COMMENTARY

The Growth and Non-Growth of Vietnam.  

Our web site where you are now reading shows remarkable new levels of interest.  Our readers (about 10,000 every month) stay on line for an average of 16 minutes.  The hits recorded last month exceeded 300,000, and for the prior 12 months they exceeded 2.6 million. The number of serious business and investment inquiries to our office shows a new level of growth perhaps due in part to the interest in these web pages.  

But there is more. The Economic Indicators show real growth in the number of projects starting up in Vietnam and the development of older projects in terms of implemented capital (steel in the ground).

Construction projects are now being considered, and low-growth improvement is even seen in the long-delayed cleaning-up of 23 September Park in HCMC. See photos of the changes.  And even the project adjacent, long called the Black Hole of Saigon, has new thatch huts for local events in place of .... nothing.

But we were stymied to find youthful, leading business leaders running important State Owned companies could not understand investors' needs when we presented a chance to obtain funding for "humanitarian projects" that will create jobs or other needed improvements for Vietnam.  We suggested highway development, utilities construction, and re-building port facilities as means of creating both jobs and allowing for both a return of the investment dollars and an attractive profit to grab the offer.

It took a long time to explain that a housing project for the poor, while an excellent project in other nations, won't fly in Vietnam unless and until the State is able to sell bonds to the domestic and international market to cover the costs and profits of such a large project as the people's rents won't begin to do that.  Utilities and highways can collect revenue over time, but will the State pay the rent in sufficient numbers to house the poor in Vietnam?

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DISPATCHES

Russian loan to Dung Quat Oil refinery
According to bank sources in Vietnam, the Russian Ministry of Finance will provide a loan of US$250 million for the construction of Vietnam’s first oil refinery complex in the central province of Quang Ngai. The loan, signed by the Russian Ministry of Finance and Vietnam Oil and Gas Corporation, will be channeled through Russia’s Foreign Trade Bank.

Reportedly, some US$100 million will be a preferential loan with an annual interest rate of 5 percent, while the rest will be lent at the six- month LIBOR plus 1.5 percent p.a. The syndicated loan has a term of 13 years with a grace period of three years.

Dung Quat Oil Refinery No.1 is projected to cost US$1.5 billion and is to be built under the supervision of the Vietsovpetro joint venture. Its production capacity will be 130,000 barrels of oil per day or 6.5 million tonnes a year. While the refinery is scheduled to begin test operation in October 2004, we have not yet received any reports of steel being put into the ground.

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Ambassadors hear but still don't listen.
Sixty-four Vietnamese ambassadors and consuls general recently met leaders of northern cities and provinces as well as business representatives at a trade forum in Ha Noi. Participants talked about the difficulties they had encountered in bringing homemade goods to international markets. The following extract comes from the forum gathered by the Thuong Mai (Trade) newspaper.

Nguyen Tam Chinh, ambassador to the United States
The US consumer goods market is huge and consumer requirements are not too high (sic).  However, to make a success of export activities there it is necessary to have a good understanding of the American legal system, which has many intertwined regulations. We must follow all the rules in order to make an impact on the market.

[Commentary:  Once more we see how much our Vietnamese friend’s do not yet understand the opportunities or the challenges before them.  Only one who has no intellectual or practical experience with the American markets would dare to make the claim as here that American “consumer requirements are not too high.” 

We suspect this is not an accurate report of the view of the new Vietnamese Ambassador, as surely his predecessor knew full well how demanding and fickle is the American consuming public.  The trade reporter clearly is not reading these pages where we warn Vietnamese Exporters - Beware.  American buyers are the most critical and the most fickle in the world.

American commercial buyers and the ultimate consumers are the first to abandon a company or brand as there is no loyalty in that market.  They will also bring legal actions to collect money damages FROM MANUFACTURERS, and all those in the line of distribution when their requirements are not met.  Wake up my friends and learn now before it is too late:  American consumer standards are among the highest, if not the highest, in the world.

