Tourism climbing after visa change
Hanoi is ranked Asia's second most attractive tourist city by the prestigious American travel magazine "Travel and Leisure." The five top tourist cities in Asia include Bangkok (87.11 points), Hanoi (82.13 points), Hong Kong (80.22 points), Kyoto (80.13 points) and Shanghai (79.26 points).  The magazine also ranked the Sofitel Metropole hotel Ha Noi 92nd among the world's best 100 hotels. The hotel is also in the list of top 10 hotels in Vietnam classified by Vietnam Nation Administration of Tourism.

The number of Japanese tourists visiting Vietnam has grown since the government exempted them from visa requirements.  On January 1, the day the policy came into effect, HCM City travel agencies received more than 600 Japanese visitors at Tan Son Nhat Airport. 

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Deficit to rise as exports lag

Imports surge and overseas sales stagnate as Vietnam's trade ballooned to $170 million in January after widening to a record last year.

The deficit would compare with $9 million in January 2003. Imports in January rose 12 percent to $1.82 billion, while exports increased to $1.65 billion, based on reports by the General Statistics Office in Hanoi.

The export growth lags a 15 percent target, suggesting Vietnam may not be able to use overseas shipments to cut a trade gap that reached a record level of more than $5 billion in 2003. Low-interest loans and grants, remittances from overseas Vietnamese, and foreign investment have helped offset the impact of the deficit, analysts said.

Vietnam set a 2005 target for joining the World Trade Organization. Failure to gain membership to the world trading body by then may be seen by foreign investors as a sign the government lacks the will to take on state-owned companies.
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Tax cuts for foreign-invested firms

Vietnam will exempt foreign investors from paying taxes levied on profits they plan to transfer abroad, the Ministry of Planning and Investment (MPI) reported. MPI's foreign investment department said the new decision reflected the government's aim of eliminating unrealistic tax policies.

"The tariff reduction policy is expected to considerably contribute to increasing Vietnam's foreign direct investment volume in 2004," a Japanese investor said.

Nguyen Huu Tin of the Ho Chi Minh City Department of Planning and Investment, said MPI has prepared several other plans to lure FDI.

Tin said the ministry would step up investment promotion activities in major markets such as Japan, Europe and the U.S...

In an effort to create a level playing field for all investors, it plans to apply the same laws on investment to both foreign and domestic enterprises. These new laws will be submitted to the National Assembly for approval by late 2004.

See Economic Reports for a current view of the nation’s FDI projects.

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US$2.9 billion bond issue

The Vietnamese government plans to issue VND45 trillion (US$2.9 billion) worth of bonds in 2004, Finance Minister Nguyen Sinh Hung announced.

At a recent conference in Ha Noi, Hung said he expected economic growth to reach 8 percent in 2004.

"To reach that target, our economy will need about VND250 trillion [$16 billion] in investment capital equivalent to 36 percent of our gross domestic product," he said.

The finance minister said this capital would be drawn from the private sector (27 percent), the state budget (21.4 percent), state-owned enterprises (18.5 percent), foreign investment (16.2 percent), the State Development Investment Fund (12 percent) and other sources.

"The government will issue VND26 trillion worth of state budget bonds, VND9 trillion in public works bonds, VND7.7 trillion in Development Assistance Fund [DAF] bonds and VND2.5 trillion in education bonds," Hung said.

According to a ministry report, the Treasury and DAF issued VND31.1 trillion ($1.9 billion) in government bonds last year. Hung said this volume was twice as high as it was in the previous year.

"Government bonds played a key role in the domestic securities market last year, and accounted for nearly 90 percent of stocks on the market," he said.

"The government used bonds to fund several major public-works projects, such as the second phase of the Ho Chi Minh Highway, highways 4 and 6, and the Son La and Na Hang hydroelectric dams."

Cities and provinces and state-owned enterprises can also issue their own bonds. For example, Ho Chi Minh City issued VND2 trillion worth of public works bonds in 2003.

PetroVietnam Corp also issued VND300 billion worth of oil and gas bonds last year, to generate capital for projects such as the Dung Quat Oil Refinery and the Ca Mau Gas, Electricity and Fertilizer Plant.

