Building a Venture Capital Market in Vietnam: Diffusion of a Neoliberal Market Strategy to a Socialist State

Abstract

Vietnam’s venture capital (VC) industry took shape in the late 1990s during a period of exceptional economic growth in the country and the development of its high-technology sector. High growth rates and technological advances have typically coincided with both strong VC market activity and state support of equity financing. This, however, has not been the case in Vietnam. In this article a policy diffusion framework is used to investigate the international and domestic origins of Vietnam’s nascent VC policies, and how they became part of the agenda of the Communist Party of Vietnam (CPV) as credit-based, rather than equity-based, solutions. The article argues that Vietnam’s heterodox approach to VC policy results from both external forces from donors and from domestic factors. In particular, Vietnamese policymakers have a preference for credit-based SME financing solutions and Vietnam’s official development assistance providers diffuse expertise on loans, not equity investments, to the Socialist Republic. The only donors recommending VC and equity-based financing in Vietnam have gone “around the state” rather than through it by working directly with the private sector. As a result, Vietnam’s SME financing initiatives have significantly diverged from international VC policy patterns.

Keywords:

• venture capital markets
• industrial policy
• Vietnam
• international organisations
• financialisation
• official development assistance

Notes

1. VC, as a subset of private equity, refers to a capital investment in exchange for company equity, but debt instruments can also be used as the collateral for the capital. In Western markets, particularly in the US, investment in exchange for interest-bearing loans is known as “venture lending” rather than VC. But, in some Asian markets, especially Japan, VC is also structured as credit-based investment transactions.

2. The IMF discontinued its financing programs to Vietnam as conditionality regarding transparency into government accounting and spending was not granted in 2004. This lack of transparency was also found by Transparency International in its low ranking of Vietnam (Perkins and Vu, 2009).

3. Vietnam’s industrial policymaking process lacks transparency and has institutionalised corruption, which has been noted as a fundamental impediment to further development of Vietnam’s economy (see Le, 2010; Gainsborough, 2003).