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COUNTRY REPORT

Vietnam

4th quarter 1996

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1997-98

10 Review10 The political scene14 Economic policy and the economy24 Industry25 Agriculture27 Energy27 Infrastructure27 Employment and wages28 Money and finance31 Tourism

32 Quarterly indicators and trade data

List of tables8 Forecast summary

15 Import growth, Jan-Aug 199618 Gross domestic product and sectoral growth targets, 1996-200018 Sources of investment, 1996-200020 Foreign investment projects20 Licensed foreign investment projects by region20 Investment projects by country21 Turnover and exports of foreign-invested enterprises31 Investment by Vietnam funds32 Quarterly indicators of economic activity32 Foreign trade33 Trade with main partners

List of figures10 Gross domestic product10 Dong real exchange rate18 Sources of investment29 One-year Treasury-bill rates29 Inflation

Vietnam 1

EIU Country Report 4th quarter 1996 © The Economist Intelligence Unit Limited 1996

October 25, 1996 Summary

4th quarter 1996

Outlook for 1997-98: The huge trade deficit will have to be corrected, and adevaluation, initially modest, is expected soon. Trade restrictions may also beput in place. Economic growth has held up in 1996, with real GDP to rise byabout 9.2%. A slightly slower rate of expansion is expected in 1997. Inflationwill be no more than 7% this year, and will rise slightly in 1997. The equitisationprocess will pick up a little momentum, but only a few more companies will beequitised and probably not until late next year.

The political scene: A cabinet reshuffle is expected soon, and the nextgeneration of top leaders will be drawn from the new faces. Tackling “socialevils” remains on the agenda. Dissidents and demonstrators will be dealt withfirmly. Disputes over land expropriation will continue to rise. All the boatpeople have returned from Indonesia, and some from Thailand and HongKong. The EU has provided more funds for their resettlement. The dispute overthe sea boundary with Thailand has resurfaced, with Vietnam seizing two Thaifishing boats.

Economic policy and the economy: The government’s investmentprogramme envisages 9-10% annual growth up to 2000, with half of all invest-ment financing coming from abroad in the form of direct investment, aid andloans. State-owned industries are to remain important in “basic industries”.Foreign investment commitments are running at the same pace as in 1995, butwith a rising proportion going into 100% foreign-owned projects. The newadministrative courts are flawed. The changes to the foreign investment lawbeing debated by the National Assembly are modest.

Sectoral trends: Foreign firms benefit from lower profits tax and import dutiesand expatriates lower personal income tax than their domestic equivalents.Domestic firms have the advantage of longer licences, and cheaper land andutilities. The privileges enjoyed by foreign firms are likely to be extended todomestic ones. Rice production is up, and the domestic price remains low.Coffee exports have risen despite lower world prices. Daewoo has consolidatedits position as the leading foreign firm in Vietnam. It has a project to build a tollroad from Ho Chi Minh City to Vung Tau, and has proposed running a busservice in Hanoi.

Money and finance: The interest rate on one-year Treasury notes has fallento 8%, reflecting lower inflation rates. Credit ceilings on banks may be lowered,but the state commercial banks have excess cash and weak loan portfolios. Theeight Vietnam Funds have money to invest. Vietnam’s first Eurobond issue hasbeen delayed, until the final details of the London Club agreement have beenworked out. The REE Corporation successfully sold $4.5m in convertible bondsto foreign investors.

Editor:All queries:

Anthony GoldstoneTel: (44.171) 830 1007 Fax: (44.171) 830 1023

Vietnam 3


Political structure

Official name Socialist Republic of Vietnam

Form of state One-party rule

The executive The cabinet is constitutionally responsible to the National Assembly and both holdoffice for five-year terms

Head of state The president, currently Le Duc Anh

National legislature Unicameral 395-member Quoc Hoi (National Assembly); elections take place everyfive years. The assembly appoints the president and the cabinet

Local government Centrally controlled provinces and municipalities are subdivided into towns, districtsand villages, which have some degree of local control under their elected People’sCouncils

Legal system The regional People’s Courts and Military Courts operate as courts of first and secondinstance, with the Supreme Court at the apex

National elections July 19, 1992; next elections due 1997

National government The Communist Party of Vietnam, and in particular its Politburo, control both theelectoral process and the executive

Main political organisations The Communist Party of Vietnam; the Vietnam Fatherland Front

Main members of the cabinet Prime minister Vo Van KietDeputy prime ministers Nguyen Khanh

Tran Duc LuongPhan Van Khai

Key ministers Agriculture & rural development Nguyen Cong TanConstruction Ngo Xuan LocCulture & information Tran HoanEducation & training Tran Hong QuanFinance Ho TeForeign affairs Nguyen Manh CamIndustry Dan Vu ChuInterior Bui Thien NgoJustice Nguyen Dinh LocLabour, war invalids & social welfare Tran Dinh HoanNational defence General Doan KhuePlanning & investment Do Quoc SamPopulation & family planning Mai KyScience, technology & environment Dang HuuTrade Le Van TrietTransport & communications Bui Danh Luu

Central bank governor Cao Si Kiem

4 Vietnam


Economic structure

Latest available figures

Economic indicators 1991 1992 1993 1994 1995

GDP at current prices D trn 76.7 110.5 136.6 174.7 222.8a

Real GDP growthb % 6.0 8.7 8.1 8.8 9.5

Consumer price inflation % 67.5 17.5 5.2 14.4 12.7

Population m 67.8 69.3 70.9 72.5 73.9

Exports fob $ m 1,921 2,581 2,988 4,251 5,200

Imports cif $ m 2,063 2,541 3,878 5,834 7,520

Current account $ m –132 –8 –869 –1,044 –1,476a

Reserves excl gold $ m 707 1,170 643 876 1,363

External debtc $ bn 3.8 4.1 4.6 n/a n/a

Exchange rate (av) D:$ 9,390 11,181 10,641 10,900 11,000

October 25, 1996 D11,064:$1

Origins of gross domestic product 1995 % of total

Agriculture 29.0

Industry 29.1

Services 41.9

Total incl others 100.0

Principal exports 1995 % of total Principal imports 1995 % of total

Crude oil 19.7 Fuel, raw materials & machinery 87.8

Textiles & garments 15.4 Consumer goods 15.6

Marine products 11.9

Rice 10.6

Main destinations of exports 1995 % of total Main origins of imports 1994 % of total

Japan 28.5 Singapore 17.0

Germany 9.4 South Korea 12.9

Singapore 7.5 Taiwan 9.6

China 5.2 Japan 8.8

France 5.1 China 6.2

Taiwan 4.5 Hong Kong 6.1

a EIU or official estimate. b Constant 1989 prices. c Excludes transferable rouble debt.

