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| Making the connection: Vietnamese
love their life insurance. |
| Photo by Thomas Jandl |
Vietnam’s rapid economic growth has been underwritten
by foreign direct investment, development assistance
and remittances from the overseas Vietnamese community.
One pillar of capital mobilization, savings, has
been virtually untapped in what is essentially a
cash economy. But stock market and life insurance
can make all the difference, experts say.
“Opening up the insurance market in a fair and
transparent manner could be a tremendous boost for
mobilizing domestic capital, that is, getting the
dong out of the teapots and out from under the mattresses
of ordinary folks and into premiums, and thus investments,”
U.S. Ambassador Raymond Burghardt told a meeting of
the Asia Society earlier this year. He is not alone
in his belief.
The chief representative of American International
Group, AIG, Terence Anderson, says that insurance
has so far mobilized $600 million in funds, and the
market is far from being saturated. “This is
the first time the Vietnamese have experienced peace
and stability in a long time. The future now is not
next week, but 30 years down the road. That changes
the planning horizon,” he explains. AIG’s
subsidiary AIA is one of the successful life insurers
in Vietnam.
While AIG got a foot in the door, two other U.S. companies,
New York Life and ACE, are waiting for a decision
on their applications. Both have been waiting patiently,
assisted Vietnam in the development of insurance regulations,
and both contend that the market exists and that Vietnam
would benefit overall from more life insurance companies.
The sector has created 70,000 jobs, insured three
million people and mobilized half a billion in capital,
says Trinh Thanh Hai, the chief representative for
New York Life in Vietnam. Companies like New York
Life, he adds, have the international experience to
invest their assets into successful projects, which
in turn benefits the economy overall.
The government could benefit directly as well. As
people take their financial future in their own hands,
the government’s resources will be less strained
by demands for health care and retirement.
Tim Fisher, assistant vice president for international
government relations at ACE, said the government did
a good job opening the sector incrementally, as regulations
were adapted to the new competitive environment, which
ACE and other international companies assisted in
creating. But now, says Fisher, we see that the market
is still under-penetrated; providing new licenses
will provide consumers with more choice and better
price, but above all will allow for the job creation,
management skills improvements and knowledge transfer
that come with the infusion of new blood into the
system.
He says that there are really only two companies that
have been waiting for a license for a long time, ACE
and New York Life. In Fisher’s opinion, Vietnam
would be well advised to consider applications of
companies that have clearly demonstrated their commitment
to the Vietnamese economy over many years.
All three U.S. executives agree that insurance
companies with a long international history are
uniquely capable of mobilizing what Fisher calls
“mattress capital” and then investing
it in profitable ventures. Since the government
has widened the scope of investment opportunities
for insurance companies, Fisher says insurance money
could not only buy government bonds, but also finance
infrastructure and other projects that will assist
the nation in continuing its path towards economic
development.
Declining stock exuberance
The government recognizes the need for capital mobilization.
It recently facilitated investment in the stock market
by foreigners by raising the ceiling of foreign ownership
of a Vietnamese company by 10% to 30%.
That’s good news, says Chris Kamm, the first
American investor in Vietnam and still the only U.S.
institutional one active on the Saigon Stock Exchange.
But he predicts that this will lead to a dual pricing
system, as any foreign investor who wants to buy a
share of a Vietnamese firm must buy from a foreigner
as soon as the company is 30% foreign owned. Moreover,
after the sobering decline in stock values, many Vietnamese
investors are disillusioned and are unlikely to keep
on putting their money in stocks. This could put a
damper on the ability of the stock exchange to raise
much-needed capital.
Nevertheless, Kamm does not believe that the government
will relax these rules much further, for fear of overexposure
to fickle foreign capital and of foreign dominance
of the most lucrative sectors of the economy. But
he anticipates that the government will be less concerned
about foreign ownership of corporate debt. He therefore
foresees the development of a bond market in the near
future, which will allow Vietnamese companies to increase
their capital significantly through the sale of debt.
Help may indeed be needed. The bursting of Vietnam’s
stock market bubble has brought a lot of first-time
investors back to reality. Many of them have in fact
lost their shirt in the gamble, says Kamm, who thinks
that the individual Vietnamese investors were not
prepared. They suddenly got access to CNN and saw
the American market go up and up and up, he says,
and many invested all they had. Now, these investors
are not only disillusioned, but plain broke.
Especially large state companies need capital to get
ready for the brutal world of global competition,
which Vietnam is already entering through membership
in the free trade zone in SE Asia and through the
BTA. If the country manages to join the World Trade
Organization in 2005 or thereabout, life will get
even rougher for inefficient companies, which will
at that point be forced to swim against the stream
of global competition or sink.
One solution to the problem of a sagging stock market
– other than lifting the restrictions on foreign
investors – is to allow insurance companies in,
says Kamm. That way, the average Vietnamese could
still benefit from the stock market, the stock market
could get much-needed capital, but the capital would
be invested by the highly-qualified professionals
at the insurance companies, not an amateur with lots
of irrational exuberance about stocks.
Thus, individuals with interest in the stock market
need not be frozen out, but gain the experience of
an intermediary.
In the end, says New York Life’s Hai, financial
institutions are the backbone of any country’s
economic performance, thanks to their experience in
raising and channeling capital. “This leads to
sustainable economic growth.”
ACE’s Fisher agrees. “We invest right back
into the economy,” he says. Any successful insurance
company must develop the right relationship to the
host country’s government and economy. |
