Risks loom for the brave Vietnam investor
HANOI - Few countries have disappointed foreign
investors like Vietnam.
To many businessmen, Vietnam has gone from being an El Dorado to
an investment backwater in less than a decade despite the nation's
industrious people and vast natural resources.
Indeed, the short-term outlook looks even bleaker as reforms stall
under a hesitant communist leadership and the risk of tighter economic
regulation appears the favoured solution to a growth slowdown and
lack of hard currency.
Vietnam specialist Ari Kokko from the Stockholm School of
Economics said there was no compelling reason for foreign firms to
invest in the country at the moment if they were risk averse.
``The uncertainty about the future direction of Vietnamese development
is too large,'' Kokko told Reuters.
``The main risk for foreign investors is broad re-regulation of the
economy. If the government is unwilling to enter into phase two of Doi
Moi and the supply of foreign capital keeps shrinking there is no other
way to keep the economy afloat.''
Vietnam insists it will deepen the landmark Doi Moi (renovation)
reforms adopted in the late 1980s that revived a moribund economy
and lured investors in the first place.
But those assurances do not stack up for investors tangled in
bureaucracy, many operating costs priced in U.S. dollars and now
strict foreign exchange rules.
A number of foreign firms have laid off staff and scaled back
operations in Vietnam, although complete details are not available.
Officials have said 19 foreign banks closed their representative offices
last year, although they have attributed that mainly to Asia's economic
crisis.
Executives say foreign business activity in construction, property and
banking has slowed in the past 18 months.
Analysts said re-regulation of the economy was already apparent in
new currency rules enacted late last year that require many
foreign-invested firms to immediately convert 80 percent of dollars held
in current accounts into the local dong currency.
SOCIAL RISK SEEN UNLIKELY IN NEAR-TERM
Mark Whitehead, chief representative at Jardine Pacific (Vietnam) in
Hanoi, said a key risk would remain the threat of devaluation and
non-convertibility of the dong.
Vietnam has adopted a policy of incremental devaluations to ease
pressure on the dong. But with foreign currency reserves believed to be
less than $2 billion, most economists expect the local unit to stay under
the hammer amid flat export growth and a big slowdown in foreign
investment inflows.
Whitehead said few investors doubted the ultimate potential of Vietnam
to be a success but added that in the near term the country would
suffer from a poor reputation.
``One of the greatest problems is that investors here are not about to
go away and praise Vietnam as a great place to do business. Others
will listen to this sober assessment and are unlikely to jump in,'' he said.
Businessmen added that there was little concern about social unrest in
the near future.
``I don't have to tell my customers to be afraid about politics over the
next five years at least and that is actually a very good argument to
invest,'' said Gerrit Thissen, country manager at ABN-AMRO Bank in
Hanoi.
``Vietnamese society is quite homogenous and I don't see anything
upsetting that balance. It took 30 years for things to unravel in
Indonesia,'' he said, referring to violence and instability racking the
world's fourth most populous country.
Vietnam's Communist Party also maintains a tight grip on political
expression through an extensive public security network and tolerates
little dissent.
HARD CURRENCY SHORTAGES HOVER
But while bullish long term, Thissen expressed concern over short-term
economic problems, especially the lack of hard currency and the
heightened potential for bad bank loans as the economy slowed.
The International Monetary Fund has predicted economic growth of
three percent or less this year. Hanoi says the economy grew 5.8
percent last year although many economists believe the figure was
closer to between three and four percent.
Kokko said hard currency reserves would be insufficient to pay for
necessary imported consumer goods, machinery and other items,
leaving some companies holding their breath.
``The decisions about how to allocate available resources will not be
taken by the foreign investors. That's not a nice scenario for any foreign
company operating outside really strategic sectors,'' he said.
Kokko and some businessmen doubted Vietnam would ride the wind
of an eventual Asian recovery because neighbouring countries
implementing sweeping reforms would emerge leaner and meaner.
Investors burnt during the regional crisis would also be aware of risk
more than ever before, they added.
Thissen said Hanoi needed to pay attention to investors that had sunk
roots in the country and understood the risks.
``These companies will be easier to convince to stay or expand,'' he
said in an interview.
Analysts cited other risks as weak central control over economic
decisions in the provinces, or as Vietnamese are fond of saying: ``The
king's rule stops at the village gate.''
In addition, there was risk of policy changes that made little sense, such
as the recent move to increase tariffs on U.S. goods by 50 percent
while Hanoi and Washington are negotiating a trade agreement.
Then there was the perceived attraction of 79 million people -- whose
annual per capita incomes are just above $300.
``Investors had convinced themselves they needed a foothold in this
market. But how long will it take before all these people have any
money to spend?'' asked Jardine's Whitehead.
Reuters - February 18, 1999.
|