What's the Rush?
Vietnam reacts slowly to technology wave
HANOI - Chu Hao is not the typical Vietnamese bureaucrat.
The vice-minister of science, technology and
environment doesn't dye his white hair, arrives at an
interview with no flunkies, and prefers to sit close to his
visitor rather than strain across a mammoth conference
table. But in his two years at the ministry, he's become
most notable for the new definition he has given "VC":
In today's Vietnam, it means venture capital, not Viet
Cong.
In early June, Hao, a physicist who studied and worked
in France, submitted to the prime minister a proposal to
establish a venture-capital fund to help develop
Vietnam's technology industry. He expects an answer
by late July.
Colleagues think he's dreaming. This, after all, is a
government that has spent five years negotiating a trade
agreement with the United States, seven years talking
about opening a stockmarket (both are still being
discussed), and decades warning against the supposed
evils of capitalist exploitation.
Whatever the merits of his arguments, it will take a hard
sell to convince Vietnamese leaders to give Hao's
project a green light. If anything, the communist
government is providing a near textbook lesson in how
not to nurture a technology business. True, the
government plans to establish a hi-tech park outside
Hanoi--by 2010. And while hundreds of Vietnamese
computer programmers are busy doing grunt work for
overseas companies, growth prospects for the industry
are dim because of restricted Internet access and
expensive telecommunications. All this means Vietnam
is likely to be left out of the tech craze that's sweeping
Asia and helping to propel its stockmarkets.
"If you want a venture-capital fund you have to have
legal and financial infrastructure in place to
accommodate it," says Nguyen Thanh Ha, a consultant
at Vietbid, a law firm in Hanoi. "The needed regulations
are not in place today."
For starters, the tax system would eat away most of
any profit. Second, there's no stockmarket, leaving no
easy exit strategy for investors. What's more, the
government has only recently allowed foreigners to
invest in local companies--up to a 30% limit.
Venture-capital funds prefer ownership and
management control to prepare a company for sale.
To try to avoid these pitfalls, the proposed fund will first
invest in U.S. companies with some link to
Vietnam--they're either run by overseas Vietnamese or
are doing business in Vietnam. But that structure itself
may also be a problem. Vietnam is being asked to
contribute about $2 million of the fund's initial capital of
$50 million. That means the Vietnamese government
would be investing in the U.S.--a tough nugget for the
politburo to swallow.
"It's not clear how the money will go back and forth. All
of that will take years to work out to get approval of
the government," says Ha, who has seen the proposal.
Dick Thurston of Haynes & Boone law firm in Dallas,
Texas, one of the fund's partners, acknowledges the
hurdles ahead but remains optimistic. He hopes to have
a majority of the fund invested in Vietnam within a few
years.
Where does this leave Vietnam's technology drive?
With a 30-kilometre road running west from Hanoi
through rice paddies and graveyards to nowhere. The
wide, two-lane highway is about all that exists of the
country's grandiose plan to develop a 1,600-hectare
hi-tech park in the now-empty town of Hoa Lac.
Like so many of Vietnam's plans, it's a reality only on
paper--and it could remain that way for years. The
government says it will take six years to build the basic
infrastructure. Investors in software, electronics and
biotechnology will hopefully follow. "Capital shortage is
a big problem," says Vice-Minister Hao. "Aid is limited
and the hi-tech park is just one of the government's
priorities." Hanoi appears to be giving equal weight to
building an ethnic-minority theme park in the same area.
For now, about the only activity that can be described
as hi-tech in Vietnam is subcontracting work for foreign
software programmers. Programming exports totalled
about $5 million in 1998, according to official estimates.
Firms from Silicon Valley and even Bangalore, India,
are using Vietnamese programmers at about a dozen
software-development companies. India's Tata
Consultancy Services plans to develop a training centre
in Hanoi with state-owned FPT, which is at the
forefront of software development, computer sales and
Internet services in Vietnam. The son-in-law of military
mastermind Gen. Vo Nguyen Giap runs the company.
Yet the bosses of the foreign-owned and domestic
firms that employ and train Vietnam's young and
talented programmers complain that bureaucracy
thwarts further growth. Their main gripes are Vietnam's
exorbitant telecoms rates (a leased line costs 20 times
more than in the U.S.) and the government's monopoly
on Internet access.
Numerous firewalls--set up by the authorities to make
much of the Internet inaccessible--prevent companies
from conducting business with contractors overseas.
There won't be a significant software industry in
Vietnam until "it has wide, reasonably priced access to
the Internet," predicts Michel Dauguet, general director
of Pacific R.I.M., a 100% foreign-owned, software
maker in Hanoi. "This is not the case today. It is very
expensive and it is censored."
Hao nevertheless sees even the limited Internet access
introduced in early 1998 as a huge step forward.
"Now, information exchange between Vietnam and the
outside will quickly develop," he says with unflappable
enthusiasm. "You cannot reverse the process." Maybe
not. But that doesn't mean it will move forward quickly,
either.
Far Eastern Economic Review - July 15, 1999.
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