January 2001 - VVG reports to clients on Vietnamese foreign direct investment.

IN THIS ISSUE
COMMENTARY: Why We Do This.
We enter our eighth year in Vietnam, using this space to both reflect on our accomplishments and take stock in where we expect both Vietnam and VVG to be heading. See our commentary (linked above) and our dispatches (linked below).
Update: Oil Refineries? Real Growth, Stagnation, Deflation, or ...? Planning For the Next 5-Year Plan *Estimates for 2001	Deflation from May to December Media - Internet and a Free Press? Vietkieu Travel Cost Reduction - for Tet. BP-Statoil Gas Deal - Nothing final yet.

WHY WE DO THIS - VVG arrived in Vietnam in mid January 1994. Our founder, having been here during the war and suffered his own bad moments, did not want to return. However, his then 80 year old mother, who wanted to see the origins of the people who in the past 24 years had become so very important to him, asked Peter to accompany her. And her reward: he fell in love with the people and stayed in Asia, sending his mother home…, alone!

With the never-ending emotional support of our founder’s mother, we formed our first Business Cooperation Contract in March 1994 and opened our first office in September the same year. Others told us upon arrival that to become established would take between 3 and 5 years. Yet in the first 12 months we learned the law, practice, and procedures for operating in Vietnam, attracted substantial and meaningful clients, forged new and lasting personal and business relationships, built up our domestic and foreign offices, and in large measure achieved successes even we had dared not consider way back (10 months earlier on 3 February in Vietnam, 2 February back home) when the US trade embargo was lifted against this beautiful and troubled land.

Now rounding out our 7^th and entering into our eighth year, some of our accomplishments:

Of course there is the seven full years of serving our clients interests and needs in Asia. We did not forget to mention that success, but we never mention details or the names of the many corporations and high-income earners who have benefited from our business and investment advice.

You who now come to Vietnam are no longer pioneers in the same sense as were those who arrived in the immediate post embargo period. The scouts who preceded us for the most part all moved on to other new endeavors, fields, and locations. Even the early pioneers who remain active in Vietnam use mostly domestic managers who have been trained to replace the more costly foreigners.

The first boom in the national economy that began in 1992 publicly fizzled in 1998, but insiders wonder if there was really ever a boom; if it was not more apparent than real. Land and property speculation caused 20 story + buildings to sprout from 1996-99 as asparagus spears in the late northeastern spring.

The buildings remained empty from the start, and there is still no challenge for prospective tenants to locate space. Hotel occupancy for some places, reported at or near 50%, is hard to sustain when challenged. It is more illusory, as even the often-cited 30% figure is based on steeply discounted rack rates that are mostly for historical references in spite of the current high season Tet holiday.

Domestic sales of foreign made goods are not yet strong, but improving over the immediate prior years when sales seemed to disappear. Where exports are increasing, it is not enough to provide a favorable balance of trade. No one will receive a promotion over their year 2000 performance, but there is improvement seen.

New numbers of domestic, private companies have formed this year due to the Enterprise law, but the private feeling is that this increase is mostly the legalization of existing businesses that no longer so sharply feel the long yoke of repression from elements in a government not yet fully wed to the free market concept.

Vietnam remains the dragon we first described to the New York Times in 1994 whose head says all the correct things to calm foreigner investors, but whose tail is still active, seemingly independent of the head, and poisonous. And while local small dragons (gecko lizards) loose their tails when caught in a bind, Vietnam does not loose its tail, leading all to question if the tail is in fact not actually the head.

We remain present in Vietnam to help foreign investors learn that the people of Vietnam are in deed and fact their friends. We keep up our efforts, despite severe road-blocks that at times negatively impact our own operations in order to help our friends in the government of Vietnam understand that their nation and its people will prosper when the yoke that remains around the necks of so many is removed. When there is a truly free market economy instituted, and not simply a market style economy under the Vietnamese Socialist System, the government will experience a booming economy for real.

