Tran Duc Luong
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France occupied all of Vietnam by 1884. Independence was declared after World War II, but the French continued to rule until 1954 when they were defeated by communist forces under Ho Chi MINH, who took control of the north. US economic and military aid to South Vietnam grew through the 1960s in an attempt to bolster the government, but US armed forces were withdrawn following a cease-fire agreement in 1973. Two years later North Vietnamese forces overran the south. Economic reconstruction of the reunited country has proven difficult as aging Communist Party leaders have only grudgingly initiated reforms necessary for a free market.
Update No: 010 -
The Vietnamese economy now has not allowed enough time to prepare itself to survive the course of implementing the international and local integration commitments that it has pledged to follow.
The indifference of domestic firms towards international integration will cause them to fail once the country fully implements its commitments to cut import taxes in early 2003. The remaining three months of this year will not be sufficient time for those who have not yet undertaken any preparations.
On the business side, they are worried that they will face fierce competition in the domestic market once Vietnam fulfils its AFTA commitments, but have yet to take any steps to improve matters so as to be able to survive and grow.
A recent survey by the Vietnam Chamber of Commerce and Industry showed that 16% of domestic firms did not know about globalization. Seventy percent of firms in Ho Chi Minh City, one of the country's economic hubs, could not put together measures to help them join the global economy.
Only 25% of local businesses have any idea about the country's roadmap to fulfil its pledges to AFTA, and a mere 20% of State-owned enterprises (SOEs) are predicted to be capable of survival after joining the world trade arena.
Many firms also appear to be just waiting and watching, while others are seeking government support, citing various reasons why they should be eligible for continuing protection.
The country will have to cut tariffs on all imported goods on its temporary exclusion list from the current 40-50% to less than 20% to fulfil ASEAN Free Trade Area (AFTA) commitments early next year, and 0-5% in 2006. This will pose a grave threat to local enterprises.
Vietnam has so far transferred 5,550 of its import tax list's 6,400 tariff lines to the Inclusion List. About 760 tariff lines included in the Temporary Exclusion List (TEL) are set to be reduced next year. This means some 965 of all products included in the import tax list will be subjected to the Common Effective Preferential Tariff (CEPT) scheme by 2003.
As a result, more goods from regional countries will be allowed into Vietnam, including processed farming produce such as instant coffee and cashew nuts, cooking oil, fabric, beverages and sanitary ware. Ailing firms in these industries will be wiped out.
The biggest challenge to businesses, particularly the small-and-medium enterprises (SMEs), when joining the international organizations will be fierce competition from foreign companies, which will provide high quality and cheap products and services in Vietnam.
Rural SMEs remain weak, particularly in terms of finance, land and managing capability while they do not enjoy sufficient assistance from government. Local officials still consider them as objects to control but not to assist.
The majority of Vietnamese enterprises, with limited financial capacity and obsolete technology that makes production costs high, are therefore in danger of losing their domestic market share.
Investment commitments with international organizations do not encourage production of locally-made items, thus paving the way for the loss of sub-contracts by fledgling SMEs, who have only 10 years experience at most and a limited capacity in producing import substitutes.
Many of these firms' goods, particular agro produce, will not be able to meet high international requirements on food hygiene and environmental protection.
Analysts say there is no need to wait until 2003 for greater impact on domestic firms, as many have been already been hurt by some ASEAN and European products and particularly by Chinese goods in recent times.
To overcome difficulties that regional and global integration bring about, domestic firms need to broaden contacts with foreign distributors, upgrade their technology, intensify marketing abroad, increase personnel training, work out suitable development strategies, and particularly form professional associations to increase their competitiveness, Vietnam Chamber of Commerce and Industry's vice chairman, Vu Tien Loc, advised.
Commenting on the readiness of Vietnam for integration, country director of World Bank, Andrew Steer, said Vietnam is not really a market economy at the moment, implying that the business environment in Vietnam remains unattractive due to its non-transparency, cumbersome administration, and high charges for shipment, post and telecommunication services.
Economic performance updates
FDI capital down 44% in Jan-Sep
Vietnam has licensed 468 foreign direct investment (FDI) projects so far this year with total registered investment capital of $874.63 million, down 44% compared with the same period last year.
In September, the country received 19 foreign investment projects with total registered capital of $30.26 million. The figure of total realized capital was not published.
Southern cities and provinces, including Ho Chi Minh City, Binh Duong, and Dong Nai, still attract most of the FDI capital. Binh Duong province was the biggest FDI recipient with 100 foreign projects licensed with combined registered investment capital of $196 million. Dong Nai province ranked second with 55 projects worth $176.7 million and Ho Chi Minh City has 149 projects with $149 million in registered capital.
