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Copyright © 1997-2000 Vietnam Venture Group, Inc. All rights reserved. Updated November 20, 1999
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VIETNAM VENTURE GROUP, INC.VIETNAM VIGNETTES®Copyright © 1997-2000 Vietnam Venture Group, Inc. All rights reserved. Updated November 20, 1999 |
Issue No. 26
November 1999
our third year on the Internet
A Periodic Report to Our Clients
(higher numbers indicate more recent dispatches)
IN THIS ISSUE |
|
| Vietnam turns inward, its growth stalled, loosing gains made these past nine years as its leaders elect to remain aloof from the world's largest economy, yet they continue to claim a desire to join the world's economy. To learn what is really happening, see our commentary (linked above) and our dispatches (linked below). | |
| 7) Recovery buoys agro-products export |
4) Government to State Firms: Shape up and integrate with world's economy. 3) Pivotal Role for Traders neglected in quest for global integration 2) Wholly-Foreign-Owned Businesses attracted to "new atmosphere" |
See VVG's monthly feature on Current Economic Indicators
Current Dispatches
TRADE AGREEMENT - down for the 8-count and still counting. The inability of Vietnam's decision makers to accept the terms of a bilateral trade agreement ("BTA") with the US seems to put Vietnam in a doubly difficult position. Vietnam's recovery from its own fall will take longer and happen at a time significantly later than the economic recovery of its neighbors. Additionally, and perhaps of greater importance, Vietnam may recover and find itself in a comparatively weaker position than before the slide.
It now appears that even if Vietnam "consents" to the BTA with America later this year (or any time next year), the US will not be able to take the agreement through the US Congress until after the next US president is inaugurated.
US politics allows even small, minority-factions to block well thought out initiatives of the majority. One such noise-making political block comprises the anti-Vietnam lobby. These consist of a small minority of overseas Vietnamese and an even smaller minority of US vets who served in that war, or their families. This group has not been able to block any of the many initiatives to restore relations with Vietnam, but they try at every opportunity.
A Presidential election year is not the time when prudent politicians act boldly. In the case of Vietnam, President Clinton will most likely not burden the Democratic party with exposure to renewed ancient but ever-present internal confrontation arising out of the US policies with regard to the war in Vietnam.
While the US election will be in November 2000, the new president will not be inaugurated until 20 January 2001. Importantly, there will be other post-inauguration priorities that may confront the new president and eclipse the needs of Vietnam for a trade agreement with America. Thus we see in the best circumstances, no present hope for a bilateral trade agreement with Vietnam going to Congress before the spring of 2000.
Vietnam's Needs. Curious only to those who do not understand the politics of Vietnam, strong elements in the government take the position that Vietnam will not benefit from Normal Trade Relations status with America "at any price." This thinking proceeds along the lines that as other nations made better deals with the US made, Vietnam will not settle for any less.
The US position is that errors in negotiating earlier BTAs with some states does not create a matter of precedent that the US must repeat in subsequent BTAs.
The rhetoric in Vietnam goes so far as for some to proclaim that only the US will benefit from a BTA, while Vietnam will be better served not to have a BTA with the US. That thinking flies in the face of realistic economic reports that the US will not receive any major economic (or political) benefit from normal trade relations with Vietnam.
One can speculate that Vietnam's reaction may be a fit of self-destructive behavior by a few that compels Vietnam to proclaims that IT does not want Normal Trade Relations with the US on the terms offered. Vietnam is ruled by consensus, and the leaders go long distances to insure that there is harmony in all major decision making.
One need not search far for a study in contrast. Non-competitive, physically small, economically and politically challenged Cambodia took a vastly different approach. In 1997 the Kingdom of Cambodia reportedly signed the first draft of the BTA with the US the same week it was presented.
Regional Economies. Vietnam's regional neighbors who were economically stronger than Vietnam, all suffered a free-fall of their free economies. As expected, that disaster now seems to be working out to their ultimate best advantage.
Consider this brief tour of the region:
While Indonesia's future is still problematic, the largest nation in the region is filled with hope. Recent political and soon economic change will make this large nation a stronger competitor than before the financial crisis.
Malaysia is still working out its own problems..., its own way. But while there may be some question about political change and stability, the economy of Malaysia seems poised to make a quick recovery.
Thailand, where the problems first came to light, may be the first to be on the road to full recovery. It will take a few years for the economy to reach the height to which it floated on bad debts, but this time the nation's economic foundation will be far more solid.
Singapore's loss is but a blip on a very shining star.
South Korea is not only recovering, but many of its investors are once more venturing forth out of their own land and carefully considering (and making some) foreign investments.
China's sheer size, coupled with the huge influx of US dollars brought in by NTR with the US, helps that giant remain competitive, even though most foreign invested companies are still (after 20 years) waiting to make real (if any) profits. We all continue to watch this nation for signs of devaluation of the yuan.
