COMMENTARY

Country Review - south to north.

Our trip from Can Tho to Hanoi and back to HCMC took ten days. We visited new projects and old haunts.  There is so much we could not see due only to time and procrastination.

The man who cut our hair every week, 32 years before as we sat in his out-door stall, was still there.  He had started only two years before we arrived.  We'd been told he was a Hoi Chan, a former VC, but he now denies that.  We'd written of that adventure way back in 1970 and it still waits for formal publication when the full story of our now experiences during that terrible time will be told. We visited our old home and were pleased to see many hundreds of children who now work at school there. The building is being put to a much better purpose than before.  There was not much change in physical appearance but for the placement of a bust of Ho Chi Minh where our bed had been, 32 years before.

The City itself is nearly fully transformed.  The former beauty of what had been during the French rule has been restored and exceed.  From the old market now being restored to the new, with new Provincial buildings and old parks, wide, tree lined boulevards, and streets filled with the young, even in the monsoon drenched days of our visit, the life and fiber of this once again vibrant port city is wonder to behold.

As landfall for gas lines to come, home to factories being built, and with the new bridge in the planning stages, Can Tho is a happening place.

My Thuan Bridge just to the north provides a glimpse of what soon will be the second bridge spanning the Cua Long (Mekong) River's wide shores.  The houses too close to the road way have long since been rebuilt a bit further back, and we are left to wonder of the ferry boat commerce to die on the last great ferry port of the southern region.  Not to worry, say the locals, they are all "mafia" anyway, so good riddance.

Me Lien Square, the intersection of Le Loi and Nguyen Hue, and even the black hole of Saigon are showing signs of renewed life, although no action is yet apparent at the Hyatt site near the Opera house, or the former office / hospital complex next to the zoo.  But then HCMC has always had a vibrancy all its own.  Why, there is even rumor of positive movement on our own Cua Lap project, but it is still too early to talk about that here.

However, the transformation of Tan Son Nhat airport is now being documented on these pages. Take a look and see how the "second City" is not complacent and will not be so for anyone.

There is of course room for disappointment. The lack of real development, three years after announcing the opening of the southern link from HCMC through Saigon South to Highway 1 to the delta, is among the largest.  The State touted the expansion of Nguyen That Tan but the log jam continues and will remain until the new highway to Vung Tau and its new container ports are open - years distant.  

The "soon" to be replaced bridge connecting Districts 4 and 7, and the one km widening of the connecting road through District 7 to Than Thuan EPZ and Saigon South are still but a dream.  But for a two km stretch of modern roadway from the intersection at Than Thuan and Saigon South, the connection to Highway 1 itself is a horror of bumps and delays.

But progress is not stalled nation-wide.  Hanoi is always a marvel. Its mixture of ancient buildings more than 1,000 years old, with the best from its colonial past in the form of brick buildings and huge shade trees along narrow but navigable streets, and new, modern towers, is a delight. The construction never seems to pause, much less stop in this modern, ancient place.

In a phrase, Vietnam is not merely alive and well, it is a happening place. See the new airport terminal for yourself and then agree that from this vantage, you might be in any world class city, for that is what Hanoi is soon to be.

The best remain and only get better. Stable, low cost labor, and a bettering business climate all point the way to success.  Provided the government stands back from delaying progress and the foreign invested community recognizes that Vietnam IS a better alternative to investing in China or elsewhere in Southeast Asia.

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DISPATCHES

Northern Resort for US$ 265 Million.  Perhaps planned and financed better than before, the era of large resort building may be coming back to Vietnam.

Singapore's  Goldsilk Investment and Vietnam's Thien Hai Company have joined and filed a license to develop the Gold Shield Entertainment City in Lao Cai, the border town near Sapa and the frontier with China. Located 340 km north from Hanoi, the project would serve both locals and tourists to the province.

Part of the challenge is the investors' plan to incorporate gaming industry aspects and operate casinos.  There are already slot machines in the province, and the presence of a second facility seems to be a growing concern.

Plans include three-star hotels, parks, a theater, an 18-hole golf course, and casinos. With the foreign investor taking a 70% interest and leaving the local company with a 30% share, we wonder about the ability of the local partner to provide more to the project than the value of "land use rights" that in the past were overstated and led to the demise of many earlier large projects.

[Our own Cua Lap Resort in Vung Tau, a five-star project in every detail, includes apartments, offices, villas, hotels, parks, as well as a marina, triple-A  golf course, and other high-end entertainment and sports facilities.  We have, to date, steered clear of a non-performing partner who provides nothing more than overvalued "rights" that are in fact only an obligation to pay rent. We will follow events up north very closely on these pages.]

