COMMENTARY

A pathway towards sustainable development?  

Sustainable Development is not just an ideal.  The ability to achieve that lofty goal is mandatory for any institution if it is to survive.

Leaders must have the vision to decide on the best path forward and then take the direction chosen with courage and determination to reach that goal.  Business and political leaders have always been important figures and in Vietnam they have a special voice in helping to modernize the nation, to insure its optimal role in their state's and their business' dynamic development.

This major responsibly is a difficult task as it requires a consistently clear appraisal of complex situations and the energy to advance the change process despite numerous obstacles. This challenge has its rewards as modern and committed institutions make leading contributions to the promotion of the well being of the public that both the government and industry depend upon for sustainable development.

Vietnam's leaders talk the talk about being committed to Sustainable Development.  Now and again we see them walk the walk, balancing the need to industrialize, modernize, increase the standard of living of all their people, eradicate poverty, and balance the need to as well protect the environment and social needs of the most disadvantaged.

Constructing a coal fired power plant to avoid displacing 8,000 members of the poorest minorities needed to build the newest hydro power plant is one sign.  How much better it would be to bring associated and natural gas by pipe line to those power stations, however.

Displacing ethnic minority peoples by taking their lands to benefit the majority who then flooded the world's market with coffee beans that could only be used to fire wood burning stoves.   This practice forced the same interlopers to cut down their coffee trees when the cost to achieve the crop became greater then the price they could achive from a sale of the beans.

But did the poorest of the poor get their land back? Well, as the price of coffee beans was recently announced to be on the rise again, take a guess.

One decade of economic growth has raised the per capita level of the nation from around $150 to over $400.  However, wealth is not distributed on a per capita basis. About 80% of the nation remain in rural farms averaging less than one acre (0.5 ha) that yields under $200 income per year - per family.

Deputy Prime Minister Pham Gia Khiem recently observed, "Pressures resulting from the rapid increase in population, urbanization, widespread unemployment, and a widening gap between rich and poor are creating barriers to sustainable development."

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DISPATCHES

1. Japanese Report Helps Target Vietnam’s Growth -   Japan International Cooperation Agency (JICA), armed with the responsibility of reporting to Japanese government and large corporations on the appropriateness of ODA funding, seeks to set its goals while targeting Vietnam’s future.

Japan is by far Vietnam’s largest Overseas Development Assistance (ODA) donor. Where the earlier task was for Vietnam to meet the requirements for accessing these important funds, today’s task is to insure that the donor nations continue their generous assistance until Foreign Direct Investment (FDI) grows to sufficient levels.  Targeting where foreign investors will want to put their funds 15 to 20 years out is always a challenge.

Traditionally ODA funds are received at the cost of FDI funds if their targets are the same.  Therefore, early ODA funds have been for infrastructure development, not a favored target of multi-national foreign investors. 

It has also been a traditional concept of ODA funding that the projects are open to bids from companies from all nations. While there are exceptions to most traditions (it does snow in Vietnam - one day a decade in Sapa), few projects funded by Japan’s ODA fail to include a healthy Japanese construction component.

Therefore, when JICA writes of its view of Vietnam’s growth opportunities, it is wise for all investors to pay attention. Other nations then will be expected to follow the guide set by JICA for their own ODA funds, and multi-national’s from all nations should take heed as well.  Read our report on JICA’s findings.

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2. Japan to increase investment in Vietnam- Japan, currently Vietnam's top trade partner, is planning to increase its investment in Vietnam in the near future.

Making Vietnam more attractive are the government's enactments of the Enterprise Law and changes in the Law on Foreign Investment.

However, the investment climate in Vietnam still needs improvement. Vietnam must make bold changes to the Foreign Investment Law to attract more foreign investors, and fully tap its high-quality labor force, a competitive advantage that should help to lure a greater number of foreign investors.

A trade agreement between Japan and Vietnam now being negotiated will see Vietnam granting Japanese businesses preferential treatment when investing in the country, while Japan will advise Vietnam on solving domestic corporate problems.

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3. FDI in HCMC Declines in First Quarter.  The export and foreign investment of Ho Chi Minh City, Vietnam's biggest commercial hub, declined in the first three months of this year.

In the reviewed period, the industry of the city reportedly grew 11.3 % but its export earnings stood at US$ 1.28 billion, dropping by 17.5% over the corresponding period of last year.  

The export volume of the domestic-invested sector of the city reached US$ 974 million, a decline of 21.8 per cent. The foreign-invested sector reported US$ 303 million in exports, a rise of 0.6 percent.  