The window of opportunity that opened from 1998-2008 when most of Asia was really down in the dumps passed by, seemingly unnoticed by the government of Vietnam that did not execute even the bilateral trade agreement with the US until July of 2000. It will take almost a full year for that document to be fully ratified. Yet the effects will take more years to boost the economy as is needed.

We retain our long held and published belief in the people of Vietnam who we know from more than 30 years experience to be pragmatic, intelligent, hard working, desirous of being trained in better methods for doing what they know, and learning new methods as well. These loyal and youthful people are truly the friends of the United States and all people of good will.

We intend to be around for years if not decades to come. We see our role as being a stable force in helping businesses to grow and to change. An economically independent nation with a people able to choose their own economic destiny is the goal of people the world over. Vietnamese, and foreigners such as we who view Vietnam as our second home, know that there are challenges remaining, but have confidence that this land is not simply a beautiful place graced with wonderful people, but a place where business has a great opportunity to grow.

We are not alone in believing in Vietnam. One of the first acts by incoming President George W. Bush is his pre-inaugural re-appointment of Douglas "Pete" Peterson as Ambassador to Vietnam for an indefinite term. This is important as Ambassador Peterson (formerly a Democratic Congressman from Florida) has a long, personal and more recent professional history in Vietnam.

A POW in Hanoi for 6 years during the war, Pete was the first US Ambassador in Hanoi and for the past 4 years has been a guiding force to the signing last July of the Trade Agreement. The BTA must still be ratified by the United States Congress where some vocal but insubstantial dissention is expected. See related article.

UPDATE: Oil Refineries? With the first refinery at Dung Quat, about 700 km south of Hanoi, showing no more growth than grass on the now leveled field, the authorities are now reportedly planning a second refinery in northern Thanh Hoa province, about 130 km south of Hanoi.

There is also talk about a third refinery, possibly to be placed adjacent to central Dung Quat which is about 700 km north of Ho Chi Minh City.

Meanwhile, 1,500 km south of Hanoi in Vung Tau, landing site of the nation’s production of crude and gas, within 100 km of the HCMC market needing 55% of all petroleum products, some now speculate that the “third” refinery may in fact become the first commissioned. Having a refinery in the south still seems to bet the best way to avoid the high costs of transportation that may make finished product from the first two refineries non-competitive with imported product. See a new, related article on the refineries and their planning elsewhere on this site.

Real Growth, Stagnation, Deflation, or ...? What grabbed our attention this time after months of closely observing and questioning the report of economic factors and indicators is the listing for Korea. The number of projects increased, the total capital increased, but the reported implemented capital decreased for the Republic of Korea between the data announced in December 2000 to January 2001.

We came to and remain in this area because we believe in its near and long-term potential. Of course there are challenges such getting the number correct. However, the changes in Vietnam that we observe as we enter our 8th year here are remarkable. Overall they have been positive and show signs of hope for even greater positive change to come.

When we arrived in January 1994, the rate of annual inflation was 14.4% down from the 1989 high of 774.7 per cent. The number of foreign invested enterprises did not count the US at all due to the Embargo, and those Americans who would say hello to a stranger never discussed business, saying they were travelers, or did not know why there were in Vietnam.

However remarkable the growth has been, we continue to urge all investors to proceed in their normal, conservative approach towards investment, and development plans. Do not pay attention to the hype, and as necessary, read carefully between the lines, and keep your own records of events in order to understand what that is really going on.

As the State of Vietnam prepares for the IXth party congress (presumably due to begin in late March this year), speculation is ripe about what changes can be made, even in light of the USA-Vietnam Bilateral Trade Agreement that requires many changes.

We know these are still exciting times in this dynamic part of the world. We present the following chart to show how numbers of reported investments have changed in just the past 12 months. There is absolutely no rational offered by the state for these changes. Our speculation is that the authorities are doing the best they can, and accuracy may not be part of their objectives

Top Twelve Nations Making Direct Foreign Investments into Vietnam - numbers marked with an asterisk (*) and color indicate substantial change (green increase; red decrease) between years. What is remarkable is that the changes are not at all consistent. Year 2001 is in blue; year 2000 is in black.