Vietnam 5


Outlook for 1997-98

The faces in the cabinetmay alter—

A cabinet reshuffle is in the offing, and will be discussed by the NationalAssembly, which is currently in session. The changes made to the CommunistParty’s Central Committee at the Party Congress in June-July gave some indic-ation of the posts that will almost certainly be filled by new faces. Among theimportant ministries that look likely to have new ministers are interior,planning and investment, trade, and culture and information. There has beensome speculation that the reshuffle may also involve other figures, the ministerof finance and the holder of the cabinet-level post with responsibility for com-bating corruption and smuggling, and the minister of defence. The reshufflemay not be that comprehensive, but even if it is not, it seems probable that theministerial teams with responsibilities for two areas now regarded by the partyas crucial—the economy and “social control”—will be substantially changed bythe reshuffle.

—but the direction ofpolicy is unlikely

to change

The implications of these personnel changes for policy are not likely to befar-reaching. The replacements are most likely to come from deputy ministeriallevel, and although there is much talk of rejuvenation, the 50-year-olds now atthat level are not expected to make a sharp break with the past. To judge fromthe debates going on in the National Assembly on such economic matters as theintroduction of value-added tax (VAT) and amending the Foreign InvestmentLaw, the Party Congress, whose key documents and resolutions gave somecomfort to all shades of party opinion, has not had a decisive impact on the paceof economic reform. The amendments to the Foreign Investment Law aremodest; whatever type of VAT is agreed, it is likely to involve a protracted trialperiod which may delay full introduction beyond the present deadline.

Fears about the negative effects of rapid economic growth, including the spreadof social evils (in particular crime, prostitution and drug use) and corruption,and widening inequality, are likely to lay the foundations for the government’scampaigns to enforce social control. Again, this is an area where there is aconsensus. The reformist camp appears just as opposed to multipartyism andsocial evils. Social evils were prominent in the opening speech to the assemblygiven by the reformist prime minister, Vo Van Kiet. There may be differencesof tone and approach to these issues even within the security apparatus, withsome members seemingly less inclined to dwell on the dangers of “peacefulevolution” (the supposed “imperialist” strategy of trying to subvert commu-nism by peaceful means) than others. However, so far there is no sign ofemerging fundamental differences on the meaning of political reform.

The trade deficit isunsustainable—

The trade deficit has continued its alarming growth, rising to $3.6bn for theyear to September 10. A deficit of $4.5bn is expected for the year, almost twicethe gap of $2.3bn experienced in 1995, and equivalent to almost 20% of GDP.A trade deficit of perhaps 10% of GDP would be sustainable, and even a sign ofgood health as it might reflect inflows of foreign investment, but in the presentcase only a small part of the gap (and indeed of imports) is attributable toforeign investment. A gap of 20% of GDP is not sustainable. No other fast-growing country has faced trade gaps of this size. The way in which the gap is

6 Vietnam


being financed, namely through supplier and trade credits, and deferred lettersof credit, is likely to bring about heavy demand for foreign exchange as thesecredits fall due in 1997.

—and a devaluationis imminent, albeit a

small one—

One obvious response would be a devaluation of the dong. For some time nowwe have been predicting a devaluation in late 1996 or early 1997. The governorof the State Bank of Vietnam (the central bank) said in late September that somedegree of devaluation is likely. The State Bank is likely to begin by nudging thedong downwards by about 5%. If this has a limited effect on the trade deficit, itwill devalue further by mid-1997, but there is a danger of too little being donetoo late. Part of the problem is that the import boom has been fuelled byshort-term borrowing (deferred letters of credit and suppliers’ credits) and asharp devaluation could leave many importers unable to repay these credits iftheir dong value is increased greatly by this. In addition, the central bank willseek to avoid a cycle of devaluations associated with a rising money supply andconsequent domestic inflation, and thus will maintain tight control on credit asit devalues. This will require a change of policy, because it is currently consider-ing a relaxation of the credit ceilings it had applied in its (successful) fight torestrain inflation.

—as well as furtherrestrictions on imports

Another response to the trade deficit, and one far more damaging than deval-uation, would be to put controls on imports. A number of imports have alreadybeen banned, including used cars. Since smuggling is easy and smugglers facelight penalties, it is well-organised and rife. Import restrictions are thereforeeasy to circumvent. They would also provide a degree of protection to localproducers, and eventually scarce capital and other resources would be chan-nelled into low-productivity uses. The main counterbalance is that Vietnam’sobligations as a member of the Association of South-east Asian Nations(ASEAN) and the ASEAN Free Trade Area (AFTA) and its commitments to the IMFare driving it in the direction of a more liberal trading regime. This factor willhelp moderate the recourse to such restrictions.

Inaction on the tradefront would be worse

If no action is taken, the likely scenario is more dismal. Some trading com-panies, many of which are state enterprises, will need to convert dong intoforeign exchange in order to pay their foreign suppliers. Foreign exchange willbe scarce, as the State Bank’s reserves start to run down. The State Bank willthen be forced to devalue, by more than would otherwise be necessary. Confi-dence in the economy would be shaken, inflows of investment would dimin-ish, and growth would slow. The EIU is forecasting a scenario in which importgrowth does slow sharply in 1997 (largely because borrowing to finance a rateof growth comparable to that of 1996 becomes impossible and direct controlsare placed on some imports), but without bringing the trade deficit back to asustainable level. Further measures, including a larger devaluation, will berequired to bring the deficit down.

