Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling to the Government
The Vietnamese government is the leading purchaser of goods and services in Vietnam. If provincial and municipal governments and state-owned enterprises are included, the potential for sales to this sector is very large. Bolstering state budget allocations, Vietnam is also the recipient of significant levels of Official Development Assistance (ODA). Infrastructure is the principal development priority for ODA, but other key sectors include transportation, telecommunications, energy, environmental/water, civil aviation, education, and financial services. In May 2016, the United States lifted a three-decade ban on the sale of certain categories of defense articles to Vietnam, opening a new sector to U.S. companies.
Government procurement is regulated by the Law on Public Procurement, 43/2013/QH13, approved on Oct 26, 2013, and Decree No 63/2014/ND-CP dated August 15, 2014, which contains stipulations related to selection of contractors. Government procurement funded by ODA loans and grants is normally governed by regulations on tendering of relevant donors in accordance with loan agreements between the Vietnamese government and donors.
Public investment projects are classified in accordance with Article 6 of the Law on Public Investment into Group-A, Group-B, and Group-C projects. Classification criteria comprise of urgency/significance, area/location, sector, investment components or capital required.
Government procurement practices can be characterized as a multi-layered decision-making process, which, despite some recent improvements, often lacks transparency and efficiency. Although the Ministry of Finance allocates funds, various departments within the ministry or agency are involved in determining necessary government expenditures. Currently, ministries and agencies have different rules on minimum values for the purchase of material or equipment, which must be subject to competitive bidding. High value or important contracts, such as infrastructure, require bid evaluation and selection and are awarded by the Prime Minister’s office or other competent body, except for World Bank, Asian Development Bank, UNDP, or bilateral official development assistance (ODA) projects. Some solicitations are announced officially in the Vietnamese language newspapers such as Dau Thau, Nhan Dan, Lao Dong, and Saigon Giai Phong, and in the English language newspapers Vietnam News and Vietnam Investment Review. The U.S. firms may also be able to register to obtain a consolidated listing of government or private tenders in Vietnam at Intellasia and may check MPI’s public procurement website at http://muasamcong.mpi.gov.vn/.
Winning government contracts requires high degree of involvement and communication between the foreign supplier, the local distributor or representative, and relevant government entities. Interaction should begin during the project planning stage. To secure orders in competitive bidding, it is necessary to establish rapport and credibility, as well as to educate the procuring entity as to how the product or service can support project needs well before the bid is publicly announced. Although the timing for tender opening, bid closing and award notification varies from project to project and preparation of government budgets. Experienced foreign suppliers caution that even after awards are made, negotiations on price, specifications, payment terms, and collateral may continue for some time.
U.S. companies bidding on Government tenders may also qualify for U.S. Government advocacy. A unit of the U.S. Commerce Department’s International Trade Administration, the Advocacy Center coordinates U.S. Government interagency advocacy efforts on behalf of U.S. exporters bidding on public sector contracts with international governments and government agencies. The Advocacy Center works closely with our network of the U.S. Commercial Service worldwide and inter-agency partners to ensure that exporters of U.S. products and services have the best possible chance of winning government contracts. Advocacy assistance can take many forms but often involves the U.S. Embassy or other U.S. Government agencies expressing support for the U.S. bidders directly to the foreign government. Consult Advocacy for Foreign Government Contracts for additional information.
Financing of Projects
United States Government supported export financing, project financing, loan guarantees and insurance programs are available for transactions in Vietnam through the U.S. Export-Import Bank (U.S. EXIM Bank) and the Development Finance Corporation (DFC, formerly, Overseas Private Investment Corporation OPIC). The establishment of these two agencies’ programs (EXIM Bank and OPIC/or IDFC) in Vietnam, coupled with the activities of the U.S. Trade and Development Agency (USTDA), which provides grants for feasibility studies, technical assistance, reverse trade missions, and training for commercial projects being pursued by U.S. firms, has enhanced the competitiveness of U.S. companies doing business in Vietnam
In principle, state-owned banks could provide export financing to U.S. firms operating in Vietnam, but such financing is more likely to come from joint-stock banks or the branches of foreign banks in Hanoi or Ho Chi Minh City.
When dealing with importers or financing originating in Vietnam, U.S. suppliers should request irrevocable L/Cs. They should have one of their correspondent banks confirm the L/Cs. Foreign banks tend to deal for trade financing with the major joint-stock banks (Vietcombank, Vietinbank, BIDV, ACB, EXIM Bank, SACOM Bank, and Techcombank) and the biggest state-owned bank (BARD).
Bilateral government “tied” aid, commonly offered by other governments, sometimes provides non-U.S. companies with a comparative advantage that negatively affects the U.S. trade performance in Vietnam. These may be in the form of soft loan programs designed to support the financing-country’s exporters. U.S. EXIM Bank and DFC financial services may be a tool to offset this disadvantage for the U.S. companies.
Vietnam secures a substantial portion of its development funding from Official Development Assistance (ODA), including from the multilateral development banks (primarily the World Bank (WB) and Asian Development Bank (ADB)), the Japanese Bank for International Cooperation (JBIC), German Development Bank (KFW) and the United Nations Development Program (UNDP). The U.S. firms can also participate in projects funded by these agencies.
Medium, and possibly longer-term, financing is also available from commercial banks in Vietnam, although loans are provided mostly in Vietnamese dong. Foreign investors are encouraged to approach the branches of major foreign banks instead of the state banks as the state banks tend to favor Vietnamese state-owned enterprises.
Multilateral Development Banks and Financing Government Sales
Price, payment terms, and financing can be a significant factor in winning a government contract. Many governments finance public works projects through borrowing from the Multilateral Development Banks (MDB). A helpful guide for working with the MDBs is the Guide to Doing Business with the Multilateral Development Banks. The U.S. Department of Commerce’s (USDOC) International Trade Administration (ITA) has a Foreign Commercial Service Officer stationed at each of the five different Multilateral Development Banks (MDBs): the African Development Bank; the Asian Development Bank; the European Bank for Reconstruction and Development; the Inter-American Development Bank; and the World Bank.
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