PLANNING FOR THE IX^th PARTY CONGRESS - Vietnam's ruling Communist Party began a key meeting in early January to review documents and discuss the agenda for a five-yearly national party congress due to convene at the end of March, according to the Foreign Ministry. The meeting is expected to continue for 7-10 days and end on 16 January.

We pay close attention to the State Controlled media that takes this run-up time to begin to prepare the domestic and foreign public with propaganda morsels to insure that the "official" announcements do not reflect sharp changes that might unsettle anyone. We have learned to pay close attention to the media at these important time. Not for so much as what is said as for what is not.

It remains unclear whether the meeting would discuss possible personnel changes. On average, around one third of the members of both the 170-member central committee and the elite 19-member politburo retire at each congress.

Foreign venture capitalists hoping for a sure sign of a more relaxed, free market economy will take no heart from the recent announcements that the party finds defending national independence and building socialism would form the nucleus of discussions at the congress, which will set the political and economic agenda for Vietnam for the next five years.

However, for those who do not seek to cash in on buying into pet State Owned projects, the foreign investment climate remains favorable once the red tape and corruption is overcome. We know that it can be, and that the best method is not to give in, but to stand pat on our own natural, conservative, business principals.

*ESTIMATES OF HIGHER GROWTH AND DEFICIT FORECAST In late December, Vietnam reported a solid economic pickup in 2000, estimating gross domestic product growth of 6.75 percent, but its trade deficit surged to an estimated $892 million due to high prices for oil product imports.

The GDP growth figure for 2000 compares with an official estimate of 4.8 percent growth for 1999, Vietnam's lowest rate for a decade, and with a previous forecast of 6.7 percent.

The latest figure is more optimistic than those given by the International Monetary Fund and World Bank, which have forecast 5.5 percent and 5.8 percent GDP growth for 2000 respectively.

The government's General Statistics Office (GSO) said GDP for the year based on current prices was 444.139 trillion dong ($30.6 billion).

The GSO said the economy had been growing in a stable fashion thanks to a greater contribution from the industry and construction sector, which accounted for 35.42 percent of GDP this year from 34.35 percent in 1999. It said industrial output for the year grew 15.7 percent to $13.5 billion.

The report said the service and agriculture sectors made a marginally lower contribution -- 41.42 and 23.16 percent of GDP respectively, compared with 41.88 and 23.76 percent last year.

The GSO estimated exports for 2000 grew 24.0 percent to $14.308 billion, while imports rose 30.8 percent to $15.2 billion, bringing the estimated trade deficit for the whole year to $892 million, compared with $113 million last year.

Economists say export performance since mid-year has been helped by higher prices for its crude oil exports. But import costs have been boosted by high prices of oil products it needs to obtain from overseas, given the lack of a major refinery.

The GSO said Vietnam exported 15.5 million tones (113.6 million barrels) of crude in this year, earning $3.6 billion. Crude exports were up 4.2 percent in volume and 71.2 percent in value from last year.

The GSO also reported a continued increase in imports of motorcycles, a sign of steady economic recovery after the growth slowdown seen during the Asian crisis.

Vietnam's trade outlook got a boost in July with the signing of a bilateral trade agreement with the United States expected to be ratified next year. Business analysts say the pact will provide a particular boost for Vietnam's exports of textiles, footwear and aquatic products.

On Monday, the GSO said Vietnam's consumer price index declined 0.6 percent in 2000, mainly due to lower prices for rice, which accounts for about 60 percent of the basket used to calculate the index.

Earlier this month, the IMF estimated core inflation -- that of non-food and staple items -- was running at two percent, due to excess capacity and rapid export growth.

On Tuesday, the GSO also issued data showing Vietnam expects to produce a record 32.55 million tones of unhusked rice this year, up 3.7 percent on last year, despite disruption caused by the worst floods for decades in its Mekong Delta rice bowl.