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AIG sub's investment reaches $ 25 million.  Nearly two years after arriving, American International Assurance (AIA) has increased its investment capital to US$25 million.  Its priority is not just to build market share but also to build up the company to its parent company (AIG) standards:  with a strong management and a sound financial status.

AIA's premium income reached VND90 billion (about US$6 million) in the first six months of 2002, a 150% gain over the same period last year.

AIA has just established a division for developing the local Chinese market. The division will take care of potential Chinese Vietnamese policyholders through a network of Chinese agents.

AIA has so far secured 100,000 policies using 5,000 agents nationwide. The company is seeking to diversify distribution channels by selling its products through the Hongkong and Shanghai Banking Corporation (HSBC), Vietnam's Asia Commercial Joint-Stock Bank (ACB), and Vietnam Data Communications Co. (VDC).

In May, AIA Vietnam bought VND20 billion (US$1.3 million) worth of Government bonds on the country's nascent stock exchange following a necessary long-term investment plan to generate profits from its premium income.

The Association of Vietnamese Insurers (AVI) in June released a report indicating that, for the first time, AIA was catching up with foreign rivals on the domestic market. According to the report, the company's market share is growing quickly although it remains relatively small.

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Saigon South New City - After nine years of construction, the details of the Saigon South New City as a satellite of HCM City are being seen with steel in the ground. Planned to provide accommodations for Saigonese and expatriates, the Saigon South New City still has a ways to go, but definite progress is being made.

urban area. However, up to 70% of the customers have chosen the one-off payment method. Estate prices in Phu My Hung are rather high compared with average rates of land in Vietnam, but this new residential area has attracted the interest of many.

The city has been carefully zoned and designed with sound infrastructure. Customers are provided with legal documents for land-use rights and house ownership. A possible increase in estate prices is also a factor that helped early buyers to sign up with units in Phu My Hung.

An early, innovative marketing scheme allowed the first buyers to receive guaranteed buy-backs for a period of time that will return virtually all of the purchase price, less a fair rental for the time actually occupied.

  Public services and works in the Saigon South New City are attractive to customers. The Saigon South semi-public school is located on a 2-hectare plot of land in the heart of the city. Currently, 428 pupils and students there are attending classes of kindergarten, elementary and junior high school. The school was officially transferred to the management of the HCM City Service of Education and Training.

Some 100 foreign students of different nationalities are attending the Saigon South International School, which has been operational since 1997. Other schools for some foreign communities are also available in the Saigon South New City such as the Korean and Japanese schools.  

Besides new infrastructure, existing amenities include a nine-hole golf course, driving range, tennis courts, swimming pools, and a football stadium.  Other service facilities in the Saigon South New City are under construction.

The 4,647-square meter Saigon South Coop Mart will come into operation by the end of this year. The construction of the Franco-Vietnamese Hospital with 200 beds was started in September last year and will be serviceable by 2003.  

The Saigon South New City is the first large-scale urban project to be realized by Central Trading & Development Corporation of Taiwan in partnership with the Tan Thuan Industrial Promotion Corporation (IPC).

[NOTE: A challenge yet to be met by all property developers in Vietnam is to encourage the State to update its laws to allow long term visas for older retirees (those over 55 as in neighboring Thailand) who can establish their ability to support themselves from foreign income sources at foreign levels of spending. The threshold level there is US$ 4,000 a month. This must include both Vietkieu and foreigners born in other lands who wish to live here but who no longer work.  Under current laws, they are not permitted to stay beyond 90 days.

Additional challenges to be overcome  are (i) the formation of world class foreign hospitals that operate in a world class manner. These are needed to provide medical services to the over 55 foreign and VK population who will invest their retirement here; (ii) complete ending of the two-tiered price structure; and (iii) removal of import-export duty placed upon personal possessions owned by foreigner and VK long-term residents, thus permitting them the comfort of bringing their foreign-bought antiques and other high-end possession into and removing them from Vietnam when needed.]

Projects in the Saigon South New City include:

§     Apartments: (i) My Canh (200 apartments), (ii) My An (200 apartments), and (iii) Hung Vuong I (354 apartments)

§     Detached and terraced houses: My Hung (65) and My Hoang (47)

§     Plots of land (for customers to build houses): Nam Thien I, Nam Long, Hung Gia I, Hung Phuoc, My Toan and My Phuoc.