Economic growth willmoderate slightly in

1997-98—

Meanwhile, economic growth continues at a strong pace. Industrial output roseby 14% year on year during the third quarter. In 1996 real GDP growth is likelyto be a robust 9.2%. Even if a foreign exchange crisis is avoided, growth in 1997is likely to be somewhat slower. This is because a deceleration of the rate of

Vietnam 7


growth in some key sectors, namely oil, hotels and cement, will drag down theindustrial average. Vietnam is also channelling investment into some compar-atively unproductive activities, such as vehicle assembly and the projected oilrefinery. Investments in these sectors, which are often overpriced andmisplaced, will not yield as much economic growth as more market-determinedinvestments over the next two years.

—and inflation will pickup slightly from this

year’s record low

In August there were fears that inflation had been pushed too low, as prices hadfallen for four successive months. A rise in the index in September has quietedthese fears, and inflation for the year is likely to be 6-7%. This low rate is thefruit of controls on credit by the State Bank, made easier by a small budgetdeficit and an unchanged dong:dollar exchange rate. The interest rate ceilingsfor bank loans, set by the State Bank, have come down in line with fallinginflation. It will be difficult to hold inflation down to this level in 1997 and1998, in part because of the expected (but necessary) devaluation of the dong.

At the same time there is likely to be some easing of monetary policy. Thebanking system, especially the state-owned commercial banks, is fragile. TheState Bank will not allow them to fail, but will probably have to prop them upwith injections of cash. When it devalues the dong, the State Bank will also beunder pressure to make cash available to the banks and some importers so thatthey can borrow their way out of the immediate crisis. In addition, to the extentthat the one or more devaluations work, the State Bank will find its foreignexchange reserves rising (in part as it buys—with dong—more foreign exchange.With more money in circulation (and circulating faster because of lower confi-dence in the dong) inflation will rise though not beyond 15% in 1998.

The state commercialbanks are still weak

Confidence in the banking system is still quite limited, and the banks have hadonly moderate success in mobilising dong deposits. The state-owned bankshave excess reserves and are therefore not working hard to attract deposits, andmany of the foreign banks find it easier (and cheaper) to obtain capital over-seas. It does not help that an estimated 42% of the loans of the state commer-cial banks are overdue, and that a major corruption scandal has come to lightinvolving bribes to bank officials in return for a cheap loan for a textilescompany near Hanoi. The share of underperforming loans is worrisome, andsuggests it would not take much to trigger a financial crisis.

Forecast summary(% change year on year unless otherwise indicated)

1995a 1996b 1997b 1998b

GDP growth 9.5 9.2 8.5 8.0 of which: agriculture 3.8 4.0 3.0 3.0 industry 13.1 13.5 12.0 10.3

Consumer prices 12.7 7.0 12.0 15.0

Exports fob ($ m) 5,200 6,500 7,800 9,360

Imports cif ($ m) 7,520 11,000 11,300 12,300

Current-account balance ($ m) –1,476c –3,800 –3,000 –2,500

Average exchange rate (D:$) 11,000 11,050 12,000 14,000

a Actual. b EIU forecasts. c Official estimate.

8 Vietnam


The pattern of industrialgrowth is changing

Fundamental changes are occurring in the pattern of industrial growth. Theforeign-invested subsector, whose output is increasing at an annual rate of18%, is now driving the sector’s overall growth. The state-owned sector is exper-iencing slower growth, especially in oil, coal, paper and cement. Unlike theprivate and foreign-invested sectors, the state-owned sector has not created anyjobs (on a net basis) over the past few years, and is increasingly been seen aspampered and sluggish. Reformers such as Vo Van Kiet are likely to use thesearguments as they try to ignite the process of equitisation (convertingstate-owned enterprises into public holding companies with issued shares), buthere the biggest obstacle they face is the reluctance of most state-owned enter-prises to give up their privileges and face the rigours of the market unaided.Nonetheless, equitisation is expected to gather steam, especially as it is possibleto point to some successful cases such as the Refrigeration Electrical Engineering(REE) Corporation, which recently issued $4.5m in convertible bonds in order tofinance two ventures into the production of refrigeration equipment.

Foreign investmentcommitments hold up

As expected, foreign investments are being licensed at about the same rate as in1995, and it now looks as if the pace will continue into 1997. Japanese interestin Vietnam has cooled slightly and is likely to remain modest for the next fewyears (at about 10% of total foreign investment). But investment continues toflow in from Taiwan, Singapore and South Korea, which together haveaccounted for three-fifths of new approvals so far this year. Vietnam has nowbecome a cheap alternative to China for these countries and is becoming asattractive as Indonesia and the Philippines. The investment approvals process isno longer a serious bottleneck, but the “second preparation” phase—obtainingland use rights, getting telephone, electricity, water and sewer connections, andhiring employees—is proving more arduous than most investors expected. Thebooming industrial zones are geared to making the second preparation phaseeasier, and are also making it possible for more foreign investors to set upwithout a local partner. This trend is likely to continue.

The Ministry of Finance iscoming under scrutiny

The Ministry of Finance is likely to come under greater scrutiny after a series ofmistakes. It doubled taxes on housing rented by expatriates, but the ensuingoutcry forced it to withdraw the increase. Cloth traders in Hanoi have protestedagainst excessive levels of imputed tax. The value-added tax which is beingproposed is probably too complex—with three separate rates, in addition tozero—and will be difficult to administer. The import tax regime remains com-plex and arbitrary. There is a striking lack of public debate about the budgetand the tax system, because the numbers are not publicly available (theNational Assembly holds vigorous debates on these issues but they are filteredto the public through the official media). A little more openness is to beexpected, probably under a new minister.

