Vietnam as the “new China”, for better or worse
For this year, the government expects GDP to grow by 6.5 per cent, thus turning the page on the 2008 global crisis.
Since 1986, foreign direct investment in Vietnam went from zero to a peak of US$ 60.3 billion in 2008, almost three times Vietnam’s foreign exchange reserves at the end of 2008.
Yet, the Vietnamese market remains a tough one to crack, a real roller coaster as many investors learnt at their own expense.
For example, the Ho Chi Minh City Stock Exchange’s benchmark VN Index plunged 66 per cent in 2008 as inflation peaked at 28.3 per cent in August of that year, followed by the global recession, which destroyed confidence in Vietnamese investments. The central bank raised interest rates three times in 2008 to 14 per cent to slow inflation. Some major investors grew tired of the ups and downs and bailed out, selling their stocks in local companies at a great loss.
By contrast, the VN index gained 57 per cent last year, and is up 3.5 per cent this year to March 24, rewarding those investors who had the stomach to stick it out.
For some experts, it is still possible to make money in this land of 86 million people provided investors have steely nerves, and are a ready to put their trust in domestic growth and the private sector.
As Western investment poured into Vietnam, per capita income almost tripled to US$ 1,042 in 2008 from US$ 375 in 1999.
“Vietnam was viewed as the final frontier of Asia,” Son Nam Nguyen, managing partner of Vietnam Capital Partners, told Bloomberg. “No one wanted to miss out on the next China.”
The comparison with China applies in more ways than one. Like its northern neighbour, Vietnam is experiencing many of the social problems emerging nations have to address following rapid development: the exploitation of cheap labour, a rapidly widening gap between cities and the countryside, and widespread corruption.
Private consumption is certainly up, at least in the cities, but quick economic growth also means major traffic jams. It also means Western-styled cafés and restaurants.
David Thai, a former refugee raised in Seattle, now back home to profit from his homeland’s free-market switch, founded Highlands Coffee, Vietnam’s answer to Starbucks, in 2002. His cafés cater to a high-end clientele that can afford Western prices. A small latte costs 44,000 dong, or about US$ 2.25, the equivalent of a beef noodle soup dinner for two. His 80 Highlands outlets are equipped with air conditioners, flat- screen TVs and Wi-Fi connections.
In January, Thai spent more than US million to open Vietnam’s first Hard Rock Cafe in Ho Chi Minh City.
It is another kettle of fish in rural areas, where daily survival is the main problem. As of July 2008, agricultural and forestry still accounted for about half of the workforce in Vietnam, some 22 million people, according to the General Statistics Office of Vietnam.
Still, manufacturing jobs doubled to 6.3 million, or 14 per cent of the workforce, between 2000 and 2008. Local companies have mushroomed in a number of areas, like Socbay.com, the Vietnamese-language search engine, soon to be Vietnam’s Google.
However, like in China and elsewhere, economic development was possible because of cheap labour and the lack of civil and workers’ rights.
Moreover, in Vietnam, foreign companies encounter institutional corruption. According to Transparency International, an advocacy group that monitors business conditions, Vietnam ranked 120th out of 180 nations in 2009, behind China, Thailand and Indonesia, on its Corruption Perceptions Index, which rates executives’ views on the integrity of global business environments.
In its 2006 report, Transparency International found a big gap between what the authorities say and what they do so that “having the right connections—and money—are crucial to getting things done.”
All this is a far cry from 30 April 1975, the day when a North Vietnamese tank rammed through the gates of the presidential palace in Saigon, symbolically marking the final takeover of the country by Communist forces. In the chaotic years that followed, more than a million Vietnamese left the country on foot or by boat taking to the South China Sea. In the next decade, the brain drain contributed to Vietnam’s economic isolation.
This all changed in 1986, when Pham Van Dong, the first prime minister of the Socialist Republic of Vietnam, introduced limited private ownership of companies, cut state subsidies, lifted price controls and eventually opened the door to foreign investment.
Eight years later, US President Bill Clinton lifted the US trade embargo against Vietnam, opening the doors to many former refugees, eager to invest and do business in their homeland.