April 2000 - VVG reports to clients on Vietnamese foreign direct investment.

IN THIS ISSUE
COMMENTARY: Vietnam - Still the flavor of the month.
Once more opportunity stares in the face of Vietnam. This will not happen often again. With the best labor force in the region, if only the nation will allow investors to work with them in a truly free market economy, the economic success of Vietnam can be assured. See our commentary (linked above) and our dispatches (linked below).
The Ninth Party Congress - last chance for change. Contractors for Nam Con Son Gas Project Handicrafts: Great Potential Income	Advances for Viet Kieu: Houses and air travel Foreign Investors Slash Workforce Vietnam's Economy: Signs of Deflation Russian Technology. Dung Quat beware!

Vietnam - still the flavor of the month. A suitcase traveler to Vietnam, as most visitors are, can get a good taste but not always appreciate the flavors of this marvelous nation whose driving force is its wonderful people. Pundits often sense isolated events that seem to drive larger forces. They are frequently wrong. Here is why we are still, after all the business problems, troubles, conflicts, and more, promoting Vietnam as the place in which to invest: its people.

We have been traveling about Asia, particularly East and South East Asia, for seven months. Observations focus on the competitors for Vietnam’s economic potential: China, Philippines, Indonesia, Malaysia, and Thailand. We exclude Burma, Laos, Cambodia and North Korea as they are too impoverished in critical areas of (i) economy, (ii) skilled, working population, and (iii) geographic location. We similarly exclude Singapore, South Korea, and Japan whose cost of labor and living make them uncompetitive for the reasons of our study.

The most dramatic difference in the lands of our focus is in the people of Vietnam. Compare their education, perseverance, professionalism, work ethic, labor rates, and attraction to the United States markets, to the other nations. What develops is a book of contrasts between the labor force in those other nations of the region and Vietnam.

Education: More than 90% of Vietnam is literate. Alone that is not impressive when we learn that literacy is achieved at the end of the 3^rd year of primary school. But watch the people of Vietnam when they are idle: they are always reading. From road construction crews to university graduates, the people of Vietnam almost always have a book, magazine, or newspaper handy for idle moments. Workers in the other lands are often seen just sitting idly by doing nothing.

Offer a Vietnamese worker the chance to go to school, and even those in their 40s snap up the chance. Our night guard and housekeeper both attend school: English and foreign cooking, respectively. So do all of our other employees. These are not the exceptions but the rule in Vietnam.

Perseverance: A job once started is most always completed. Even a multi-story tower that is short in development funds has become a street level, water front restaurant on a grand scale in downtown HCMC. OK, some foreign construction has been stalled for a long time, but neither Hanoi nor HCMC are skeleton cities so often found in the region. Being pragmatic, the Vietnamese know how to and do put much to practical use.

Professionalism: Work is serious business in Vietnam. Any job is considered a good job, where workers are loyal in the face of fair employment practices. Pride in a product finished well in endemic to the people of Vietnam, whether polishing an apple in the market stall or supervising quality control in a plant. Guidance, training, and supervision by skilled foreign leaders are sought after by this work force.

The current economic slow down is due to the problems generated by the nation’s leaders not being able to embrace a fully market oriented economy in the face of staggering national foreign debt and the concern of social instability. The time is long past for the nation to avoid NTR (formerly MFN) with America.

When that occurs, foreign investors who know this labor force will be flocking to open manufacturing concerns here in order to take part in favorable tariffs on exports to America. The new factories will bring in new technology, substantially increase the need for jobs, and produce increased export revenues far in excess of the now projected US$ 800 million.

The reason why we remain strong on Vietnam as a place for investment and growth is because of its good people. The time to be here is now, not later.

The Ninth Party Congress - last chance for change. The current plenum, attended by party advisors and the 170 powerful members of the committee, is aimed at assessing the preparations for the Ninth National Party Congress, which will be held early next year.

Vietnam missed the chance to gain NTR with America in October 1999. Now, that chance may not arise until the late winter or early spring of 2001. With that golden ring as a prod, the pragmatic people of Vietnam can seize the opportunity of the 9^th Congress to once more make a sea change in its development plans. As did the 6^th Congress in 1986, the 9^th can comfortably and respectfully retire those who still fear progress to important advisor roles, change policies to meet the needs of the nation’s growth, and resume Vietnam’s journey to true economic independence and strength.

Contractors for Nam Con Son Gas Project. BP Amoco-Statoil has licensed five companies to participate in a landmark contract for Vietnam's first offshore gas project.

They are Brown & Root, McDermott, Hyundai Heavy Industries, Samsung Heavy Industries and Sembawang Marine and Offshore Engineering.

The operator of the Lan Tay and Lan Do fields in block 06-1 recently issued a tender for an engineering, procurement, construction and installation contract worth at least $500 million for the Nam Con Son gas project.

The two gas fields lie 370 kilometers southeast of Vung Tau on the southern coast and reportedly contain as much as two trillion cubic feet of recoverable reserves.

BP Amoco-Statoil's original development scenario plans sub-sea wells tied back to manned compression and dehydration platforms via a flow line, 125-180m deep. Up to six vertical wells will be drilled in the Lan Tay field, which will come on-stream a few years before Lan Do starts producing from its three deviated wells.