Bumper rice crop does notfavour farmers

The bumper rice harvest should be good news for farmers, but so far it has beena disappointment. By the middle of the year the domestic price for rice becamesomewhat detached from the world price, thanks to an overly restrictive exportquota and the effects of the state-owned rice export monopolies (which usetheir power to pay low prices to farmers). These policies seriously depress theincomes of farmers, who are a relatively poor group. In the long run it also

Vietnam 9


works against the professed aim of food security, because it prompts farmers togrow other crops. This message is now being heard, so some modest liberalis-ation of the rice export trade is to be expected.

Review

The political scene

A cabinet reshuffle isimminent

The period since the Eighth Party Congress in June-July has been one of politicalquiescence, at least on the surface. A cabinet reshuffle is in the offing, and islikely to be announced to the National Assembly during its current session,which began on October 15 and is expected to last for about a month. Rumours,but no definite information, about ministerial changes have begun to circulate,and some of the older hands are expected to leave. This would be consistentwith the Party’s stated objective of bringing more young blood into the leader-ship. The list of cabinet ministers dropped from the Central Committee at theParty Congress suggests who is likely to be replaced (3rd quarter 1996, page 9).This includes the minister of the interior, Bui Thien Ngo, the minister of plan-ning and investment, Do Quoc Sam, the minister of trade, Le Van Triet, and theminister of culture and information, Tran Hoan.

The National Assemblydebates taxes and

investment

The prime minister, Vo Van Kiet, set the tone at the opening session of theNational Assembly, contrasting continued rapid economic growth and lowinflation on the one hand, and continued social evils, waste and corruption onthe other. Apart from approving the cabinet changes, the National Assemblywill debate a revised foreign investment law (see below) and changes to the taxcode, including the introduction of a value-added tax (VAT).

The party wants youngblood

The Communist Party has launched a fresh membership drive. Just 12% of its2.1 million members are aged 30 or under, down from 15% five years ago. Thedecreasing attraction of party membership is not hard to understand. Pro-spective members must attend regular and frequent lectures on the history of

6

7

8

9

10

94 95 96(a) 97(a) 98(a)

Vietnam

Asia excl Japan

Gross domestic product % change, year on year

(a) EIU forecasts. (b) Nominal exchange rates adjusted for changesin relative consumer prices.Sources: EIU; IMF, International Financial Statistics.

70

80

90

100

1990 91 92 93 94 95 96(a) 97(a) 97(a)

Dong real exchange rate (b)1990=100

D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$D:$

D:¥

D:$

D:¥D:¥

D:DMD:DMD:DM

D:$

D:¥

D:$

D:¥D:¥

D:DMD:DMD:DM

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:$

D:¥

D:DM

10 Vietnam


the party, on socialism and on party regulations. During their probation theymust participate in a cell group that meets weekly; and members may not runany private enterprise larger than a small family business.

Social evils remaina target—

There is still some life left in the campaign against social evils (2nd quarter1996, pages 12-13). On September 4 the authorities in Ho Chi Minh Cityrounded up 1,900 homeless people, drug addicts and prostitutes. A city officialsaid: “Every year we have such a campaign to resolve social problems.” Theofficial newspaper Saigon Giai Phong (Saigon Liberation) reported that duringthe first half of the year the city closed 109 brothels and arrested 700 peopleinvolved in the sex trade and 168 people for drug-related offences.

—along with dissidents An indication that criticism of the government is to remain within narrowbounds came with the sentencing in August of three dissidents. Le Hong Ha(70), of Hanoi, was sentenced to two years in prison for illegal possession anddissemination of classified state documents. A prominent academic from Dalat,Ha Sy Phu (56), was sentenced to 12 months in prison (most of which he hasnow served). In the run-up to the Party Congress Mr Phu had given an interviewto a California-based radio station in which he had argued that the US govern-ment should not give Most Favoured Nation (MFN) status to Vietnam untildemocracy there was “well developed”. He too was charged with revealing statesecrets. Nguyen Thanh Huyen (65), also of Hanoi, was given a 15-monthsuspended sentence for passing the documents from Mr Ha to Mr Phu. Thereis speculation that the document in question may have been Vo Van Kiet’s“secret” letter of August 1995 which advocated faster economic reform(1st quarter 1996, pages 10-11). The cases were heard in camera. Some foreignobservers had expected stiffer sentences.

Protests over landexpropriation are

increasing

Street protests are being kept within strict limits. In May, farmers in Kim Nohamlet, on the edge of Hanoi, protested about their land being expropriated fora golf course and 1,000 protesters battled against 500 police. During the mêléedozens were injured and one woman died. The local people were complainingabout inadequate compensation and the short notice given of their evictions.The government claims that adequate compensation was provided, that theprotesters were simply greedy and that the land belongs to the state anyway.One protester, Pham Thi Oanh, has been sentenced to 12 months in jail for herrole in the incident, and another received a suspended sentence.

A smaller demonstration, again protesting against eviction and inadequatecompensation, occurred in September when the government began to extendNgoc Khanh Road in western Hanoi. Last year several hundred farmers near HoChi Minh City wrote a petition in which they argued that their land should notbe taken for an investment zone because “our ancestors spent a lot of effort,sweat and tears to work the land”. Concerned about this trend, the authoritiesin Hanoi announced on October 12 that they were planning to tighten thecontrols on demonstrations, and that they would monitor dissidents and for-eigners more closely.

Incidents such as these prompted the Saigon Times Weekly to propose inSeptember that the government should be permitted to force people to relocate

Vietnam 11


only if the land were needed for community services or for national defence,but not for commercial development. The magazine wrote: “There are a lot ofcases in which people think the authorities are making self-serving compulsorypurchases. Land is purchased dirt-cheap and sold at high prices.”

