The great divide in Vietnam
HO CHI MINH CITY - Vietnam's business climate is becoming increasingly sophisticated, thanks to the country's rapidly growing, export-oriented private sector. Ironically, its most visible manifestation is state-owned Vietnam Airlines, emerging as Vietnam's first global brand. Yet this is an exception, as most state firms, or those recently privatized, remain bureaucratic and inefficient, still clutching the old public-sector mentality that shuns innovation, risk-taking and service.
In the early 1990s, foreign investors in Vietnam brimmed with optimism. A few years later they left, fed up with sour deals, bad regulations and suffocating bureaucracy. Things appear better now, with the economy booming and investors, particularly from Japan, Korean and Taiwan, flocking back. "The quality of production in Vietnam is higher than almost everywhere else," says Kevin Snowball, director of PXP Vietnam Asset Management. "There is a lot of relocation of footwear from Indonesia and China."
Trade deals have opened doors for deals - and experience - for Vietnam's burgeoning private sector. Thanks to a trade deal, US-bound textiles worth just US$50 million in 2001 shot up to $950 million in 2002. "The US did not expect the Vietnamese to push the door open as far as they did. Consequently, in 2003, the US introduced quotas. Those quotas were full by June 2003," says Snowball.
Unfortunately, elimination of World Trade Organization (WTO) quotas over the next few years threatens to spoil the party, but perhaps not for long. "Vietnam will probably compete by aiming for the higher end," Snowball says. Rapid evolution in the private sector suggests his hunch may not be far off the mark. Firms are wising up, realizing they can't just rely on exports and cheap prices.
"Most Vietnamese companies are changing now; they are learning to be more effective in marketing," says Hoang Kim Chuong, international sales and marketing director for Vietnam's Trung Nguyen Coffee. "Vietnam is becoming more open, interacting more with other countries and markets. We are becoming more aware. We have to be better, faster, cheaper."
That the economy is booming as the private sector forges ahead is not hard to see. Over the past few years motorcycles have packed Vietnam's city streets; the genteel, pollution-free cyclos now are a rarity in Hanoi and Ho Chi Minh. Japanese, European and American brand cars are increasingly common. Bangkok-style traffic jams may be on the horizon.
"What I see is a lot of people making a lot of money, especially in the [Mekong] Delta, in shrimps, fish and farming. One of the signs that they're making a lot of money is this booming real-estate market. Prices have exploded. The don't put it [their money] in the bank, they don't buy stocks, they put it in land," a foreign energy executive with two decades of experience in Southeast Asia says. "There very well could be a property bubble forming. It's at the crazy stage where four years ago people paid $200,000 for a house [in Ho Chi Minh]; six months ago someone comes up and says he wants to buy, offering $500,000 cash."
For Jim Eckes, consultancy Indoswiss Aviation's managing director, who worked in South Vietnam for seven years during the 1960s and 70s, the private sector's fast development and Vietnam Airlines' turnaround from a stodgy loss-making state carrier to a slick, fast-growing profit-maker, is no surprise. "What we're seeing here is an example of the Vietnamese inherent skill as businessmen. They absorb business skills rapidly."
This year, Vietnam Airlines forecasts carrying around 5 million passengers, a number expected to double by 2010. That could be an underestimate. A liberal air services deal signed between the United States and Vietnam in 2003 allows for a massive expansion in flights between the two countries over the coming years. With a million reasonably well-off ethnic Vietnamese, investment and visitors are likely to soar.
But with the exception of the airline, thousands of state-owned, or formerly state-owned, firms may not be quite so on the ball. "The state-owned enterprises are still very bureaucratic, very slow. They're one of the things that's holding Vietnam back," says the energy executive on condition of anonymity. "The Vietnamese people are extremely hard working. If you could get the government out of the way, they would be extremely successful."
Corruption adds costs, but it also makes many bureaucrats and state firm managers wary of making a good decision for fear of triggering a corruption investigation. Thus, they tend to take time, a long time, to decide anything - and then preferably not alone. "It's to a greater extent than you'd ever see in Thailand or even Myanmar," the energy executive says.
"There's also a lot of investigations into corruption in state-owned companies, especially construction and infrastructure. While it's good to have these anti-corruption drives, it's made the top management of these companies extremely reluctant to approve new deals, make things go forward because they don't want to be open to charges of corruption."
Transparency, or rather the lack of it, is a problem for Vietnamese and foreign investors alike. "I think transparency is a huge issue. We, as a shipping company, can't even get shipping figures," says a European logistician who requested anonymity.
The difference between the public and private sector has a geographic corollary. Around 85% of government revenues come from Ho Chi Minh and Vung Tau, an oil town nearby where entrepreneurial spirit is stronger and more aggressive. Yet the north's share of government spending still far exceeds what it contributes. If this were not the case, some observers suspect the economic chasm between the two regions would bear comparison with that between North and South Korea. "I think the south is going ahead in leaps and bounds, the north just plodding along," says the logistician.
He, like other foreign investors and managers, remains overwhelmingly optimistic, impressed by a slew of reforms introduced earlier this decade. China's reform and boom, though still very much a work in progress, shows the way for Vietnam. "I think they will continue riding on the coattails of China, they will get into the WTO at the end of 2005. I think what happens in China today, happens here tomorrow," the logistician says.
Reforming state enterprises is never easy, much less switching from one economic system to another while trying to raise living standards and development. Even eastern Germany still trails the western half on many indicators, 15 years after reunification with one of the world's richest countries. Vietnam has traveled far since beginning doi moi (change and newness) reforms 18 years ago, but it still has a long way to go to become a serious agriculture and manufacturing competitor.
By David Fullbrook - Asia Times - December 2, 2004
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