October 1999 - VVG reports to clients on Vietnamese foreign direct investment.

Stock exchange ready, but is Vietnam? The building is cleaned and upgraded, the employees trained, and the press is not yet tired, but weary of repetitive “alerts” to the big event. Vietnam's stock exchange is soon to open. The question is, open to what?

The number of State owned companies fully eligible now reportedly number 12 (up from 10 a few months ago). However, according to the State owned media reports, the majority (more than 7, up to all 12) “is wavering, wary of possible risk.”

The Company Law recently enacted authorizes the Stock Market, but there are canyons and caves, not just holes, in the legal system needed to be enacted to properly regulate the “bourse.” In addition, expensive and duplicate procedures that copy state requirements for licensed companies (accounting, auditing, reporting) must be completed anew. For a marginally profitable company, this doubling many of the annual or start-up expenses, and at least doubling the opportunity for corruption, chills the desire to take an early part in the Market.

Silliness seems to be more the order of the day when some government officials seek to compare the development of Vietnam’s stock market with that of Japan, by saying percentage-wise, more Vietnamese companies will belong to their stock exchange.

The Vietnam officials proclaim that only 1200 of Japans 1 million companies are listed. Perhaps those officials do not know that the million companies are small and mid sized, privately owned enterprise while the 1200 members of the exchange dominate the economy of Japan.

Vietnam follows China’s course of a “market style of commerce” and not a free market system. Privately owned companies are not eligible to be listed on the exchange. Those equitized Vietnamese companies that can be listed may not have their shares owned by foreigners. Yet China allows one in nine state owned companies (11%) to be listed.

Vietnam has at most 12 of 6,000 companies ready to join or 0.002% of all potential companies that can be listed.

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Trade Agreement may be comatose. The window of opportunity for Vietnam to launch an economic program to leap ahead, to merely catch up with its still flagging neighbors, is nearly closed. NTR (MFN) is not dead, but hardly breathing since authorities scuttled the Bilateral Trade Agreement with America.

“Progress comes in steps, not leaps.” “Patience is not merely a virtue but a necessity for doing business in Vietnam.” “Vietnam is a new wine in an old bottle.” These are the platitudes we heard more than six years ago. They are still mouthed by officials, but no longer well received by investors.

“Jump forward towards change and grown, don’t merely run.” “Move forward, don’t ask us to hold the line.” “Decant the wine, change the bottle and the label.” These are more often now being spoken and not just thought by many of Vietnam’s foreign investors. The best reason to invest in Vietnam is still the opportunity to cost effectively manufacture simple goods for export. However, the inability to access the largest economy of the world makes even that reason a difficult one to justify.

Infrastructure projects are the next best reason to conduct business in Vietnam. The company with the ability to finance its own project will be the one more likely to succeed in both wining the bid and making a reasonable return.

No one in any position of responsibility is now making projections about the implementation of NTR (MFN). The Vietnamese mistook the lifting of the embargo in 1994, the opening of diplomatic relations in 1996, the waiver of Jackson Vanik in 1997 all as signs pointing to the immanent issuance of MFN (now NTR).

However, now it is the foreign business community that is trying to understand how they could have been so in error to expect NTR by the end of this year.

That Vietnam still is run by consensus, and that the Politburo was never of the consensus that the BTA is the best course to follow, are two facts that must be faced and better understood.

Many foreign investors laugh as they walk away from Vietnam, one of whom was heard to say as he returned to America, “Vietnam is like an injured person who says he does not want our medicine but only our compassion and sympathy as he finds his own cure.”

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VVG expands into Thailand - Foreign direct investment in Vietnam shows signs of paying off down the road. And yet foreign investors ponder why, as the light can be seen at the end of the tunnel, the road to their reward is still difficult to see. And still not as certain as much as it is problematic, that at the end one will achieve the success sought.

The behind the scenes struggle between progressive and conservative elements in the government of Vietnam is rarely heard about and more difficult to see. Generally, that is. While the internal struggle shows no sign of abating soon, with decisions based upon a consensus, we have recently seen some major steps backward.

Rhetoric from both sides says everything is "normal," and it is. The real question to ask is, "What is normal?" The failure of the Politburo to approve the Bilateral Trade Agreement took from President Clinton and PM Khai the opportunity to have a signing ceremony in Auckland last month during the APEC summit. While Secretary of State Albright visited Vietnam, Secretary of Defense Cohen was "asked not to come at this time."

There are other signs pointing to regressive, and not progressive policies . This can send a chilling frost over the foreign investment community all the more so than the failure to bring major reforms over the past two years. Vietnam's window of opportunity comes to a distinct close without any real progress as its neighbors head towards their hard earned recovery.

In all foreign direct investment, flexibility, as well as patience, helps foreign companies to get by until they can get along better. VVG's more recent opportunities has been in the wholesale handicraft market.

Before the downturn first began, VVG expanded from consulting alone to land development. Then, at the first sign of the downturn in new investment here, VVG elected to take a gambol on VVG's own commercial export of handicraft products.

The conservative business and legal background of our principals might have encouraged a larger organization to "stick to its knitting." However, life in the frontier being as it is, success depends on one not merely being able to keep on knitting, but to be willing and able to learn new patterns and stitches as well.

Accordingly, VVG's success in the past year serving as buyers' agent for locating, negotiating, and supervising the shipment of Vietnam's export handicraft products, proved a valuable opportunity to seize upon. This in turn led VVG to Thailand where we are in the process of expanding our already full web pages with the fabulous handicraft products of Thailand, and now also China

Our original Vietnam selection, and the more recent Thai and Chinese products, can be found on our handicraft pages.