[It is well said that our Vietnamese friends must have a better understanding of the American legal system where the custom of bribe giving and taking is long dead.  Disputes are won on their merits and not by intimidation.  In American courts, words are given their common and ordinary meaning.  If a distributor, manufacturer, or vendor fails to live up to the terms in a contract or warranty, whether imposed by law or offered as inducements to a sale, courts will award substantial money damages to the injured business partner or even a very remote ultimate consumer.  The American legal system’s process is geared to enhance recovery against and punish business those who fail to meet consumer expectations and standards that often exceed the bare minimums required by rules and regulations.  Pay attention dear friends.  Are you reading this?]

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Vietnam to Make Central Highlands Major Economic Region

The Politburo of the Communist Party of Vietnam’s Central Committee and the Vietnamese government have worked out what they proclaim are practical solutions on socio-economic development to make the country's Central Highlands become a major economic region.

The proclaimed solutions include combining regional economic development with consolidating national defense and security, and building of a firm political system, according to a report of Vietnam's official news agency, VNA.

Developing the Central Highlands in line with its strategic position in socio-economic development and national defense and security will become the Party and State's goal in the next ten years, said VNA.

The building of great unity is regarded as a foundation for socio-economic development and for national defense and security maintenance in the whole region.

To reach the target, the Vietnamese government issued a plan to invest 35.5 trillion Vietnamese dong (US$ 2.37 billion in major projects for years to come, including 12 trillion Vietnamese dong (US$ 800 million) from the State Budget of the country.

Commentary: Lofty plans, perhaps.  Infrastructure projects still seem to be in favor with the authorities. However, from our experience the local unrest nationwide, not only in the highlands, can be stemmed by the creation of decent jobs and the opportunity to earn an honest living.  The government alone is not able to do this and must rely upon both Oversea Development Assistance (ODA) and Foreign Direct Investment (FDI).

Attempts to help the minorities help themselves are still thwarted by Vietnamese authorities at all levels drawn from an out-of-step concern for political risk.  Give any family a reasonable opportunity to lift them selves out of poverty, feed, house, cloth, and educate their members, plus a realistic opportunity to continue their own improvement, and the State will win the peace of all reasonable people. This has been our advice, and that of others, for years.

We are still trying to build family-structured, village oriented, free enterprise activities in the in the Central Highlands so that the families can raise their standard of living.  When we discuss this with authorities at every level and even ordinary citizens of the majority ethic Kinh people, we hear a nearly universal response, “What good will money do them; they don’t know how to spend it even if there were things to buy.”

We respectfully disagree.  As Americans, we’ve heard this often before from American decedents of English, French, and German Protestant settlers who told themselves the same things on each wave of new immigration and with regard to the original decedents of Native Americans, all of them minorities.

Majority Kinh people flooding into the Central Highlands since 1975 provide ample example (but none is needed) of how to spend money.  The past and even current policies of the authorities continually show favor to the majority Kinh transplants over the Ethnic Minority residents.   We suggest to our friends in authority that they reverse those errant policies.  Place development funds into the region to build infrastructure, but state security will not be threatened when the local ethnic minority people are given the same opportunities for growth as are the majority peoples. Don’t just take our word for the world is full of wonderful examples where this happens.

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Vietnam’s Internet Connection - Update 2002

There's no disputing Vietnam's large numbers of IT-literate young entrepreneurs pushing the government for greater access to the Internet.

Adding new impetus for those entrepreneurs still pursuing domestic market opportunities, Vietnam's Directorate General of Posts and Telecommunications (DGPT) trumpeted its pre-Tet plans to license one or two more firms to open Internet gateways later this year. "We will license one or two more Internet access providers," Mai Liem Truc, the head of market regulator DGPT, announced just a few weeks ago in Hanoi.

The dramatic and surprising business venture between Vietnam's leading ISP, VDC, and an overseas Vietnamese, Kien Pham, promises to help modernize Vietnam and signals a new beginning for a poor country still slowly struggling to find a balance between control - as evidenced by what many regard as the glacial pace of its economic reforms - and the exigencies of a free marketplace. A government decree issued last year makes clear that all Internet gateways will remain state-controlled.

