COMMENTARY

Mixed Signals are Heard All Over the Region. Vietnam is not yet an easy place to be.  Perhaps that is why VVG and a few others have stayed the course -- because there is yet a need for the services we bring to investors.  When things get easy we will either change the focus of our work or just retire.  That is not likely to happen for the next 10 to 15 years.   

In spite of neighbors sighing with relief at signs of growth, Vietnam's Foreign Direct Investment totals for the first quarter are less than the same period last year.

Japan's Prime Minister visited Vietnam and proclaimed that its massive ODA grants will not be reduced from budget cuts but declined to discuss a trade agreement before the two nations resolve the need for an investment agreement that will safeguard the value of this nation's investors (Vietnam's largest FDI and ODA).

Is Japan taking on the role the USA first took on in its mammoth 6 year talks? It doesn't take an expert to figure that out.  It is will known from past experience that other nations rush into new trade zones even as America is foreclosed.  Then, when America eventually obtains a definitive agreement, that agreement  is quickly seen in envy, if America is not perceived the trade enemy of the earlier investors.  

Those who rush in then see their chances for real, long term, sustained success severely challenged.  

What right does America have to hog such favorable trade terms for itself?" questioned one British trader when the former American Ambassador explained the benefits to be derived exclusively by the US under the BTA.  

"The same rights America enjoyed these past 7 years that Britain has been trading with Vietnam in the absence of American competition," came the fast and feisty reply.

Expats view Vietnam as a physically safe place to be post 9-11, even as it is among the most stressful.  However, safe rarely equates with profitable. Take pride then, as recent surveys show Vietnam to be among the worst nations in the region concerning overall business risk.   See article on point.

Unfortunately, as with some junk bonds, high business risk yields high, long-term profits only to a very few.  Looking at how Vietnam currently manages its risk does not give us great short term comfort.

Land and property investors are still being bullied to invest in spite of unfavorable forecasts of economic need or pay back.  The absence of strong zoning or enforcement of such zoning as there is offers no protection to large investments.  

That Thailand and Malaysia have done well these past 30 years is little comfort as those nations made the commitment to grow long before growth came, thus allowing the easy widening of roads and placement of highway routes through and around the urban sprawl to develop.

We've long asked our friends in Vietnam to relax the restrictions for the benefit of the nation and themselves. They not only have the ability to see the errors of others, but to learn from those errors and select the best path for nation.

It is often said that cream, the richest and best part of fresh milk, always manages to rise to the top.  The question for those who control Vietnam is, "Why must it take you so long?"

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DISPATCHES

Nam Con Son Gas Line - This $1.3 billion gas to power project is will on its way to commissioning. The Lan Tay Gas Rig, being built and installed by Hyundai Heavy Industries, will soon be sunk in 125 meters off shore in the Nam Con Son Basin.

Taking over one year to construct, this 10,500 tonne behemoth it is being floated from Korea to the gas filed with installation expected by the end of June 2002.

BP-Amoco is the lead partner as it recently bought out most of Statoil's (Norway) interest. Gas is projected to start coming ashore for use at Vung Tau's Phu My Power complex by the end of this year.

The next order of business will be the construction of a gas pipe line from Phu My to Thu Duc, on of the northern most districts of Ho Chi Minh City. Projected opening of the land line is for the end of 2004.

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World Bank Grants $230 million so EVN Raises Rates - Logic is often found in hard to locate places when trying to understand and work with the Electricity Authority of Vietnam (EVN).  

Reports of the recent World Bank grant to Vietnam to improve rural electrical power delivery systems in the poorest regions of the nation are coupled with the announcement of a crack-down on corruption intended to reduce the larceny of electricity in the last mile of delivery seems to make sense, but does it really? Some question if the last mile should be the first line of attack when it comes to clearing corruption and the loss of power.

