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Issue No. 42
April 2001
Our eighth year in Vietnam & fourth year on the Internet

A Periodic Report to Our Clients

See VVG's  monthly feature on Current Economic Indicators

 DISPATCHES

FDI IN THE NEXT FIVE YEARS - We continue in our long-held belief that Vietnam is a good place for making investments.  However, while the trend in official pronouncements over recent years tends to show a greater interest by the State in the needs of foreign investors, there is not yet controlling interest to spur foreign direct investment (FDI) forward.  

With policies for the next five years due to be announced this Spring, there is yet no consensus among the leadership that an investor’s rationale for putting money into Vietnam is to expand his markets and thus provide income to him. Those who control policy and enforcement do not yet appear to universally understand that a positive return on investment (ROI) in the FDI sector traditionally spurs the growth of the nation. 

Unless there is a dramatic change vastly improving the current situation, the chill on FDI in Vietnam will remain.  It will be driven by the impression that income derived from FDI is for the benefit of the State treasury or the nation’s bureaucrats.  We also believe this attitude will change in time.  Now read the full article.

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FULL LINEUP OF NEW LEADERS -   Important progressives favoring better opportunities for foreign direct investment in Vietnam who continue at  their posts in the Politburo are:  New Chairman Nong Duc Manh, 60; President Tran Duc Luong (63);  Prime Minister Phan Van Khai (67); Deputy Prime Minister, Nguyen Tan Dung (61); Party Commission For Economic Affairs head, Truong Tan Sang (62); Hanoi Party Secretary, Nguyen Phu Trong; and Ho Chi Minh City Party Secretary, Nguyen Minh Triet 

Missing from this line-up is Deputy Prime Minister and former Foreign Minister Nguyen Manh Cam.

Four (4) of the seven (7) new members who may not be as well known as the other 11 are:  Le Hong Anh, deputy chairman of the Party Inspection Commission; Culture and Information Minister Nguyen Khoa Diem; (6) Truong Quang Duoc, chairman of the Mass Mobilization Commission; and Tran Dinh Hoan, director of the Central Committee Office,

The New Politburo:

• Party General Secretary, Nong Duc Manh (60)
• President, Tran Duc Luong (63)
• Prime Minister, Pham Van Khai (67)
• Deputy Prime Minister, Nguyen Tan Dung (51)*
• Party Organizing Commission head, Nguyen Van An 
• Party Commission For Economic Affairs head, Truong Tan Sang (51)*
• Central Party Committee Office head, Tran Dinh Hoan#
• Party Control Commission deputy head, Le Hong Anh #
• Party Mobilization Committee head, Truong Quang Duoc#
• Defense Minister, Pham Van Tra (65)
• Public Security Minister, Le Minh Huong (62)
• Culture & Information Minister, Nguyen Khoa Diem #
• Hanoi Party Secretary, Nguyen Phu Trong (63)
• Ho Chi Minh City Party Secretary, Nguyen Minh Triet #
• Danang Party Secretary, Phan Dien #

Vietnam's administrative Party Central Committee membership will fall to 150 from the current 170.

Three of Vietnam's elder statesmen, Do Muoi, Le Duc Anh and Vo Van Kiet, are reported to be loosing their official posts as party advisors.

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NO SWEEPING CHANGES ANTICIPATED.  With the Ninth Party Congress concluded and the need still for the further rubber stamp of the National Assembly to approve changes, word from all reliable sources is that foreign direct investors should not expect any major changes.

With the retirement of the former leadership, one can only hope that the new leaders will at least not try to lecture the leaders of the free world on the benefits of Marxism-Leninism that has fallen in such disrepute in the world, and remains in Vietnam more as an instrument of control than a working ideology.

However, the leadership in control, those at the Politburo and the revived Secretariat, are not prepared to make dramatic moves away from "market-oriented Socialism  in the Vietnamese-style." The political changes just announced came with a price that can only be guessed at. The need to retain stability is the most probable reason for the absence of any sweeping changes.

While the US President now controls if and when the BTA will be ratified, some pessimists say it can take up to two more years as Bush may elect to try to swing his entire trade policy at one time.  Manh's leadership is expected as a positive sign to the US on both business and non-business oriented issues, and may help the supporters of the BTA move Bush forward, faster.  

Financial reports indicate that Vietnam may be well poised to move beyond stagnation and into the world's financial markets.  See the May 2001 issue of Economics Indicators.

