Vietnam dabbles in capitalism
Vietnam's fledgling stock market has more than doubled in value this year, Ho Chi Minh City's municipal government is issuing bonds and, relative to the size of its economy, Vietnam attracts more foreign investment than China.
As the Communists in Vietnam prepare to usher in a new leadership, the country is at last looking like the emerging-market dynamo that many hoped for when it embarked 20 years ago on the fitful series of market reforms. Foreign money is pouring into a country that many now see as a rising force in Asian manufacturing.
"Vietnam has learned many good lessons during these 20 years," said Bui Kien Thanh, a Vietnamese-American financial analyst who advises several Vietnamese ministries. "They have learned that independence is very important but that progress is even more so."
The biggest impetus for change, analysts say, is China. Despite historical enmity between the two countries, China's success in using market reforms to achieve rapid economic growth and global influence has persuaded Vietnam's leaders to set aside deep suspicion of another former enemy, the United States, to harness the benefits of trade and investment.
In 2000, Washington and Hanoi signed a watershed trade pact. In return for gradually opening its economy to American investment and exports, the average U.S. import tariff on Vietnamese goods fell to 4 percent from almost 40 percent.
Access to U.S. consumers has since proved a potent elixir for growth. Exports to the United States jumped to $6.5 billion last year from $800 million in 2001, making the United States Vietnam's largest export market and trading partner. Vietnam's economy has become the fastest growing in Asia behind China, expanding 8.4 percent last year.
Perhaps more significantly, analysts say, is how the U.S. pact has helped break the hammerlock of Communist orthodoxy. This made Vietnam's leaders receptive to American help in disentangling a regulatory tangle that deterred foreign investment. In late 2001, STAR-Vietnam, a group financed by the U.S. Agency for International Development, began working directly with ministries on carrying out the terms of the trade pact, helping to draft wide-ranging new laws and train Vietnamese judges on enforcement.
Changing attitudes in the leadership have also unleashed Vietnam's pent-up commercial zeal. Once confined to gray- or black-market activities, with proceeds hoarded in gold, thousands of new businesses are now being started each year. Combined with low labor costs and the kind of work ethic that helped defeat the U.S. military, Vietnam's new industriousness has not escaped the notice of the multinationals.
After years of serving as a reservoir of cheap labor for textile and footwear makers like Nike, Vietnam now lures manufacturers like Matsushita, which is planning to build a third plant in Vietnam to make cameras and telephones. Canon is building a third printer factory in the country. And Intel said this year that it would invest $300 million in a new semiconductor test-and-assembly plant in Vietnam.
Vietnam reeled in $1.6 billion in contracted foreign direct investment in the first three months of this year, a 24.4 percent jump from a year earlier, according to the Ministry of Planning and Development.
Vietnam has many other resources besides low-cost labor. It is the world's second-largest exporter of rice, after Thailand, for example; the second- largest exporter of coffee, after Brazil; and the largest exporter of pepper. It is also a net petroleum exporter.
Bird flu, which has killed 42 people in Vietnam, poses a lingering threat to the country's emerging prosperity. Corruption is a more pressing problem: Vietnam's transport minister was forced to resign this year amid allegations of corruption. And Vietnam's human rights record remains a blot on its reputation.
But none of these concerns seem to be deterring investors in Vietnam's stock market. After a feeble start in 2000, with five listed stocks, it now has 35. Still, while foreign money managers have acquired a renewed taste for Vietnam, only a handful of foreign funds have succeeded in investing in the market, leaving the market capitalized at a paltry $2 billion.
The government is trying strengthen the market by gradually eliminating barriers to foreign portfolio investment. As one lure, it has raised limits on foreign ownership of listed companies to 49 percent.
Government moves to cut brokerage fees and cool speculation in the local property market have also fueled a fad for stock investing among Vietnamese.
In the past, the danger was that Vietnam would not change fast enough, but some analysts now worry that Vietnam may open sectors of the economy faster than domestic industries can respond.
Thanh, for instance, fears that membership in the World Trade Organization could open Vietnam to an invasion of Wal-Mart-style retail chains.
Once in the WTO, Thanh said, "there's no way you could fight back with guerrilla warfare."
By Wayne Arnold - The International Herald Tribune - April 26, 2006.
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