Red tape, graft hinder business

Foreign businesses blame Vietnam's red tape and corruption for their decisions not to invest in the country, which is falling behind booming China, a recent survey showed.

Hanoi has been trying to address those problems, but the Vietnam Business Forum, a private sector group that seeks to improve investment conditions in the country, issued a survey of business sentiment that expressed continuing concerns.

Of the 143 foreign and local firms that responded to the October survey, about 23 per cent said they planned no expansion of their business, with 54 per cent of those complaining that bureaucracy and corruption were the biggest hindrances.

Vietnam in 2003 held a high-profile trial of the Nam Cam mafia gang that implicated bribe-taking former government officials. Also put in the dock were two former vice ministers of agriculture accused of embezzlement.

The State began a "one-stop" approval process for investment and other procedures to cut away layers of bureaucracy that have long been the bane of investors.

While acknowledging progress, the forum, attended by scores of foreign and local businesses and government officials, said too many issues remained unresolved in the economy, which is one of Asia's most robust but is not performing as well as giant neighbor China.

"At the present rate of reform, it will take another 16 years" before Vietnam's economy can take off, said one American a businessman based in Vietnam who heads the manufacturing and distribution working group of the forum.

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International donors have pledged to provide nearly $2.84 billion in development aid to Vietnam for 2004 -- up from $2.5 billion in 2003 -- despite concerns on its human rights record and worries about how the money is disbursed.  

Vo Hong Phuc, Vietnam's Planning and Investment Minister, announced the pledges late last year.   

Despite the concerns from some quarters, the World Bank said the rise in donor aid reflected confidence in the Vietnam's development.

Vietnam has been a success story and everyone wants to be associated with a success story.

Boasting the fastest growing economy in Asia after China -- averaging seven percent a year -- Vietnam nevertheless relies on foreign aid to build schools, clinics, roads and power grids. About a third of its 80 million people live in poverty.

But poverty levels have halved in less than a decade following its "Doi Moi" (economic renovation) program of the late 1980s.  

Near the top of the agenda is the slow rate of aid disbursement. Of the $2.5 billion pledged for 2003, only some $1.5-1.6 billion has been doled out.  

Japan -- which along with the World Bank and the Asian Development Bank usually account for two-thirds or more of the disbursed aid -- said Vietnam needed to spend faster.  

For 2004, Tokyo promised Vietnam $837 million, the European Union pledged 528.95 million euro, and the Asian Development Bank between $300 and $500 million.  

Next year corruption could be a formal agenda item.  

Sweden funded an anti-corruption study to begin in early 2004 and foreign investors say state graft is a main turnoff to doing business in Vietnam.  

From 1993 to 2002, donors have pledged around $22.5 billion to Vietnam, with signed commitments of some $18 billion. Last year, most of the funds focused on transport and energy.

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Dual airfare system eliminated

U.S. / Vietnam OK 5-year flight deal

Coffee drinkers are surprised when they see a familiar circular green-and-black logo only to discover they are not in Starbucks!

Starblacks is a Starbucks clone popular with Hanoi’s young hipsters. And there are no Starbucks outlets in the country.  Reportedly the kids like Vietnamese coffee the way it is, but we wonder as they’ve never tried the stuff served up by the Seattle-based company.

Vietnam has seen its share of pirated Western clones. There had been the chain of fake 7-Eleven stores came and went, no doubt due to some severe Japanese pressure on the State. As for the Pizza Hut you entered, look closely – it’s a rip-off of the local Pizza Inn signage. It’s easy to purchase at a steep discount from locals a Hard Rock Hanoi T-shirts because Vietnam doesn't have a Hard Rock Cafe. [Read the entire article.]
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Work starts on BlueScope steel plant

Construction has started on a $US105 million steel plant in Vietnam's southern industrial zone of Ba Ria-Vung Tau.

The new plant is being built by Australia's BlueScope Steel and is expected to begin operations at the end of 2005.

It is projected to have an annual production capacity of 125,000 tonnes of metallic coated steel and 50,000 tonnes of painted flat steel products.

Bluescope Steel's President for Asian building and manufacturing markets Mike Courtnall, says it's the firm's most significant investment in Asia since the company's public listing on the Australian Stock Exchange in 2002.