Recent negative USA  reports in the domestic press are now being attributed to the former Secretary and not operative.  Time will tell.

The leadership of Manh is not expected to block development  in Vietnam as did that of his two previous predecessors.  Dramatic changes are also not likely.  A man who allows rumors to persist that he may be the illegitimate son of the much beloved national founding father is not likely a man who is expected to act boldly to change policy.

It is well known that Ho Chi Minh lived the life of an esthete who never married, was rarely if ever pictured (or known to associate) with women, and who openly lived unencumbered by physical possession and possibly even close friends.  

In a recent news report distributed in Asia, Manh reportedly dispelled his parentage rumors when he said that both his parents died while he was young and that both are buried in his home village, where he paid them tribute over the Tet Holiday this past February. Ho Chi Minh is entombed in a mausoleum in Central Hanoi. He concluded his comments by saying that all Vietnamese are children of "Uncle Ho."

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PHILIPPINES Loses Canon Investment To Vietnam - Within days after the ADB's Andrew Steer predicted that Vietnam would not be attracting investments above the rage of US$10 million to US$20 million, Canon Inc. proved how easy it is for even the best known regional predictors to get it wrong in Vietnam.  Cannon selected Vietnam as the location for its first Asian manufacturing base.

Canon was to put up the US$67 million  manufacturing facility for its copier products in the Philippines, but backed out of negotiations after Vietnam offered more attractive incentives, such as a 10-year income tax holiday, compared with the Philippines' maximum offer of an eight-year income tax holiday.

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Dung Quat Breakwater Starts a-Building -  In a further move to  show that all (we included) counted Vietnam out too early in the Dung Quat Refinery, work on building  a breakwater at the port in central coastal Quang Ngai province started on March 28.

The 1,600-metre-long and 27 meter high breakwater is being built at a depth of 15m. Its bottom is nearly 100-metre-wide and its face 10 meter wide. Being  the biggest-ever breakwater in Vietnam and Southeast Asia, it is scheduled for completion in July 2003 at a cost of US$10.5 million.

The Lung Lo construction company of the Defense Ministry, the Infrastructure Construction and Development Corporation, the Thang Long Construction Corporation, southern transport and communication design and consultancy companies, and the Petroleum Design and Construction Company are designers and builders of the project.

They have to mine 12,800 cu.m of stone and dredge 5,840 cu.m of soil for the construction of the breakwater which requires 1.5 million cu.m of stone, 125,520 cu.m of concrete and 99,200 sq.m of geographical textile.

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TELEPHONE SUBSCRIBERS, 800,000 Added Last Year.  More than 800,000 new telephone subscribers, including mobile phone users, were registered in Vietnam last year, bringing the total number of customers of state monopoly Vietnam Post and Telecommunications Corp. (VNPT) to 3.5 million.

This is a reported 80% larger increase than in 1999.  Of the 3.5 million telephone subscribers, there are reportedly more than 700,000 mobile phone customers of the two VNPT affiliates, Vina Phone and Mobi Fone, a rise of 332% over last year.

With a national population pushing 79 million, VNPT has targeted 897,400 new telephone subscribers this year to bring the ratio of telephones to five per 100 people from slightly more than four currently. 

VNPT has set a target of 7.5 to 8 telephones per 100 people by 2005.

Vietnam, with some of the world's highest telecommunications charges, plans to cut telephone costs 15 per cent.  While this will not bring them close to being in line with the rest of the region, it will be the eighth time in eight years that Vietnam has reduced its telecommunication charges.

Currently, international calls from Vietnam are about two times more expensive than those from other countries in the Association of Southeast Asian Nations such as Singapore, Malaysia and Thailand, and three times more than the cost of international calls from the U.S.

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RENTS - Office Space Reasonable?  Cushman and Wakefield, real property consultants, report at http://www.cushwake.com/ that in the last six months rents have increased in 14 Asian cities and decreased in three. How nice that Hanoi and Ho Chi Minh are no longer on the list of highest rents.  However, the greed from the mid 90s is showing some revival signs as landlords once more try to get from 3-6 months rent in advance.  The full list of current rents in US $ per square foot (psf) follows:

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*RICE / PRICE WAR - Thai Bid Lowest in Manila Rice Tender

MANILA, March 9 (Reuters) - Thailand submitted the lowest bid among foreign governments in a tender for 300,000 tonnes of rice by the Philippine state-run National Food Authority (NFA).

