/1999/QD-TTg supplemented by Decision 78/2002/QĐ-TTg, the Government of Vietnam began to issue instructions on the work of encouraging and creating conditions for overseas Vietnamese to transfer foreign currency back to Vietnam on their demand in accordance with the laws of Vietnam and the laws of the countries where they currently reside.

Through other documents, such as Resolution No. 36-NQ/TW (2004), Directive 45/CT-TW (2015), Conclusion 12-KL/TW (2021), and Resolution 169/NQ-CP (2021), more instructions were made by the Government to expand and further facilitate the policy of remittances and investment attraction of overseas Vietnamese. 

In accordance with Decision No. 170/1999/QD-TTg approved by the Prime Minister, the Vietnamese government encourages the expatriate community to send remittances through channels like credit institutions recognized by the State, money transfers through international postal financial services providers, or by bringing remittances in person into Vietnam.

Current Situation

Although the Covid-19 epidemic has had a strong impact on overseas Vietnamese for the past few years, the State Bank of Vietnam's (SBV) data shows that in 2021, foreign remittances reached $12.5 billion, an increase of about 10% compared to 2020.

However, the World Bank claimed that due to the numerous other channels through which remittances enter the country, the actual number was actually higher. It was estimated that Vietnam ranked eighth in the world for foreign remittance inflows, bringing in $18.1 billion, up from $17.2 billion in 2020.

According to data from the Ministry of Finance, from 2000 to 2020, remittance inflows into Vietnam accounted for 3-8% of GDP annually, higher than those of developed countries (1-2% of GDP on average).

Most of the remittances came from North America (USA and Canada), Asia, Australia, and Europe. The United States - where many overseas Vietnamese live and work - accounts for 50% of the total remittances to Vietnam, followed by Japan, China, and Australia. 

The major economies in the world were predicted to recover and grow in 2022, allowing overseas Vietnamese to earn and send more money back to support family members or invest in business and production. Recently, worrying indications have emerged, proving that the growth in remittances to Vietnam will be a lagging indicator. According to the SBV Ho Chi Minh City Branch, the total amount of remittances transferred to Ho Chi Minh City through credit institutions and economic organizations in the first 6 months of 2022 only reached 3.16 billion USD, down 13% compared to the same period last year. However, this unexpected outcome is seen as a temporary setback resulting from the conflict in Russia and Ukraine and high inflation brought on by high food and oil prices. Remittances to Vietnam are still expected to recover and maintain a growth momentum of 5-7% by the end of 2022.

Remittances for Investment

Previously, remittances transferred to Vietnam were mainly used for personal savings. However, in recent years, the investment of remittances in securities, real estate, business establishments, or investments in production, business, and services has increased sharply.

By the end of 2021, overseas Vietnamese from 29 countries and territories had invested in 376 investment projects in Vietnam, in 42/63 provinces and cities across the country, focusing primarily on the processing and manufacturing industries, with a total capital of approximately $1.72 billion, not including the investment capital of overseas Vietnamese through other indirect forms or by investing in the form of domestic investment. In addition to the direct investment capital flow, there are also connections from overseas Vietnamese, bringing international businesses and corporations to invest and build projects in Vietnam. 

Mr. Johnathan Hanh Nguyen, in addition to being known as the chairman and founder of Imex Pan Pacific Group (IPPG), is also an overseas Vietnamese known for his love of and desire to contribute to the development of Vietnam. In addition to the 10 billion USD that US investors committed in writing, there are more than 68 documents and letters exchanged between the IPPG and the US Congress and leaders of the two countries about the establishment of an international financial center to be located in Ho Chi Minh City and a regional financial center to be located in Da Nang.

Investors who are Vietnamese citizens but also have a foreign nationality may choose whether to apply market access conditions and investment procedures applied to domestic investors or foreign investors., according to Decree 31/2021/ND-CP, which details and governs the Law on Investment. Because they are exempt from many rules and binding legal obligations when investing as a domestic investor, overseas Vietnamese have invested in many projects in the nation without having their investments counted as FDI.

Vietnam currently has 6 airlines, but no airline specializes in freight transport. This will soon change with the arrival of IPP Air Cargo, invested by businessman Jonathan Hanh Nguyen and other businesses with 100% Vietnamese capital.

According to a recent report by the Ministry of Transport, IPP Air Cargo was granted the first business registration certificate by the Department of Planning and Investment of Ho Chi Minh City with a charter capital of 300 billion VND. If IPP Air Cargo is granted a flight license in November of this year, its domestic route network will begin in production hubs like Can Tho, Da Nang, Khanh Hoa, the Central Highlands, Hai Phong, and Quang Ninh. Hanoi and Ho Chi Minh City will serve as a hub for transshipment and provide connections to international destinations in Northeast Asia, Southeast Asia, South Asia, and Europe.

Since about 30% of remittances currently go to real estate, many analysts have noted that this large source of capital will be a crucial tool in restoring purchasing power in the real estate market. The current policy of allowing overseas Vietnamese to own and buy houses in Vietnam has also stimulated cash flow in real estate. Not to mention that housing prices in Vietnam remain low in comparison to those in developed countries. As the State Bank's policy places a greater emphasis on capital flows to business and production while restricting credit to potentially risky sectors like securities or real estate, remittances into Vietnam's real estate are likely to continue to rise.

Many overseas Vietnamese investors prefer projects in areas with good traffic connections and that can be managed and monitored remotely. Expensive products, such as beach villas and golf resort villas, remain relatively inexpensive in Vietnam when compared to the countries where many overseas Vietnamese reside.

In 2020, the government revised laws on investment and enterprise, in addition to passing the Law on Public-Private Partnership Investment, to further the goals of this Resolution. The revisions encourage high-quality investments, advanced technology use and development, and environmental protection mechanisms. On June 2, 2022, the Prime Minister issued Decision No. 667/QD-TTg on "Approval of the Strategy for Foreign Investment Cooperation in the 2021 - 2030 period", setting out enhanced goals and solutions for efficient  foreign investment cooperation.  The strategy calls for shifting foreign investments to high-tech industries and requiring those investments to include environmental protection provisions. In the long term, this could lead to an investment trend from foreign investors in general, and overseas Vietnamese in particular.

Foreign remittances, along with foreign direct investment, will continue to become integral parts of Vietnamese socio-economic growth. As more favorable conditions are created by the Vietnamese government in the future, more opportunities will present themselves for overseas Vietnamese to come back, invest in, and contribute to the development of the country as a whole. Contact Viettonkin for more insights and investment tips.