Vietnam Must Reform Economy to Attract Investment: Hormats

Robert Hormats, vice president at Goldman Sachs International,told CNBC’s “Morning Call” that Vietnam must reform its economy to attract significant foreign investment.

“A lot of the reason China opened up was the power of one individual who was, after all, the supreme leader of the party, Deng Xiao Ping,” Hormats said Monday. “...(Vietnam) doesn’t have that one, powerful moving force.”

As a result, Vietnam still has a murky legal system and official corruption is common, he said.

Nevertheless, Hormats said some basic manufacturing is moving to Vietnam from China as Chinese workers demand better wages and working conditions.

“(This) doesn’t mean (Vietnam) is the next China,” Hormats said. “Of course, it’s much smaller than China – China has 1.3 billion people and Vietnam has less than 100 million. (Vietnam will become) a powerful economy if it can make the kind of reforms that China has implemented. (Vietnam) can be a major factor in global trade and investment. But it’s not there yet. It’s probably about where China was in the 1980s in terms of the kind of (needed) reforms.”

He said companies seeking to do business in Vietnam will get more than cheap labor.

“The Vietnamese have a very highly developed education system,” Hormats said.

It’s difficult for individual investors to do their due diligence on Vietnamese companies and there are few, if any, mutual funds or exchange traded funds pegged to Vietnam’s economy, he said.

“If I were an investor, I would spend time studying the economy, looking for individual stocks,” Hormats said. “If you find one, do a lot of research because they’re not all that transparent. Then figure out a way to get in when the economy opens up.”