What is noteworthy is that the city's exports to northeast Asian countries made up 25.5% of its total export value, and to ASEAN countries, 18.3% of the total. These two figures are 30.2% and 6.1% lower than the first quarter of last year respectively.

The export value of the whole country of Vietnam dropped 12 percent year-on-year to stand at US$ 3.2 billion in the first quarter this year.  

However, it is also reported that export growth in HCMC is expected to pick up in the second quarter as a result of the current stability of world oil prices and big export contracts won by local textile and garment businesses.  

A total of 53 licensed foreign-invested projects in the first quarter of this year had a combined registered capital of US$ 73.5 million, an increase of 20.4% in terms of project number, but a decline of about 40% in capital compared to the same period of 2001. 

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4. Bridging the Great Divide - Doing business in Vietnam often requires double vision. Expatriate managers must perceive and adapt to cultural differences between the north and the south.

While the country has been reunified for nearly three decades, there's still a major divide between the northern capital of Hanoi and the southern hub of Ho Chi Minh City. But since those cultural differences aren't always clear-cut--and perceptions vary according to personal experience--dealing with human resources requires a double dose of sensitivity, too. Read this full account from FEER.

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5. Cash & Carry.  Foreign investments of $120 million from German-owned Metro AG will come from the planned opening of eight giant Metro Cash & Carry wholesale outlets in Vietnam. The first was to have been opened in late March Ho Chi Minh City.

Vietnamese officials reportedly rolled out the red carpet by granting tax breaks and made sure that Metro's massive freezers and other heavy equipment cleared customs in just four days.

Vietnam's friendly welcome contrasts sharply with attitudes in Malaysia and elsewhere in the region, where hypermarkets have raised protectionist hackles.

While other countries fret over the prospect of local enterprises getting crushed, Vietnam seems to be buying Metro's argument that its presence will benefit local companies.  Read the full report from FEER.

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6. INTERNET POLICE - Vietnam has arrested a doctor who translated a U.S. government pamphlet taken from the US Embassy -Hanoi Internet web site on democracy and posted it on a Vietnamese Internet Website. Dr. Pham Hong Son is the third so-called Internet dissident jailed by the communist government this year.

A physician who works for a pharmaceutical company, Dr. Son also writes for at least two Vietnamese-language Internet sites on current affairs. He apparently had no idea he could be arrested for his hobby.

Vietnam has been encouraging information technology as a way to achieve economic growth, but it keeps tight control of content. The government copies every e-mail and download of data from the Internet and blocks up to 2,000 Web sites - mostly political or pornographic. 

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7. AGRICULTURAL CARTELS WORK

Vietnam Exploring Measures to Lift Coffee Prices

Vietnam, the second largest coffee producer in the world, is exploring measures to lift the depressed world price of coffee.

Vietnam and Colombia have reportedly pledged to work together to lift the world price of coffee.

Vietnam reportedly also held talks with the Indonesia Coffee Exporters Association on the planned cooperation between Asian coffee producers, including Vietnam, Indonesia and India, to lift coffee prices.

The move to step up regional cooperation comes after robusta prices nose-dived to a 30-year low in July 2001 and have hovered around that level ever since.

Vietnam, Indonesia and India account for 22 percent of world coffee production and 45 percent of robusta output.

Vietnam plans to reduce its robusta area to 400,000 ha from the current 500,000 ha, while increasing cultivation of arabica to 100,000 ha within five years. It expects to produce 10,000 tons of arabica in 2002-2003 crops. 

Thai-Viet Rice Cooperation Yields Higher World Prices

Agreed cooperation between Vietnam and Thailand in rice trade has boosted rice prices in the world market in mid April.

There are reports that world rice prices are on the upward trend, with 25 percent broken rice sold at US$ 183 a tonne this month, compared to US$ 155 a tonne in the same period of last year. Higher priced, 5 percent broken rice sold at US$ 193 a tonne, up from US$ 163 a tonne in April last year.

The higher rice prices in the world market are due in part from the September 2001 agreement between Vietnamese and Thai governments, the number 3 and 2 rice exporters in the world.

Under the agreement, Vietnam and Thailand are not to pursue their cut-price policy, but would, instead, cooperate in rice trade, aimed to boost both prices and sales of rice in the world market.

The two countries also agreed to exchange information on rice trade, including prospect of the world market, and records on sale volumes and harvests.

Increased volumes of rice exports of the two countries are the result.  Vietnam exported over 400,000 tons of rice in the first quarter of this year, a 30 percent increase from the year-ago period.  Thailand sold over 1.9 million tons of rice overseas in the first four months of this year, worth US$ 383 million. 