The plant is expected to generate ongoing employment for 230 local people.

BlueScope Steel, formerly known as BHP Steel, was granted a license by Vietnam's ministry of planning and investment last August.

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Large ports to be built in Ba Ria-Vung Tau

Ba Ria-Vung Tau Province is scheduled to be a key southern location for large ports to be built under a port development plan of the Ministry of Communications and Transport.

The plan envisages that the province's Cai Mep and Thi Vai rivers are suitable for large ports. Meanwhile, medium-sized ports can be developed in HCM City, as the Dong Nai, Saigon and Long Tau rivers are too shallow for large vessels. Small ports should be developed along the Dong Nai, Cat Lai and Hiep Phuoc rivers.

According to Tran Doan Tho, deputy minister of communications and transport, it is more suitable to build big container ports by the Cai Mep and Thi Vai rivers. The ministry is proceeding with a US$200-million project to build an international container port by Cai Mep and Thi Vai rivers with Japanese aid.

The Government will build ports by Cat Lai, Hiep Phuoc, Thi Vai and Cai Mep rivers and lease them to businesses. Ports in inner HCM City, such as Saigon New Port, Ba Son Shipyard and Saigon Port must be relocated to outlying areas.

Between now and 2020, nine clusters of ports will be developed along Vietnam's coastline. The cluster in HCM City, Dong Nai and Ba Ria-Vung Tau is crucial as it is located in the southern key economic zone.

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High demand for office space fuels more investment
 

Despite high prices, offices for lease in HCM City and Hanoi are attracting many customers, providing fresh opportunities for investors, especially local businesses.

According to real estate consultants, office towers in the two cities have high occupancy rates and prices. In HCM City, the rent for grade A offices in districts 1 and 3 ranges between US$25 and US$28 per square meter per month, grade B offices US$19-22 per month and grade C offices US$14-17. Most office towers have leased 90-95% of their office space, especially for grade B and C offices.

The office leasing market has picked up thanks to the high demand of many multinationals and the expansion of established foreign companies in Vietnam. In particular, many Vietnamese businesses have chosen to lease space at office towers for business expansion instead of spending money on building headquarters or leasing street front houses.

The buoyant office leasing market has encouraged many investors to pour money in building office towers. In particular, local companies such as REE, Bitexco and Gemadept have also joined the game. REE has leased 65% of space in its eTown and plans to develop an apartment building nearby. Bitexco has leased 60% of its newly opened office tower in downtown HCM City. Gemadept is mobilizing funds to build a US$18-million office tower on Le Thanh Ton Street, District 1, HCM City.

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International university to open next year

The Prime Minister approved a budget of VND224 billion for the construction of an international university in HCM City. The university, established on the basis of the HCM City National University's International Training Center, will offer graduate and post-graduate training for Vietnamese and foreigners. Enrolment will begin next year for four fields- IT, biotechnology, electronics and telecom, business administration and law. Three more concentrations-international relations, educational administration and Vietnamese language and culture-will be added in 2005. The tuition fee is projected to be US$2,200-2,800 a year.

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Revival: mountain resort

Lam Dong Province seeks investors in a big hillside resort in Dalat City. The project owner is facing financial constraints. Work on the Suoi Vang (formerly Dalat)-Dankia Resort has long been delayed due to financial difficulties faced by the foreign investors involved, including three Singaporean companies-Natsteel, Jurong Environment Engineering and LKN Management Service.

The US$700-million project as projected is to have a horse racetrack, a golf course, a cableway system, and recreation and sport facilities.  [Note: Good luck to them. With no population or financial center closer than a 8 hour drive and the local airport about 1 hour distant, the weather is great but not the financial climate in that location.]

The U.S. Magnum Investment Group has started work on the Vegas Beach Club Resort in Danang. The five-star resort, with an investment capital variously reported at from US$24 million to well over US$ 1 billion, it is projected to include villas, a 17-story hotel, and commercial and recreational facilities. [Note: Good luck to them.  With no local or foreign population or financial center to pull in tourists, no convenient air transportation,  and  with the Furama up the road and not able to expand beyond its initial 200 rooms in over 5 years due to lack of demand, they will need more than good luck.]

Telephone subscribers reach 7 million

The number of telephone subscribers in Vietnam hit 7 million in December, a 40 percent increase over last year.

