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Copyright © 1999-2014 Vietnam Venture Group, Inc. All rights reserved. February 1998; Updated March 2, 2004
An earlier version of this article was offered (February 1998) to the print media for publication
Window Is Open. Vietnam has an open window to a golden opportunity: take the economic lead from the faltering tigers. Because the window is fast closing, it is important to be brutally honest and not emotional.
The economy of south east Asia is in tatters. It has taken the regional problems longer to reach Vietnam perhaps because of its closed and undeveloped financial markets, and an inconvertible currency. However, Vietnam and the rest of Asia are in for a bad-time of it. This is particularly sad for Vietnam, only now beginning to recover from its long isolation, and achieving some comforts and success.
Japan is fighting massive deflation. Malaysia is now in a recession. Indonesias turmoil is far from over. No one expects the new Philippine president to have a significant effect on its economic reform program. Thailand's economy is beginning to show signs of improvement, but may not be more healthy than their ailing and beloved King. All worry what may follow. The markets in Hong Kong and Singapore are taking a dip that can yet become a dive. Cambodia is a sad farce that can quickly become a disaster. Laos and Burma are non-starters. South Asia has joined the nuclear powers, and now everyone is nervous.
Grow, don't Stagnate and Falter. Vietnam need not merely ride with and suffer the regional economic problems. Vietnam has a unique opportunity to quickly grow while the others struggle to survive. However, there must be a sea change in Vietnams actions and attitude for this to occur. Vietnam made such a change in 1986. It can do so once again in 1998.
The strategic importance of Vietnam is well understood by the world. However, Vietnam is often sidelined if discussed at all when the economic needs of the region are the topic of scholarly discourse. Imagine if Vietnam were to became an economic powerhouse in the midst of regional economic turmoil?
Vietnam's Strengths. The economic strategic benefits of Vietnam for foreign investment are well recognized. The government is stable, the wages are still highly competitive, and the people are among the most educated and easily trained. The labor force is known the world-over as among the hardest working and most loyal. These are key factors investors consider. These factors are in deep contradistinction to most of the third-world counties competing with Vietnam for foreign invested capital.
Vietnam can achieve leadership status with a few expedients. For starters, guide or restrain the few remaining leaders still prone to produce outdated sound-bites and policies against foreign investment. Next, conclude bilateral trade talks with the United States. Part of that process requires that Vietnam will need to provide a realistic timetable for changing its outdated laws and unprofitable commercial practices, but that can be reasonably agreed to.
Increase Hard Currency. The only way for Vietnam to grow is to vastly increase its holdings of foreign currency, thus enabling further advances on foreign investment, the creation of jobs and private wealth. The best and quickest method to vastly increase foreign currency in Vietnam is to open Americas vast markets to Vietnams manufactured goods. With a bilateral trade agreement approved by Congress, lower tariffs under Most Favored Nation (MFN) status will be in force and American dollars will start to arrive in bushels.
While approval by Congress is not assured, a new, strategic incentive for Congress to act favorably towards Vietnam is now present: Vietnam can and should be the new engine to power the south east Asian economy. An economically strong Vietnam will reduce the overall turmoil that can yet spill over to America. Vietnam can become a free-trade, American-friendly, economic regional power while the other nations are still struggling to recover. That will be good for America, for Vietnam, and for the world.
This will be an important incentive to those few but strong voices in America who still speak against full restoration of normal relations with Vietnam. Their negative votes can scuttle a bilateral trade agreement (and MFN) with Vietnam. However, the life of this incentive is short, and growing shorter each day.
Little Prior Incentive to America. Before this window opened, there was little incentive for America to have MFN with Vietnam, but for the urging of the American Business Community in Vietnam. As Vietnams detractors know well, given MFN,
Vietnam will be selling domestic manufactured products to American markets in direct competition with American manufactured (and other imported) goods. No one expects higher-priced American manufactured goods (cars, appliances, CDs, tapes, books, etc.) to be quickly flooding into Vietnam.
The trade balance between the US and Vietnam is now approximately $1 billion dollars, favoring Vietnam slightly. No doubt that will grow in multiples of 10 in the first few years following MFN. The balance of trade will still favor Vietnam as it favors most (if not all) of Americas trading partners. The influx of hard currency will relieve the pressure on foreign currency controls, will spur foreign direct investment, and will bring more jobs and more money to Vietnam.
Vietnams neighbors did not sell out their people or their sovereignty by entering into a timely bilateral trade agreement with America. Neither will Vietnam. But those nations quickly started the process that now allows them to earn hard currency necessary for the growth of their people and nations. So can Vietnam. And none of those neighbors have Vietnams well recognized strengths.
