After a gap of 20 years, the USA and Vietnam reestablished diplomatic relations in July 1995. The next two decades saw more than half of US Fortune 100 companies establishing their presence in Vietnam, and the Asian country becoming an attractive investment destination for American investors.
In an ironic twist, there is an increase in flow of investment from Vietnam into the USA, primarily due to the popularity of the US EB-5 investment immigration program amongst wealthy Vietnamese investors.
1995-2015 — History of US investment in Vietnam
Over the past 20 years, US firms have invested hundreds of billions of dollars in various sectors of the Vietnamese economy. The impact of this inflow is evident from the fact that Vietnam enjoyed sustained real GDP growth in excess of 7% during these two decades.
A 2013 US Department of State report described Vietnam as an attractive destination for foreign investors. Reasons included open economic policies, ideal geographical location, accessibility to global supply chains, a stable polity, and a FDI-friendly economy with availability of abundant labor. Recent developments like establishment of a securities market, entry into the WTO, development of ports along its long coastline, and sustained increase in labor costs in China have resulted in further increase in interest of foreign investors in the country.
Two decades of sustained economic growth facilitated by foreign investment has had a significant impact on the standard of living in Vietnam. An important player in the global economy, Vietnam has witnessed a paradigm shift in labor and economic strategies due to sustained development of industrial infrastructure.
Foreign investment is said to have created more than 1.2 million jobs, with millions of jobs being created as an indirect consequence of inflow of FDI. The country has witnessed a significant improvement in its standard of living, which has led to the emergence of a separate class of wealthy individuals in Vietnamese society.
Current Investment Scenario in Vietnam
Despite having a good record of attracting funds from foreign investors, the current scenario suggests difficulties ahead. According to the report released by the State Department, there are growing concerns amongst international investors about the deterioration in investment climate. Problems like corruption, inadequate legal infrastructure, financial instability, lack of training and education facilities, and lethargic decision-making abilities of the bureaucracy are beginning to tarnish Vietnam’s reputation as an investor-friendly destination.
While the country enjoyed steady growth in 2014, recent developments like bank failures, legal action against high-profile businessmen, and steady increase in reports of corruption have raised doubts about the overall economic stability of the nation.
These problems have not only resulted in a fall in foreign investment, but have also led to an increase in wealthy Vietnamese seeking permanent residence in other countries. Despite the turbulent history between the two nations, America is a preferred destination for Vietnamese investors. A 2014 survey indicated that 76% of the Vietnamese population had a positive opinion about the USA.
Today, Vietnam is considered a reliable US ally in South East Asia. Almost half the expatriates from Vietnam reside in America, and students from Vietnam constitute the eight-largest group of foreign students in the USA.
EB-5 Investment Immigration Program
The US grants different types of permanent residence visas, including employment-based permits. The fifth category of employment-based permanent residence visa is the Immigrant Investor Program, which is also known as the EB-5 visa. This visa is granted to business investors, and their dependents, who invest at least $500,000 in a new commercial enterprise in a targeted employment area within the country. Further, the program requires such investments to create at least 10 direct or indirect full-time jobs in America.
Launched in 1990, the program was designed to boost the US economy through inflow of foreign investment and creation of jobs in the country. The program permits up to 10,000 business investors to obtain green card status every year. The grant of the Green Card, the US permanent residence permit, is conditional for a period of two years. The permit is approved after investor confirms deployment of the investment and creation of the requisite number of jobs.
Over the past few years, demand for EB-5 visas has increased significantly. This is partially attributable to growing interest amongst US businesses and developers in utilizing the program as a source of investment capital. Developers bring together multiple investors to finance a single EB-5 approved project. Such investments are permissible provided minimum investment and job creation requirements are fulfilled.
As compared to traditional sources of financing, EB-5 funds are cheaper, involve smaller dilution of the owner’s equity, and can be arranged at more favorable business terms for the developer. Experts attribute the growing demand for EB-5 investment funds as a consequence of impact of the recent recession on conventional sources of business funding.
Currently, investors from China account for more than 80% of all applications under the program. Since the program has a country-wise quota, most Chinese EB-5 investors who applied in 2014 were carried forward to the following years. Since developers don’t have the option of relying on investment from Chinese investors, authorities expect them to reach out to investors from other countries, including Vietnam. Further, increasing awareness of the advantages of investment immigration programs has led to increased diversity in applicants seeking permanent residence in the USA.
There is a growing demand for the EB-5 visa program in Vietnam as well. As compared to the period between 2006 and 2012 where only 90 such visas were issued to investors from Vietnam, 121 permanent residence visas were issued to Vietnamese applicants in 2014 itself. Although the USCIS does not release country-wise data on pending petitions, immigration experts are of the opinion that at least 100 applications from Vietnamese investors are pending with the authorities. Some experts are of the opinion that the actual number may be double this conservative estimate.
Vietnam, with a significantly lower population, is unlikely to bring in more investment into the USA as compared to China. Yet, experts expect the Vietnamese market to grow at a steady pace for the next few years. Industry watchers predict that EB-5 investments from Vietnam may eventually peak at around $150 million per year.
Created as a pilot program, the EB-5 investment immigration program must be renewed by lawmakers after every three years. The general perception amongst experts and immigration industry watchers is that the program’s next extension, due in September 2015, is unlikely to be a complicated affair. In fact, there seems to be bipartisan support for extending the scope of the renewed program.
The EB-5 visa program is helping the US reap the benefits of decades of investments made by US companies in Vietnam. With conditions supporting the reversed flow of investment, the number of wealthy Vietnamese investors pumping money into the US economy through its popular investment immigration program is likely to increase in the coming years.
Source: Inside CounselGeneral Information: Contact us to receive more information about this article.
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