Now comes word that electric rates in urban areas are scheduled to increase by AT LEAST a whopping 25 per cent effective this July, 19% in rural areas, and 12% for the manufacturing sector. The World Bank thus intends to provide a further grant of $8.2 million as part of the government's assistance program to help consumers with the increased rates.

The good news (for foreign investors) is that the rate hikes will not apply to registered foreign firms. The main reason for this is to phase out duel pricing between the public and the foreign invested sector, and keep rates low for the manufacturing sector "that needs a huge volume for production."

If one considers the western model where manufacturing concerns are able to spread the cost of higher utility charges  to consumers and thus work an indirect tax on the consuming public, this might appear a more just method of spreading the cost evenly over the general population.  

In the west, those who purchase goods are deemed to be the most able to afford the higher costs, thus relieving the burden of higher utility costs from the nation's most impoverished who purchase little and use less power as a result. 

This might seem to make sense in Vietnam as well.  Vietnam's poor account for over 70% of the population where the rural poor on the average have two light bulbs and two electrical outlets per home and a per family (not per capita) annual income of under $400 per year. 

Clearly there is room to once more question the rationale if not the wisdom of EVN's  latest plan to benefit the .... people of Vietnam?  And one might also question who the utility is actually intended to serve, and the wisdom of the World Bank's decision.

The offered response is the World Bank's declaration of a "greater need to assist customers to reduce their energy consumption... and encourage users to save energy."

But that flies in the face of the fact that EVN is doing quite well for itself already. The 2001 annual report for EVN shows revenue for last year topping $1.1 billion with pre-tax profit of $93 million, while contributing $146 million to the State Treasury.

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There were enough reminders to be certain, and reality was not ever more then a few minutes away, but the chance for the mind to drift allowed us to romance a time when the war was over and the area became the world's most beautiful resort.

Thirty years later the war is over, the Russians came and (as of 3 May 2002) left, and what remains is the original beauty and isolation, slightly marred by barracks for 10,000 troops, birthing for 15 massive ships, and two, thirteen thousand (13,000) foot (4,000 meter)  parallel runways long enough for the hundreds of troop transport and B-52 landings that took place nearly every week for many of the war years.

And thus the vision becomes an opportunity. All that is needed now is money. 

Infrastructure is present in the form of power, horizontal (roads, bridges, piers and runways) and vertical (buildings) construction, even waste treatment facilities.  However, as the American-built infrastructure is now more than 30 years old, and we all know the value of Soviet-era infrastructure, the first order of business after a proper survey will be demolition.

Not to be forgotten are the similar and even larger air fields at Nha Trang and Thuy Hoa, as well as the reconstructed air base now operating in Da Nang where a meager few international  flights from a few Asian nations help central tourism grow.

If properly executed, even in the face of and perhaps because of its isolation, Cam Ranh Bay can soon become one of the world's best destination resorts. Isolated from both financial and population centers, that can be a bonus and not compete with the resort planned in close proximity to Ho Chi Minh City.

Investors who want to consider development information for Cam Ranh Bay will be well served to contact VVG and see our on-going southern resort project at Cua Lap.

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Korean Businessmen In Ho Chi Minh City   Ho Chi Minh City has become a hub of Korean businessmen in Southeast Asian region.

A growing number of Korean businessmen are reportedly visiting the southern Vietnamese city since last year, following the conclusion of the U.S.-Vietnam trade pact.

Before the pact, shipments from Vietnam to the US were subject to high tariffs of 40-90 per cent.

However, goods can now be shipped to the US without discrimination.  As a direct result of Vietnam making its markets more accessible, Korean businessmen now seek to feed their own outlets in the US with Vietnamese manufactured goods.

Many Korean businessmen have moved away from such countries as Indonesia, India and Pakistan to Vietnam in search for political stability, reports the Korean Times.

About 600 Korean firms were operating in the Ho Chi Minh City as April, 2002. This is up 100 in just four months. They include 147 branches of Korean chaebol, 200 Korean-invested companies and 250 self-employed traders. [Note the variance of this Korean report with the report of only 370 firms in the nation from Vietnam's national sources at Economic Indicators.]

