When is the right time for Vietnamese Americans to invest in Vietnam ?
In 1995, I returned to Vietnam to work as a marketing manager for Procter & Gamble. It was in the early days when American companies were just starting up their operations in the country. The economic embargo was lifted by President Clinton the year before. At the time, the media buzz about how Vietnam was going to be the next “Asian Economic Tiger” was at an all-time high.
While in Vietnam, I kept in close touch with my friends in the United States via email. In 1996, Hien, a friend from my college days wrote to me and inquired about the prospects of investing some of his savings in Vietnam. Hien had been reading and talking to other people who touted the enormous financial prospects of being an early investor in Vietnam. Without hesitation, I wrote back to tell him exactly how I felt.
I wrote that I wouldn’t blink an eye to give thousands of dollars in charitable activities to help the poor children and people of Vietnam. Until you‘ve seen modern-day Vietnam, it’s hard to understand the poverty and sufferings of people in the countryside. But I wouldn’t invest a single penny of my own money in any business investments there. It simply just doesn’t make good business sense.
Within the limits of an email correspondence (and of course, the fear that my email might be monitored by the omnipresent Vietnam security apparatus), I could only tell my friend that he shouldn’t invest because the Vietnam legal infrastructure at the time didn’t provide adequate protection for investors. Secondly, the information you get on any investment opportunities was at best iffy. Why bother to invest in Vietnam when the U.S. stock market was soaring and the Internet boom was just starting?
A year later, the Asian economic contagion, starting with the Thai baht devaluation in August 1997, provided the first confirmation of my assessment. Though Vietnam was relatively insulated at first because its currency was artificially pegged to the US dollar, the deteriorating economies of neighboring countries soon dragged down Vietnam’s economic growth, and along with it, any “attractive” investment opportunities.
Then on April 14, 1997, the arrest of Nguyen Trung Truc, the managing director of Peregrine Capital Vietnam(PCV), on tax evasion charges sent a shudder through all foreigners and investors in Vietnam. At one time, Mr. Truc, a Vietnamese Australian, was featured on the cover of the Far East Economic Review and various Vietnamese state-run newspapers as an example of successful foreign investment. Mr. Truc ran a mini-conglomerate, ranging from car import to consumer product distribution. Utilizing his sister’s connection with high-ranking cadres in Vietnam’s Ministry of Interior, Mr. Truc used to boast to foreign investors and reporters of his reliance on Public Security cadres as “fantastically efficient” loan collection agents.
It was clear that Mr. Truc was no angel. In a 1994 interview with the Asian Wall Street Journal, when asked whether an investor in Vietnam could avoid paying bribes, Mr. Truc responded: “Well, you can, but you’ll have to wait until the cows come home.” His previous business successes in Vietnam could be interpreted as being due to generous bribes paid to the “right” connection. It was rumored within the Vietnamese expatriate circles in Saigon at the time that Mr. Truc counted on very strong connections with a faction of the Vietnam Politburo led by then Deputy Prime Minister Tran Duc Luong. However, Mr. Truc became a casualty of a power struggle between Tran Duc Luong, who was a leading candidate to replace Vo Van Kiet as prime minister, and Vo Van Kiet himself.
At the time, a knowledgeable “Viet Kieu”(designation for overseas Vietnamese person) in Saigon told me a saying: “Trâu bo huc nhau, ruoi muoi chet,”meaning: “When the buffaloes ram each other, the flies and mosquitoes are the casualties.” Another told me of a favorite Vietnamese tactic, “To cut down a tree, you first cut away its roots.” Mr. Truc was simply perceived as one of the many roots that provided sustenance (money) to the Luong faction, and thus was an easy target to be “cut away” by the Kiet faction. Mr. Truc was later sentenced to five years in prison (though he served only three years) on charges of illegal operations by doing more businesses than the license for his representative office allowed, and his investments and properties in Vietnam were confiscated.
Mr. Truc’s case proved the point that no matter how strong one thinks his “connection” in the Vietnam government is, when push comes to shove, Vietnamese overseas investors are simply expendable pawns in the power struggle between the Communist Party’s many different factions and localities. His case also shattered any illusions of “safety” one might have had about being able to do business “legally” in Vietnam. Mr. Truc’s crimes were, more or less, standard business practice by many foreign investors and corporations in Vietnam at the time. Most business activities in Vietnam were so illegal or corrupt that it was difficult not to work around the system. Working around the system, you then ran the risk of being targeted for prosecution, as Mr. Tröïc found out.
