Russia’s Central Bank to accredit Hanoi based BIDV to promote comradeship with Vietnam

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By Marina Romanova

c1feff5bdbb45920cf7cbaa57d731347Russia’s central bank accredited Bank for Investment and Development of Vietnam (BIDV) to be country’s first financial representative on the Russian market, Vietnamese and Russian media reports.

“It is important not only for the bank itself but for the future cooperation between Russia and Vietnam,” TASS quote Dmitry Skobelkin, a central bank deputy governor, as saying.

Earlier in April 2016, the central bank issued the operating license for BIDV’s representative office in Russia. The joint bank is taking part with Russia’s state-run VTB bank in a pilot project aimed at arranging payments between two countries in their national currencies. In the long term it is possible for BIDV to open a branch in Russia, bank press release said.

BIDV’s press office describe Russia as one of its key markets and VTB as its main financial partner in Russia for the last 17 years. The VRB, with 50 percent from BIDV and 50 percent from VTB, of chartered capital respectively, started to operate on November 2006. It has 5 branches in Vietnam, namely in Hanoi, Ho Chi Minh, Vung Tau, Da Nang, and Nha Trang city.

In November 2015, BIDV, VTB and VRB (Hanoi-based Vietnam-Russia Joint Venture Bank) has launched the bilateral payment channel, facilitating the transactions between two countries. BIDV is also a co-founder of VRB,  which is so far the only financial institution with Russian capital working on Vietnam’s market.

According to Tran Bac Ha, BIDV chairman, the free trade agreement (signed between Vietnam and Eurasian Economic Union in May 2015) has “widened the cooperation opportunities between Vietnam and Russia.” The two countries target a bilateral trade turnover to increase by 18-20 percent annually to reach US10-12 billion by 2020 and exports from Vietnam to Russia to increased by 63 percent.

“To reach the target, the two countries must closely cooperate with regular exchange of information about investment and trade opportunities”, Tran Bac Ha said.

Despite long-term political ties, two allies economic cooperation and trade turnover remains relatively insignificant. According to Vietnamese statistics in 2015, bilateral trade between Vietnam and Russia was just about US$4 billion, which is only a fraction of Vietnam’s trade with its top five trading partners, namely China (over US$66 billion), Association of Southeast Asian Nations – ASEAN – (US$42.1 billion), United States (US$41.5 billion), EU (US$41.2 billion) and South Korea (US$36.7 billion).

With a total capital of US$2 billion, Russia ranks 17th among countries and territories currently investing in Vietnam. Vietnamese companies have invested nearly US$3 billion in Russia, mainly in the oil and gas industry, Asia Times reports.

In 2012 Russian Gazprom signed a deal to explore two licensed blocks in Vietnam’s continental shelf in the South China Sea, taking a 49 percent stake in the offshore blocks, which hold an estimated 1.9 trillion cubic feet of natural gas and more than 25 million tons of gas condensate. Nearly 80 percent of Vietnamese oil and gas comes from Vietsovpetro — Moscow-Hanoi joint venture — and the income corresponds to around 25 percent of GDP.

Russia-Vietnam relations dates back to the Soviet era and Russian sentiments remains strong in Vietnamese society up to nowadays. According to a Pew Research Center study in 2015, 75 percent of Vietnamese people viewed Russia positively. Many of the country’s current political and military elites, including the party leader Nguyen Phu Trong, studied in Russia during the Soviet time.

Vietnam is one of the biggest importers of Russian weapons. According to TASS data, the country buys a broad range of Russian armaments, including Gepard-3.9 frigates at a cost of US$300 million and submarines of Project 636 (known as Varshavyanka). Vietnam also builds Molnia-class missile boats (project 12418) under the Russian license.

Some experts estimates Vietnam’s shopping list of military equipment, including patrol aircraft, tanks, combat jets and attack helicopters up to   US$13 billion. According to Ben Moores, a defense analyst at consultancy IHS Jane’s, “about 82 percent of Vietnam’s spend in on 2015 went to Russia,” the Wall Street Journal quote him as saying.

However, considering the US lift of the decades-long arms embargo, announced today by the United States President Barack Obama during his historical official visit to Vietnam, analysts doubt the country to continue spending most of its arms budget in Russia.

Moscow also sells its hardware to China, Vietnam’s opponent in regional disputes over resources and territory, whose familiarity with Russian weapons systems along may drew away Vietnam from the Russian market particularly now, when country could develop alternative trading relations.

“By 2021 we are forecasting that at least half of that market share will have been eroded,” Ben Moores foretold.

Carlyle Thayer, Vietnam specialist at the Australian Defence Force Academy in Canberra, said to the Wall Street Journal that “embargo lifting potentially opens the door for Vietnam to acquire sophisticated coastal radar and other intelligence and surveillance equipment to counter Beijing’s growing influence in the South China Sea.”

‘It will ultimately undermine Russian dominance in the Vietnamese market, but is unlikely to have a quick effect,” said Alexander Gabuev, chairman of the Russia-Asia Pacific program at the Carnegie Moscow Center, in e-mailed comments to the Voice of America.

Another expert, Anton Tsvetov, a researcher at the Russian International Affairs Council, in his comments to the VOA said that “Russia is likely to retain its dominance on the Vietnamese arms market in most of the high-value sectors, such as fighter jets, combat ships and missile defense systems, at least for the decade to come. The United States, however, may occupy certain niches, including maritime surveillance and reconnaissance.”

Apart from Russia’s habitual reliance on energy deals and arms sales, Moscow recently managed to attract Vietnamese private investors to its food processing industry.

Last week, Vietnam’s Prime Minister Nguyen Xuan Phuc during his official visit to Russia, attended an opening ceremony of the billion dollar milk processing plant and dairy farm project in the town of Volokolamsk, in the Moscow region.

The Vietnamese dairy producer TH True Milk project is regarded as Vietnam’s biggest investment currently active in Russia. The firm will pour US$500 million in the first phase, from which it expects to get the first batch of diary products in mid 2017.

The company will invest around US$2.7 billion in the three-phase project over 10 years. It hopes to raise 350,000 cows and reach milk processing capacity of 5,900 tons/day after the third phase, TH True Milk said, adding that it has another plan to set up 300 retail dairy stores under the name of ‘True Mart’ across Russia.

On May 16, TH signed a cooperation agreement with another Russian region – Kaluga province to set up three dairy farms worth US$190 million in total. The farms are part of the first phase of the project, Vietnam Express reports.