Overseas remittances have increased steadily for Vietnam in recent years, but the country is yet to have policies to attract this resource of capital for economic development.
Over the past 2 years, Bui Van Quang, a Vietnamese mechanic working in South Korea, has sent an average US$15,000 annually to his family in the rural area of the northern province of Hai Duong.
Quang says the sum has been used to repay debts, buy a piece of land and gold for savings and help some relatives.
Quang is among 400,000 Vietnamese guest workers abroad.
Besides remittances sent home by these workers, Vietnam also receives a large amount of remittances every year from overseas Vietnamese.
According to the Vietnam Social Science Institute, there are about 4 million overseas Vietnamese living in 100 countries and territories worldwide.
Remittances to Vietnam have increased steadily, while other sources of foreign capital like foreign direct investment (FDI), foreign portfolio investment and official development assistance (ODA), have not been stable.
In 1999, remittances made up 4.2 percent of Gross Domestic Product (GDP) and increased to 7.7 percent in 2010 when GDP value was US$100 billion.
Figures from the State Bank of Vietnam (SBV) show that remittances to Vietnam is about $2.5 billion in the first quarter of this year, $2 billion in the second quarter and $2.5 billion in the third quarter.
SBV estimated that the amount for the whole year could reach US$8.5 billion.
Last year, remittances amounted to US$8 billion. In comparison, FDI was US$9.6 billion and ODA was $2.6 billion.
This big amount of remittances helped offset nearly 50 percent of the trade deficit and reduce reliance on foreign funds, especially foreign aid.
The official figure for remittances does not include cash and kind sent to Vietnam via channels other than the banking system.
According to the SBV, this amount is equal to at least 30 percent of the remittances sent through the official channel.
According to a report by the World Bank (WB), Vietnam ranks No. 16 among countries that received the greatest amount of overseas remittances in 2010.
In Southeast Asia, Vietnam ranks second after the Philippines which received $21.3 billion. Remittances sent to Vietnam are mainly from overseas Vietnamese in the US, Canada and France.
However, most recipients are well-off families in urban areas, especially HCMC. The city is the biggest recipient of remittances in Vietnam although it does not have a large number of guest workers abroad.
In recent years, remittances to cities and provinces that have a large number of guest workers abroad have also increased rapidly.
Figures from WB’s survey show that remittances sent to such cities and provinces are nearly equal to the local GDP.
Vietnam’s labor export has expanded in recent years. The main export markets are Asian countries and territories, especially Taiwan and Malaysia.
The bank has forecast that this source of remittances may continue to increase in the years to come if the global economy maintains the current pace of recovery.
Inadequate policies
Most remittances to Vietnam are used for investment in real estate, and the rest is for bank deposits and purchase of durable goods.
In a conference on international migration held in Hanoi in last June, WB experts released a survey of over 4,000 families that received remittances in Vietnam in 2008. The survey shows that the remittances helped the recipients increase spending on land and housing.
The experts also estimated that 48 percent of remittances over the past 5 years went to real estate. A small part was used for investment in services and for travel.
“Remittances have an insignificant impact on poverty reduction, as the money is sent mainly to well-off families and is not for spending,” the survey said.
A leader of a commercial bank that helps pay 20 percent of the total remittances to Vietnam every year said most of the remittances are used for real estate purchase.
Part of the amount is for trade payment, as recipients can get the money very quickly, within just 12-24 hours, while it takes between one and two weeks to settle payment through banks.
Another part is deposited at banks to enjoy high interest rates for foreign currency deposits. For example the interest rate for deposits in U.S. dollar at banks abroad is only 0.25-0.5 percent per year while the rate in Vietnam reached 5 percent earlier this year.
According to DongA Bank, remittances to Vietnam in the first half of this year surged 20 percent from the same period last year and the rate of US dollar deposits at the bank rose 10-15 percent due to the high interest rate for US dollar deposits.
However, a big concern is that a large amount of remittances this year has not been deposited at commercial banks but has been sold to the black market, which offers an exchange rate higher than that quoted by banks.
This foreign currency source has exerted a big pressure on the exchange rate, increased dollarization in the economy and posed a headache for market management authorities.
According to big remittance payers, such as Sacombank, DongA Bank, ACB, Agribank and Vietinbank, only 10-15 percent of the recipients deposit or sell the foreign currency they receive to the banks.
If only 50 percent of the remittances is deposited or sold to banks, the pressure on foreign currency shortage can be eased. Bankers hope that SBV’s Decree 95 on foreign currency management with strict penalties for violators issued recently can help direct more remittances to their banks.
However, it needs more long-term solutions to attract this precious source of foreign currency. Although the policy and procedure regarding overseas remittances and foreign currency management are sufficient, reality shows that they are not favorable.
For example, people can sell foreign currency to banks easily, but when they need foreign currency for medical treatment, overseas study or travel, it is not easy to buy the money from banks and the procedure is complicated.
In addition, sustainable investment channels to attract overseas remittances are not available. The procedure for house purchase by overseas Vietnamese is still complicated. Policies to attract remittances to sectors that badly need investment such as education, healthcare and services are not available either.
Incentives to encourage recipients of remittances to invest in businesses to create jobs and contribute to economic development are yet to be seen.
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