§     Works under construction:

o       My Hao: 46 detached and semi-detached houses (area ranging from 279 to 369 square meters).

o       My Phuoc Apartment Bloc: 94 apartments (98-204 square meters).

o       My Khanh I High-rise: two 13-story towers with 76 apartments.

o       My Toan I & II terraced houses: 3 or 4 story-houses.

(c) STW 2002

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Economic Outlook - The vagaries of the global economy haven't knocked Vietnam off its feet. Consumer spending and local private investment are leading a reassuring 6% GDP growth this year and perhaps 6.6% next year, although more conservative economists revise that figure downward to roughly 5.2% for 2002.

Signs of the dynamic domestic climate include a busy construction industry. Cement sales through 2002 are estimated at 19.5 million tonnes, a 50% hike over 2000, while ceramic tiles have shot up even more. Print and TV ad expenditures are growing in tandem with urban purchasing power. 

Meanwhile, new domestic companies are popping up at the rate of 2,000 a month. They're mostly small fry, but some are exploiting Vietnam's increasing tourism potential, marked by a 10% boost in foreign travelers in the first seven months of the year.

Still, this is no time for Vietnam's leadership to take a vacation. The new cabinet must contend with a troubling export picture including a sharp decline in crude-oil revenues, which dropped nearly 18% year on year in the first seven months of 2002.

Dismal prices for rice, coffee and pepper are still causing grief among the country's majority rural dwellers. The seafood sector shows promise but spirits are sinking because of a row with the United States over low-priced catfish and concerns voiced by the European Union and the U.S. in enforcing quality control of shrimp.

The bilateral trade agreement with the U.S. (which came into effect in December 2001) has encouraged a little more Korean and Taiwanese investment in garments, textiles and footwear--with footwear exports flourishing from January to July, growing 16% year on year. But the pact hasn't unleashed much new activity overall, both because of the wobbly fortunes of the U.S. and Asia, and because the constraints on foreign investment remain essentially the same.

Witness Vietnam's towering income taxes, poor or non-existent component industries and steep electricity and transport costs. Telecoms prices are only gradually declining.

With its stable politics and cheap labor, the nation could become a post-September 11 favorite for companies looking to hedge their bets and avoid investing solely in China. If Vietnam's top-ranking cadres really got down to addressing investor complaints, the construction workers wouldn't be the only ones breaking out in sweat. 

(FEER http://www.feer.com/articles/2002/0208_29/p046money.html)

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FDI Performance Behind Target - Fresh foreign direct investment (FDI) capital in Vietnam may fall short of the year's target as the first eight months saw a 40% year-on-year fall in FDI capital.

According to the Ministry of Planning and Investment (MPI), Vietnam has so far this year licensed 413 FDI projects with a total capital of US$771.4 million, much smaller than the volume a year ago despite signs of improvement. The new capital went to mostly medium and small projects in industry, export production and services. Industry and construction attracted the most FDI capital with 334 projects worth US$655.4 million. Specifically, light industry had 174 projects worth US$347 million and heavy industry 118 projects worth US$194.7 million.

Asian investors still took the lead in investment in Vietnam. Taiwan was the top investor with 105 licensed projects totaling US$159.2 million, followed by South Korea with 78 projects worth US$151.2 million. Meanwhile, European investors had just 34 projects and the U.S. merely 20 projects valued at US$48.9 million.

Localities that attracted most FDI capital are Binh Duong, Dong Nai, HCM City and Hanoi.
The foreign investment sector earned US$2.7 billion from export in the first eight months of this year, up 8% year-on-year. Some 120 foreign-invested enterprises (excluding Vietsovpetro), had export sales of over US$5 million each, of which seven had over US$50 million. Pou Yuen Vietnam and Fujitsu Vietnam posted export sales of over US$100 million.

This year Vietnam earlier planned to attract US$2.3-2.35 billion from fresh FDI projects and US$600-650 million in increased investment of operational projects. STW

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Leadership Changes At the Top. The re-election of Prime Minister Pham Van Khai is now complemented by the publication of his cabinet.  Major changes include creating a new Ministry of Internal Affairs, splitting the former Ministry of Science, Technology, and Environment into two by creating a new Ministry of Natural Resources and Environment, and upgrading the Department of Post and Telecommunications to the Ministry of the same name but with an emphasis on Information Technology and of course the Internet.

Matters worth taking note of include that the number of Deputy Prime Ministers is reduced from 5 to three, and the ranking order in the list of Ministries.  As in governments that lack transparency, the order of listing often tells more than their name implies.