More recently, the high-profile case of Mr. Trinh Vanh Bình has generated a great deal of attention from overseas Vietnamese as well as from inside Vietnam. Mr. Bình, a Vietnamese expatriate from Holland, is suing the Vietnamese government for $100 million in damages. In the mid 1990s, Mr. Bình brought about $3 million in capital back to Vietnam to invest in the country. In the first few years, Mr. Bình’s businesses were quite successful. He formed the Tín Thanh Company to produce farm and seafood products in Saigon, and Bình Chau Company with a factory in Vung Tàu. Mr. Bình also invested in a number of properties in Ba Ria-Vung Tàu and Saigon, built a 10-story hotel in Saigon, and engaged in many other ventures. According to Mr. Bình’s lawyers, at one time the value of his investments in Vietnam was between $20 to $30 million.
Subsequently, Mr. Bình ran afoul of the local police in Ba Ria-Vung Tàu province, who then set up charges to arrest him. Based on allegations by a man named Trinh Hien Thanh, the local police arrested Mr. Bình in 1998. Though Thanh later confessed in writing that his allegations were false and withdrew them, Mr. Bình was not released. All of his property and investments in Vietnamwere being held by the government. Despite interventions by Vietnam’s Prime Minister, Phan Van Khai, Mr. Bình was still sentenced to 11 years in prison on charges of “illegal investments” and “bribing government officials”. After 18 months in jail, Mr. Bình somehow “miraculously” escaped from Vietnam and returned to Holland. Now, he has engaged the services of the Covington Burling law firm to sue the Vietnam government in international court for wrongful imprisonment and the loss of his properties.
Other than the high-profile cases of Mr. Truc and Mr. Bình, there are hundred of other smaller cases of overseas Vietnamese meeting similar disasters when investing in Vietnam. In conversations with many friends in Orange County, I’ve heard unsavory stories of Vietnamese Americans who brought substantial sums back to Vietnam to invest. I kept hearing the following blunt, if unsympathetic assessments: “If you go to Vietnam to invest, you come back to the U.S. with a bloodied head.” There’s also: “Abandon the properties and run to save your own life.”
Unlike Mr. Bình who has the resources and will to press his case in the media and international court, other unfortunate overseas Vietnamese investors kept mum about their losses for fear of embarrassment or ridicule.
In 2005, by implementing its now famous “Resolution 36,” the Vietnam government appeared to roll out the “red carpet” to invite overseas Vietnamese to come back and invest in the country. The high-profile returns of prominent Vietnamese such as the former South Vietnam Premier Nguyen Cao Ky, the Buddhist Reverend Thích Nhat Hanh, and most recently, the legendary composer Pham Duy, were highly publicized and hotly debated and discussed in overseas Vietnamese media. Rather than discussing the political implications of these returns, I would focus on the issue of whether the apparent (with heavy emphasis on “apparent”) changes in the Vietnamese government’s attitude toward Vietnamese overseas would mean now is the right time for Vietnamese Americans to consider investing their hard-earned money in Vietnam.
In its effort to join the World Trade Organization (WTO), Vietnam is indeed being forced to make many changes in its legal infrastructure and business environments. These changes, in the long run, will make it easier or reduce the risks for foreign businesses and investors to invest in or to penetrate Vietnam’s domestic market. However, when it comes to overseas Vietnamese investors, particularly small investors (i.e., investors with less than several million dollars worth of capital), investing in Vietnam still doesn’t make much business sense. Ironically, the risks for overseas Vietnamese investors are higher than for other foreign investors. The risks are concentrated mainly in three areas: inadequate legal protection, questionable business opportunities, and unpredictable competitive advantages.
The greatest risk for overseas Vietnamese investors is still the inadequate protection offered by Vietnam’s legal system. Despite the flurry of new and revised laws being written in Vietnam, the reality is that what the laws say and their interpretation and enforcements are quite different. When disputes or investigations arise, Vietnamese investors are totally at the mercy of the local Public Security cadres and the Vietnamese courts. The pervasive corruption and incompetence of these institutions virtually guarantee that the odds are against Vietnamese investors if they were to become defendants in any legal disputes or investigations. Two examples illustrate this point.
