Vietnam waits for the world to take notice
HO CHI MINH CITY - China is the world's
undisputed growth star, and it rarely misses an opportunity to
remind everyone. Yet Beijing has competition these days:
Vietnam.
The economy here is growing 7 percent at the moment, and
ongoing reforms auger well for faster output in the years ahead. In
the 1990s, Vietnam's growth averaged 8.6 percent and, chances
are, things are headed back that way.
"It's hard not to like the Vietnam investment story right now," says
John Shrimpton, a director at Dragon Capital, an investment
company. "Now all we need is for the world to notice."
Vietnam has been noticed before, and not always with good
results. As it began opening its economy to the outside world in
1986, foreign capital zoomed in. Gross domestic product doubled
over the next decade to about $30 billion. Then, the roof more or
less caved in and investors fled.
The country's boom hit a fever pitch in 1996, a year that saw $8
billion of foreign direct investment. Figuring Vietnam's transition
from a centrally planned Communist economy to free-market one
would make it the next Asian Tiger, investors bought into as many
businesses as
Two things went wrong. First, foreigners realized making money in
Vietnam wasn't as easy as it looked; more money funneled in than
could be used productively and profitably. By the time investors
figured out government bureaucracy, poor transparency and an
underdeveloped legal system were working against them, it was
too late. They already were taking big losses.
Secondly, Asia's financial crisis hit. Capital left Asia in the late
1990s even faster than it arrived earlier in the decade. Former
stars like Indonesia, Malaysia, South Korea and Thailand were
suddenly third-rail investments. The stampede out meant capital
left all economies in the region, regardless of their involvement in
the crisis.
Vietnam never quite recovered. At $1.5 billion in 2001, foreign
direct investment is a far cry from what it was five years earlier.
With markets in the United States, Japan and Europe reeling amid
a global slowdown, investors are showing little appetite for
developing economies.
Yet ignoring Vietnam could be a mistake. "Vietnam is a hard sell
given what happened in the 1990s, but there's good reason to
look at what's happening here now," says Jonathon Waugh,
deputy general director of ACB Securities, one of nine licensed
brokerages in Vietnam.
When Phan Van Khai became prime minister in 1997, he
unleashed a series of revolutionary reforms. During his tenure,
Vietnam concluded a trade agreement with Washington, passed an
Enterprise Law to reduce obstacles for entrepreneurs, created an
active stock market and took steps to boost investment.
Khai's re-election by the National Assembly in July signaled
Vietnam doesn't plan to turn back on building a market economy
that can compete with the best of them. Plans to open things
further are very much afoot, as evidenced by Vietnam's goal to
join the World Trade Organization.
That doesn't mean all is well. Corruption is a major risk where
economic reforms are concerned. Officials in Hanoi are in the
midst of a well-publicized attempt to tackle the problem, and they
regularly devote time in policy speeches to those efforts.
That Khai, 68, is a Soviet-trained economist also raises eyebrows
with investors. What if Vietnam reverses course when the going
gets tough? Also, the pace of change at the country's state-owned
companies, which account for about a third of gross domestic
product, has been slower than hoped.
Poverty is another concern. With per capita income of roughly
$400, Vietnam has a way to go before it offers a vibrant consumer
market to compete with the Chinas and South Koreas of the
world. The middle class here is growing, not burgeoning.
But Vietnam is quietly restructuring its economy in un-communist
ways, like empowering the private sector. The emphasis on
non-governmental businesses stems from Khai's time as mayor of
Ho Chi Minh City, Vietnam's commercial center and its soul. This
city, formerly known as Saigon, has always been less interested in
communist thinking than making money.
"There really is a new generation of leaders in charge here,"
Shrimpton says.
Passage of the Enterprise Law in 2000 boosted private industry as
rarely before. It simplified cumbersome bureaucratic procedures
that discouraged Vietnamese from starting their own businesses.
By the middle of this year, the number of registered domestic
companies in Vietnam had more than doubled since the law came
into effect.
The World Bank earlier this year calculated that these new
enterprises have capital of about 40 trillion Vietnamese dong ($2.6
billion), or 9 percent of GDP. Seventy percent of the 35,000
companies registered since 2000 are new, with the others moving
to a formal status from an informal one. The upshot is more jobs
and higher tax revenue.
Since 1997, the emphasis also has been on being more selective
about approving investment projects. Six years ago, a grab-all-the
money-we-can policy reigned. These days, it's a matter of which
investments make sense in the longer term.
Investors are certainly right to tread carefully in Vietnam,
especially after the lessons of the 1990s. Yet those who ignore
Vietnam this time around may live to regret it.
By William Pesek Jr. - Bloomberg News/The International Herald Tribune - November 11, 2002.
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