[Vietnamization] Vietnam Regulatory Brief: Controls on Deforestation, Eased Licensing on Cambodia-bound goods, and Interest Rates Moves

Vietnam Regulatory Brief: Controls on Deforestation, Eased Licensing on Cambodia-bound goods, and Interest Rates Moves

 Vietnam Briefing | 27 October 2015

This edition of Vietnam Regulatory Brief focuses in on new controls for deforestation-causing projects, easier licensing regulations for Vietnamese transporters moving goods to Cambodia, and praise for Vietnamese regulators on adjusting interest caps on USD deposits.

Stringent Controls for Projects that Cause Deforestation

A local media report, quoting government officials states that Vietnam will institute stringent norms for projects that require large forest clearance. According to the report, the government will stop granting licenses to public and commercial projects that take over forest land, but do not have a feasible plan for reforestation. 

Most recently, Deputy Prime Minister Hoang Trung Hai said that that in order for any project to get investment approval, a prospective investor needs to submit a feasible report on the plan to plant new tress and allocate specific land fund. Hai said that an afforestation plan and the establishment of a land fund would be decisive factors in determining the approval of investment projects. He went on to expand that if under an investment proposal, the total land area, which needs to be afforested is too large or the allocation of land funds too low, the project will be rejected immediately on the grounds of having no social benefits. Hai also said that the Ministry of Industry and Trade and Ministry of Agriculture, and Rural Development must work in tandem with investors to ensure that development takes place in a sustainable manner.

The latest development underlines the need for investors to undertake incorporate sustainability and environmental objectives into their business plans. It also necessitates a more cautious and environment- friendly approach from investors looking at investing in Vietnam in the coming months. 

The change in the policy landscape in the country comes in the wake of startling developments during a forest land usage review. The exercise revealed that out of nearly 68,000 hectares of forest lands cleared for industrial usage only 24 percent (16,000 hectares have been reforested). In addition, only 8.2 percent out of the 30,000 hectares used for public works has been reforested. Local experts stated that such figures were the reason that brought about a change in the environment policy.

Shorter Licensing Times for Cambodia-bound, Vietnamese Transporters

The Transport Ministry of Vietnam will shorten the licensing times for Vietnamese transporters travelling to Cambodia. Local reports indicate that from 1 December, Vietnamese firms will get a Vietnam-Cambodia international road transport license in two days. Under the current regulation, it takes seven days to procure such a license.

The Deputy General Director Nguyen Van Quyen of the Directorate for Roads of Vietnam under the Transport Ministry announced the change. Quyen said the new regulation will be applied to all vehicles, which leave Vietnam for Cambodia through the seven Vietnamese border gates. Quyen added that the Transport Ministry will permit municipal or provincial transport departments to issues licenses for locally-registered cars to go to Cambodia. Such licenses will also be granted for cars of individuals and organisations located in other Vietnamese localities.

Dezan Shira & Associates believe that the new regulation will foster Vietnamese businesses in transporting passengers and goods to Cambodia. Transportation forms a vital part of business operations. Customers derive satisfaction from two factors, namely place utility implying that the product is available at a desirable location and time utility implying that the products is available when a consumer demands it. Shortening the time duration required for transportation enables suppliers to provide place and time utility to consumers. In addition, late deliveries can result in complaints and goods might incur damage or spoilage while in transit. Therefore, we perceive that shortening the time required for licensing is a move that will enable better transportation supply chain management and a more conducive business environment.

The regulation is a welcome move, given that Vietnam and Cambodia shares a land borderline of 1,137km, with 10 Vietnamese provinces bordering nine Cambodian ones. Vietnam has 10 10 international border gates and 13 national border gates to Cambodia. The General Department of Vietnam Customs states that the two countries are expected to make a two-way trade of 5 billion USD in 2015. In 2014, Vietnam exported goods worth over 2.6 billion USD to Cambodia. Meanwhile, Vietnam spent over 625 million USD importing Cambodian products.

Monetary Experts Laud Vietnam for Adjusting Interest Caps on Dollar Deposits

The State Bank of Vietnam (SBV) recently scrapped the interest rate ceiling on US dollar (USD) deposits. SBV, the country’s central bank issued a directive stating that interest rate on USD deposits by individuals will be cut to 0.25 percent from 0.75 percent per year. Meanwhile, the rates offered by banks to organisations and companies were cut from 0.25 percent to zero percent per year. The regulatory change widened the disparity between rates for the Vietnamese Dong (VND) and the USD deposits. The current rate of annual interest on VND is 4.4 percent.

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Our assessment suggests that is the only the first step in multi-pronged plan to dissuade dollarization of the economy. For instance, the SBV in the first week of October issued a circular to curb speculation and hoarding of USD by enterprises. Local experts state that the primary aim is to strengthen the VND, by making VND deposits more lucrative for consumers. The new regulation will gradually stabilise the monetary market by making the VND-USD dollar rate less volatile.

Many Vietnamese depositors in the past few months have held onto USD deposits anticipating an exchange rate increase. This in turn has made the USD more expensive to hold relative to the VND. For instance, in August, Vietnam devalued to the VND to cope with USD holdings. According to local experts, the VND lost 5 percent of its value as a result. Thus, the adjustment of interest rates on USD deposits a counter-acting mechanism to the falling value to the VND.