Loc, a friend of mine, told of the story of a woman in Orange County who invested a substantial sum to build an office supply factory and shop in Vietnam. We’ll call this lady Ms. L. to protect her identity. Her factory received proper approval from local authorities for operations. After several months of peaceful operation, disaster struck. One day, several vehicles belonging to Public Security agents surrounded her factory to investigate a “gunshot” nearby. The factory was shut down for several months. Though the investigation yielded nothing, the factory was still closed for continuing investigation. By the time the Public Security office concluded its investigation and admitted that the woman was innocent, Ms. L.’s shop was bankrupt and went out of business. Of course, Ms. L. didn’t receive any compensation from the Vietnamese government or Public Security office for this fiasco.
In the article “Some Observations about Tet coverage in Vietnam’s Media in the Year of the Rooster 2005”) which ran in Van Hoc in April 2005, professor Tran Anh Tuan of Oakland, Calif., compiles many interesting examples of the “legal processes” practiced by the Vietnamese courts, judges, prosecutors, and lawyers. These examples are actually reported in the Tet issue of Phap Luat (Law magazine). In one example, defendant “S” (as reported by the magazine) was sentenced by the People’s Court of Tuy Hoa City to 18 months in prison on April 3, 2004. In the afternoon of the same day, the judge in the case asked the cadres in the prison to inform the defendant that his sentence was actually 24 months in prison, not 18 months, as stated in the morning court session. Several days later, the defendant’s family went to the court to get an official copy of the sentence, which actually stated that the sentence was only for 18 months!
In a trial in January 2004 in Phu Yen province, a defendant was charged with arson, causing other people to die in the ensuing fire. The lawyer for the defendant argued that “The defendant was bored and thus used gasoline to burn his house for fun. It was not dangerous and not intentional. Thus, he was not guilty!” When I read this, I wasn’t sure which was worse for the defendant: being charged with the crime or being defended by such an incompetent lawyer.
These and many other examples cited in Professor Tuan’s article clearly showed that when it comes to the Vietnamese legal system, the last thing overseas Vietnamese investors should expect is “due process” and “fairness.”
For Vietnamese Americans, investing in Vietnam has another legal risk that many people may not realize: they would almost certainly violate the U.S. Foreign Corrupt Practices Act (FCPA) of 1977, and thus, may be prosecuted by the U.S. Justice Department. This law is very broad and clearly states that “The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value to a foreign official, a foreign political party or party official, or any candidate for foreign political office.” A “foreign official” means “any officer or employee of a foreign government, a public international organization, or any department or agency thereof, or any person acting in an official capacity.”
This law applies to “any U.S. individual, firm, officer, director, employee, or agent of a firm, and any stockholder acting on behalf of a firm.” Since 1998, this law also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States.
Given the pervasive corruption at all levels of government and in all localities in Vietnam, it is a virtual guarantee that overseas Vietnamese investors have to pay bribes to open any businesses or obtain any documents or requests processed by the bureaucracy. Many investors, like Ms. L. or Mr. Trònh Vónh Bình, saw their businesses go up in flames when they ran afoul of the corrupt and capricious Vietnamese Public Security officials. Obviously, trying to get their cases addressed by the Vietnamese courts is not a good idea. Vietnamese Americans also don’t have much of an option trying to bring their cases to U.S. courts either. Doing so would open them up to potential prosecution for violation of the FCPA! And given the strong anti-Communist stance of the Vietnamese communities in America, investors who lost their shirts in Vietnamwon’t get much sympathy from their fellow Vietnamese Americans. Thus, the only choice for these investors is to take their lump and keep quiet.
The second area of risks to overseas Vietnamese investors is the questionable “attractiveness” of business opportunities in Vietnam. More often than not, these investors learned of business opportunities from the Vietnamese government’s marketing promotions, or by word of mouth from relatives or friends in Vietnam. The investment information available from these sources are unproven and not adequate for investors to make informed decisions. Since they live overseas, these investors either have to trust the honesty of the people providing the information, the business savvy of their partners, the accuracy and completeness of the data, or come to Vietnam for extended periods of time to conduct research. Even then, the lack of timely, accurate business information in Viet Nam will often render these attempts fruitless.
