Viet Nam or Cambodia?

As I look out my broken and dusty bus window, wiping the dirty sweat from my brow I am enamored by the rice paddies and beautiful countryside. Suddenly we come to an abrupt stop and I’m relieved of my calm introspection. It’s time to enter “No Man’s land”, that bureaucratic “grey” area between borders where people pass through in transit from one country to another. Goods and wares of all sorts – from cigarettes and gasoline to rats (yes, rats) – are “smuggled” legally or otherwise across the border.

Often a dirty and unpleasant experience, and quite hot this time of year, my goal is to move on as quickly as possible! Besides a couple of hawkers and casino’s there isn’t much to see anyway, and this is not a place I would like to transit through after sun down.

You might be wondering just where in the world I am..? In between Viet Nam and Cambodia, coming back from a week-long due diligence mission in Saigon. These two countries have a complicated history, one of conflicts and allied stances (Fact: Cambodia’s territory used to cover what is today Saigon), so I figured it would be worthwhile to visit Viet Nam in order to better understand how these two countries presently interact and how they will prosper in the years to come.

Before I get into the nitty gritty from my trip a history lesson is in order. Not being well enough read yet to discuss the multiple layers that comprise Indo-Chinese history, I will highlight the more recent relationship these countries enjoy. If you want to learn more about Cambodian history I suggest you pick up a copy of A History of Cambodia, by David Chandler. It’s one of the best books on the subject.

After three torturous years of Khmer Rouge rule, where nearly everyone was forced into the countryside to farm rice (Which was sold to the Chinese in return for arms to fight the Vietnamese) and the intellectuals were “cleansed”, Pol Pot’s regime finally came to an end on December 25, 1978 when Vietnam invaded what was then called Democratic Kampuchea. Scaring the Khmer Rouge into the countryside, the Vietnamese put Hun Sen into power as Prime Minister, and renamed the country the People’s Republic of Kampuchea (PRK).

The next decade saw the Vietnamese occupy the PRK and attempt to rid it of rebel insurgencies, that is, until 1989 when Viet Nam pulled out of the country due to pressure from the international community. Over the next 15 years the country initiated free market reforms and subsequently experienced rapid growth, while simultaneously patching up its wounds. This growth can be contributed in large part to the Vietnamese who have maintained an active presence in the economy and politics since (One such example being, at the cremation ceremony of King Sihanouk earlier this year, Viet Nam donated the artillery shells for the 21-gun salute).

But I digress. My trip to Viet Nam was an interesting experience, much different than my Cambodian impressions, but I came away with some ideas on how to be a part of the Vietnamese growth story, nonetheless.

Upon arriving in Ho Chi Minh City (Saigon) I was struck at how familiar Saigon felt. Saigon and Phnom Penh look eerily similar, though Phnom Penh is about 5 to 10 years behind in regards to development. Beyond the architecture and taking an initial stroll through District 1, I was surprised to see so many financial institutions, commercial chains and food and beverage products here that also make up a large part of everyday life in Cambodia. One might go as far as to call Cambodia a “little Viet Nam.”

Of course, I didn’t come to Viet Nam to walk around, I came to identify how best to gain leverage to this economy of 90 million people, something that has already attracted the likes of KKR, Goldman Sachs and many others.

I met with brokerages, investment bankers and hedge funds. During the discussions I was (un)impressed to learn just how socialist Viet Nam still is. Of course, the country has opened up, as has China and Laos, but the bureaucracy was stifling.

Initially I was most intrigued to learn about the prospects for private equity in Viet Nam. However, during every one of my meetings I was strongly advised to stay away. The private equity business in Viet Nam is notorious for its lack of transparency, restrictions on foreign ownership, unqualified management and a whole host of schemes designed to separate the unwary from their money and magically turn it into Ferrari’s. Looking at the luxury and sports cars driving around Saigon, it’s safe to say this has happened more than once!

With private equity pretty much off the table (at least for now) I turned my sights toward shares in the public markets, for which Viet Nam has two exchanges: the Hanoi Stock Exchange; and the Ho Chi Minh Stock Exchange. While volatile, they are host to a handful of some of the “most transparent” companies in the country. Based on relative liquidity and an undervalued securities market, large players including KKR, VinaCapital, Dragon Capital, etc are actively involved in these two exchanges.

Vietnamese equities are relatively cheap. After a period of high inflation and a real estate bust, I was relatively optimistic about the prospects for public equities. Though, yet again bureaucracy trumped that optimism. Opening a brokerage account is a hassle, and things like daily trading limits imposed by the exchanges make building positions a challenge.

One of the more significant hurdles is foreign ownership. Foreigners are not permitted to control more than 49% of a listed equity. While this might not seem like a significant issue, it is. This means that shares of blue chips, such as Vinamilk, that already have 49% foreign ownership command a premium for those seeking an allocation. In other words, since the limit has been reached for foreign ownership, someone may sell their shares, but it will be at a premium to the market. Price discovery is difficult. Further to that, buyers sitting on the bid waiting for a foreigner to sell can create price distortions and illiquidity.

Seeing how private equity is in large part out of the question, and public equities are not yet “user friendly”, I decided to try real estate. I spoke with one real estate agent on the phone, but quickly ran into MORE bureaucracy…it tends to follow you around the place. There’s more to discover about buying real estate in the country, but by this time I was ready to head back across the border.

So, feeling a dis-heartened by my trip, I write to you now jubilantly back in Cambodia, where frankly I couldn’t be happier!  

Looking back, Viet Nam, while still a bureaucratic nightmare, will at some point jump through the hurdles of liberalizing its economy, which will make it a much friendlier country to invest in. In the meantime, I believe one of the best ways to gain exposure to Viet Nam is through its neighbor, Cambodia!

How can you do this? Through a strategy I mentioned in a previous post regarding Mongolia and China. Start a company in Cambodia that will produce goods the Vietnamese want, and export them to the country (some ideas include organic agricultural products, garments, high-value teak, etc). This allows you to sidestep much of Vietnam’s bureaucracy.

You might be asking why I suggest doing this in Cambodia. Consider that Cambodia is a Laissez Faire society. It is easy to incorporate a business and a foreigner can own 100% of said business. Repatriation is not a problem, taxes are low, and you can acquire a 1-year multiple entry visa. The best part is that the Cambodian government will leave you alone. Not too many countries offer an opportunity like this.

Cambodia is not only business friendly, but as long as you operate under the existing laws you will not be bothered by anyone. Unfortunately, you can’t say the same for places like Viet Nam, China, the United States, etc. This is also what made Thailand such a booming success, despite rampant corruption.

In summary, I must say that after my trip to Viet Nam I couldn’t be more excited about the prospects for Cambodia. It is easy to live here, you can operate your business with ease and “Western” food is plentiful (if you want it – The Cambodian cuisine is wonderful!). If you are thinking of moving to Asia I have to ask, why wouldn’t you live here? It’s Thailand light, cheaper and starting from a much lower base, so the upside is magnified.


“If one rejects Laissez Faire on account of man’s fallibility and moral weakness, one must for the same reason also reject every kind of government action.”  – Ludwig Von Mises


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