A statement from the Vietnam Post and Telecommunications Corporation (VNPT) said the 2003 figure exceeded its projected target for 2005.

The new numbers mean that 8 percent of Vietnam's population are telephone subscribers. About 2.5 million of those counted are mobile phone subscribers.

According to the state-owned telecom giant, landline telephone services were available in 93 percent of the communes on the country's mainland and 100 percent of communes on its islands.

Some government reforms may have helped telephone services become less costly and thus more popular. Since April, tariffs on 12 telecom services have fallen by up to 40 percent.

The Ministry of Post and Telematics has also licensed six new enterprises to provide telecom and Internet services in Vietnam in the last eight months. There are now 13 private telecom companies in the country.

Up until 1995, VNPT was the sole service-provider in the country, but there are now five other state-owned telecom companies there.

Power Update: 

Work begins on hydro-electric plant 

Construction has begun on a 300-million-dollar hydro-electric plant in central Vietnam to meet the nation's growing energy demands.

Work on the Buon Kuop plant, which is expected to become operational in 2008 or ‘09, will have a capacity of 280 MW and will generate 1.4 billion KwH annually.

The project includes the construction of a nearly six square kilometer reservoir that will result in the relocation of more than 3,000 people. Located along the Srepok river, a tributary of the Mekong in the central highlands province of Dak Lak, Buon Kuop is the biggest of six plants planned for the region to power economic development. 

Final leg of Phu My power project

Construction on the final addition to the Phu My power complex in Ba Ria-Vung Tau province has started. When completed in 2005, the complex will provide about 47 percent of Vietnam's power. The project will raise the output of the Phu My complex to 3,800 megawatts, generating about 27 billion kilowatt hours annually.

The Alstom-Marubeni consortium will provide machinery and equipment for the project. Erection and Construction Co No 45-1, Vinaincon and Vietransi-mex will handle installation and construction. Domestic engineers would design and build the project.

Vietnam's fast growth rate was driving up demand for electricity. From 1995 to 2003, the demand for power increased by up to 16 percent annually. It jumped 20 percent in the southern provinces of Binh Duong, Tay Ninh and Ca Mau.
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Population Explosion

Vietnam’s estimated national population was 80 million in the year 2000.  New reports are that the birth rate is down from 3.8 children in 1989 to 2.28 children in 2003.

Using the 2003 figure as a constant that puts the total estimated national population at 85.597 million.

Using that same constant, the greater HCMC population estimated at 11 million in the year 2000 is now 11.769 million.

US$ 5.8 billion trade between Vietnam and the US.

New HCMC Regional Airport

Vietnam will start construction of an international airport in southern Dong Nai province in 2007, with total investment of 60-70 trillion Vietnamese dong (3.8-4.5 billion US dollars).

Covering an area of 5,000 hectares in the province's Long Than town, the new airport, with four runways and four terminals, is expected to serve 75 million passengers annually, according to local newspaper Youth on Wednesday.

The first runway and the first terminal are scheduled to become operational in 2011.

Vietnam also plans to upgrade two existing airports into international ones, and build two domestic airports in the next 20years.

The country will upgrade the Chu Lai airport in central Quang Nam province and the Cat Bi airport in northern Hai Phong city, and construct new airports in the two northern provinces of Quang Ninh and Lao Cai. It will put three domestic airports in the southern provinces of Ba Ria Vung Tau, Ca Mau and Can Tho into operation early next year.

Vietnam now operates 16 airports, including three international ones -- Noi Bai in Hanoi capital city, Tan Son Nhat in Ho Chi Minh City, and Da Nang in central Da Nang city. Most of domestic airports are running below capacity. 

Vietnam Vignettes is a periodic report distributed since early 1994. It is NOT a newsletter although for the ease of linkage we have called it that.  It is a summary of domestically published  media reports from more than 17 industrial sectors that we at VVG follow and report upon for our clients. Our primary sources are: Vietnam Economic Times, Saigon Weekly News, Viet Nam Daily News, Vietnam Investment Review, and Vietnam Business Journal.  * Due to the importance of certain topics of key importance to trade with Vietnam, we will occasionally include some wire and other media reports.

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