Hanoi was the biggest FDI recipient in the north with 40 projects licensed and $100.8 million in total registered capital.
Last year, the country's total foreign investment reached more than $2 billion in registered capital.
Vietnam was recently ranked 20th out of 140 countries this year (up from 53rd out of 140 in 1990) in terms of FDI performance by the UN Conference on Trade and Development (UNCTAD).
Industrial production up 14.1% in Jan-Sep
Vietnam's industrial production grew 14.1% in the first nine months of this year compared to the same period last year, to VND194,364 billion ($12.7 billion).
The private sector continued to record the highest growth of 19.3%, followed by foreign invested enterprises 13.2%. Production value made by centrally-run state-owned enterprises increased by 12.8% while the rate in locally-run state-owned enterprises was 10.2%.
Industrial products reporting on-year increases of over 20% are electric fans, coal, steel and steel products, transport vehicles, transformers, garments, cement, bicycles, motorbikes and automobiles.
ADB predicts Vietnam's GDP at +6.2% in 2002
The Asian Development Bank predicts Vietnam's gross domestic product (GDP) to grow at 6.2% this year and 6.8% next year, mostly due to major government spending and investment. The predictions are far lower than the government's targets of 7% - 7.3%, but are the highest growth the bank has forecasted for countries in the region. Total domestic investment may account for 27% of the GDP this year and 28% next year.
The government will continue its expansionary fiscal stance, mostly in major infrastructure projects and administrative and banking reforms. The budget deficit may reach 5% - 6% of GDP over the two years. That may further attract investments from the private and foreign investment sectors. The government will finance the big spending with high oil sale revenues, supported by rising world prices. Last year, Vietnam saw oil sales of $3.17 billion and spent only $1.87 billion in petroleum imports.
Last year's investment covered 30.9% of GDP to VND150 trillion ($10 billion), according to the General Statistics Office. State budget spending stood at around VND3.3 trillion ($2.2 billion), or 22% of total investment. The industry and construction sectors are projected to grow by 10% annually in the 2002 - 2003 period. The service sector, dominated by small trade and transport services, may post a growth of 5% - 6%, the bank predicts. Consumption may continue growing moderately at 4.5% due to low demand in rural areas caused by weak agro product prices. Export value may reach $16.7 billion this year and $18.7 billion next year, representing growth of 8.5% and 12%, respectively.
As the country may further import materials and machinery for production, import growth in the two years will reach 10% and 13%, respectively. So the current account surplus will narrow to 0.3% of GDP this year and move to a deficit of 0.2% next year.
Exports targeted at $17.9bn in 2002
The Ministry of Trade has set Vietnam's export value target this year at $17.9 billion, up 11% against 2001. The service export value is expected to increase by 18% on year, industrial exports up 11.4% and agro exports up 10%.
The ministry predicts exports to Europe and America will account for 35% of the country's total exports, with the EU importing $3.4 billion and the US $1.8 billion. Deputy Trade Minister, Mai Van Dau, said that the ministry would send more staff to expand Vietnamese product sales in major markets.
However, many exporters worry about increasing competition and requirements in the world market, which exceed their capacity.
Deputy Director of the Vietnam Bank for Foreign Trade, Nguyen Phuoc Thanh, suggested that the government should sign more payment agreements with other countries to facilitate export deals of enterprises, and for the National Export Assistance Fund to lend to foreign clients to encourage them to buy Vietnamese goods.
Vietnam reported export value of $15.1 billion and import spending of $16 billion last year.
Thai Airways adds Hanoi - Bangkok flight
Thai Airways has announced an expansion of its Vietnam operations, adding a second Hanoi-Bangkok daily flight from October. The new flight, an Airbus A300-600, will leave Hanoi at 8.45pm and Bangkok at 5.50pm.
"This late flight will enable passengers to connect to Thai Airways flights to Europe because most fly out of Bangkok at midnight," said Nond Kalinta, general manager of Thai Airways Hanoi office.
The airline's existing daily service departs Hanoi at 11.15am and Bangkok at 8.25am.
Thai Airways also operates two daily flights between Ho Chi Minh City and Bangkok and thrice-weekly flights between Da Nang and Bangkok on Tuesday, Thursday and Saturday.
Asia's biggest gas pipeline to pass through Vietnam
In the framework of Asia-Pacific Economic Cooperation (APEC) forum, the Partnership for Equitable Growth (PEG) has recently announced an initiative to build an Asian gas pipeline linking an Indonesian gas field with Malaysia, Thailand, Vietnam and China, at an estimated cost of $8 billion. PEG is now preparing for a detailed plan shortly.
