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Issue No. 13
October 1998

A Periodic Report to Our Clients

Current Dispatches

US Trade Prospects - The talks continue.  The last round was completed in Hanoi in late September.  It reminds us of the Peace Talks that took three years to resolve the shape of the table -- round.

Business in Vietnam needs NTR (normal trade relations, the successor and more relevant acronym to MFN).  Vietnam needs NTR.   But it is clear America does not yet realize its needs trade with Vietnam.   With the balance of trade against the US in China to the tune of $1 billion per week, one can understand the reluctance to encourage a similar (though smaller) imbalance with Vietnam.  However, the strategic, geopolitical, and economic position of Vietnam will make this populous and growing nation a substantial economic partner with America when NTR issues.

Vietnam's main exports to the US are coffee, crude oil, footwear, leather products, rice, seafood, textiles &   garments, and vegetables & fruits.  American main exports to Vietnam are aircraft, fertilizers, telecom equipment, construction equipment, auto parts, footwear materials, cotton, and aluminum. By the end of August 1998, there were 69 American invested projects in Vietnam at a total capitalization of $1.2 billion ranking the US as eighth of all 54 nations investing in Vietnam. 

There were 93 representative offices in HCMC by the end of 1997.  However, a significant factor is that US exporters to Vietnam can open the door to all of ASEAN countries with a total population base of 415 million. 

Mis-information is that opening the US markets to Vietnam will flood the US with cheaply exported garment and footwear products, thus further destroying the job base of the American workers.

Complement, Not Compete.  Exports from Vietnam to the US do not always compete with US made products.  To date,  the vast bulk of the leading exports to the US do not compete with US manufactured or grown products.   They include coffee, coal, crude oil, rice and seafood and account for total exports to the US of $465.2 million. 

As for textiles, imports from Vietnam total $26.7 million but these products have encouraged exports from the US to Vietnam of cotton in the amount of $126.44 million. The footwear products exported to the US in the amount of $142.9 million would not have been manufactured in the US under any circumstances due to less costly labor elsewhere..  In fact those imports actually drove up the export to Vietnam of footwear materials over the same period to $45.74 million.

Vietnam's major exports to the United States to date total  $634.8 million (US$ millions):

United States Exports to Vietnam are well ahead of that number, standing at $796.35 million broken down into the following categories (in US$ millions):

First Ever: 100% Foreign Land Deal.   VVG has been awarded the exclusive right to proceed with the Cua Lap Resort as a fully 100% foreign investment. 

Recent Tradition.  To undertake most ventures here, the State encouraged Joint Ventures.  A critical term was the requirement of a minimum JV ownership share of 30 % of Total Legal Capital. Usually the only element of worth the Vietnamese side has been able to contribute is the use of land.  That has been a burden to overcome in every project where the only capital contributed by the Vietnamese partner is land. But even that grant became illusory when in 1995 the State insisted the holder of land use rights still had to pay annul rent to the State.  Without meaningful exception the rent charge to the foreign invested Joint Venture was at a grossly inflated rate when contrasted with actual domestic Vietnamese market value.

• The inability of the domestic partner to contribute working capital meant the new Joint Venture  was compelled to carry and service a large debt.
• The Joint Venture was compelled to pay inflated and huge land use fees
• The minority partner had veto control over key economic matters that forced the venture to restrict development and marketing costs in order to drive up early profits.

For large land development projects, that became a triple whammy and the death knell denying survival.

Coca-Cola: Officially Alone.  It's now not only the "Real Thing,"  It's also a fully 100% foreign invested project.   Nothing official has been announced following the vendetta carried out against the former foreign Joint Venture partner by the State controlled media.  That too is unfortunate.  However, not every element of growth is as easy as are the others. The concept of adding value to Joint Ventures has come a lot further than fairness in the media.

VVG's founder is now a Governor.  Of the American Chamber of Commerce in HCMC, at least.  A member since its founding in 1994, Peter N. Sheridan was elected at the September General Election to take a seat on the Board. He continues to Chair the Government Relations Committee of Am Cham, as well.

Slowdown Is Alarming.  Still growing, but at a slower rate each of  the past three years, leading policy makers are facing looming difficulties with Vietnam's economy.  All targets are below budget and all economic sectors are feeling the pinch of trouble.

Growth has slowed to a degree that production is not near capacity and labor loss has become the norm for many companies.

Natural disasters have played havoc with the Agricultural sector.  Service economies have been hurt, none more than aviation.  Hospitality and property sectors have been hard hit, with urban occupancy rates including top-end foreign invested projects falling to as low as 40 per cent.  Tourism turnover is up merely 7.1% while hard currency has decreased 4.4% over the prior year.

Finance and banking sectors have been virtually inactive in 1998.   Government statistics show total development investment capital in 1998 at only 3% above the prior year. But if inflation at 10% is accounted for, there has actually been a decrease of 5 per cent.

Interestingly, idle capital in the population has not been invested for development due to citizen skepticism and uncertainty.  If export and import plans are realized as projected, the State will still face a $100 million deficit, the biggest in the past several years, including a $2.2 million deficit from the international balance of payments.

Rising unemployment is the clear-most alarming sign of social unrest.  Up 10% in state owned enterprises from  8% the prior year, Vietnamese workers are still returning from crisis ridden neighbors who themselves are suffering worse.  Rural workers are employed for about 60% of the time, while handicraft occupations are drying up as the demand drops.