Vietnam's own nascent dreams for a software industry are further buttressed with the recent signing of the bilateral trade agreement with the United States. In return for vastly improved access to the coveted US market, Hanoi has finally agreed to provide foreign investors with transparent approvals processes and an end to dual-pricing hurdles.

Last year alone, in both Ho Chi Minh City and Hanoi many programming courses have sprung up, with numerous overseas tie-ups. In old Hanoi, not far from Tuan's modern three-story government offices, there are more than 75 Internet cafes, offering Internet access while serving up coffee, bike rentals and tour packages, a big jump since a year ago. In the south, along with the Honda Dreams choking the streets of Ho Chi Minh City, there are several hundred Internet cafes.

Commentary:  Both State controlled and many outside media  information about Vietnam’s plans and accomplishments in growing the Internet connection is often written in terms of hopes and dreams.

However, the reality is suffered by those who experience Vietnam's lack of connectivity from the inside.

Try researching the world’s literature now available on the Internet from Vietnam only to find that the connection if available is a costly chore in terms of money and time.  If sites are not blocked by the many firewalls in place, the task of simply remaining connected and then re-connecting is an onerous one. Receiving a large attachment (anything larger than 20 kb) is difficult; downloading a 2 MB file is impossible.

Articles are printed every month now about the growth of cyber cafes and new E-Commerce interests in this nation that is in still so many ways a frontier. The good folks running the State seem to suffer their own  frontier-town siege mentality in a near state of fear from concern over the next Indian raid, to borrow  an American metaphor.  

In this case, the raid is from  outside influences with a different perspective from the Party line. But the leaders will eventually wake from their coma- like sleep to see that a free flow of information aids commerce, and commercial strength aids and calms an intelligent but restive public.  No family member with a good education, a good job, able to support his family and grow stronger with every new generation needs any greater change than that opportunity.

We hope that this growth will come about in time for the good people of Vietnam to take advantage of the next regional economic turn-around. They should be able to increase their own personal wealth from  trade opportunities and stop the flow of trade going elsewhere.

However, in spite of glowing reports of growth, real Internet development in Vietnam is at a near stand-still.  

To read this article in its entirety, and for a more complete look at what is really happening in this important market, please click here to read The Internet In Vietnam - Update 2002

Presented below are comparisons between ASEAN and APEC nations forcing the conclusion that as the number of telephones in a nation increase both in overall numbers and as a percentage in households, the band width available per internet user (speed of connection) increases and the cost for usage of the internet goes down.

Read below how Vietnam remains cursed with the lowest overall per subscriber and per capita bandwidth in all of SEA, and thus sufferers both the slowest connect speed and far above median cost for that privilege.

The excerpted articles that follow below have their full text citations given. They show that  the investment cost to achieve higher speed connections is negligible and pays for itself. The current absence in Vietnam of modern interconnect technology is intentional as the nation's leaders do not yet see the  need to change and increase access to the internet.  Tight control is deemed more important than true expanded Internet access.

Thus denied actual capacity to enter the mainstream of ASEAN E-Commerce, Vietnam's leaders keep Vietnam distant from World commerce as well.

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Oil Patch Politics. 

The time has come to realize that just building infrastructure projects will not cure what ails Vietnam.

France's Total raised the alarm in 1995 when it back away from the first refinery.  Planned for Vung Tau at land-fall of the long oil delivery pipeline which is soon to be a one hour drive to the nation's manufacturing center, Total realized there would be no return on its investment after the State chose to move the refinery 700 km north to Dung Quat in Quang Ngai province near Da Nang. Almost equally distant from HCMC and Hanoi, the plant will be even further distant from the major producing fields that are not yet on stream.

The State in 1996 refused to acknowledge the cost would soar to $1.5 billion which is still the low estimate for the plant that is still "approaching" its construction phase six years later.  The added costs to transport the crude to the refinery and then ship the refined fuel to the end users has not yet been adequately treated in the market place or by the budget planners. 