Cambodia wants to solveits disputes with Vietnam

The first prime minister of Cambodia, Prince Norodom Ranariddh, hasexpressed a strong interest in solving the border problem with Vietnam, beforeCambodia becomes a member of the Association of South-east Asian Nations(ASEAN) in July 1997. As recently as July he had accused Vietnam of encroach-ing on Cambodian territory (3rd quarter 1996, page 12). A technical workinggroup has been working on the border question, and may now be expected tomake faster progress. Prince Ranariddh would also like to resolve the two othermain problems between the countries, namely the position of the Vietnamesein Cambodia, and the movement of goods along the Mekong into Cambodia. AVietnamese request, that Cambodia take back the 30,000 residents who fled toVietnam during the 1993 elections, appears to have been turned down by theCambodian government in early October, although the Cambodian foreignminister, Ing Huot, said that his government was discussing Hanoi’s request.

The sea boundaries withThailand are still

unresolved—

The border dispute with Thailand has also flared up again. The dispute was themain issue discussed by the National Assembly chairman, Nong Duc Manh,during his visit to Thailand in early September. On October 17 a Vietnamesenaval vessel attached three Thai fishing trawlers. The incident left two Thaicrew members dead and four injured, and sparked a protest from Bangkok.Early reports indicated that the boats were in Vietnamese waters, but it waslater reported that they were actually in Indonesian waters.

—as are those with China In a diplomatic note sent on August 21 the USA protested China’s claims toterritory in the South China Sea. Washington argues that China has improp-erly used the straight baseline method in areas where the nature of the coast-line is such that it should apply the low waterline method. Vietnam has longargued that the Paracels, which China seized from Vietnam in 1974, do notqualify as an archipelago, which is the basis of China’s claims to large swathesof the South China Sea. China has said that it is willing to settle the territorialdisputes “in accordance with international law” and some Vietnamese diplo-mats believe that the Chinese are now ready seriously to negotiate a peacefulsettlement to the disputes. The seventh meeting of the Sino-Vietnamese JointWorking Group for the Delineation of the Tonkin Gulf took place in Hanoi inearly August in an “atmosphere of friendship and frankness”.

More “boat people” return The repatriation of the boat people continues. The last group, 486 people in all,left Indonesia’s Galang island on September 2. At its peak, the camp there hadsheltered 10,000 people. Thailand sent a further group of 209 people back toVietnam on September 26, in the seventh “orderly repatriation” since the pro-gramme started in June. The number remaining in the Sikhiu camp has nowfallen to 1,700, from a high of about 4,000. The repatriation from Thailand hasnot gone smoothly. During the first one, on June 29, 17 people slashed them-selves with knives, and on September 12, a further 57 asylum seekers stabbedthemselves and were taken to hospital, thereby postponing their return to

12 Vietnam


Vietnam. The Thai authorities have said that they expect the repatriations tobe competed by mid-October. The Filipino government has said that it willnot forcibly repatriate any of the boat people. Vietnamese Americans haveraised substantial amounts of money to help them become established in thePhilippines.

The EU pledges moreresettlement aid—

In Hong Kong the authorities moved the 5,500 southern Vietnamese who wereliving in the Tai A Chau island camp to the Whitehead Detention Centre,preliminary to arranging for their return to Vietnam. About 12,000 boat peopleremain in Hong Kong, and the southern Vietnamese have been particularlyresistant to “volunteering” to return. The 50,000th volunteer returnee fromHong Kong was honoured with flowers as he left the plane at Noi Bai (Hanoi)airport. The EU has agreed to provide a further $20m to help the boat peopleresettle in Vietnam. This is in addition to the $75m which it has alreadyprovided to help with the reintegration into Vietnamese economic and sociallife of the previous 130,000 returnees.

—as Vietnamese returnfrom Germany

Meanwhile, a group of 239 Vietnamese flew home from Germany onSeptember 17. Under an agreement worked out between the two countries,Vietnam will take back 40,000 Vietnamese who are currently living inGermany, and Germany will provide $130m in development aid and exportcredits (3rd quarter 1996, page 15). Agreed almost a year ago, the programmehas got off to a slow start, with Germany threatening to delay the paymentsunless Vietnam speeded up the processing of returnees.

US refugee processingplans stall—

About 6,000 boat people have volunteered to return to Vietnam, on the basis thatthey will be screened by the US State Department’s programme of ResettlementOpportunity for Vietnamese Returnees. However, no agreement has yet beenreached between the USA and Vietnam for US interviewers to screen returneesin Vietnam. Timothy Wirth of the US State Department testified to Congresson September 26 that 1997 is likely to be the last year for large-scale refugeeprocessing in South-east Asia and that the USA plans to admit 10,000 refugeesfrom Cambodia, Laos and Vietnam over the coming 12 months. They wouldjoin the 1.2 million Indochinese who have been admitted to the USAsince 1975.

—as does the appointmentof an ambassador

The appointment of a US ambassador has been postponed until early 1997. TheUS administration nominated Congressman “Pete” Peterson, a Vietnam veteranwho spent seven years in captivity in Vietnam (3rd quarter 1996, page 12). Thedelay is partly due to a technicality, a rule which stipulates that a sitting law-maker may not serve in a civil position created during his or her term of office.The nomination is likely to be reactivated after the November presidential elec-tion, which Bill Clinton has just won.

Labour exports rise,both legal—

While the boat people are returning, Vietnam is increasing its “labour exports”,arranging for a further 5,700 workers to take jobs overseas. Some 20,000 Vietnam-ese workers are now employed abroad, mainly as sailors, construction workersand medical staff, under contracts signed by the 27 State Enterprises authorised

Vietnam 13


to export workers. An estimated 28,000 Vietnamese have worked abroad overthe past five years, about half of them in Libya and South Korea.

—and clandestine Not all workers are exported legally. There are even concerns about a freshexodus of boat people. The Hong Kong authorities have estimated that 800-900Vietnamese, mainly from Haiphong, have landed in Hong Kong since thebeginning of the year—as many as made the move during the four yearsfrom 1991 to 1995. The new migrants are labourers, equipped with false workpapers, arriving for prearranged jobs on Hong Kong building sites.

