The Promise of Vietnam

Miki Tanikawa

With kind thanks to and Copyright © 2004 The International Herald Tribune 

Statistics are impressive, but some experts still wary

Vietnam lies to the south of China like the tail of a dragon. And as the dragon soars, the tail is flying high as an emerging economic power in Southeast Asia.

That is how some Western financiers see the country, which has been experimenting with market reforms over the past decade, privatizing state sectors, relaxing business laws and opening up to outside capital.

Those efforts may be paying off. The Vietnamese economy is humming with annual growth of about 7 percent, faster than most of Asia and close to China, according to government statistics.

"There are opportunities here in the domestic economy that are similar to what you have seen in China over the past several years where you have seen an explosion of entrepreneurism in the domestic economy," said Alex Pasikowski, director at Dragon Capital, a fund management company in Ho Chi Minh City.

The numbers appear compelling. Exports grew at a double-digit rate throughout the past decade and today, the country is the No. 2 exporter of seafood, rice and coffee. Since 2000, when the landmark Enterprise Law made registration of corporations simpler, approximately 75,000 companies were founded.

Last summer, Dragon Capital obtained a license from the state to operate the first mutual fund in Vietnam, in a joint venture with Saigon Commercial Bank. The fund, which will be introduced in April, will take stakes in an array of listed and unlisted shares as well as bonds, Pasikowski said. The closed-end fund has a goal of raising between $15 million and $20 million before it closes later in the month.

Meanwhile, Dragon Capital operates Vietnam Enterprise Investments, a Dublin-listed fund designed for offshore investors. The fund has $129 million in assets and has returned a total of 19.3 percent since its inception nine years ago.

Not everyone shares a rose-colored vision of Vietnam's business potential. David Dapice, an economist with the Vietnam Program at the Kennedy School of Government at Harvard University, said that while it would be "foolish" to underestimate the country's promise, some of the bullish numbers being shuffled about could be misleading.

"There are problems with the entire statistical network in Vietnam," he said. "Physical fuel imports dropped last year in quantity and I don't see how you get 7.5 percent growth in an economy with dropping fuel imports," which power the industrial machinery.

Between 1998 and 2002, the economy grew at more than 6 percent a year, according to the Vietnamese government. That contrasts with an estimate of 5.5 percent growth by the Asian Development Bank and less than 5 percent by the International Monetary Fund for the same period, Dapice pointed out.

Dapice also argued that growth in many aspects of the economy, such as gross domestic product, foreign direct investment and exports, was faster in the 1990s. The economy grew at a rate of 8 percent to 9 percent a year between 1991 to 1998 during the boom that preceded the Asian currency crisis, which began in 1997.

Moreover, the country's much-touted stock market, which made its debut in July 2000, has been in the doldrums for the most part since a collapse in mid-2001.

"When the market first opened, it traded straight up for 11 months and it fell pretty much like a stone for the next two-plus years," said Peter Ryder, managing director at Indochina Capital, an investment management firm in Ho Chi Minh City. Investors also complain of restrictive regulation and a slow-moving business culture that inhibits the creation of dynamic, growth-oriented business models.

Tens of thousands of new companies may be created each year, but, "the overwhelming majority of those firms are very small firms," Dapice said. Larger companies tend to be state-owned enterprises or those controlled by well-connected businessmen, he said.

Still, some investors see a potential in a stock market that is small but growing and maturing. The bourse, called the Ho Chi Minh City Stock Trading Center, began with a tiny capitalization - only two listed issues - and has grown to 23 listings only recently. Demand for Vietnamese stocks far outstripped supply, Ryder said, and when the market began to drop, "it dropped as much out of disinterest as anything else," he said.

Investors are crawling back to stocks now as the market index, known as VN index, recovers. It hit 260 recently, up from a low of 130 last October.

"The market has tended to trade as one, but slowly and surely has come differentiation between very good companies from not-so-good companies," said Ryder. "In no way can you characterize the Vietnam stock market as being indicative of the economy as a whole."

  Copyright © 2004 The International Herald Tribune 

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