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Issue No. 12
September 1998

A Periodic Report to Our Clients

Late News: New Government Economic Targets (all as a percent of growth over 1997 numbers): GDP: 6% - 7%;  Industrial Output: 10% - 11%;  Agricultural Output: 3% - 3.5%; Export Turnover: 10%; Import Turnover: na; Inflation: under 10%; State Budget Deficit: less than 4%.

Current Dispatches

USA's AirTel in a $1.5 billion deal - A Business Cooperation Contract between AirTel and Vietnam's Department General of Post and Telecommunications intends to establish a national, integrated, wireless network.   Based on developing Code Division Multiple Access (CDMA), it is the current standard for both mobile and fixed networks, including wireless local loop and personal communications services.

The service will include video conferencing, voice mail boxes, an emergency communications network and other value added services.  The system will accept 785,000 subscribers into the wireless loop, and 250,000 additional subscribers into the personal communications services.  This target is set for the year 2000.  Thereafter, AirTel intends to expand its CDMA network to 1.5 million wireless local loop lines and 615,000 personal communication service subscribers by year 2005.

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Dong Slips - Dollar Banned - The State Bank cut the official exchange rate by 10  percent and narrowed the trading band permitted by member banks from 10% to 7 per cent.  The new, effective ceiling rate for the dong to the dollar is now set at 13,907.86.   Black markets nationwide are giving rates at 14,000 and sometimes a bit more.

The Prime Minister then signed a decree banning the use of the US Dollar.   Effective in early September, all are permitted to transfer their legal foreign currency abroad subject to necessary documentation submitted to the State Bank.   However, both expat and domestic organizations with off-shore foreign currency inflow from their Vietnam operations must sell such currency to authorized commercial banks at exchange rates regulated by the Prime Minister.

Domestic Vietnamese may still hold, carry or deposit foreign currency into bank accounts and use it in accordance with relevant laws.

As at least one domestic business critic noted: People will keep their fingers crossed, waiting for thorough enforcement of the specific provisions. They will wait until the State owned electricity and water companies send out their bills in dong, instead of dollars.

We will also wait until local hotels and restaurants, as well as Vietnam Airlines, make charges in dong, and make the same charge to foreigners and they do to domestic customers.

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Stock Market Developments - Caution is the word, with a many-times delayed opening once more looking to be delayed.  This time the date will be set for early 1999.  There is no need to hurry. 

The Asian Development Bank openly worries that Vietnam's regulations are not in place and certainly not enforceable if they were, thus putting the myth of equitization to rest: Equitization is being promoted for the reasons of being promoted, and not as a signal that the process is gaining any speed.

Local media report that only 2% to 3% of all Vietnam's 6,000 State Owned companies would meet the qualifications to be carried on the Exchange if they were equitized.   Decree 48/CP lists among others that a firm must be capitalized at a minimum amount of VND 10 billion. At current exchange rates (VND 14,000 to 1$) that means US$ 714 thousand (or $770,000 at the minimum official rate).

Vietnam has reportedly equitized only 29 firms, but only three or four of them would qualify for being traded on the Exchange.

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New Alcohol & Tobacco Ads Loom - A new change could allow promotion of hard liquor in foreign language newspapers.  A proposed two-tier system could allow advertising for processed cigarettes, and beverages with an alcohol content greater than 15% but only in the foreign media published in Vietnam.  The Vietnamese language media would be restricted to advertising cigarette papers and tobacco, and drinks with alcoholic content of less than 15 percent.

The draft circular confines itself to drink and tobacco products   produced in Vietnam by local or joint-venture companies. It is not clear if advertising for foreign produced products will also be permitted.

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Forward Step For Foreign Investors - The government lowered its official projection for GDP growth to 7%, more in line but still a bit ahead of most international annalists (who peg the number at about 6.5%).  Then the Prime Minister gave the foreign invested community a positive shot in the arm with the issuance of Resolution 08/1998/NQ-CP that continues the call for more foreign investment, but also pledged encouraging incentives.  