Economic policy and the economy

Continued rapidindustrial growth—

According to the General Statistical Office (GSO), economic growth hascontinued at a rapid pace, with industrial output growing at a rate of 14% yearon year during the third quarter, up from 13.2% during the first half of the year.For the first nine months of the year, industrial output rose by 13.5% (on anannualised basis), with particularly rapid growth in the foreign-invested sector(18.4%) and more moderate increases in the non-state sector (12.9%) and thestate sector (12%). Other sources give slightly different numbers, although thebasic thrust is similar. The government officially predicts that industrial outputwill rise by 14-15% this year, but if the GSO numbers are correct, the target willprobably not quite be reached.

—masks an unevenperformance

The overall numbers hide some very real difficulties faced in a number of indus-tries. Growth was particularly slow in the coal, cement, paper and beerindustries. By early August some of these industries had amassed very largeinventories. Stockpiles of paper stood at over 20,000 tons and the industry calledfor a ban on imports; the government responded by raising import tariffs onwriting paper and newsprint in July. The Vietnam Cement Corporation hasstockpiles of over 500,000 tons of cement, and in addition there is a stockpileof imported cement of 237,000 tons. The steel industry has accumulated in-ventories of 450,000 tons, and the Vietnam Steel Corporation is urging thegovernment to continue the ban on construction steel which it instituted earlythis year.

Commenting on the slow growth of these industries, the GSO noted that steeland paper were facing tough competition from foreign products, and it hadbeen difficult to find new export markets for coal. Meanwhile the domesticbeer market is approaching saturation. On the other hand, growth was partic-ularly rapid in electric power, steel, milk, foodstuffs and garments.

The huge trade gap sparksconcern—

The trade gap continues to widen dramatically to an unsustainable level. It iscausing increasing concern, including calls for greater protectionism and de-valuation. At the same time the underlying causes of the widening gap are notclear. As the World Bank resident representative, Bradley Babson, noted in lateJuly, the current-account deficit, its financing and the possible longer-termpressures that could arise if it is not financed effectively, have become the mainpreoccupation of those concerned with the Vietnamese economy.

14 Vietnam


The numbers are indeed alarming. In the year to September 10, importsamounted to $8.01bn and exports to $4.48bn, leaving a trade gap of $3.54bn.The trade gap for all of 1995 was $2.3bn. If current trends continue, importswill reach $11.6bn for 1996, or 54% more than in 1995, while exports willincrease to $6.5bn, or 25% more than in 1995. On these assumptions thedeficit would reach $5.3bn, or well over twice the level of 1995. Such a deficitwould represent an astonishing 23% of GDP, a rate rarely observed elsewherein the world, and clearly unsustainable for very long. In practice the EIUexpects import growth to moderate during the last quarter, leaving a tradedeficit of about $4.5bn, still almost 20% of GDP.

—as all categories ofimports rise

It is not clear why imports have risen so quickly, although a breakdown ofimport growth during the first eight months of the year provides some hints.

Import growth, Jan-Aug 1996(% change, year on year)

Machinery & equipment 107

Materials & fuel 30

Vehicles 48

Cement 32

Steel 63

Motorcycles 23Source: General Statistical Office (GSO).

Officially, consumer goods accounted for just 10% of total imports.

Growing foreigninvestment is not the

main cause—

To some extent the imports of machinery and equipment are just the mirrorimage of foreign direct investment (FDI), although there is a suspicion that thesenumbers may be slightly inflated (when local partners in a joint venture inflatethe value of the land they contribute to the enterprise, the foreign partner mayinflate the value of the machinery and equipment it contributes). But the enor-mous rise in imports of capital goods is not consistent with the increase indisbursements of FDI, which will probably rise from about $1.8bn in 1995 toabout $2.3bn in 1996. The GSO notes that imports by the foreign-investedsector accounted for 22% of the total deficit in the year to September 10, whichwould represent imports of just $785m, or about 10% of total imports.

—and some moderation isexpected in the last

quarter

The frenetic rise in imports is expected to moderate during the last quarter ofthe year. Cement and steel imports will fall, because there is a glut of theseproducts on the market. Imports of vehicles have been capped, in principle, bya quota of 20,000 (which includes kits). Rather than pinpoint any single sectoras being responsible for the import surge, however, it is plausible that thecreeping real appreciation of the dong has gradually restrained the growth ofexports while favouring imports.

Import financing may begetting out of hand—

Although disbursements of aid and FDI have risen, these are not enough tofinance the rapid growth in the trade deficit, and how it is being sustainedremains a puzzle. Part of the explanation is the growing use of deferred lettersof credit guaranteed by commercial banks. As of July an estimated $1.3bn ofsuch credit was outstanding. It is also widely believed that substantial amounts

Vietnam 15


of imports are being financed by short-term trade credits, advanced by sup-pliers (in Japan and elsewhere) to state-owned enterprises, which in turn areviewed as having an implicit guarantee from the government. This wouldexplain why the government, after reviewing the economic outcome of thefirst six months, made one of its five priorities the introduction of “strongermeasures ... to control paying for imports in instalments”. If trade credits are sowidely used, there will be a surge of demand for foreign exchange over the nextseveral months, as domestic companies sell their imports and have to use theproceeds to pay off the trade credits. Such a scenario creates the very realpossibility of a foreign exchange crisis early in 1997.

—making a devaluation anear certainty—

The large trade deficit has raised the likelihood of devaluation in the near future.The governor of the State Bank of Vietnam (the central bank), Cao Si Kiem, saidin September that exchange rates would be raised in the coming months, but hehas been coy about when, and by how much, the dong might be devalued. OnSeptember 15 the party newspaper Nhan Dan noted the rise of the trade deficitto a danger level and attributed it to the local currency’s stability against thedollar as well as to unsuitable imports.

—although it is likely tobe modest

It is widely felt that any devaluation should be modest and cautious. Le DanDoanh, who heads the Central Institute for Economic Management, argues formoving “step by step and not too hastily”, and suggests that the dong shouldnot be allowed to move below D12,000:$1 (from the current D11,000:$1) overthe next few months. A fall of this magnitude would amount to a devaluationof just over 8%. A smaller initial devaluation, perhaps no more than about 5%,is probable before the end of the year, but will not suffice to trim the tradedeficit sufficiently to make it easily financeable.