While the bids were expected to be low because of the prevailing low demand in the global rice market, the aggressive pricing by Thailand came as a surprise since they usually sold at a premium over other origins, the officials said.

"We were surprised by the low prices," said one NFA official who asked not to be named.

He noted the bulk of rice imports by the Philippines in the past two years had been from Vietnam and China.

Thailand's Department of Foreign Trade offered to supply 150,000 tonnes of rice from Thailand at $144.45 per tonne C&F payable in cash or at $145.35 per tonne C&F payable 180 days after shipment.

Others suppliers were from India, China, Vietnam and Malaysia with prices ranging from $144.48 to $156 per tonne C&F payable in cash. The prices in credit ranged from $146.88 to $159 per tonne.

The prior week, the NFA bought 100,000 tonnes of rice of the same grade from Glencore International AG and Vietnam's Southern Food Corp.

Glencore was awarded a tender for 50,000 tonnes at $147.93 per tonne C&F with payment immediately after shipment of the grain while Southern Food was awarded another 50,000 tonnes at $148.98 per tonne C&F payable 180 days after shipment.

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PETROVIETNAM Starts Work On US$500 Million Fertilizer 
Factory - The Vietnam Oil and Gas Corporation [PetroVietnam] has started
construction of a US$500 million Phu My nitrogenous fertilizer plant in the southern 
province of Ba Ria-Vung Tau.

It will play a key role in the future Phu My power-gas-fertilizer complex, which aims 
to slash Vietnam's dependence on imported fertilizers to boost domestic agricultural 
production.

Feeding about 35 per cent of domestic demand, the factory will also reduce farmers' 
exposure to gyrating prices in the international fertilizer market. The plant will use gas 
resources collected from the southern ocean bed to produce 740,000 tonnes of urea 
fertilizer annually, or 2,200 tonnes of urea and 1,350 tonnes of ammoniac per day.

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VIETNAM WOOS FOREIGN INVESTMENT (still, again, yet...)  Deputy Prime Minister Nguyen Tan Dung, speaking through an interpreter, said Vietnam has taken steps to narrow differences in rules governing foreign and domestic businesses while expanding autonomy and opportunities for investors. Leading up to the Ninth Party Congress, this talk and walk please new foreign investors, but not the old hands who have listened to this for the past decade.

Many in key leadership positions know that foreign investment plays a vital role in Vietnam  and accept it.  However, there are others in the still Communist country that are resisting efforts to snip red tape and increase transparency.

"We are now trying to overcome the system of laws related to foreign investment that have been slow to arise, the enforcement of laws that is not strict and official restrictions and procedures that are very cumbersome," Dung told business people at a conference in Singapore on investment in Vietnam.

After starting to open its economy in 1986, Vietnam aims to double gross domestic product by 2010 as it moves from reliance on rice, coffee and textiles to oil, manufacturing and tourism.

But foreign investors have bemoaned its Byzantine bureaucracy and some economists doubt the Communist Party's commitment to reforms and the viability of a "socialist-oriented" market economy.

Reforms launched last year included a stock market in Ho Chi Minh City, a trade pact with the United States, a new enterprise law and a modified foreign investment code.

Andrew Steer, the World Bank's country manager in Vietnam, told the conference the country was in "severe peril" in 1997-99 but had "navigated prudently" through the Asian financial crisis.

The official goal of annual seven percent growth was attainable and the business climate now conducive for successful long-term investment, he said, but wide-ranging structural and financial reforms had to be carried through.

Planning and Investment Minister Tran Xuan Gia said foreign investment was "an integral part of the economy," with $20 billion of $44 billion in registered capital already implemented.

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PARTY CONGRESS TO MEET - Vietnam's Ninth Communist Party Congress will open April 19 and will last for "three or four days," the head of the government's Ideology & Cultural Commission said on March 24.

First scheduled for March and then delayed for unexplained but well speculated reasons, the Congress will approve the Politburo's choices for senior personnel and policy changes.  It has not been often that all three of the top leaders (Party Secretary, Prime Minister, and President) change at once, but there is speculation that may happen this April.

Policy changes will no doubt address recent civil unrest in the Central Highlands, but the foreign invested community hope for sweeping changes in investment policies, along the broad lines ushered in after the Sixth Congress in 1986 with the start of Doi Moi or "Renovation."

It is often easier to know the future by reading tea leaves than published reports in and about Vietnam, but stay tuned for more. 

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