Some 30% of the project's funding will come from oil and gas enterprises of the five countries. The remainder is expected to come from international organizations and other countries in the world.
With a designed length of nearly 5,000 kilometres, the gas pipeline will become the biggest in the world. The undersea gas pipeline from Norway's Troll gas field to Belgium is only 1,500 kilometres in length.
The initiative has been welcomed by most Asian countries. Although China has not yet decided to join in the project, PEG is still pinning its hopes on it agreeing because the country had to import up to 60 million tons of crude oil last year and needs to buy 100 million tons of fuel in 2010. China is expanding its oil and gas exploration and exploitation activities abroad. The country's PetroChina Co. and CNOOC LTD have invested over $900 million in Indonesia so far this year.
Vietnam attaches importance to this initiative because of the ever-increasing domestic demand for liquefied petroleum gas (LPG). The country's LPG demand grew rapidly to 400,000 tons last year from 5,000 tons in 1993. This figure will reach 480,000 tons this year, while the sole local producer, the Dinh Co Plant, is only able to meet 70% of the figure. Nearly 70% of households in urban areas use LPG for cooking and other activities in their daily lives.
FOREIGN ECONOMIC RELATIONS
Prime Minister heads to Europe
Prime Minister (PM) Phan Van Khai is leading a delegation of seven ministers and deputy ministers and representatives of 21 firms to Denmark to join the fourth Asian-European Meeting (ASEM IV), being held in the capital of Copenhagen. The prime minister will also make visits to Iceland, Luxembourg, Belgium and the European Commission (EC) during his trip. The European Union (EU) is one of Vietnam's largest trading partners, importing 4.4 billion euro ($4.31 billion) worth of Vietnamese goods in 2001 and exported 1.8 billion euro ($1.76 billion) to Vietnam. The EC has pledged 101 million euro ($98.9 million) in 2002-2004 to help Vietnam reduce poverty, develop its human resources and integrate into the global economy. The EU disbursed 246 million euro ($241 million) of ODA to Vietnam, making it the second largest ODA provider to the country, and had pledged to grant 238.6 million euro ($233.8 million) to Vietnam as at late 2000.
Central Vietnam to Boost Trade with Thailand
A delegation of local authorities and enterprises from the four central provinces of Nghe An, Ha Tinh, Quang Binh and Quang Tri will fly to Thailand to attend a conference in Bangkok on September 24-29 with Thai trade officials and businesses in an effort to bolster bilateral trade, according to a Vietnamese correspondent in the Thai capital.
The conference is expected to discuss both countries' legal regulations relating to trade activities and find more business opportunities. Vietnam will ask Thailand to lift restrictions on the import of Vietnamese products.
The Thai side is also expected to create easier conditions for import and export activities by enterprises from either country as it acknowledges that the four Vietnamese provinces have a combined population of 10 million with average purchasing power reaching one billion baht ($24 million) per annum.
Bilateral trade between the two countries stood at $1.13 billion in 2001.
French Investors Kick off Hanoi Project
French investors are poised to begin the Opera Business Centre project at No 6 Trang Tien Street in Hanoi at an estimated cost of $6 million. The project was licensed in 1997 as a joint venture between French-backed Opera Centre Investment SA and Agrexport.
Project backers are waiting for approval from the Hanoi Department of Planning & Investment before starting construction this year.
The joint venture's director, Jocelyne Compagnon, said it had taken time to receive the license as the site is in a "sensitive area" surrounded by the Metropole Hotel, the International Business Centre, the Hanoi Opera House and the future Hanoi Stock Exchange Centre.
"We hope to receive approval shortly so we can begin the project in October," she said.
The new office building is another indication of the revival of Hanoi's property market, can comes after the decision by the Taiwanese-backed Ever Fortune Group to resume construction of the $24-million office plaza in Ly Thuong Kiet Street two months ago.
Taiwanese investors paid three local partners $800,000 to turn the venture, which was originally set up to build a five-star hotel, into a 100% foreign-owned project. The change in investment purpose is attributed to the healthier state of office leasing compared to hotels.
Hanoi's foreign-invested office buildings such as Central Office Building, the Rose Garden, Hanoi Towers, Bic Tungshing and Fortuna Towers, reportedly have occupancy rates of 90-100%.
Market observers say small office buildings are benefiting from the growing demand for office space, with rates only a third of those offered before 1997. Average rates at present are around $20 per sq m per month compared with $30 in 1998.
FOREIGN LOANS & AID
EC pledges 100m Euros for development efforts in VN
The European Commission will provide 101m Euros for sustainable development in Vietnam over the next two years, according to a memorandum signed by EC Delegation Head Ambassador, Frederic Baron, and the Vietnamese Minister of Planning and Investment, Vo Hong Phuc, on September 20th in Hanoi.