Direct import controlsmay be applied—

The burgeoning trade deficit has also prompted calls for restrictions on importsby, among others, the GSO, and producers of steel and paper. One foreignbanker argues that the government will steer clear of a large devaluation, andtake a centrally planned solution to the looming balance-of-payments prob-lem. In late September the government banned imports of second-hand carsand mechanical goods which can be manufactured domestically, includingmotorcycles, refrigerators and washing machines.

—although ASEANmembership entails less

restrictions—

The secretary-general of the Association of South-east Asian Nations (ASEAN),Ajit Singh, told Vietnam in August that while its tariff rates would not have tobe lowered much to meet its obligations under ASEAN, it would need to tacklequantitative restrictions (the quota system) and other non-tariff barriers. Hesaid that the country needs to formulate a plan for their elimination, for present-ation to an ASEAN economic ministers’ meeting in the near future. He alsoemphasised the need for transparency in the trade regime, noting that this is oneof the requirements for membership of the World Trade Organization (WTO).

—and a dispute-settlementmechanism

One step towards more open trade is the establishment of a procedure forsettling trade disputes. The signing of an agreement on the proposed ASEANdispute-settlement mechanism, which had been expected at the annual

16 Vietnam


economic ministers’ meeting in Bangkok in September, was delayed when theVietnamese delegation said it could not sign the pact because it did not yet havea mandate from the government in Hanoi. The mechanism envisages a panelwhich would hear and settle disputes and recommend penalties, and is thus adeparture from the traditional ASEAN emphasis on resolving problems by con-sensus. The agreement is likely to be signed in November.

Penalties on smugglingremain low

None of the trade data cited above include smuggling, which remains wide-spread. This is not surprising, because the customs service is poorly equippedand staffed, and the penalties minimal (in an expected sense at least). Of morethan 8,900 cases of smuggling reported during the first eight months of theyear, only 40 (less than 0.5%) have been taken to court.

A textiles/garmentagreement is concluded

with the EU

An agreement on the export of textiles and garments to the EU was finalised inJuly. It will permit Vietnam’s exports to the EU to rise to $400m in 1996, upfrom $350m in 1995 and $250m in 1993. Agreement was reached after Vietnamlowered its tariffs on textiles and garment imports from the EU in April. The EUis the most important market for Vietnamese garment and textiles exports,taking 78% of the total in 1995. Most of the remaining exports were routedthrough trading companies under cut-make-thread (CMT) subcontracts, andtherefore added little value to Vietnam’s GDP. The apparel industry has about450 firms in operation, and has attracted foreign investment commitments of$142m, mainly from Taiwan, Hong Kong and South Korea. About half of theforeign investment is flowing into 100% foreign-owned businesses.

Vietnam resubmits itsWTO application

Vietnam has resubmitted its application to join the WTO. It first applied to joinin late 1994, and was asked to revise its 40,000 page application. The WTO isexpected to take between two and six months to review the documents and toset up a negotiation schedule with the government. WTO members are expectedto lower their tariffs appreciably over the next two decades, and provide a levelplaying field for private- and public-sector firms. Japan supports Vietnam’smembership, but until the USA is prepared to grant Most Favoured Nation(MFN) status to Vietnam, its admission into the WTO is unlikely. A total of44 countries are currently seeking WTO membership.

The National Assemblydiscusses VAT

During its October-November session the National Assembly will consider aproposal to introduce value-added tax (VAT). VAT has been introduced in morethan 80 countries. It would be more efficient than the current complex turn-over tax because it would eliminate cascading, whereby the turnover tax oninputs into production gets incorporated in an unsystematic way into the priceof the subsequent outputs. The proposal under consideration would introducea standard rate of 10%, with a reduced rate of 5% for fertilisers, paper, food andmedicines, and a higher rate of 15% for selected luxury items. VAT would applyto any firm with a turnover of over D600m ($54,500) annually. Multi-rate VATis not easy to apply, which is why about half of all countries using VAT applyit at a single rate, and use excise taxes to collect more revenue from selectedluxury items.

Vietnam 17


The PIP sets out targetsto 2000—

In June the Prime Minister’s Office published the Public Investment Programme1996-2000 (PIP), which provides a clear statement of its economic objectivesfor the coming five years. In broad terms its stated goal is “to continue devel-oping a multisectoral market economy under socialist-oriented state manage-ment ... achieving a high and sustainable rate of economic growth ... in parallelwith tackling serious social problems ... and creating the preconditions formore sustainable rapid development in the next era”. The programme will bediscussed in the current National Assembly session. The indicative targets of itsbasic growth scenario are presented below.

Gross domestic product and sectoral growth targets, 1996-2000(% annual average)

GDP 9-10

Agriculture 4.5-5

Industry 14-15

Services 12-13Source: Socialist Republic of Vietnam, Public Investment Programme, 1996-2000.

These targets are in line with current growth rates. To sustain them the planassumes that investment will have to rise from its current 27% share of GDP to34% by the year 2000, and that the capital used as efficiently as it is now (where$3 of investment is required to raise annual GDP by $1, ie the incrementalcapital/output ratio is 3). The total investment required over the five yearswould be $41.4bn, or twice as much as during the past five years. The pro-gramme sets out the expected sources of this investment.

Sources of investment, 1996-2000

$ bn % of total

Grants by the stateFinanced by domestic revenue 5.2 12.6Financed by bond issues & development aid 3.5 8.4

Loans by the stateFinanced by “domestic funding” 2.9 7.0Financed by development aid 4.0 9.7Investment by state-owned enterprises 5.9 14.2Investment by private firms & households 6.9 16.7Foreign direct investment 13.0 31.4

Total 41.4 100.0Source: Socialist Republic of Vietnam, Public Investment Programme, 1996-2000.