Many of them are engaged in manufacturing and exporting textiles, shoes, and bags on the back of cheap but productive labor in Vietnam. It is estimated that about 7,000 Korean businessmen are doing business there. The figures exclude about 3,000 short-term visitors who travel there on a regular basis and are actually engaged in business.

About 46 percent of $1.5 billion in Korean investment to Vietnam went to Ho Chi Minh City and its suburbs last year. Korean firms employ about 75,000 Vietnamese workers. [Again, note the variance of this Korean report with the report by Vietnam national sources of as much as $3.3 billion of invested and $2.1 billion of implemented capital at Economic Indicators.]

Ho Chi Minh City accounted for about 70 per cent of industrial production in Vietnam.

The city accounts for 1/10th of the total Vietnamese population. The GDP per capita of Ho Chi Minh City is $1,460, three times higher than the national average of $400. [Korea Times]

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Asia’s Best Business Spots.  It is no surprise to read the report from London-based Economist Intelligence Unit.  Singapore and Hong Kong top the list again, only trading places. For a broader analyses of trends and views, click here. 

Australia and New Zealand flip-flopped as well for spots 3 and 4 on the list.

Taiwan, Japan, and the Philippines held their middle ground positions remaining at Nos. 5, 7, and 10, respectively.  China slipped a notch from 11 to 12,  while Vietnam and Pakistan held firmly onto their last place positions at Nos. 15 and 16, respectively.

Decisive elements in the ranking used to forecast regional business conditions for the next five years are highly competitive elements that include: (1) placement of regional headquarters,  (2) simple and low tax regimes, and (3) proximity to large markets - namely China.

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Vietnam's telecoms industry is growing fast from an extremely low base. Foreign companies may see opportunities arising in the next few years, but they will first need to take on powerful and competing domestic interests

There's a new buzz in Vietnam's telecoms industry. Phone charges are tumbling. Mobile services are expanding. And fresh competition has cropped up between three carriers offering low-cost domestic and overseas calls through Voice Over Internet Protocol, or VOIP. But potential investors should take a good look behind the scenes, where a state-owned giant is fighting fiercely to defend its interests.

On the surface, the changes send a positive signal. More competition and lower costs will spur overall economic development and help unleash the potential of Vietnam's budding software industry. Interest is also perking up because more reforms are mandated by the United States-Vietnam bilateral trade agreement. That pact, which took effect last December, sets a timetable of two to six years down the road for joint-ventures in a variety of telecoms services.

But monopolistic practices still linger. The dominant player-state-owned Vietnam Posts and Telecommunications, or VNPT-squeezes potential competitors through interconnection fees and lease lines that cost 30% more than the regional average. Mysterious delays still plague contracts. Citing national security concerns, VNPT maintains sole control over the international gateway for direct-dial calls, imposing firewalls that impede Internet access. Change in the industry is likely to be incremental, not radical. 

If you want to know more, please now read the full article.

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Japan - funding Ho Chi Minh Highway project?  The headlines give that impression, but the story behind them show it is really a handful of peanuts to an elephant.

“The Japanese government has pledged 1.454 billion yen for the purchase of vital road-construction equipment for Vietnam's landmark Ho Chi Minh (HCM) Highway project.”

The highway, which will complement National Highway No 1 as another transnational north-south road artery, is under construction in mountainous western Vietnam. But the construction effort faces particular difficulties because the highway follows the route of the legendary Ho Chi Minh Trail, the key north-south supply route for North Vietnamese forces during the Vietnam War.

US forces bombed the trail extensively in the 1960s and early '70s, and the area contains many landmines and much unexploded ordnance (UXO). These have caused fatalities among local people, and Japanese government assistance is aimed at improving safety for the road-construction teams.

