Vietnam eager for WTO opportunity
HANOI - For most of the last decade, Vietnam has gotten little respect, treated as an economic also-ran in Asia, little more than a pale version of China.
Like its giant neighbour to the north, the communist-run country has been implementing economic reforms, but the pace was slow, the government even more obstructive, amd the still-poor Vietnam had not near the market or production potential.
But recently, there has been a noticeable shift in perception of Vietnam. This week's expected approval for Vietnam's entry into the World Trade Organization (WTO) is poised to rocket the country of 84 million people onto the international economic stage.
Suddenly, it seems, Vietnam is seen no longer as China-lite, but a potential "little China."
"I think that the level of foreign interest in Vietnam right now is the highest it's ever been within recent living memory," says Dominic Scriven, a long-time investor who runs Dragon Capital, which has been rewarded with return as high as 80 per cent on Vietnam's tiny-but-booming new stock market.
After decades of being known first for its wars and later for its grinding poverty, Vietnam is betting that its long-awaited entry into the world trading club - expect to be approved by WTO members on Tuesday in Geneva - will propel it into the newest Asian powerhouse.
"I'm very hopeful that 2006 is a real turning point," says Le Dang Doanh, a leading economic adviser to Vietnam's government. "Vietnam could be a major player in 10 years."
Recently, Vietnam has been quietly growing at a clip that's second only to China in Asia. Exports were up 32 per cent last year. Economic output has nearly doubled in the five years, poverty has been cut in half to about 20 per cent in one decade, and GDP growth this year is projected at a sizzling 8.2 per cent.
Foreign direct investment, projected to reach $6.5 billion this year, is higher per capita than both India's and China's.
Intel Corp. announced this year it would build one of its world's-largest chip-making factories in southern Vietnam, due to go into production in 2009.
In the north, Japanese giant Canon is already building both the world's-largest laser printer and bubble-jet printer factory after seeing exports from its first printer factory in Hanoi jump from 50 million dollars to 400 million dollars in just two years.
Vietnam's WTO entry, plus Hanoi's high-profile hosting of the Asia Pacific Economic Cooperation (APEC) summit later this month - hosting presidents George Bush, Hu Jintao and Vladimir Putin - is likely to send the investor excitement soaring even higher.
"The WTO is sort of the stamp of approval that many, many large American companies have been waiting for," says Tim Tucker, country manager for Ford Motors, which has an assembly plant in northern Vietnam. "They are just going to flood into this country."
Vietnam has many reasons for its rising confidence. The country has many of the ingredients that attract foreign investment: a large, youthful, well-educated population - 27 per cent of the country is under age 15 and literacy tops 90 per cent - wages that are lower than even China's.
Plus, at a time where Thailand and Indonesia have been rocked by political unrest, Vietnam has the advantage of political stability, with the Communist Party firmly in charge.
Although the recent boom is partially fueled by foreign investment, Vietnam's legions of farmers - freed from state intervention and encouraged by the government to start exporting - have recently dominated cash-crop commodities.
Vietnam is now the world's largest pepper exporter, the second-largest cashew and coffee exporter. Little more than a decade ago, the country could hardly produce enough rice to feed itself; now, it's the world's second-largest rice exporter, behind Thailand
For all the impressive numbers, though, Vietnam has some serious choices to make if it hopes to capitalize on the recent flurry of enthusiasm. After all, the initial, halting efforts at reform in the early 1990s saw a similar flood of investors - who then headed for the door when reforms proved slow and the 1997 Asian financial crisis prompted them to cut their losses.
Vietnam's creaking infrastructure is having trouble keeping pace with export growth - the country's ports are already overloaded and exporters like Nike report that there are now day-long delays before containers can be shipped out.
Electricity demand increases of 15 per cent per year are making power outages a looming reality. The government is building a giant hydropower dam in northwestern Son La province, but it won't come online until 2012 and the government is racing to build more plants and purchase electricity from neighbours like Laos.
The country is still largely poor, with GDP per capita standing at only 620 dollars, and the economy is still less than half the size of Thailand's.