However, it said exports of husked rice would show a fall of 22.4 percent due to thinner world and regional demand.

The GSO estimated a sharp increase in exports of another key commodity, coffee, to 694,000 tones this calendar year, up 44 percent from last year. But the exports generated a turnover of $485 million, a drop of 17.1 percent from last year as world prices have fallen due to excess supply.

Earlier in December, the National Assembly set a target of 7.5 percent growth next year.

In a major report in November 2000, the World Bank called Hanoi's long-range target of a doubling of GDP and the creation of 15 million new jobs by 2010 "ambitious but attainable, provided it adopted bold and wide-ranging economic reforms. HANOI, Dec 26 (Reuters)

*DEFLATION FROM MAY THROUGH DECEMBER- Vietnam's consumer price index rose 0.1 percent in December 2000, but it was not enough to erase year-on-year deflation of 0.6 percent, the local daily Vietnam News reported Tuesday.

The year-end figure is below the State's targeted inflation rate of six percent.

The country's consumer prices rose in the first half of 2000 but fell in the second half.

Prices increased by an average of two percent in the first two months of the year, but fell steadily in the five months that followed.

While the country's economy recorded inflation between January and April 2000, it slipped into deflation from May to December this year.

Vietnam's rate of deflation was exceptionally high in July, September and October this year, expanding to 1.6 percent, 1.7 percent and 1.6 percent.

Local economists say that the spiraling deflation stems from poor purchasing power, with the country's government policies to stimulate demand not strong enough to translate into growth. Copyright XINHUA NEWS AGENCY

VIETNAM - THE INTERNET AND FREEDOM OF THE PRESS

*Vietnam to Halve Internet Connection Charges - State telephone company, the Vietnam Posts and Telecommunications Corporation (VNPT), said in late December it would halve the direct access charge for Internet service providers (ISPs) that connecting to its national backbone network. These are reportedly among the highest in the world

The rate reduction will take place on January 1, 2001, and is likely to reduce Internet access charges for businesses and encourage Internet usage, that at nearly US$ 0.4 per minute, are among the highest in the world.

Internet penetration remains low in Vietnam. Latest figures put the number of subscriptions at 100,000 in December, a rather poor showing for this land with almost 78 million people, over 20 per cent of whom live in major cities.

The Internet population is reportedly growing at a faster rate. Provided the numbers are accurate, the October 2000 figures showed 85,000 Internet service provider subscribers, up more than double last October's figures of only around 40,000.

VNPT's Internet unit, Vietnam Data Communications Co., predicts Internet usage will reach 250,000 next year and 450,000 by 2002.

Vietnam didn't even have Internet connectivity before 1997. While the numbers of private Internet users from homes is small, a growing number of people in HCMC are making use of cyber cafes. They are not as prevalent in Hanoi and are non-existent outside these two largest cities. For the most part, Internet use is mainly from business customers, employees of foreign companies, and the government.

Internet users have had to register with the Government to obtain Internet access. But in September, the state loosened requirements for citizens to register for an Internet access account through state-run VNPT. But the new Domestic VNN Dial-Up service will limit subscribers to Vietnamese Web sites only.

Reported in part By Newsbytes.com, http://www.newsbytes.com 00:48 CST c2000 copyright Post-Newsweek Business Information, Inc. (20001228/WIRES ASIA, ONLINE, TELECOM/)

HANOI, Vietnam (AP) -- Six tons of books, newspapers and magazines labeled "poisonous cultural items" have been destroyed in Ho Chi Minh City, an official said Wednesday [27 December 2000].

Customs agents, police and cultural inspectors, seized the items during raids this year. All contained violent, sexual or superstitious contents, said Nguyen Thanh Tan, chief inspector of Ho Chi Minh City's Culture and Information Department. They were ground up to make pulp, he said.