Cambodia, with NTR (entered into two years ago) is struggling to escape its own internal conflicts and move forward.
Economic isolation, forced upon Burma and North Korea, are the only two other nations that are still in major economic trouble with no relief in sight.
It is only Vietnam that elects to avoid NTR with the US.
VVG's expectation. Recent reports are that the still controlled, "market-style" economy of Vietnam will NOT begin to recover until late in the year 2000 or even 2001.
Looked at in another way: Vietnam with its non-convertible currency and lack of stock market avoided the late 1997 economic slide of its free-economy neighbors. However, all of those nations, within two years, are making recovery's that are forecasted to put them in stronger positions than before the slide.
Vietnam's recent actions in rejecting the BTA will not only prolong its own slide for two years beyond the recovery of its economically stronger neighbors, but force Vietnam to try to recover in the absence of a trade agreement (and no significant trade) with the world's largest market.
Vietnam has shown itself in the past decade to be nothing if not both energetic and pragmatic. However, old fears of foreign domination, whether physical, political, or economic, always seem to arise. Perhaps it is because they are based on a 2,000 year long history of such control if not domination.
The time for Vietnam to seize upon its own opportunities, to leap ahead, and more quickly achieve economic parity with of its stronger regional neighbors, has most likely past. But it is not too late for Vietnam to change.
The nation's public statements continue to "talk-the-talk," but the country's public actions fail to allow its government to "walk-the-walk," both of which are needed for Vietnam's businesses and people to achieve real economic growth.
Time has a way of helping events to change. There are strong, quite struggles going on behind the scenes. Vietnam needs the time and the distance to work out its own challenges and seize its own opportunities.
We remain of the opinion that Vietnam's large, loyal, well educated, and highly motivated work force, as well as the country's substantial wealth in natural resources, in the face of a still stable government, make Vietnam a good location for foreign direct investment.
Until there is NTR (MFN) conferred on Vietnam with the United States, infrastructure projects, entertainment and resort activities geared for the domestic market, and exports of commodity items not subject to large US customs duties, remain the best opportunities for investment in Vietnam.
Entry barriers are still high, but the 78 million people of Vietnam are among the most intensive consumers in the world. We recommend against waiting. When Vietnam matures and NTR issues, it may be too late to get a good position in Vietnam.
GOVERNMENT
TELLS STATE FIRMS: shape up and integrate with world economy - The
Government has advised State - owned businesses to operate in line with market
demands to integrate into the world economy, saying the State firms should work
on their own initiatives to integrate with the outside world - without
government prompting.
[In
the face of the nation’s failure to proceed with a bilateral trade agreement
(BTA) with America], the move is seen as encouraging State enterprises to adapt
quickly to market forces. This was one of several major issues discussed by the
Cabinet aimed at paving Vietnam’s bid to enter the global market.
They include an immediate
expansion of export outlets, opening the domestic market to further investment,
and liberalizing the supply of services. Supporting those aims are measures that
include tax policies, trade tariffs, distribution of goods by both Vietnamese
and non-Vietnamese entities, and the application of World Trade Organization (WTO)
rules governing trade and prices.
A helpful sign is Deputy Chairman
of the Prime Minister’s Office, Nguyen Thai Nguyen’s statement that
individual State - owned companies should speed efforts to restructure
themselves to stand on their own feet rather than their customary heavy reliance
on State subsidies.
Officials say about half of the
existing state - owed enterprises, estimated at about 3000 entities, still
operate according to the outdated mode of government - subsidized operations and
few are profitable.
State businesses [and their
substantial US dollar denominated foreign debt] have for long been regarded as
the determinant player in the domestic market growth, accounting for about half
of the national industrial rate. But this year's growth is likely to be lower
than expected because of the state-owned industrial enterprises.
PIVOTAL ROLE
FOR TRADERS neglected in quest for global integration. Trading companies have not
occupied a prominent position in VN, not only in recent years but also back
during the centralized economy period when there were only 12 registered such
companies able to trade with foreign countries. So states Vu Tien Loc, General Secretary of VN Chamber for
Commerce and Industry (VCCI) and Head of the Small and Medium Enterprises
Commission.
Loc says commercial trading
companies could assist State companies and producers in approaching world
markets by providing information on market demands and tactics, and also
introducing Vietnamese products in those markets.
Yet, Loc told Thanh Nien (Young
People) newspaper, trading companies were urgently needed to help overcome
difficulties the national economy was experiencing in trying to ease off State
subsidies and initiatives.
Traders were suitable, for
example, to find foreign partners for local SOEs. Loc emphasized that stable
macro-economic development, a more liberal business environment, and local
business initiative were the three robust economic factors needed for SOEs to
become strong and competitive.