Stay with us. Allow us to help you to build and mold your needs in Thailand and Vietnam. We will do at least as well for you as we take care of our own..., and usually do much better for you.

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Will Vietnam Investment Potential Be Realized? Speaking at the fist Private Sector Forum, jointly organized by the government, International Finance Corporation (IFC) and the World Bank, donors, diplomats and foreign investors already committed to Vietnam urged ministers to harden their commitment to pushing economic policies on to the right track.

Vietnam’s IFC head, Wolfgang Bertelsmeier, stated that while there are still “plenty of foreign investors eyeing Vietnam as a potentially promising land,” he was quick to temper his upbeat assessment with some clear words of caution.

“The pace and depth of improvement in Vietnam’s investment climate is likely to depend on the speed of the economic reform process. In other words, if the economic reforms advance slowly in Vietnam but faster in other countries, Vietnam will become less competitive and lag behind.”

He also noted “The Asian crisis has forced countries like Thailand and South Korea to undertake very substantial economic reforms. Vietnam must compete with those countries.”

Foreign business groups called for continued reform focusing on cutting legal read tape. Absurd bureaucracy remained a major hindrance in the day-to-day business of Vietnam investors, they said.

“We have observed good progress in some areas since the Decree 53 [latest package of incentives for foreign investors] came into effect,” a French delegate told the forum.

“But while it offers a wide range of incentives to invest, enforcement of the principles of the decree has been weak and slow.”

Problems relating to the dual pricing system for foreigners, labor issues, tax issues, foreign currency controls, land rights, mortgages and loan securities have not been resolved, delegates pointed out.

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More capital, fewer projects in HCM City - The number of non-industrial zone foreign-invested projects in HCM City has fallen 8.6 per cent year-on-year, says an official of the city's Planning and Investment Department. But the amount of capital invested in the projects is up by 61.2 per cent over the same period.

By September 15, HCM City had licensed 43 foreign-invested projects with combined investment of US$213.5 million. The official says the largest investment of $149.3 million is in a Malaysian B.O.T. water supply project, followed by a $30 million construction project invested by Viet Quoc Co.

Twenty-nine projects are 100 per cent foreign-invested with total capital of $179 million, four are business co-operation contracts with total investment of $20.4 million and 10 are joint venture projects capitalized at $14.1 million. "Investment in 100-per cent foreign-invested projects is now more than 10 times higher than the amount of money invested in joint ventures," the official says. VNN 25 Sep, 1999

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Investor incentives win just faint praise - While certainly not dismissing the July issued Decision 53 measures altogether, many representatives from foreign investors agree they had made only a moderate impact. Aimed at cutting the costs and hassles of doing business for foreign-invested entities, central to Decision 53 was a measure aimed at reducing or eliminating the higher prices that foreign- backed enterprises must pay for some goods and service under existing dual-pricing policies.

Utility charges, land rents and minimum wages were officially reduced starting July 1, and a “road map” for further reductions and eliminations was provided.

“Things have moved forward since the new incentives came into effect. But while they are important changes they are not of fundamental structural importance”, said Sesto Vecchi, a lawyer at the Ho Chi Minh City-based Russin and Vecchi law firm. He said that Vietnam must do more or it would lag behind regional countries that were aggressively welcoming foreign traders and investors with red carpet and not red tape.

Official figures show that in the first seven months of the year 157 foreign-backed projects worth $871 million were licensed. For the same period last year 51.2 percent more capital was registered by foreign invested projects.

While government officials put a bright spin on the picture, talking of a “higher quality of projects this year compared to last” because their capital is focused on sectors such as manufacturing rather than hotels and resorts, Vecchi was downbeat about the prospects for new inflows of foreign investment.

“I don’t see much of an increase coming in the very near future at all, despite the fact that the regional economics are recovering. That’s because companies in Vietnam are generally disappointed.”

The enthusiasm of four years ago is gone. Then, many investors believed that the problems they saw were just temporary. However, says Vecchi, “the more people stay, the more they realize that the situation is not going to change dramatically. So while they may not withdraw their investments, they keep them at the same level.”

“It’s a little bit ironic. As the taxation of foreigners has come down the taxation of Vietnamese” has increased. When one seeks to hire a Vietnamese manager, “you have a situation that it may be less expensive to hire foreigners than Vietnamese,” said Vecchi, who also called for more legislation aimed at encouraging more non-state sector investments, whether domestic or foreign.

Jean-Pierre Verbiest, Hanoi representative of the Asian Development Bank, agreed. He said Vietnam should look to other countries that formerly had fully centrally planned economies for lessons in this regard.

As if it were important in making a decision to proceed on foreign investment or not, even the cost for entrance fees for foreigners at some historical sites remained the same, despite Decision 53 instructions to the contrary. While Hue tourism authorities say they supported the scrapping of dual prices at historical sites, they could not put them into force unless “the government compensates us for the US $4 million gained from [higher] site fees for foreigners” a Hue tourism official said.

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Vietnam Vignettes is a periodic report distributed since early 1994. It is NOT a newsletter although for the ease of linkage we have called it that. It is a summary of domestically published media reports from more than 17 industrial sectors that we at VVG follow and report upon for our clients. * Due to the importance of certain topics of key importance to trade with Vietnam, we will occasionally include some wire and other media reports.

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