Prime Minister

Pham Van Khai

Deputy Prime Ministers

1. Nguyen Tan Dung

2. Vu Khoan

3. Pham Gia Khiem

Ministries

1.   Defense - Minister Pham Van Tra

2.   Police (Public Security - formerly called Interior) - Minister Le Hong Anh

3.   Foreign Affairs - Minister Nguyen Dy Nien

4.  Justice - Minister Uong Chu Luu

5.   Finance - Minister Nguyen Sinh Hung

6.   Trade - Minister Truong Dinh Tuyen

7.   Labor, War Invalids, and Social Affairs - Minister Nguyen Tri Hang (Ms)

8.   Transport - Minister Dao Dinh Binh

9.   Construction - Minister Nguyen Hong Quan

10.  Fisheries - Minister Ta Quang Ngoc

11. Culture and Information - Pham Quang Nghi

12. Education and Training - Minister Nguyen Minh Hien

13. Agriculture and Rural Development - Minister Le Huy Ngo

14. Industry (includes Electricity of Vietnam) - Minister Hoang Trung Hai

15. Planning and Investment - Minister Vo Hong Phuc

16. Health - Minister Tran Thi Thung Chien (Ms)

17. State Bank - Governor Le Duc Thuy

18. Government Office - Minister Doan Manh Giao

19. Internal Affairs (new, and also called "Interior") - Minister Do Quang Trung

20. Science and Technology - Minister Hoang Van Phong

21. Ethnic Peoples - Minister Mai Ai Truc

22. Natural Resources and Environment - Minister Mai Ai Truc

23. Post and Telecommunications - Minister Do Trung Ta

24. Sports and Gymnastics - Chairman Nguyen Danh Thai

25. State Inspectorate - Chairman Quach Le Thanh

26. Population, Family, and Children -Chairman Le Thi Thu (Ms)

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Refinery No. 2 - Planning (Dreaming) Continues - With a Prefeasibility study just completed (favorably of course), with a plan to finance the $2.5 billion project with nearly $1.5 billion from foreign sources, the Japanese Bank for International Cooperation suggests that Japan will contribute $800 million of that amount.

Japan’s Mitsubishi Corporation has been named as a potential investor taking up to 15 to 20 per cent of the total investment capital.

While some consider these pledges unsupportable given Japan’s current economic outlook, a Vietnamese project management board set up for this refinery planned for Nghi Son claims it is “carrying out surveys to collect statistics and information on geographical conditions and market demand for the feasibility of the project.”  Estimates of annual production have been published that are at best speculative at this early date.

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Automobile Market Report -  “Surging at full throttle,” read the State media headlines with the first 7 months sales totals “climbing to 13,816 units from 10,266 units” in the same period for last year.   However, “klunking along in low gear over steep, bumpy roads” would seem to be a more appropriate title.

Toyota led the pack with a 26.2% market share selling 3,618 units.  Read that number as three thousand, six hundred eighteen -- full stop.

“Besides luxury cars for high-income people, we are targeting private entrepreneurs born in the wake of the Enterprise Law,” said Toyota Vietnam’s president.  It seems that this market segment is either very small or product appeal and demand is missing.

US invested Ford ranked third with a 13.4% market share based on sales of 2,172 units, up from 38 units (read that thirty eight -- full stop) sold in the same period for last year.

Auto manufacturing is a capital-intensive business in which low-income nations such as Vietnam and China have seldom had much success. Assembly plants still tend to be either fairly high cost operations that rely heavily on imported parts for CKD (completely knocked down) re-construction due to lack of domestic suppliers, or low cost, low quality operations selling modest numbers of cars that do not meet international standards for reliability and appearance.

Automakers sell about 20,000 units in Vietnam, contrasted to 1.5 million units sold in China.  But predictions in both nations are for a 40% increase.  Due to China’s pending  WTO entry and a need to reduce tariffs on imported cars, prices are dropping in China but not in Vietnam.  The effect in China is dramatic.

Toyota recently announced plans to open a joint venture plant in China to produce up to 400,000 units per year-by-year 2010. If the domestic market cannot consume the load, Toyota plans to start exporting cars from China by that time.

Vietnam’s current 11 operating auto manufacturers have a combined total capacity of about 200,000 units and there is no present indication that they will be producing at or near capacity in the near term. At present, prices of cars produced by  the 11 auto joint ventures are much more expensive than those in regional countries due to low local content and output, and high input cost and taxes. Taxes are at a healthy 100% rate for locally produced cars.  It would seem a healthy tax cut by Vietnam is needed to spur this new industry into good heath. 

The Ministry of Industry recently completed a draft for development of the automobile industry aimed at  manufacturing different kinds of Vietnam trademarked vehicles at low costs, between US$6,000 and 14,000 per unit. (The type that do not meet international standards, of course.)

