Vietnam: The deep end of doi moi
HO CHI MINH CITY - Wheeling and dealing is the name of the game in go-go Saigon. The city of Uncle Ho remains a motorbike hell, although Vietnam may be on its way to becoming a country where the middle class buys cheap sedans to replace them. In the lovely characterization of a communist party cadre, the Saigon middle class are "intellectuals, those who are well-educated and have a big monthly income. They may be a company director, trader, hotel owner or entertainer. They have property, know at least one foreign language and can use the Internet. They may have a house or villa in the suburbs or neighboring provinces. As they have a car, their house must have a garage."
So are all these garage-equipped masses armed with their Toyota Zaces, Mitsubishi Jolies, Daewoo Matiz and Kia Prides marching to a future of socialist glory? It's not that simple. Ho Chi Minh City currently has 3.6 million people of working age, roughly 66 percent of its population. But more than 30 percent of these don't have a steady job, and more than 20 percent are unemployed - officially because of "company restructuring" or "production restrictions". They can hardly afford a bicycle.
Whatever we watch in Vietnam, the still-large, inefficient and unprofitable state sector is not the way to go. Vietnamese movies are an example - usually very well-received in Europe - and when they manage to get distribution - in America. But making movies in Vietnam is very hard. Popular actor Ly Huynh had to wait for more than 10 years to own his own film company.
Recently, the end of state monopoly was finally approved by the Ministry of Culture and Information. Before that, Ly had to distribute his films through the state company, and after taxes he was usually in the red. Now the Ministry believes that private film companies will be able to "reinvigorate" the Vietnamese film industry. Foreign investors now also have the right to make and distribute their own films and build their own studios and multiplexes - always, of course, "under the control of the Ministry". Ly starts production next month on two action movies, Super Female Bodyguard and Speed Bullet.
Duc, 30, a highly-skilled worker, was a state employee earning little more than US$30 a month until he was offered a job as a department head in a foreign company, earning $200 a month. The equivalent - 3 million Vietnamese dong - is considered a fortune by local standards. This also means Duc doesn't need a second job to help pay his bills. Duc's case is typical of the "brain drain" from state to private companies in Vietnam. And there's another brain drain concerning the currently more than 20,000 Vietnamese studying abroad. Most don't return home. The only solution for Vietnam in this case would be to adopt the Chinese model. Chinese companies offer very attractive packages for skilled returnees, including accommodation, car and driver and stock options.
Following the money in Vietnam is quite a puzzling undertaking. It is, in fact, under mattresses. According to an official report published in early July, average household income is a paltry $32 a month. Virtually nobody in Vietnam ears a salary of more than $200 a month. But each household saves an average of $6 a month. In a population of 80 million, that makes for a considerable sum. Only half is reinjected in the economy. The other half remains under the mattress. The government is now obsessed on how to "mobilize" these assets, especially in the urban zones, in the Mekong and Red River Deltas. According to the same report, average income per head is more than $40 in urban areas, compared to less than $20 in rural areas. The state solution: let's create private companies, let's encourage people to invest in the countryside. Up to now, investment in the stock exchange has been slow - only 1.6percent of GDP (gross domestic product) estimated at $32 billion.
Property prices in Ho Chi Minh City are around a whopping $9,000 per square meter. Most families own their houses, or in fact quite a few - and all this with no mortgages or bank loans. Vietnamese parents usually reject marrying their daughters to someone without his own house. It's a mystery how young prospective suitors can put up with the necessary billions of dong. The answer is that the money usually comes from the Viet Kieu - the diaspora in the US, Canada, France or Australia. The inward influx of dollars is around $2.5 billion a year. The inflow to the property market inevitably leads to a series of abuses. The People's Committees periodically crack down on the widespread boom in illegal construction, demolishing illegal houses, banning engineering firms from competing for city-funded projects and punishing corrupt state officials.
Because of its moderate labor costs, crucial geographical position between China and the Association of Southeast Asian Nations (ASEAN) - and lately because it's not on the map of Islamist terror networks, Vietnam is increasingly a magnet for Asian investors, and for some Western as well - although the government is nothing less than schizophrenic on foreign investment, suspicious one day, welcoming the next. Jacques Rostaing, president of the French Chamber of Commerce and Industry, is a great enthusiast: "Vietnam is a country of opportunities to be seized, many investments in energy, food and beverage, distribution, textile industry, insurance - France is the main Western investor in the country since 1988."