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8. Who will be the First Refinery's Contractor?  Vietnam has yet to decide the contractor for the country's first oil refinery, the Dung Quat JV project with Russia.

Prime Minister Phan Van Khai's office reportedly told Reuters the government was "still considering" tenders for the project, which is worth $700- $800 million.

Industry sources say two foreign consortia - one involving South Korea's Samsung Engineering with ABB Lummus Global, and the other France's Technip-Coflexip with Japan's JGC Corp - have bid for the project. The result were due in January.

The tender was organized by VietRoss, the Vietnam-Russia venture responsible for the $1.3 billion Dung Quat refinery to be built in the central province of Quang Ngai, about 900 km (560 miles) north of Vietnam's main crude supplies.

VietRoss is a 50-50 venture between Vietnam's state oil monopoly Petrovietnam and Russia's Zarubezhneft.

Industry sources and diplomats said Zarubezhneft was known to favor the Samsung-ABB consortium, while Petrovietnam was thought to favor the French-Japanese alliance.

Russia's ITAR-TASS news agency quoted Russian Prime Minister Mikhail Kasyanov as saying during a visit to Vietnam in late March that he discussed the tender with Khai and the result would be announced soon.  He said he had proposed setting up another Russia-Vietnam joint venture to sell products from Dung Quat.

A source said the contract would involve provision of core components of the refinery, including a cracker and a vacuum distillation plant.

The refinery had its first projected 1995 opening delayed when France's Total was the first of several earlier JV partners to pull out.  More recently the current JV scheduled  completion this year. This was later pushed back to 2003, but Russia said the opening would now be delayed two additional years due to tendering difficulties.

Despite being a producer of crude oil, Vietnam has to import all of its oil products due to its lack of a refinery.  Last year it earned $3.18 billion from crude oil exports, but had to spend $1.87 billion importing oil products.

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9. Vietnam's dreams of huge exports to US unravel.  Just a few months ago, Vietnamese manufacturers were rubbing their hands together with glee, anticipating a major selling spree in the US market. After all, Vietnam had finally gained normal trade relations status with the United States, which among other things meant considerably reduced US tariffs on Vietnamese products.

Vietnam also expected an extended non-quota period on its goods after the country's Bilateral Trade Agreement (BTA) with the United States went into effect in late November.

First it was the nation’s “cat fish” producers fighting a trade name battle.  Now it is Vietnamese garment makers who have their heads in their hands.

The US Congress, immediately after approving the BTA, prohibited Vietnamese tra and basa fish exports from being labeled “catfish.” Publicity about the legislation could not have been better advertising to inform US commercial buyers of the “new” Vietnamese” names, with the result that the volume of “catfish” exports under the names of tra and basa fish doubled in the next two months! 

Recently US officials said they were considering cutting short the quota-free period for Vietnamese textile products, and would be imposing quotas on these as soon as possible. The decision took Vietnamese garment manufacturers by surprise. It is small comfort that Vietnamese goods will still enjoy low US tariffs of 3 percent, compared with the 40 percent slapped on products from countries without normal trade relation status with the United States.

While this is the same situation in Vietnam with the way the nation “permits” repatriation of earned income (subject to subject to extraordinarily low quotas), when it happens to our friends from Vietnam they decry,  "It's really disappointing."

It is reported that Nguyen Binh of Saigon Garments No 2, one of the firms that had been aiming to make a mark in the US market, said, "We expected the BTA to increase the volume of our exports to the United States. Now that quota barriers have been set, that volume will be smaller. Trade with the United States, like political relations, is really not easy."

That is no surprise to American business people trying to undertake both simple and complex transactions in Vietnam for now 8 + years.

In truth, just as the foreign investors viewed Vietnam with rose colored glasses in the early and mid 90s, Vietnamese government and industry leaders may have wanted too much too soon and still show a remarkable inability to grasp market fundamentals. This is despite repeated warnings of some senior Vietnamese officials and American business advisors to take things slowly, and for local businesses to do their homework first before making an attempt to venture into the US market.

"Speaking frankly, I do not think we are yet in a position to take full advantage of the pact," Planning and Investment Minister Tran Xuan Gia reportedly said recently. "Not all industries are properly prepared and many enterprises don't even understand the content of the agreement."

Local garments manufacturers would do well to take advantage of seminars and consultants who can help industry leaders understand more about the US market. There will be nothing easy about exporting products to the USA. Suppliers will quickly understand why there are so many lawyers in America for selling into the US markets requires them to run a gamut of rules and regulations, as well as stiff market-competitive practices.