The grant of $12 million towards the overall $1.5 billion project is none the less significant.  It will purchase for the benefit of the road workers 20 bush cutters that have de-mining functions, as well as various other items of important construction equipment.

Envisioned as a four lane multiple access road, the initial effort has been on building several hundred bridges and trying to open various stretches of two lane road as a start. In addition to facilitating through traffic, the HCM Highway will also boost economic development in highland areas and reduce poverty by providing sound transport infrastructure. This will help ensure balanced development throughout Vietnam, and also keep north-south links open during the flood season on the central coast.

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First Quarter Exports - Down. Vietnam attained an export turnover of US$ 4.565 billion in the first four months of this year, a year-on-year decrease of 8.6 percent, according to published State reports.  See Economic Indicators.

The export value of the domestic firms and foreign-invested enterprises fell 11.4 percent and 5.2 percent, respectively, over the corresponding period last year.

Nearly half of the country's key export items attained targeted growth rates, with garment and textile, and footwear both contributing more than US$ 570 million each. Crude oil and agricultural produce fell short.

Local experts attributed this decline to slow recovery of the world economy, poor quality and the uncompetitive prices of locally-made products.

However, the country's export turnover in April recorded an increase of almost 11 percent compared to March's figure, which was 44 percent more than February.

Meanwhile, the country's imports grew three percent to US$ 5.14 billion in the first four months of this year.

Foreign firms caused most of the rise in imports, growing 20 percent to US$ 1.7 billion; domestic firms' imports fell 3.6 percent.

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Refinery Update.   PetroVietnam is seeking the government's approval for its pre-feasibility study to build the second oil refinery worth $2.5 billion in the Tinh Gia district of central Thanh Hoa province in the next ten years, said corporation director general Nguyen Xuan Nham

Under the plan, the oil refinery No 2 will start operations by 2011, but Nham do not reveal the plant's capacity.

PetroVietnam plans to seek some of 60-70% of the funding from foreign loans and provide the remaining $1 billion using profits from projects that the corporation is carrying out with foreign companies, Nham added.

This forms part of government plans to get more profit from tapping natural resource.

Progress is either inching along or questionable on the first oil refinery in Dung Quat industrial zone in the central province of Quang Ngai.  Still referred to as a US$ 1.3 billion project with capacity of 6.5 million tons of petroleum products, recent claims are that Vietnam and its Russian partner will each contribute US$ 400 million and seek the remaining funds from international or domestic sources.

If doubts are removed from Russia’s ability to raise its share, and presuming Vietnam is able to funds its share, the source of the remaining US$ 500 to $700 million (as no outside observer believes the refinery can be completed for less than $1.5 billion) remains clouded.

But then, the entire first refinery project has been under a cloud from the time Total of France pulled out in 1995. Vietnam recently approved the EPC contractor, the one its Russian partner did not want.  France's Technip-Coflexip with Japan's JGC Corp recently beat out the consortium of South Korea's Samsung Engineering with ABB Lummus Global as the EPC contractor.

This is all the more remarkable as the Russian partner favored the loosing bid, recently pulled out of its lease on Cam Ranh Bay two years early, and the announcement of the winning (loosing) EPC bid came less then two weeks after the Russian Prime Minister’s State visit to Vietnam.

The history of Vietnam’s desire to build an independent supply of upstream petroleum products is long, but the outlook for this to be a profitable, if even a wise, venture has not ever been bright. 

This is because of (i) the surplus regional capacity of upstream products will last for at least the next decade and is projected to keep local prices reasonable, and (ii) known, added round trip costs to truck or pipe crude from producing fields to the refinery (or refineries) and then the refined products to the end users.

Not to be forgotten is the loss of revenue from Vietnam’s sale of crude that will be diverted to its one or two refineries.

While some question whether the Russians will stay the course as Vietnam’s partner in the first refinery, most foreign observers continue to doubt the wisdom of trying to produce refined products at all, or so far removed from the end users.

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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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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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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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