Moreover, implementing the WTO commitments will require retraining thousands of bureaucrats, and the new competition from foreign companies as markets gradually open could drive inefficient state-run businesses into bankruptcy, threatening jobs in a sector that still employs millions of workers.
The time for facing the challenges will come when Vietnam officially becomes a full WTO member, expected in January 2007 after the National Assembly ratifies its accession package. For now, though, the country is happy to focus on the opportunities its new status will bring.
"There are many things to do," Doanh admits, but adds he thinks the government is committed to reform and investment. "In 10 years, Vietnam is going to be a very different place."
By Kay Johnson - Deutsche Presse Agentur - November 5, 2006.
Vietnam's WTO entry another wake-up call for neighbors
BANGKOK - When China joined the World Trade Organisation (WTO) in December 2001, its entry sparked jitters and a round of self-assessments among South-east Asian economies that were then just limping back to life after the devastating 1997 crisis. Five years on, Vietnam's pending WTO entry has triggered a new rash of regional jitters, although certainly less pronounced this time around.
Vietnam is the rising star in the Association of South-east Asian Nations (ASEAN). It has boasted one of the world's fastest-moving economies in recent years following the classic ASEAN/Chinese success story of fueling growth on low-cost labour, foreign direct investment and export-oriented industries.
Entering the WTO will make Vietnam that much more competitive when it comes to attracting investments away from ASEAN's former "little dragons" - Indonesia, Malaysia, Singapore and Thailand.
And when its comes to attracting foreign investment, hype helps.
"For Thailand, it's not going to make it any easier," said Stefan Buerkle, head of business economics at the Thai-German Chamber of Commerce. "Vietnam is a bit more sexy than Thailand, what with all the hype."
Hype aside, Vietnam has made tremendous progress over the past decade in reducing its red tape, improving its business climate and generally putting out a more-welcoming welcome mat for investors.
With its entry into the WTO, the rest of the region will face stiffer competition for investment and trade, particularly in labour-intensive industries such as footwear, garments and even electronics, adding to the pressure in these sectors are already coming under from low-cost giants China and India.
"The (electronics) sector is definitely being challenged from regional countries," said Ramya Subreameniem, economist with IDEAGlobal in Singapore. Vietnam poses the prospect of more "hollowing out of computer peripherals," she said.
Singapore needs to continue concentrating on high-value products where it is doing well such as semiconductors, she noted.
Electronics factories produce nearly half of Singapore's non-oil domestic exports and account for 36 per cent of the manufacturing sector.
Indonesia, where cheap labour continues to be a major selling point, can anticipate yet more competition from Vietnam as a WTO member, adding to the already stiff competition coming from low-cost China.
"If you're talking textiles and shoes, we're already threatened by China," acknowledged Chativ Basri, an economist at the University of Indonesia and sometimes advisor to Indonesia President Susilo Bambang Yudoyono.
Indonesia's once-prosperous shoe export industry, for instance, has been battered by slipping sales over the past five years after loosing its competitive edge with China and up-and-coming Vietnam, while at the same time failing to move up the value-added chain.
If anything, Vietnam's WTO entry is yet another wake-up call for countries such as Indonesia and Thailand to start investing more in their human and capital resources to upgrade their industries into higher value-added segments.
"There are fears in Thailand, that Vietnam will catch up and we'll be left behind because Vietnam has a very good educational system," said one economist working for an international development bank in Bangkok. "So yes, if Thailand stands still and does nothing, then Vietnam could catch up within 15 years."
But the reality is that Vietnam, for all its charms, still has a long way to go in improving its investment and business climate. For starters, the country's infrastructure is still inadequate for a huge influx of new investments, with or without WTO membership.
"Vietnam is not equipped to absorb too many investments in a short period," said Jan Noether, head of the German-Vietnam Chamber of Commerce in Ho-Chi-Minh City. "It's infrastructure would collapse."
Noether added that Vietnam's WTO membership might bear as many risks as chances for Vietnam, at least in the short term.
"With the job market opening and white collar jobs being paid fairly well, Vietnam will see competition for jobs from other ASEAN countries," noted Noether.
Deutsche Presse Agentur - November 5, 2006.
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