However their development has
been retarded because of inexperienced and fragile management, a poorly trained
labor force, backward technology, and a slow renovation process.
Loc said most SOEs considered the Government alone was responsible for initiating change and reform, including global integration.
However the government only
promulgates relevant policies and legislation as a basis for the establishment
of a reliable macro - economic environment. Loc said SOEs themselves
needed to compete with foreign companies as the country joins the World Trade
Organization and the ASEAN Free Trade Area.
The time was rapidly passing
where SOEs can keep looking back to the government to help them out, as the
government wants the SOEs to break the apron strings.
Profits now have to be made, and
that depends on market demands and contracts entered into Vietnam is now
striving to solve unemployment problems within SOEs as a social issue rather
than any extension of continuing of the SOEs themselves.
New products are also
needed with their own unique Vietnamese style and brand-name (like the footwear
Biti's and Garment Company No. 10 clothes). This is where Loc says the
trading companies come in, being able to assist local companies establish
foreign partners, understand global market needs, then come up with the produce
needed to survive, and make a profit.
Wholly-Foreign-owned
businesses attracted to "new atmosphere" -
In the first eight months of this
year, the rate of new wholly foreign-owned projects jumped 48 per cent compared
to the same period last year. According to the paper, both problems endemic to
joint ventures and new encouragement of foreign projects are responsible for the
rise.
Recent investors in 100 per cent
foreign owned ventures have cited troubles including a lack of unanimity between
themselves and Vietnamese investors on such topics as production plan,
accounting systems, and the sharing of risks and profits.
They also claimed that Vietnamese
management staff in joint ventures sometimes failed to meet requirements for
expertise and English language skills, and that their inexperience in business
led to losses for the joint ventures.
Vietnamese partners point out that another reason for the dissolution of joint ventures has been that inexperience on their part led to abuse of power by foreign investors. Some [foreign investors] falsely declared their capital or delayed their capital contribution, impeding the operation of the joint ventures.
Sai Goon Gay Phong reports that the main reason for foreign investors to switch to wholly owned ventures is mounting losses, whatever the causes. As many as 70 per cent of foreign-invested businesses have claimed losses in the past, though officials argue the actual proportion is much lower.
State Sector Reform: Immediate Task - VN has learned well from the regional crisis, Deputy PM says.
Deputy Prime Minister
Nguyen Tan Dung told a Singapore conference on the East Asian economy that the
current close co-ordination between regional nations is a positive outcome of
the recent regional financial crisis.
“Like other countries, Vietnam
has learned much from the recent crisis,” said Dung. He said the
strengthening of financial and banking systems, the consolidation of mechanisms
to ensure the dynamism of the market economy, coupled with measures to curb
manipulation and speculations, are regarded as immediate aims for national
economies.
Dung told participants that
Vietnam has tried to maintain a gross domestic product (GDP) growth rate at
about five per cent this year, with Vietnam ‘s immediate goals for next year
including the need to stop the growth-rate decline and accelerate the settlement
of urgent social problems.
“Vietnam has come to understand
that stability in political and social life in all circumstances is a
pre-requisite to ensure national economic development. Such stability will
enable the country to integrate with regional and international communities,”
the Deputy PM said.
Dung singled out reforms of the
State-owned sector as a major task for the immediate future. He said such
reforms would improve competitiveness among State-owned businesses. More effort
should be made to facilitate the development of forms of business, particularly
small and medium-sized enterprises.
Dung said Viet Nam was trying to
push up exports by improving product quality.
Vietnam has already long ago
pledged to improve its business environment to attract more foreign direct
investment to the country and fully observe its commitments within the framework
agreements signed with the regional and international organizations like the
ASEAN Free Trade Area (AFTA); Asian Pacific Economic Cooperation (APEC) and the
Vietnam-European Frame work Agreement.
Dung further said that Vietnam
was accelerating its negotiations with the World Trade Organization (WTO) to
become a member, as well as trade talks with the USA for the finalizing of a
trade agreement.
He said negotiations were based
on respect of national independence, territorial sovereignty and mutual benefit.
Flood
of investment
activity expected, but….
Investment officials expect the
level of foreign direct investment recorded in the remaining two months of 1999
to match the $1 billion “invested” in the first ten months of the year.
In
a seeming cavalier “brushing aside figures showing a severe decline in
investment over the first 10 months, officials at the Foreign Investment
Department at the Ministry of Planning and Investment (MPI) were confident that
there would be a huge turnaround in the next two months,” reports MPI’s
media organ, Vietnam Investment Review.
This
occurred in 1997 when three huge projects licensed in December came just in time
to boot the years “total investment capital” to a healthy figure.
