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Vietnam FDIB Participant Describes Experience (Part 2)
One site visit was GM Daewoo Vidamco near Hanoi.
The economy consists of three sectors: state-owned enterprise, FDI, and private enterprise. The Vietnamese government aims to control the knowledge- and capital- intensive industries, while opening up the other sectors. That means that the private sector is dominated by mom-and-pop stores and that private investment in growth industries is severely limited. FDI is found mostly in export-oriented manufacturing. The state runs the most important high-potential industries. However, while state-owned enterprises draw vast labor, financial, and natural resources (about 50 percent of overall investment goes into the public sector), they tend to be very inefficient in their use of those resources and don’t produce much economic value or job growth. In fact, the state sector has become highly indebted because it doesn’t produce enough economic value for its share of resource utilization.
According to Jonathan Pincus, the inefficient use of resources can be explained—at least in part —by the decentralized nature of governmental decision making in Vietnam. Unlike China, where the use of important resources is planned centrally, much of the power lies in local relationships in Vietnam. For example, Vietnam is currently developing 20 deep-sea ports along its coast. (By comparison, there are only two deep-sea ports on the U.S. West Coast.) Building deep-sea ports is very capital-intensive. Hence, instead of bundling resources and concentrating investment, the Vietnamese government spreads out its resources to build ports that may very well be underutilized when completed. Why? Because of the influence of local authorities, according to several speakers. Local officials and relationships are very important in the running of the Vietnamese government. Furthermore, every local politician and party official wants to show his or her constituency that he or she has the influence to direct investment to the region.
While many of the economic problems Vietnam currently faces—such as inflation, a negative trade balance, and shrinking growth are home-grown—they are amplified by the current global economic crisis. Foreign investors, for example, are very cautious to invest money in Vietnam at the moment. Furthermore, some of Vietnam’s key export industries—such as tourism, seafood, and agriculture —are feeling the declining demand from abroad. Nevertheless, most experts believe that the economic outlook for Vietnam is very positive, if not in 2009, then in the long-term. The Vietnamese have shown an ability to adapt to new market and political conditions. The economic potential of this country has only been tapped. Walking along the busy streets of Ho Chi Minh City and Hanoi, I was amazed by the entrepreneurial activity in this country. Yes, most of the private businesses may be mom-and-pop stores, but there are also many local retail and restaurant franchises and other businesses. Moreover, many of the Vietnamese we talked to are highly motivated to take initiative and eager to learn. A great example of success is AA Corporation, a furniture maker wholly owned by Vietnamese entrepreneurs, who started making furniture in their garages after work. Now it’s a multi-million business producing furniture for high-end hotels, multi-millionaires, and royal families all over the world. The Vietnamese, based on what I can see, are not afraid to take risks and are very motivated to learn from their surroundings; a good base for this developing country.
Ingo