International Finance Corporation, the private lending arm of the World Bank Group, is looking at the disruptive technology space even as it will continues to place its bets on mainstays like manufacturing, infrastructure and financial services in Vietnam.Sectors such as manufacturing, agriculture and service sectors, bolstered by Vietnam’s recent openness to the world, are the catalysts for increased influx of foreign investment, Vivek Pathak, East Asia Pacific director for the International Finance Corporation (IFC), said in an interaction.
Pathak has been with the IFC for 16 years. In his current role, he leads the corporation’s advisory and investment operations across East Asia Pacific, which in fiscal year 2014 reached a record $4.2 billion investment volume. Edited excerpts:
What’s your take on the private sector growth in Vietnam?
By and large, the private sector is performing well. A lot has changed over the last two to three decades. So you are seeing a more vibrant and strong private sector. Clearly, there are more opportunities for the private sector to grow, and we are going to see the private sector playing a more crucial role in certain parts of the economy.
It is also important to understand that the private sector is not the solution to all the issues a country faces. The government and the state-owned enterprises will also play a vital role in some certain parts of the economy.
How do you assess the impact of Trans Pacific Partnership on private companies? What can local firms do to tap the opportunities from the TPP?
Foreign investment will clearly be associated with the private sector in most segments, especially manufacturing. Vietnamese companies need to position themselves to be good partners to foreign players that are coming in. There are going to be a lot of ancillary opportunities and the one sector that comes to my mind is education. You need to have a better skill set. The skill set is already good, but it needs to develop better and faster due to the magnitude of the manufacturing industry.
The service sector will clearly grow very rapidly with investment as there is need for better financial, healthcare, retail and tourism services. So I think the private sector should be positioning itself for the ancillary services, and also to be credible and reliable partners to foreign partners.
The biggest opportunity for the private sector is to step up on their own with the TPP. There are a lot of good companies here in different sectors, they have the capacity to really speed up.
IFC has made some investments and proposed some more into Vietnamese businesses? Which are your focus areas?
There are three to four verticals that we are focusing on. One vertical that we have been doing for many years is the financial sector. We have financed a lot of banks. We will continue to do that and are looking at a number of proposals to work with banks.
The second vertical is manufacturing. That is where we can see a lot of opportunities coming up. As the Vietnamese economy grows, the expectation is that the manufacturing sector will grow forward for domestic consumption as well as exports, which is the great thing because you are not going to be relying on one or another. Vietnam can be a good play in the middle ground between exports and domestic consumption, that’s really a big game for us.
The third vertical which we are hoping to grow is infrastructure. We have done a bit of infrastructure here and are trying to do some more. Infrastructure is a longer term game for us. We think there are going to be opportunities in infrastructure, like logistics and transport, and renewable energy.
These are the three main verticals. In addition, the services market is growing, so that’s another area that we focus on. The last one is disruptive technology. That’s where we could see a lot of works happening across ASEAN. We need to see how we are going to play in that space, so that is another important area for us.
In technology, a lot of Vietnamese startups are still trying to do e-commerce. Do you think there is potential for other tech areas?
There’s a lot of space in both e-commerce, fintech, medical technology and e-logistics. This is the space where new things are probably happening on a daily basis across the world. The beauty about it is that a lot of the new things that are happening are easy to replicate. So beyond e-commerce or e-retailing, it is a completely new ecosystem where you can do a lot more.
A crucial part of the ecosystem is financial inclusion. Today you have technologies to solve and simplify transaction problems, to reach a remote village where there may not be a bank branch. The financial inclusion space is going to be very positive thanks to the technologies that are coming in.
What will be the next drivers for economic growth in Vietnam?
My hope is that you will see growth driven by investment in services and manufacturing. But in order to make that happen, we expect to see an uptick in infrastructure spending. Vietnam has good infrastructure but in order for it to be well prepared for the TPP, we think more will need to happen. So it is going to be a combination of manufacturing and services that will drive growth in the future. In addition, if the agriculture is positioned well, it will drive the economic growth in a great way.