In addition, city authorities burned 6,000 videotapes, 5,000 cassettes, 51,000 CDs and CD-ROMs and several gambling machines on Tuesday, Tan said.

Most of the items were smuggled into the country, primarily from neighboring China, he said. Vietnam's government typically maintains tight control over media and publishing houses.

Tan said the amount of "poisonous" cultural items destroyed every year would be much larger if it also included those destroyed by district officials. Each district has its own inspection team. (Copyright 2000 by The Associated Press. All Rights Reserved.)

VK TRAVEL PRICE RELIEF, FOR TET HOLIDAY ONLY - In Vietnam, the government has also announced that for the first time, overseas Vietnamese will be charged the same rates as locals for accommodation and transport during the Tet holiday, which falls on January 27 this year. Previously Vietnam has always had a two-tiered pricing system, where foreigners and overseas Vietnamese are charged at least double for services
including hotel accommodation, flights, rail fares and entrance fees for tourist spots. The decision, effective from January 1 until March 31, 2001, applies to overseas Vietnamese, their spouses, their children and in-laws.

NOTHING FINAL YET IN BP-NAM CON SON DEAL* - Vietnam and an alliance of BP Amoco and Norway's Statoil have initialed a contract to build a $ 400 mm gas pipeline as part of a key energy development, a source close to the deal said. The source said the Business Co-operation Contract (BCC) was initialed. Under the agreement, Vietnam oil monopoly PetroVietnam has 51 % equity in the pipeline and BP Amoco and Statoil the rest.

The 390 km (244 mile) pipeline forms part of the long-delayed $ 1.5 bn Nam Con Son integrated gas project, which aims to tap proven gas reserves of 58 bn cm off Vietnam's southern coast. The Nam Con Son basin itself will be exploited by a consortium of PetroVietnam, BP Amoco, Statoil and India's ONGC Videsh Ltd.

"Yesterday, the BCC for the pipeline was initialed, which is another step forward. We have not formally signed anything", the source told. "We have still yet to reach final agreements on other outstanding issues."

Officials hope to have final agreements on the overall project, which includes a combined power and fertilizer plant, in place by the year-end. Those agreements should include an investment license for the pipeline.

[Ed. NOTE: This long awaited agreement, and the downstream power plant usage agreements, still need the principals to reach agreement with the Ministry of Industry, Ministry of Finance, and EVN (Energy Company of Vietnam, theoretically under the control of Industry but operationally most independent) on the cost of gas, electricity, and transportation that have long delayed this project from going forward.]

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Year	Nation (Rank)	Number of Projects	Total Capital (US$b)	Implemented Capital (US$b)	Year	Nation (Rank)	Number of Projects	Total Capital (US$b)	Implemented Capital (US$b)
2001 2000	Singapore - 1 Singapore - 1	238 238	6.749* 5.75	1.813 n/a	2001 2000	BVI - 7 BVI - 7	98* 79	1.766* 1.68	0.750 n/a
2001 2000	Taiwan - 2 Taiwan - 2	614* 554	4.966* 4.7	2.513 n/a	2001 2000	Russia - 8 Russia - 8	32* 61	1.555 1.52	0.946 n/a
2001 2000	Japan - 3 Japan - 3	301* 311	3.863* 3.49	2.513 n/a	2001 2000	Thailand - 9 Thailand - 12	89* 76	1.077 1.09	0.461 n/a
2001 2000	South Korea -4 South Korea -5	259* 271	3.391* 3.08	1.835 n/a	2001 2000	Malaysia - 10 Malaysia - 11	78 79	1.005 1.09	0.830 n/a
2001 2000	Hong Kong - 5 Hong Kong - 4	209* 314	2.674* 3.34	1.341 n/a	2001 2000	United States - 11 United States - 9	106 107	0.891* 1.3	0.373 n/a
2001 2000	France - 6 France - 6	106* 149	1.819* 1.95	0.506 n/a	2001 2000	Australia - 12 Australia - unlisted	70 n/a	0.754 n/a	0.552 n/a