Contributors from Vietnam were asked three questions: What were the highlights/trends in your market last year? (i.e. important mergers, regulatory changes, economic situation etc.); What are the opportunities and challenges for accounting firms in the market?; What are the expectations for the future short/medium/long term?
By Nguyen Chi Trung, managing partner, Grant Thornton Vietnam
Vietnam is a rapidly developing country with a dynamic and emerging market economy. Located in South East Asia, the country has positioned itself as a focal point for investment, boasting an average annual GDP growth rate of 6.1% over the last ten years. Growth decreased slightly to 6.21% in 2016 (2015: 6.68%), mainly due to the impact of the drought on agricultural output, cuts in oil production, and a slowing down of external demand. However the underlying fundamental growth drivers remain intact. GDP growth is expected to recover to between 6.3% and 6.5% in 2017 predicated on a recovery in agriculture and improving global prospects.
Similar to previous years, in 2016, the services sector continued to contribute the largest portion to the GDP (41%). Industrial and construction sectors ranked second, followed by agriculture.
Although growth has moderated somewhat during 2016, Vietnam’s macroeconomic environment remains favourable. After falling to the record low rate of 0.63% in 2015, inflation has increased slightly to 2.66% mainly due to administrative price hikes for health and education services, but this level is still well below the official target of 5%.
In 2016, exports and imports had a growth rate of 8.6% (USD 175.9bn) and 4.6% (USD 173.3bn) respectively with a trade surplus of USD 2.6bn.
Foreign investment is considered a vital resource for development. Total registered FDI in 2016 was USD 24.4bn, an increase of 7.1% compared to 2015.
In 2016 Vietnam signed a number of milestone free trade agreements. Total 11 signed FTAs shall create a fairer environment in Vietnam trade with more than half the countries in the world.
The Vietnamese government has been very determined to improve the business environment to better attract investors. Administrative reform, especially in areas relating to enterprises and business administration has been dramatically improved such as in taxation, customs, labour etc.The Vietnamese government has been putting a lot of efforts to achieve the target that Vietnam will be in the top four countries in ASEAN having high quality public services.
Vietnam is strongly integrating into the world market. The operations of enterprises in Vietnam are gradually conforming to International practice. Accounting and financial information is prepared in accordance with International standards and practices. Accounting and financial information should also be audited independently to ensure the reliability of the accounting and financial information provided to investors and other stakeholders. The auditing industry only started in the early 1990’s and only has a development history of 26 years. The demand for audit and assurance services has been increasing, as initially only foreign invested companies were subject to statutory audit, but currently not only foreign invested companies but also state owned enterprises, banks, insurance companies, public listed companies, large public companies, securities companies, investment funds etc. They are also subject to statutory audit and it has made the audit market more developed. In the years ahead, the demand for audit services will continue to increase due to the development of the capital and financial markets and their further transparency requiring that accounting and financial information is more reliable and independently audited.
The Vietnamese economy is still in the first stage of development and the number and size of enterprises are increasing fast and therefore the demands of audit, taxation, advisory, and outsourcing services will also increase significantly. This is a big opportunity for the audit firms and they should be well prepared to catch this opportunity.
The government has recently drafted new decree on Internal Audit that requires state agencies, public administrative agencies, listed companies, and Enterprises with 50% and above chartered capital owned by the State. These are compulsory to establish Internal Audit Function and to submit annual internal audit reports to the authorities. The new Decree is planned to be officially issued by the end of 2017. There will be a new market and good opportunities for the audit firms to provide internal audit services in the future.
The Government has been putting efforts to the structural reform of the financial sector and State Owned Enterprises. There is lots of demand for advisory services relating to this reform process.
The Merger & Acquisition (“M&A”) activities in Vietnam in recent years have been booming. In 2016, total M&A value was USD 5.8 bn, at the highest level to date. The experts forecasted total M&A value for 2017 would reach USD 5 bn or even better at USD 6.2 bn to USD 6.5 bn. Foreign investors are key players in M&A. Obviously, there will be a lot of opportunities for audit firms to provide advisory services and other related services on M&A activities.
The Government also launched a plan for Vietnam to officially adopt IFRS by 2020 that would create good service opportunities for the auditing firms.
However, the competition in the market becomes more and more aggressive among the audit firms by fee cutting. Keeping up the good quality of services with competitive fees is a big challenge to the audit firms in Vietnam. In addition, lack of human resources especially for high level positions is a key issue. The audit firms should invest more in technology (audit software, other necessary software, computers, servers, high speed internet connection etc.) and people (to provide training with International standards) and this investment will require a strong financial capability.
I expect that the Vietnamese Government will continue its efforts at maintaining macro-economic stability and push up the reform in the financial sector and SOEs. In addition, there are still weaknesses in the administration procedures and legal environment which need to be improved to make the business environment of Vietnam to be more attractive in the eyes of domestic and foreign investors