The government has proposed a law that will regulate domestic venture capital funds after having been reported last month to be considering a government venturing fund.

Vietnam might not currently be known as an economic powerhouse – the country’s agricultural sector accounted for 18% of gross domestic product as recently as 2014 while industry accounted for 38% – but the government is hoping to change that in the next few years.

Last month, Vietnam was reported to be exploring the creation of a government venturing fund as a first step towards making the country startup-friendly by the end of the decade. It was also said to be considering an overhaul of rules and regulations governing investments.

Now, it has revealed a draft law that will govern the creation of VC funds in the country and support the establishment of a local startup ecosystem, according to DealStreetAsia.

The government hopes the measures will add 7% growth each year until 2020 once the bill is passed during the country’s third parliamentary session this year.

Startups, or “innovative businesses” as they have been dubbed in the law, will be able to access VC funding and cash from angel syndicates, but it remains unclear for now whether benefits will include shorter investment licence procedures and fewer taxes on equity deals.

Current regulations are not so much unfriendly to VC investments as they are almost non-existent – the problem is so significant that domestic investors have incorporated as traditional companies rather than venture capital firms, as the current framework does not recognise angel investors or VC firms and provides no guidance on taxation.

The framework does, however, regulate taxes for investments by companies – 20% on equity transfers. That is in addition to a 20% corporation tax placed on the companies, making the entire endeavour almost futile and profitable VC investments difficult.

Nevertheless, well-known entities such as IDG Ventures and CyberAgent Ventures, the respective corporate venturing arms of technology research company International Data Group and internet company CyberAgent, and DFJ VinaCapital, a fund backed by venture capital behemoth Draper Fisher Jurvetson, have established themselves in the country.

Startups are already gaining from increased foreign direct investments, which reached a total of about $11bn for the first nine months of 2016 – an increase of 12.4%, according to government data.

The Vietnamese ecosystem however suffers from significant human capital flight, with many entrepreneurs choosing to register their startups in Singapore in order to take advantage of the city-state’s well-established infrastructure and friendly policies.

Singapore, of course, is also home to Temasek, one of the most active sovereign wealth funds, which already operates an office in Vietnam and is eyeing a range of partnerships with multiple sectors in the socialist republic.

Exacerbating the situation, and an issue the law does not appear to address, is the lack of foreign talent, caused by a range of restrictions that are a headache to local entrepreneurs unable to attract sufficient skilled team members to grow their startups.

Vietnam, it seems, is finally off to a good start to modernise its economy but still has a long way to go. And setting itself a target of being fully startup-friendly by 2020 might turn out to be just a little too ambitious with so much fundamental change required and the rest of the region also vying to attract talent and cashflow.

Then again, with a population of around 95 million people, there should be enough talent to give the country a good fighting chance.