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10. Bureaucracy & Corruption - Perception is slightly better. Hong Kong based Political and Economic Risk Consultancy (PERC) released the results of its latest poll of 1,000 expat businessmen working in Asia on their perceptions of the least and the most corruption and bureaucracy in Asia. 

In a scale of zero to ten with zero being the best possible score (no corruption) and one to eleven with 1 being the best possible score (least bureaucracy) the following partial results were obtained.  

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11. Developers eye Cam Ranh Bay. Russian Prime Minister Mikhail Kasyanov confirmed that Russia would leave its naval base in Vietnam by July, two years earlier than the current lease.

Speculation is ripe about the beautiful and strategically important deep-sea port on Vietnam's south central coast.

Property developers eye the beauty of the natural landscape and bemoan the lack of local infrastructure or sustainable economic/population base.  Located one hour north of Nha Trang, which itself is near to nothing, the United States has already expressed interest in navel ship visits.

Russia is committed to helping Vietnam's development in all fields, a commitment that will include continuing arms sales to Hanoi. The two sides have signed seven new agreements, including a $100m deal for the construction of two hydroelectric power stations in Vietnam's central highlands.

Other deals cover border security, health and medicine, meteorology and energy.

Russia and Vietnam are building on their long friendship to boost bilateral trade, which last year reached more than $500m.

There are also strong cultural and political ties. Vietnam's president, prime minister and communist party leader all speak Russian, and Russian technology is familiar in many Vietnamese industries, not least the military sector.

Russia is leaving the base early for financial reasons. The smooth handover of the Cam Ranh naval base is indicative of the depth of the friendship.

Hanoi has said it will not lease the base again, but intends to use the port for national economic development.

Now if there were only some modern highways, airports, population, and other foreign investment closer than a 12 hour drive or train trip away….

It is still among the world’s most beautiful beaches.  Perhaps if the government gave incentives to build a world-class, 5 star resort, but the remote regions of Da Nang already have one that is so under utilized for the same reasons of being so very remote….

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12. Coal-fired and hydro power plants.  Environmental concerns must sometimes take a second seat to power hungry Vietnam as a $106 million build and transfer (a turnkey EPC) contract between State Owned Vinacoal and a consortium led by Japan’s Marubeni was signed to build a new plant in Lang Son province.

The construction of the 100 MW Na Duong power plant, 180 km northeast of Hanoi, is planned to start in April.  Using up to 500,000 tonnes of coal per year, the first 50 MW generator is expected to be on line in two years and the second 50 MW generator on line three months later. The contracted price of the power to be sold by the new station is 4.2 cents per KWh.  

However, the national assembly postponed a vote on a controversial dam project, saying more research needs to be done.

The  proposed $4 billion hydroelectric power plant in north-western Son La province would displace 80,000 people, mainly members of minority hill tribes.

The size of the dam has already been scaled down because of safety concerns, as the region is prone to earthquakes.

Perhaps the decision to delay debate on the hydroelectric power plant is a sign of the assembly's increased independence.  We will be watching when the lawmakers consider the project later this year.

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13. FPT goes public. IT scholars who studied in the former Soviet Union established Vietnam’s largest IT company, Finance and Promotion of Technology, in 1990 as a State Owned Enterprise.

Reporting record revenues of $93 million in year 2001, the government will now allow the public to purchase 49% of its stake.  Under the Ministry of Science, Technology, and Environment, the shares will be sold to FPT employees.

Net worth prior to equalization was estimated at VND 241 billion ($15.9 million) Sales to employees of 18,610 shares at VND 70,000 ($4.63) per share were authorized.

Last year FPT opened offices in California’s Silicon Valley and Bombay, India, earning VND 120 billion ($7.9 million) in software exports, up 70% from the prior year. Overall growth at 30% is projected for the current operating year.

Overall, closure of failing State Owned Enterprises with a few equalizations of those than can be, as above, brings the total SOE sector to 3,500 companies, down from the mid 1990s level of 6,000 and still shy of the State’s goal of 2,000 companies by year 2005.

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14. Enterprise Law Developments - When it came into effect, the new law removed the disincentives for quiet, under-the-table companies to continue to hide.  The results have been dramatic.  Domestic invested capital for the first time saw the light of day.  

It is not only old money that came out of hiding in thousands of unlicensed businesses, for there is genuine encouragement for new private enterprises to form and (seemingly) room for them to flourish.

In year 2000, 14,413 new domestic private enterprises were licensed with total investment capital of VND 13.78 trillion (US$ 911.8 million).

In year 2001, about 18,000 additional new domestic private enterprises were licensed with total capital of VND 22 trillion (US$ 1.5 billion).

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