Two
things are not lost on foreign investors now well aware of Vietnam’s policies
and practices. Total Investment Capitol of $1 billion is not at all
equated with “steel in the ground.” The money so “invested” is
projected as funds “to be invested” over the 20 to 70 year life of the
projects.
Additionally,
two of the three huge projects licensed at the close of 1997 that gave that
year’s figures a nearly similar “boost,” failed in 1999, thus proving the
value of rushing projects towards licensing to boost or color year-end results.
Officials
said that nearly 200 foreign investment projects worth more than $1 billion were
licensed in the first 10 months of the year. They expect to grant licenses
for another 30 projects worth $ 1 billion over the remaining two months
However,
in spite of the real or imagined optimism, VIR reports “the final figure is
sure to be well down on the $3.19 billion target set for 1999 earlier in the
year.”
There
is no more public discussion of NTR (formerly MFN) with the US at official
levels. Of greatest concern to officials at the MPI is the lack of new
investment projects awaiting approval. “It seem that investor are
waiting for some fundamental renewal in the investment environment in VIET
NAM,” the VIR unnamed MPI official said.
While
comfort is taken by some on the ability of the nation to meet its target on
export turnover, the negative effect of the need for imports, the inability to
pay for them, and yet the steady increase of imports, are signs not lost to
anyone in Vietnam who has that information. See the following dispatch
about Hanoi investment.
Economic going gets tougher in capital. Falling foreign investment, low actual realization of projects (both ODA – and foreign investment – backed ), and soaring imports have made life tough for Hanoi officials trying to keep the capital’s development on target.
Hanoi
has so far failed to attract much new foreign investment this year, with only 24
projects worth $280 million licensed during the first nine months, according to
Hanoi’s Department of Planning and investment.
An
additional $25 million was invested in existing projects, pushing the total
investment capital to $305 million. However, this is a drop of 14% from last year’s figures for
the same period.
To
date there are 329 projects in operation in the capital with total investment of
$7.8 billion, the Department said. Realized capital, however, stood much lower
at $3.06 billion.
Hanoi
imported $1.8 billion of goods during the first nine months, down 10 per cent on
last year. Its export value over the first nine months topped $850
million, an increase of 7.8 per cent compared with the same period of last year.
Exports
were again led by traditional industries such as textiles, electronics, and
handicrafts.
The realization of Official Development Assistance (ODA) projects faced difficulties, the department also conceded. This is expected to have a detrimental affect on the mobilization of foreign investment capital in the future.
Regional
recovery
buoys agro-products export stats.
Ministry
of Agriculture and Rural Development (MARD) forecasters put their finger on
$2.75 billion as the likely year end export value of agro-products.
Said
one MARD analyst, “The increase is not as good as we expected, but the
recovery of the neighboring countries from the regional financial malaise is
making Vietnamese-made agro-exports more competitive in terms of price and
quality.”
MARD
says Vietnam’s agro-export volume has increased consistently for the year so
far. Rice is set to record an approximate whole-year rise of 18 per cent, rubber
10 per cent, coffee beans seven per cent, pepper a whopping 126 per cent, and
fruit 30 per cent.
However,
while volumes may have increased hugely in some cases, prices fell across the
board. Industry insiders said world prices of agro-products would keep
plummeting until early next year because regional exporters were reinforcing
their exports. This would likely make competition fiercer.
MARD
experts calculated prices on rice exports fell 13 per cent from last year.
Prices of coffee, rubber and tea were down 11,10 and 7 per cent respectively.
The
ministry forecast that the growth of Vietnam’s agricultural sector during this
year would reach over 5 per cent, higher than the set target of 3.5 to 4 per
cent.
According
to MARD, Vietnam’s food output, including rice, was expected to rise by 6.3
per cent to 33.8 million tonnes this year. Rice output was expected to reach 31
million tonnes, up 6.5 per cent, rubber to 240,000 tonnes, up 6.3 per cent, tea
to 60,000 tonnes, up 17.75 per cent, fruit 4.5 million tonnes, up 12.5 per cent,
and meat output to 1.75 million tonnes, an increase of 7.7 per cent.
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.Prior Issues On Line: No. 1 - November 1997 | No. 2 - December 1997 | No. 3 - January 1998 | No.4 - March 1998 | No.5 - April 1998 | No.6 - May 1998 | No.7 - June 1998 | No.8 - Mid-June 1998 | No.9 - July 1998 | No.10 - Mid-July 1998 | No.11 - August 1998 | No. 12 - September 1998 | No. 13 - October 1998 | No. 14 - November 1998 | No. 15 - December 1998 | No. 16 - January 1999 | No. 17 - February 1999 | No. 18 - March 1999 | No. 19 - April 1999 | No. 20 - May 1999 | No. 21 - June 1999 | No. 22 - July 1999 | No. 23 - August 1999 | No. 24 - September 1999 | No 25 - October 1999 |
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