The gas will be transported to the Phu My industrial complex through a 390-km pipeline, which is the longest planned two-phase pipeline in the world, according to BP Amoco-Statoil.

Yet to be agreed upon, however, is the price the consortium will be paid. This problem has stalled if not killed several other power-related projects. If it can be overcome, the first gas is expected to flow early in 2002 at an annual output of 2.1 billion cu. m rising to 2.7 billion in 2004.

Handicrafts: Great Potential Income. Vietnam is likely to make $180 million from fine art handicrafts this year. Should the state provide incentives to producers, it can achieve $500 million by year 2010, some experts believe.

At present, almost all fine art handicraft enterprises are of small to medium size and have limited access to capital, modern technology and market information.

To reach the target, expert say the State should spend part of the ODA capital source and reduce taxes on fine art handicraft production. We wonder if the ODA providers would agree, however.

Last year, Vietnam earned $165 million from fine art handicraft exports; three times that from tea exports and tens of millions of dollars higher than rubber export revenue. It is also reported that the sector has absorbed up to 20-30% of redundant laborers in rural areas.

Advances for Viet Kieu: Houses and air travel. In order to get opinions from concerned bodies, the Ministries of Construction and Trade have completed and circulated a draft guideline on selling houses to Viet Kieu. The guideline is long awaited and always expected to be issued soon.

At present, Viet Kieu (overseas Vietnamese) are allowed to buy houses in limited areas owned by real-estate trading companies, but not houses in residential areas. When purchasing houses, Viet Kieu still have to pay land rentals because they have not yet been granted permanent land ownership.

Certain Viet Kieu who are recognized as contributing to the country can buy air tickets at the same price as local residents, according to the Vietnam Civil Aviation Administration. To take advantage of this policy, these Viet Kieu should submit Preference Certificates granted by the Committee for Overseas Vietnamese to air-ticketing agents.

This is reportedly a realization of the government's policy to provide preferential treatment for Vietnamese non-nationals who have made great contributions to the country. There is no public definition available about what is required to meet this standard, however.

Vietnamese non-nationals credited with services to the country do not require entry or transit visas. They and are to be afforded the same services and charged the same prices as Vietnamese citizens.

Foreign Investors Slash Workforce. Many foreign-invested enterprises have cut staff numbers since the beginning of the year in the face of contracting outlet markets. By way of example only, Taiwanese-owned Cong Chyuan laid off more than 300 of its 523 staff, while Japanese-owned Midec Tosok sacked 200 workers. Sony Vietnam is also planning to dismiss employees, saying they want to renew the staff.

Vietnam's Economy: Signs of Deflation. "Unless due attention is made, (Vietnam's economy) will continue its deflationary spiral," warns Mr. Nguyen Ngoc Tuan, head of he Government Pricing Board.

In the first quarter of this year, a large volume of money was put into circulation through Tet (New Year) salaries and bonuses, at a time when inflation stood at just 0.8%, far below the targeted 2%. This is worrying as the inflation rate in the first three months of a year often makes up 60-70% of the year's total, according to Mr. Tuan.

Responsible agencies seem to pay inadequate attention to this slowing trend. The Government, since last year, has put forth seven demand stimulus projects, comprising of over 50 specific measures, but so far no evaluation on their effectiveness has been made, says Mr. Tuan. All agencies complain of that they cannot allocate capital. However nobody appears to know where the money is trapped. Even the capital for the Government's Poverty Reduction Program 135 cannot be disbursed though it has been distributed to districts.

According to Mr. Tuan, finding export outlets is the optimal solution to solve the current economic stalemate, particularly for rice. Domestic unhusked paddy price has dropped to VND1.3-1.5 million per ton while the production cost is up to VND1.55 million.

Another measure to stimulate the economy is to restructure the state-owned sector by privatization and renovation of management. At the same time, the Government will consider the amount of money in circulation, to prevent deflation and boost the consumer price index.

Mr. Tuan also pledges further adjustments to the current dual pricing system that disfavors foreign investors.

While we wait for these reforms, patience wears thin. We have been listening to this tune for almost 7 years.

Russian Technology. Dung Quat beware! An early death of Vietnam’s biggest power plant is now projected.

According to its technical design, the Hoa Binh Hydro Power Plant (in Hoa Binh Province -- 76 km northeast from Hanoi) should last more than 100 years. Scientists, however, worry that its life may be shortened by half due to the increasing accumulation of sand and mud in its reservoirs.

"The rate of sand and mud accumulation in the Hoa Binh Reservoir is rapid. It is estimated that every year the reservoir receives 77 million tons of mud and sand. The mud and sand will surpass mean water level in 50-60 years, preventing the plants turbines from working," reports Dr. Nguyen Van Toan, an expert at the Irrigation Scientific Institute under the Ministry of Agriculture and Rural Development.

Erosion along the banks of the Da River is the major cause of the problem, said Mr. Toan. He added that so far no resolution for the problem had been worked out.

Hoa Binh Hydro Power Plant was built between 1979 and 1994. Its capacity is 1920 MW, accounting for 35% of the country's total power supply.