Readers outside of Vietnam should be reminded that in this consensus-dependent government, a pledge of incentives is not a decree promulgating, nor a regulation enacting, incentives. Those pledges are:

1. Official Development Assistance (ODA) funding: the government will provide counter funding to all projects using ODA funds or loans; land clearance and bidding procedures are to be streamlined; and tax regimes are to be simplified to allow speedier disbursements of ODA funds.
2. Joint Ventures: No longer a rigid 30% minimum share; negotiating partners are permitted full range to discuss a proper allocation of ownership rights.  Local companies that have no technical, production or labor resources may no longer be joint venture partners by simply contributing land alone.  New regulations are expected this quarter.
3. Non-State Sector Firms: can now enter joint venture agreements in Hanoi and HCMC, where before they were denied.  On an experimental basis only, they are now permitted to lease land to foreigners wishing to build residential houses for rent or sale.
4. Foreign Invested Exporters:  Goods manufactured for export, if the goods are currently imported for domestic consumption as well, may now be sold in the domestic market .
5. Foreign Invested Companies with Liquidity Problems: may now borrow dong from local banks, provided they can establish credit-worthiness.  If foreign currency is needed, "some dollars can be bought from the government."

As always, caution must be allowed when reading all reports of laws, and more caution when reading about pledges leading to new laws.

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Kodak Builds To Expand - Seeking to create a 100% foreign invested foreign licensed factory to produce photographic film, paper and chemicals, Eastman Kodak Company in Vietnam through its Thai affiliate seeks to sell as much as 8 million rolls of film annually by year 2000. 

Kodak claims to be the market leader in Vietnam and believes there remains substantial room for further growth.  Estimates are that Kodak has grown market share to within 50%, where as Konica has a 37% share to Fuji's 13 per cent hold.

Kodak has franchised over 200 Kodak Express shops in  Vietnam, almost 80 of them in HCMC.

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$554 Million HCMC Project Begins - More than 24 acres in the heart of downtown HCMC will now move out of a two year stagnancy, as construction begins at the Saigon Cultural and Commercial Center.  Located near the New World Hotel Saigon, and bordering the back-packers' Pham Ngu Lao street, the headquarters building for Taiwan's Jin Wen Group is now open for business.  Jin Wen holds 70% of this massive Joint Venture that encompasses all of the old Train and Bus Terminal, and the former 23 September Park. 

The project, when completed in the next ten years, will include a 21-floor five star hotel, a 38-floor office tower, an amusement center, water park and concert area.   The project was first licensed in March 1995 but suffered delays due to land compensation disputes and the regional economic downturn.

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Coca-Cola Battles On....  It may be "the real thing,"  but Coke's desire to become a fully foreign invested enterprise in HCMC is not yet a sure thing.  As   happened before with Proctor & Gambol, Coke is getting pushed around by the domestic, state controlled press.

Recently reported in this website, HCMC local partner, Chuong Duong, seeks payment of $8 million from Coke for the "value" of "allowing" Coke to use the trade name "Chuong Duong Coca-Cola."  Many believe that Coke would be content to drop the first two words and does not need to pay anyone to secure the rights to its own corporate name or logos.

Not daunted, local partner Chuong Duong now is reportedly trying to sell its 40% share to "interested local buyers" in lieu of selling to Coke directly.  Those reports claim that stake may be divided into smaller shares for others to purchase, and the purchasers may include Coke's local distributors.

The local papers completely fail to mention that any change of ownership requires MPI approval, that MPI has approved the sale of the 40% interest to Coke, and the further "sale" of the expensive trade name is not a necessary part of the transactions.   However, we have concern that the sordid tail may not be over.

The same sources report that Coke's other two joint ventures, a $48.5 million Hanoi operation and a $25 million plant in DaNang, are also seeking to become fully foreign invested.  No doubt two additional trade names, "Ngoc Hoi" and "Non Nuoc" belonging to Coke's other JV partners, will be seeking famous price tags as well, claiming to be "the real thing."