HO
CHI MINH CITY - Vietnam's business climate is becoming
increasingly sophisticated, thanks to the country's
rapidly growing, export-oriented private sector.
Ironically, its most visible manifestation is
state-owned Vietnam Airlines, emerging as Vietnam's
first global brand. Yet this is an exception, as most
state firms, or those recently privatized, remain
bureaucratic and inefficient, still clutching the old
public-sector mentality that shuns innovation,
risk-taking and service.
In the early 1990s,
foreign investors in Vietnam brimmed with optimism. A
few years later they left, fed up with sour deals, bad
regulations and suffocating bureaucracy. Things appear
better now, with the economy booming and investors,
particularly from Japan, Korean and Taiwan, flocking
back. "The quality of production in Vietnam is higher
than almost everywhere else," says Kevin Snowball,
director of PXP Vietnam Asset Management. "There is a
lot of relocation of footwear from Indonesia and China."
Trade deals have opened doors for deals - and
experience - for Vietnam's burgeoning private sector.
Thanks to a trade deal, US-bound textiles worth just
US$50 million in 2001 shot up to $950 million in 2002.
"The US did not expect the Vietnamese to push the door
open as far as they did. Consequently, in 2003, the US
introduced quotas. Those quotas were full by June 2003,"
says Snowball.
Unfortunately, elimination of
World Trade Organization (WTO) quotas over the next few
years threatens to spoil the party, but perhaps not for
long. "Vietnam will probably compete by aiming for the
higher end," Snowball says. Rapid evolution in the
private sector suggests his hunch may not be far off the
mark. Firms are wising up, realizing they can't just
rely on exports and cheap prices.
"Most
Vietnamese companies are changing now; they are learning
to be more effective in marketing," says Hoang Kim
Chuong, international sales and marketing director for
Vietnam's Trung Nguyen Coffee. "Vietnam is becoming more
open, interacting more with other countries and markets.
We are becoming more aware. We have to be better,
faster, cheaper."
That the economy is booming as
the private sector forges ahead is not hard to see. Over
the past few years motorcycles have packed Vietnam's
city streets; the genteel, pollution-free cyclos now are
a rarity in Hanoi and Ho Chi Minh. Japanese, European
and American brand cars are increasingly common.
Bangkok-style traffic jams may be on the horizon.
"What I see is a lot of people making a lot of
money, especially in the [Mekong] Delta, in shrimps,
fish and farming. One of the signs that they're making a
lot of money is this booming real-estate market. Prices
have exploded. The don't put it [their money] in the
bank, they don't buy stocks, they put it in land," a
foreign energy executive with two decades of experience
in Southeast Asia says. "There very well could be a
property bubble forming. It's at the crazy stage where
four years ago people paid $200,000 for a house [in Ho
Chi Minh]; six months ago someone comes up and says he
wants to buy, offering $500,000 cash."
For Jim
Eckes, consultancy Indoswiss Aviation's managing
director, who worked in South Vietnam for seven years
during the 1960s and 70s, the private sector's fast
development and Vietnam Airlines' turnaround from a
stodgy loss-making state carrier to a slick,
fast-growing profit-maker, is no surprise. "What we're
seeing here is an example of the Vietnamese inherent
skill as businessmen. They absorb business skills
rapidly."
This year, Vietnam Airlines forecasts
carrying around 5 million passengers, a number expected
to double by 2010. That could be an underestimate. A
liberal air services deal signed between the United
States and Vietnam in 2003 allows for a massive
expansion in flights between the two countries over the
coming years. With a million reasonably well-off ethnic
Vietnamese, investment and visitors are likely to soar.
But with the exception of the airline, thousands
of state-owned, or formerly state-owned, firms may not
be quite so on the ball. "The state-owned enterprises
are still very bureaucratic, very slow. They're one of
the things that's holding Vietnam back," says the energy
executive on condition of anonymity. "The Vietnamese
people are extremely hard working. If you could get the
government out of the way, they would be extremely
successful."
Corruption adds costs, but it also
makes many bureaucrats and state firm managers wary of
making a good decision for fear of triggering a
corruption investigation. Thus, they tend to take time,
a long time, to decide anything - and then preferably
not alone. "It's to a greater extent than you'd ever see
in Thailand or even Myanmar," the energy executive says.
"There's also a lot of investigations into
corruption in state-owned companies, especially
construction and infrastructure. While it's good to have
these anti-corruption drives, it's made the top
management of these companies extremely reluctant to
approve new deals, make things go forward because they
don't want to be open to charges of corruption."
Transparency, or rather the lack of it, is a
problem for Vietnamese and foreign investors alike. "I
think transparency is a huge issue. We, as a shipping
company, can't even get shipping figures," says a
European logistician who requested anonymity.
The difference between the public and private
sector has a geographic corollary. Around 85% of
government revenues come from Ho Chi Minh and Vung Tau,
an oil town nearby where entrepreneurial spirit is
stronger and more aggressive. Yet the north's share of
government spending still far exceeds what it
contributes. If this were not the case, some observers
suspect the economic chasm between the two regions would
bear comparison with that between North and South Korea.
"I think the south is going ahead in leaps and bounds,
the north just plodding along," says the logistician.
He, like other foreign investors and managers,
remains overwhelmingly optimistic, impressed by a slew
of reforms introduced earlier this decade. China's
reform and boom, though still very much a work in
progress, shows the way for Vietnam. "I think they will
continue riding on the coattails of China, they will get
into the WTO at the end of 2005. I think what happens in
China today, happens here tomorrow," the logistician
says.
Reforming state enterprises is never easy,
much less switching from one economic system to another
while trying to raise living standards and development.
Even eastern Germany still trails the western half on
many indicators, 15 years after reunification with one
of the world's richest countries. Vietnam has traveled
far since beginning doi moi (change and newness)
reforms 18 years ago, but it still has a long way to go
to become a serious agriculture and manufacturing
competitor.
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