Nov ‘97 - report to clients on Vietnamese businesses, investments & problems.

IN THIS ISSUE

Welcome to This Site

WELCOME. We intend to bring timely investment information about Vietnam to the Internet. Be patient, please, as we build this new site without direct access to the Internet. Who and what we are at VVG, what our tasks are, how we work, and biographical data about the people and offices can be found at a static, multi-party site. The site you are now visiting is exclusively for VVG and our affiliated companies the world over. It will be regularly updated.

VVG guides and supports our clients to achieve success in Vietnam. VVG’s President has a broad and 25 year-long history with both corporate America and the people of Vietnam. Living and working in Vietnam since January 1994, he is currently the Chair of the Government Relations Committee of the American Chamber of Commerce and is a consultant to state-owned companies. VVG of course represents the needs of foreign companies seeking to establish or expand their opportunities in Vietnam.

THIS SITE. Always expecting direct access to the Internet, we are told it will be on 15 November. However, our service provider has no information as of this writing, three days away for the reported launch. This site is opened in anticipation of both effective direct access by Vietnam to the Internet in order to provide current investment information, report on VVG’s work in Vietnam, and offer a forum for investment talk.

However, reported regulations may prohibit direct economic reports from being sent from Vietnam to the Internet. In that case, updates will be prepared by our offices outside Vietnam.

Living and working in Vietnam for four years, we can be accused of losing our objectivity. We appreciate hearing from you. If your information or opinions conflict with ours, please write us a note.

You can currently reach us at this site by e-mail at : 080404@vvg-vietnam.com. Until we are hooked-up to the full Internet in Vietnam, please e-mail our offices in downtown Saigon at : 080404@vvg-vietnam.com [Update: January 1998. We are now On Line. Use the second address.]

WHAT’S IN A NAME. Vietnam is the current economic frontier for most of the world. The Saigon Region, the three cities of HoChiMinh City (HCMC), Vung Tau and Bien Hoa, as of 17 October 1997, is home to almost half the nation’s 1,767 foreign invested projects using almost half the nation’s US$28.4 billion in foreign invested capital. However, many foreigners still think of Vietnam as only a war.

Saigon will celebrate its 300^th birthday in 1998. Originally part of what has become Cambodia, the city was first called Ben Nghe, meaning crocodile. The swamps were filled with them three hundred years ago. Now, the most vicious creatures in town wear business suits and are often called sharks.

Cholon, 5 km distant, was a second city. Still a long car drive away as recently as the mid 1950s, it merged with Saigon long before the French first came in 1853. Now the city encompass more than 7 million people while the region is home to an estimated 11 + million residents and approximately 30,000 foreigners.

Saigon’s name was officially changed to Ho Chi Minh City in 1976. However, much as Manhattan Island is still called New York City by many, so to HCMC, and particularly District One, is still simply Saigon. The Saigon name is commonly found all over town, on State Owned and private business, on manufactured products, and even at the Saigon Train Station.

VVG’s DATA BASE: We are Americans living and working in Vietnam for more than four years, but we have also worked with the people of Vietnam for more than 25 years. We closely follow business and industrial developments important from an American perspective, but also meeting the needs of Asian and European investors. On this site we will publish reports from various secondary authorities covering more than 25 different sectors. These will include summaries and citation references. Some of these fields are:

VVG begins market analysis research with secondary authorities, many of which are hard to find and difficult to access. After collation and preliminary analysis, we devise issue-specific questionnaires for developing primary data. Occasionally, primary data supports our secondary sources. Often, primary data is contrasted with secondary source data. However, we must often rely on public information where no primary source data is economically available.

FINANCIAL STATUS. The media-balloon of hype has burst. Vietnam was never as financially strong as was the attention paid to its early 1990s growth. But neither is Vietnam now as weak. There has been a global economy in force for years but reports remained regional. Recent down-turns in both Hong Kong and Wall Street must only be considered as part of the bargain.

The Vietnamese Dong (VND), pegged to the US dollar, is not yet openly traded. It is expected to fall over time to remain competitive in the region. The VND is currently slightly above 12,500. It was slightly above 10,000 when we first arrived here, four years ago. It is expected to slide to 15,000 by year 2000.

There is well-voiced concern about Vietnam’s ability to finance large infrastructure projects that may fuel an inflationary spiral. These include plans for a $3.5 billion National Highway and the $1.5 billion refinery in Dung Quat. Annual inflation in 1989 was at 774% that has been reduced to under 5% for 1996 and 1997. With an annual GDP in excess of 8.5% for the past three years, the concern is to keep the nation away from deflation before its economy has had the chance to grow.

OPPORTUNITIES TO CONSIDER. Products and services that will build a strong domestic position in Vietnam and / or manufactured goods for export, remain solid investments. VVG is involved with some land development projects deemed feasible to obtain a return on investment of 25% in each of the first five years of full operation. The target market for these products are high-end domestic Vietnamese. This market will expand over the next five years to include a growing number of international visitors.

Converting VND to hard currency will be a problem unless and until a Trade Agreement is reached between Vietnam and the Unites States. That is seen as at least one year distant. Another year will be needed to see the results of MFN and increased trade. Therefore, the hard currency shortage is expected to continue for the next couple of years.

Desirable project-exit strategies do NOT involve hard currency conversions or expatriation of dollars. Off-shore equity is expected to grow as properly-planned projects increase market share and turnover in the early years of operations. Profits from one product will be used to support additional domestic products. Conservatively planned and financed projects will grow locally, as will their off-shore equity holdings.

The ideal investor is one seeking to reinvest local currency earnings in Vietnam to grow that or other products, who is willing to grow its off-shore equity for subsequent sale to others, or conduct an IPO.

The INTERNATIONAL MONETARY FUND States The Economy Of Vietnam Is Doing Well. A favorable performance of high growth and low inflation has to date been only moderately affected by adverse regional developments. An adjustment to the exchange rate trading band in mid October supported the macro-economic policies. Industrial production remains buoyant, bumper crops have come in at some sectors, the external account deficit has declined, and international reserves continue to increase.

However, the regional currency crisis is exerting increasing pressure on Vietnam’s economy by competition in exports and investments. Continuing weakening in the State-owned sector and banking problems underline the need for structural change and provide uncertainty in the macroeconomics environment. For more information, see Issue 2241 Vietnam News 1, 3Nov97

Vietnam Vignettes is a periodic report distributed to our clients since early 1994. It is NOT a newsletter although called that for the ease of linkage. It is a summary of published media reports from more than 17 industrial sectors that we at VVG follow and report upon for our clients.

VVG - VIETNAM VENTURE GROUP, Inc.

VIETNAM VIGNETTES