The old saying “The devil is in the details” is particularly true in Viet Nam. Not until investors have put down significant sums to get their business going do they begin to uncover the myriad of hidden costs that can quickly turn their “attractive” investments into money-losing propositions. The list of hidden costs typically includes higher than expected labor and material costs, delays in approval of necessary business documents or licenses, demands for bribery from government officials or security agents that the investors come into contact with, and disruptions in operations due to electricity blackouts or communication system breakdowns. There are hundreds of other hidden costs that I can’t possibly include in the space of this article.
I learned of many of these hidden costs from my experience starting up the operations for Procter & Gamble in Viet Nam from 1995 through 1997. One of these costs was the highly touted “lower labor cost” in Vietnam versus that of neighboring countries such as Thailand and the Philippines. It was only when they had their operations fully set up that many foreign-invested companies, including mine, found out that this “lower labor cost” was a complete illusion. The labor costs given in Vietnam often listed only the base amount that is paid to employees. After factoring in taxes, mandatory social security insurance, lower productivity, and required training, the fully loaded labor cost for Vietnamese workers was often higher than that of other Asian countries.
The article “Buying Homes in the ‘Viet Kieu Village’ in An Phu ng Saigon: Many Viet Kieu Were Cheated”) in Nguoi Viet newspaper on June 9, 2005, told the story of many Vietnamese Americans who invested their life savings to buy luxurious homes in the exclusive “Viet Kieu Village” in the An Phu area outside of Saigon. One of the buyers, Mrs. Nguyen Thi Giang Hông, found that other people were moving into two homes that she just bought. When she tried to find the seller, he had already fled the country. The story brought up another risk for Vietnamese Americans looking to invest in the heated real estate market in Vietnam. There is a lack of any title search or insurance services. Without the basic infrastructure in place, investing in real estate in Vietnam is at best a crapshoot. The investors could lose their shirts without having any recourse whatsoever.
The third area of risks to Viet Kieu investors is the lack of clear “competitive advantages” versus potential competitors in the country. If anything, they are more likely to be at a cost disadvantage versus local competitors. Any Viet Kieu who comes to Vietnam soon learns that they often end up paying more for the same products or services than local Vietnamese.
Ironically, overseas Vietnamese investors are also at a clear disadvantage versus non-Vietnamese investors, as they are much more likely to be harassed or extorted by local Public Security officials. Viet Kieu investors are also more likely to have their business shut down or confiscated by local government officials with the slightest, unsubstantiated excuses. Because of their familiarity and accustomed intimidation of Viet Kieu, the Public Security officials are much more comfortable preying on them than on foreigners.
When I came to start up the Procter & Gamble operations in Vietnam in 1995, I was the only Viet Kieu on the P&G management team on the ground. Other P&G managers on the team were Americans, Australian, Indians, Malaysian, and Filipinos. Within weeks of settling into my rented home in Phu Nhuan district, the ward police captain paid me a visit one night under the pretext of wanting to have a “friendly chat.” The chat turned out to be thinly disguised warnings that due to increased criminal activities and petty thefts in the district, the local police could not fully guarantee my safety or the safety of my property. To help the local police get more resources to protect not just me, but also other people in the neighborhood, the captain asked if I could make a “donation” to the local police office. Viet Kieu visiting or doing business in Vietnam commonly receive this type of request from local police.
After talking with other expatriate P&G managers, I learned that none of them faced the same treatment. If anything, the local police treated them with proper deference and distance. It was quite clear to me then that the Vietnamese police were much more respectful of foreigners than they are of Vietnamese, including Viet Kieu.
The high risks of investing in Vietnam, inadequate legal protection, questionable business opportunities, and unknown competitive advantages are systemic. The confluence of total lack of accountability at all levels of government and the inadequacy of essential legal, business, and physical infrastructures form formidable barriers for any business to overcome. These systemic issues are not easy to solve and won’t change any time soon. A key change that Vietnam must make in order to solve these problems is to establish a competent, ethical legal and judicial system that is independent of the Communist Party’s control. Only then can investors’ rights be protected. Until this fundamental change takes place (which, as most Vietnam watchers know is unlikely to happen in the foreseeable future), Vietnam will remain a fertile ground for corrupt officials to exploit hapless Viet Kieu naively seeking easy profits. Investors beware.
By Trinh Do - Nha Magazine - December 11, 2005.
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