The European Commission's three-year National Indictors Program (NIP) covers a range of initiatives designed to reduce poverty in an economically, socially and environmentally sustainable manner.
The NIP will support integrated development in the northern highlands, and help reform education, vocational training, public administration, institutions, the private sector and promote good governance. It also aims to help the country integrate into the global economy and regional economic groupings.
The EC's aid budget of around 34 million euros each year for Vietnam is bolstered by several million euros' worth of initiatives financed under the framework of regional programs making it one of the country's largest donors.
The cumulative commitments for EU ongoing and pipeline projects to Vietnam amounted to 2.6 billion euros by the end of last year. At the time, EU had disbursed 1.42 billion euros, or 27% more than the previous year.
World Bank approved $3bn support strategy for Vietnam
World Bank (WB) Executive Directors have approved a new Vietnam Country Assistance Strategy (CAS) for 2003-06 with a support program of up to $3bn, at the board's meeting on September 3rd.
The CAS for the 2003-06 period, jointly prepared by the World Bank (WB) and the Vietnamese Government, will continue along the lines of the CAS for the 1999-2001 period, with the key target of reducing poverty and pushing up economic growth. It will focus on the three objectives of supporting Vietnam's transition to a market economy, enhancing equitable, inclusive and sustainable development, and promoting good governance.
The change is that the WB will shift from plan designing to supporting the Government in implementing the policy reform agenda, said Andrew Steer, former WB country director in Vietnam.
The support program suggested annual lending from $300m to $850m depending on actual implementation progress.
"This is the second largest International Development Assistance (IDA) program in the world, after India, and reflects the extraordinary potential and opportunities that exist in Vietnam. We believe that Vietnam, if it stays on the right track and addresses the challenges that lie ahead, can meet its development objectives in the coming years ", Andrew Steer said.
There are still obstacles in the implementation of the CAS in the future such as nearly one third of the Vietnamese population being below the poverty line and the presence of a number of structural and governance constraints, said Nisha Agrawal, chief economist at the World Bank.
According to the program, the International Finance Corporation (IFC), the Mekong Project Development Facility (MPDF) and the Multilateral Investment Guarantee Agency (MIGA) will continue to focus on boosting idle State e00nterprise reform, domestic private sector growth and private participation in infrastructure to support the country's improving domestic and foreign investment environment.
The WB Board also approved the appointment of Klaus Rohland, the Bank's Sydney-based country director for East Timor, Papua New Guinea and Pacific Islands, to be the successor of Andrew Steer, who will leave Hanoi in mid-September to work in Indonesia, and the University of Paris Professor Martin Rama is to be the new chief economist.
The WB opened its Vietnam office in 1993 and Andrew Steer became the first country director in 1997. Its outstanding lending commitment was $3.8bn, of which $1.7bn has been disbursed.
Vietnam to produce 60% of medicine demand by 2010
The Vietnamese pharmaceutical sector will meet around 60% of demand from residents by 2010, up from the current 36%, according to a scheme approved by the government in September. The scheme, aiming to turn pharmaceuticals into a spearhead technical economic sector, also targets to increase the country's per capita spending on medicine to between $12 and $15 by 2010 from $6 in 2001.
Accordingly, all pharmaceuticals production establishments will have to gain a certificate of good production practice. The sector will spend much on building more industrial facilities to produce antibiotics and pharmaceutical chemicals, and advantageous medicinal materials, particularly from herbs.
Major measures to realize the scheme include more spending on establishments for chemicals and materials, on production and bio-technology research, workforce training and reorganizing the State inspection system over drug quality. Vietnam now has 90 state-owned drug producers, as well as 316 limited, 43 joint stock and 15 private companies, according to the Vietnam's Pharmacy Management Department.
By the end of March, 223 foreign companies had also been granted operation licenses to trade in pharmaceutical products. The majority are from India, followed by France, Germany, China, South Korea, Japan and Singapore. Last year, the country imported $418 million worth of drugs, and raw materials for drug manufacture.
Tourism sector lures $6bn from abroad so far
The tourism sector has attracted 194 foreign investment projects with total registered capital of $6bn since the effectiveness of the Law on Foreign Investment in 1987, according to the Vietnam National Administration of Tourism.
The figure makes up 15.6% of the total foreign investment in Vietnam in the period, and accounted for 5.9% of the number of projects.
The sector also has attracted some $20 million in official development assistance from Japan, Luxembourg, Spain, Belgium and the World Tourism Organization so far.
Vietnam welcomed over 1.76 million foreign travellers in the first eight months of the year, up 11.2% from the same period last year.
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