Under the draft, between now and 2005, efforts will be focused on manufacturing engines, transmission systems, frames, covers and interior facilities. Big State-owned companies like Transport Industry Corporation, Vietnam Engine and Agricultural Machinery Corporation and local mechanical engineering enterprises will receive priority investment from the Government to increase the local content in engines.

(Note:  Overtaxing primariy industries -- those that help spur growth in secondary and tirtiary industries -- is not even a good short-term solution. Unless and until Vietnam starts collecting taxes from the 80 million residents who are avoiding all attempts, and thus reduce the nation’s need to collect taxes from new domestic and all foreign invested companies who pay them and can’t grow strong as a result, all growth in Vietnam for all industries and sectors will be kept to modest levels.) 

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Hard Currency Bonds - To issue or not is the prime question these days in Vietnam’s banking world. The concern (fear) has always been that if issued, would they be bought? The lack-luster market for domestic VND denominated bonds tells the nation’s leaders that caution is in order.

However, a plan is now reportedly before the Prime Minister to approve an issue of from $100 million to $500 million at a rate of from 7.2% to 7.5% on an annual rate.  It seems a dream at best for those domestic leaders who realize that the absence of strong banking regulations, transparency in the sector, and economic strength in the world’s investor nations all suggest that the time is yet early for this type of issue. Stay tuned as we are following this topic.

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Nightmare of Post-Licensing Approvals - a huge nighmare.  The Domestic Enterprise Law helped to spur the formation of tens of thousands of new domestic companies as the formation process was eased and penalties for past errors were waived.

Thus the auto and office construction industry, and many second-tier industries, gained, as thousands of new companies were able to leave dark basements and enter the light of buying, renting, constructing, furnishing, and outfitting new offices.  However, this influx of new legal businesses also brought to light the ills of the bureaucracy long suspected if not known to be hidden far deeper in the shadows and away from the light of reason.

The Vietnamese Chamber of Commerce and Industry (VCCI) reports its recent survey found there are 192 additional levels of official approvals needed beyond the initial license to open a domestic enterprise.  This level of bureaucratic excess hampers real growth and productivity for all, foreign invested and domestic companies alike.

With 20,000 new private, domestic enterprises being established each year, and each company needing official licensing (called sub-licensing in the local media) of dozens of tasks, the State in effect prohibits growth with the death-knell of paper work and/or bribes needed to get the job done of just opening and conducting business without government interference.

Since the date of effectiveness of the New Enterprise Law a few years ago, the task of obtaining the initial license to start is almost painless if not simple.  The first license is issued by the local district, city, or provincial investment and planning office.  But then the real chore begins as every new business is greeted by officials from many agencies each seeking the “proper” forms to issue the multiple additional sub-licenses to run an elevator, label goods, display signage, use sidewalk space, or just blatantly help the local officials send their children to school or purchase a $5,000 motorbike.  All new businesses meet great difficulty in learning what sublicenses are really needed and then having the sub-licenses issued.

The VCCI has proposed a set of business guidelines that, if subscribed to by an enterprise, would permit that enterprise to go without a need for obtaining sub-licenses.  It is worthy of noting that in the past year, 31 different sub-licenses were deemed unnecessary which allowed the current list to number only 192 still deemed necessary for private domestic companies.

(Note: We wonder when the VCCI will start to count the number of sub licenses required for Foreign Invested companies, and then start to trim those numbers as well?)

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City To Facilitate Viet Kieu Investment - HCM City Party Secretary Nguyen Minh Triet has pledged to create favorable conditions for overseas Vietnamese (Viet Kieu) investment and to instruct relevant authorities to help solve their problems.

At a meeting in late August with some 120 overseas Vietnamese, including those running businesses in the city, Triet admitted that the local administration still had many shortcomings that must be overcome, and Viet lieu’s opinions and suggestions for improvement were welcomed. He said if Viet Kieu were not satisfied with solutions by relevant authorities, they could contact the Overseas Vietnamese Committee or himself for improvement.

Viet Kieu at the meeting voiced their concerns over a number of problems, including dual citizenship, visa procedures, residency, customs, tax, telecommunications, and property ownership in Vietnam. They said more liberal policies were needed to capture their interest.

In the first seven months, over 184,500 Viet Kieu visited Vietnam, up 18% over the same period last year. According to the Overseas Vietnamese Committee, there are 730 Viet owned-owned businesses operating in HCM City with a total capital of VND700 billion (US$ 45.8 million).

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