Will Vietnam really gain when it looses the import dollars garnered from selling crude and then subsidizes the cost of locally produced refined products to equal the price imported refined products are now sold for? That still remains a guess, but not a hard one.

So, it is of little surprise that the concept of a second, even more remote, refinery is less than one year after it was first proposed, being carefully looked at. But then, looking at Dung Quat is all the planners seem to have done way  back in the early and mid 1990s.

The reason to place the refineries in the central coastal areas is clear: to boost and promote the development of that part of the nation not currently getting  a boost from the new economy.  However, unless the State has the resources to undertake such projects on its own, it must depend on ODA or investor funding. Both have been hard to find for a refinery project.

Now as the State promotes its second refinery, once again foreigner's urge caution. But will the real politics of Vietnam listen?  

The Japanese International Cooperation Agency (JICA) recently suggested it would be better for Vietnam to focus on crude oil exports than refining operations. There is a current glut of refining capacity in East Asia. The surplus is estimated at between 250,000 to 700,000 barrels per day.

As Japan is Vietnam's largest ODA donor, and as JICA is a key advisor to the Japanese government and industry on large overseas projects, one would think that Vietnam would pay attention to this advice.

Vietnam's current consumption of refined fuels is about 150,000 barrels per day and was met by importing 9.1 million tonnes of refined products in year 2001.  This is well within the current refining capacities of the region.  With Vietnam's demand projected to increase to 300,000 barrels per day (15 million tonnes per year), that is still within the projected capacities of local producers as measured against projected overall growth of demand.

The second refinery, planned for central Nghi Son district of Thanh Hoa province, is even further from HCMC and not much closer to Hanoi. These two cities consume 88% of all refined products with HCMC taking a gulping 62% of that amount. The distance from land fall and the off shore well heads is even further than is Dung Quat.

It is not the first time the State heard that large scale oil refineries are usually located near the consumption centers in order to keep down the cost of transportation that can exceed the cost of refining.  JICA once again made this point to the State, and also showed how Vietnam would suffer from the loss of its export sales of crude that account for at least 25% of Vietnam's total export earnings.  This income will evaporate by at least 40% with the opening of the Dung Quat refinery, and disappear if the Nghi Son refinery comes on line.

However, domestic politics rule and the State remains optimistic about both refineries, seeing them as the means to boost social and economic development much as the Hoover Dam in Nevada helped to develop the Las Vegas area.

That is a good comparison some say, but in this case while Vietnam owns the house, it does not yet control its own finances.

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Vietnam As A Port For Investment deserves its reputations as a safe but stressful according to Hong Kong’s Political and Economic Risk and Consultancy Group.

The World Economic Forum’s ranking of Vietnam on competitiveness place it at a low no. 63 in a list of 75 nations.  For openness Vietnam ranked not much better at no. 55, strategy and corporate activities were ranked at 64^th as was the ranking for overall quality of the business environment.

The nation is politically and economically stable, even if both are not always in the best tradition of western success. While planned stress is often a positive element to achieve success, inherent stress without purpose hampers growth in all markets and sectors.

  Corruption and red tape encouraged by the public sector are not Vietnamese inventions or isolated to this long and narrow nation.  Neither are high prices, but both plague Vietnam and help to drive investors elsewhere.

In a report by Japan’s JETRO, among Southeast Asian nations and China (strangely excluding Hong Kong), low labor rates in Hanoi and HCMC compare favorably to all but for laborers and engineers who get paid less in Jakarta.  One must wonder about productivity in higher priced locations such as Singapore, Kuala Lumpur, Bangkok, and Shanghai.

However, Vietnam is topped in office costs only by Shanghai and Jakarta.  The competitiveness of Shanghai is noticed by phone and electric rates that are half those in Vietnam.

Investment Expenses in Southeast Asia (US$) compiled by JETRO

* wage includes bonus; **Office area averages 100 sq. meters

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