Others Are Benefiting. Curiously, Cambodia and Vietnam completed talks in late May 1998 following which Vietnam elected to encourage its manufactures to contract or co-manufacture in Cambodia. The openly stated purpose is for Vietnamese manufacturers to obtain the benefits of MFN by indirection that are currently denied by direct selling to the United States. Manufacturers should carefully look into the legal effect of such practices.
Vietnam can reform its policies and practices (not just its public statements about them) to make foreign investment truly attractive and foreigners comfortable to work in Vietnam. Adopt new laws Vietnam. This can be done quickly without disrupting the nation. Change the face of the book jacket to match the new story contained within. If the cover is unattractive, the essence of the inside may never be read.
Difficulties Are Present But Can Be Controlled. There is to be no avoiding the disruption expected from instituting national reforms: bankruptcies of unprofitable companies, and unemployment. Reasons for NOT making the changes needed is the concern that State owned companies that cannot be profitable will go bankrupt. However, that is already happening. With large dollar debts, the State feels the false need to stall full economic transformation in order to forestall bankruptcies.
Unemployment from such failures are a second leading concern, and of course social unrest that may follow is the ultimate result to be avoided. However, rather than hiding and hoping, the goal must be to transfer the large, and largely under-utilized State work force, to private industry. Currently, due to the crisis and the close of regional markets, unemployment is already growing, but in the private sector.
Vietnam must now move to support growth in the private sector that will be the only source of employment for the large numbers of unproductive State-enterprise workers. They will need to be retrained, either at State expense or by foreign invested companies.
Take the lead -- now Vietnam. Be honest with your friends and yourselves. Make foreign investment easy. Make your nation an attractive place for international visitors. Dont make your overseas friends always feel they are foreigners in a foreign land. Attract international business. Achieve normal (MFN) trading status with the best market in the world. Provide the safe haven for investments in south east Asia before the current turmoil ends.
Vietnam can change direction on a dime, and has recently again shown how. After befouling Proctor & Gambol for months in the State-controlled media and ramming an unconscionable 7% minority State- owned position down P&Gs throat, Vietnam quickly changed course and permitted Coca-Cola to leave its joint venture and do business as a fully foreign invested company without any of the prolonged acrimony.
Rather than lecturing marketing giants on how to build a strong company, or attacking other foreign business and economic practices with which Vietnam has little experience, Vietnam would be wise to focus on its own inaction and waste.
Correct Errors - Grab Success: Consider merely the associated gas that is still being flared from the Bach Ho oil fields. More than ten years of flaring (burning because it cannot be utilized) costs Vietnam millions of dollars each day of lost revenue. Some estimate more than $10 billion has been lost since gas was first flared 12 years ago.
Plans were considered for a gas processing plant to recover associated gas liquids. Following four years and three rounds of bids, the plant is reportedly now being built. However, there has been minimal use of the gas, and then only in the past two years. And still gas is being flared.
Stop corruption, dont merely talk about stopping it. When an official refuses to do his/her job but lets a business person know he/she can be encouraged with a bribe, it is easy to blame the "rich foreigner" for corrupting the system. Stealing money from the State is a crime, even punishable by death. But it is no crime for private citizens or State officials to steal from foreigners.
Double standards of practice that defeat the good will of foreign travelers (business and tourist) are hard to justify with public calls to increase foreign investment. Talk and ink about foreign currency controls, convertibility allowed but not available, dollar vs. dong debt, and even payment in dong vs. dollars, also misses the point. The shortage of hard currency has only one real practical cure: free-trade with the United States of America. There is recent talk to outlaw the domestic use of dollars. Well, what about the majority of businesses that are State owned? Will they be covered by the same prohibition?
Reconsider predatory practices against foreigners. If you make foreign travelers uncomfortable with outdated laws, high fees, double costs, unpleasant business dealings, corruption, etc., you will succeed in keeping foreign investors away. Few Vietnamese, and no forward thinking Vietnamese, can believe that such is the best course for Vietnam to following into the 21 Century.
Provide international business people real incentives to be in your land. Stop bashing them for trying to make a profit while also trying to help you grow. Provide important, high caliber investors with attractive reasons to come to Vietnam, beyond the desire of Vietnam to grow rich and strong.
Time is short. Change now, Vietnam. Revise your laws, practices and thinking about foreign investment. Accept market forces, and increase both exports and the influx of hard currency by closing an agreement on bilateral trade with the largest (and for now indisputably the strongest) economy in the world. Protect your assets and secure your future. Fail to act now and risk being foreclosed for years to come.
Peter N. Sheridan
Vietnam Venture Group, Inc.
An American veteran of the Vietnam war who practiced law for 25 years before returning here to form this company, and who has been living and working in HCMC since January 1994.
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