Vietnam's former colonial master, France is the sixth largest investor in Vietnam. The top five are all Asian: Singapore, Taiwan, Japan, South Korea and Hong Kong. The United States is 11th. Singaporeans are especially proud of the Vietnam-Singapore Industrial Park in the province of Binh Duong - home to 115 mostly foreign investment projects worth $600 million. The Vietnamese government regards it as a model as well. It is typically Singaporean. Most of its investment is in property - lots of hotels and serviced apartments. But now there's a move to invest in information technology services, education, distribution, food processing, logistics and infrastructure.
Vietnam has become a key base for South Korean companies keen on exporting to the US and also to ASEAN. It is South Korea's second investment destination in ASEAN after Indonesia. Oh Jae Ho, director of the Korean Trade Center, explains why: "Many Korean companies have recently moved their factories from Indonesia, Philippines and even China to Vietnam. Vietnam has the competitive advantage of a good labor force. The workers here all well-educated, hard-working and smart. Vietnam also has good natural resources like oil and seafood. In addition, the politics, society and economy are more stable than some other ASEAN countries."
Thai companies are also very much interested in Vietnam. At a trade show in Ho Chi Minh City last week, the Thais brought consumer goods, food and beverage, building materials, cars, auto spare parts and tropical fruit. Bilateral trade was $1.18 billion last year, and it's already up more than 40 percent in 2003.
And the Vietnamese Communist Party of course does not forget its old dear friend Fidel Castro. On a recent visit to Havana, the president of the Vietnamese National Assembly, Nguyen Van An, praised Cuban help in the areas of construction, biotechnology, sanitation and education, and stressed Cuba's role as Vietnam's door to the Latin American market. Not exclusively in the name of the revolutionary cause, Cubans can be sure of eating Vietnamese rice for a long time. Vietnam is the world's second largest rice exporter after Thailand.
It tells a lot about foreign investment in Vietnam to examine the list of what they don't seem so interested to invest in. There are more than a thousand investment projects worth a total of $17.5 billion, which although already licensed are still dead. These include crucial strategic projects capable of developing Vietnam's economy: a refinery; exploitation of an iron mine; a steel plant; exploitation of bauxite; and a few highway projects.
A bold national plan is being considered whereby 20 percent of the state budget would be spent on education. This would mean, among other things, free primary education for all Vietnamese children by 2015. But such a plan cannot be implemented without the contribution of foreign donors.
Investors usually think that everything in Vietnam is under central control. That's not the case. Every province is king. The country is in fact a federation. Of course it's key to have Hanoi's approval. But the important piece of paper that really matters is to be delivered by each province's People's Committee.
Foreign investors in Vietnam all demand the same things: reduction of business costs; the abolition of a dual pricing system; improvement of the legal structure (almost 75 percent of law students got their degrees in the former Soviet Union or in Eastern Europe); better labor standards; and protected intellectual property rights. They are all saying in essence that doi moi - the Vietnamese-style perestroika introduced in 1979 - has to go deeper.
But as doi moi goes deeper and the country becomes more attractive to foreign investors, the brutal inequality between urban and rural Vietnam is bound to explode, to the despair of the Vietnamese Communist Party. Some 51 percent of the population - roughly 41 million people - live in poverty, and the absolute majority is in the countryside. Provincial governments that are better off increasingly resent financing the poorer corners of the country, and blatantly ignore decrees from Hanoi. And to top it all, there are no indications at the moment that the Vietnamese Communist Party is contemplating the dismantling of the state sector.
If Vietnam plays its competitive advantages well, it may be a big winner when the ASEAN common market, or "ASEAN economic community" emerges 2020, encompassing a population of 530 million: the "roadmap" is to be tabled for approval at the next ASEAN summit in Bali, in October. For the moment, the good news is that Vietnamese industrial production is up - almost 16 percent in the first seven months of 2003. But there are huge challenges: highly-competitive regional merchandise imported under AFTA, ASEAN's free trade zone; slow implementation of measures to cut the interference of middlemen; and diminishing exports. The Ministry of Plannning and Investment seems to have a cure: more investment in the domestic market; and let's bring more consumers on board. But it's hard to see where they are coming from when most consumers make less than $30 a month -and instead of spending prefer to save those few precious extra dollars under their mattresses.
By Pepe Escobar - Asia Times - August 15, 2003.
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