These amounts are attainable, but they rely heavily on a continued heavy inflowof foreign capital. Hence the programme states: “FDI is welcome and ... thegovernment will continue to enhance the investment environment, especiallyimproving the legal framework and streamlining procedures to approve invest-ment projects.” The investment plan assumes that FDI disbursements will risefrom the current annual level of about $2bn to $3bn by the end of the century,and that aid disbursements will rise to just over $1bn annually.

The report envisages that state investment grants will go mainly to transport(34%), irrigation and rural water management (15%), urban infrastructure(11%) and social infrastructure such as education and health (24%). Most state

0

10

20

30

40

50

60

70

80

90

100

1994 1996-2000

Domestic savings—stateDomestic savings—privateForeign savings

Sources of investment%

Sources: EIU; Socialist Republic of Vietnam, PublicInvestment Programme.

18 Vietnam


loans, however, will be directed to industry (35%), general agriculture (23%),transport (13%) and telecommunications (15%).

—and a continued strongstate role in industry

The large allocation of credits for industry—mainly electricity, cement, steel,fertilisers, petrochemicals and agricultural processing—are justified on thegrounds that “other sources of finance available will be insufficient to fund therequired investments in these basic industries”. The state’s contribution isexpected to fund about 15% of total industrial investment during the planperiod. This is far less than the roughly 50% of total investment in the indus-trial sector (of about $4.7bn) which was funded by the state during 1991-95.The investment programme proclaims the necessity to promote an efficientindustrial sector with a high capacity for competition.

Despite the nod to competition, the plan favours the amalgamation of state-owned enterprises into general corporations, especially in the sectors of energy,construction material production, food processing industry for export, and theairport and seaport sectors. It goes on to argue that those enterprises which arenot integrated into general corporations should be either dismantled or theownership of the loss-making enterprises should be shifted, through equitis-ation or upgrading through reorganisation, managerial improvements and theintroduction of new technology.

FDI approvals remainbuoyant—

Approvals of FDI projects are running at almost the same level as in 1995, whena record $7.4bn of projects were licensed. As of August 20 some $4.35bn ofprojects had been approved this year, compared with $4.57bn during the sameperiod of 1995. The value of applications is substantially higher than last year,and a number of large projects are expected to be approved before the end of1996. These include the proposed 130,000-barrels/day (b/d) Dung Quat oilrefinery, the 300-mw thermal power plant in the northern province of QuangNinh (to be built on a build-operate-transfer, BOT, by the US firm Oxbow), anda shipbuilding yard backed by Hyundai. The Ministry of Planning andInvestment now expects to approve $6.5bn worth of projects in 1996, whichrepresents a slight increase on expectations three months ago.

The total cumulative amount of approved foreign investment rose to $21.9bnby August. This includes local contributions to joint ventures, which average34% of total approved FDI. An estimated 80% of the local contribution is in theform of land and a further 8% in the form of existing facilities.

—and implementation isrunning at 30% of

approvals

Actual implementation of foreign-investment projects is believed to be runningat about 30% of the level of approvals, although these estimates are subject to awide margin of error. Moreover, because of the lags involved in implementationthis average disguises considerable variation from year to year as the data in thetable below (in which the line for “estimated implementation” comes fromofficial sources) indicate. The estimate for total associated capital inflow in 1996suggests that imports of capital goods for foreign-invested projects will accountfor no more than 20% of the total expected imports of $11bn for that year.

Vietnam 19


Foreign investment projects($ bn)

1994 1995 1996

Total approvals 3.7 7.4 6.5a

Estimated implementation 1.5 2.0 2.5a

Estimated associated capital inflow 1.0 1.8 2.2

a Official forecast.

Sources: Ministry of Planning and Investment; EIU estimates.

The geographical spread iswidening

Foreign investment projects are becoming less geographically concentrated.While 30% of all approved projects are located in Ho Chi Minh City and 19% inHanoi, these proportions fell to 20% and 9% respectively for projects approvedso far this year (to August 23). It remains true that the great bulk of investmentis destined for the three industrial “triangles”, centred around Ho Chi MinhCity-Vung Tau, Hanoi-Haiphong, and Danang-Hue. Industrial growth in thesouthern triangle has averaged 20% annually since 1991, and GDP per head inthe area is about $700, or almost three times the national average.

Licensed foreign investment projects by region(% of total)

Southern triangle (Ho Chi Minh City, Dong Nai, Ba Ria-Vung Tau, Song Be) 52

Northern triangle (Hanoi, Haiphong, Hai Hung, Ha Tay, Quang Ninh) 29

Central triangle (Danang, Thua Thien-Hue, Khanh Hoa) 4

Other areas 14Source: Vietnam Business Journal.

Japan and four “tigers”provide 60% of FDI

Half of all the foreign investment projects originate in just four countries,Taiwan, Japan, Singapore and Hong Kong.

Investment projects by country(% of total approved value as of Aug 23, 1996)

% of all % ofinvestment investment projects

projects approved in 1996

Taiwan 18.3 18.9

Japan 11.0 10.3

Singapore 10.8 23.3

Hong Kong 10.5 4.2

South Korea 9.9 18.1

USA 5.9 3.9

Malaysia 4.2 2.2

EU 10.8 3.3

Other 18.6 15.8Source: Ministry of Planning and Investment.

Not all countries have been equally successful with their investments inVietnam. Japan’s initial keen interest has cooled somewhat. This year itsinvestment approvals have been running at half the level of 1995, and anumber of its approved projects are dormant. French and Australian com-panies, which were among the first to rush into Vietnam after liberalisationbegan, have had the highest failure rates. The Australian cancellations—by

20 Vietnam


Westralian Sands, Portman Mining, Wesfarmers, Consolidated Press, andP&O—have been highly publicised. Broken Hill Proprietary (BHP) has writtenoff its investment in the Dai Hung oil field and wants to sell its stake, althoughit has two small steel fabrication plants and is now considering adding a third.

By contrast the large South Korean firms have entered aggressively and withapparent success. Taiwan has retained its leading position among foreign in-vestors, and is now shifting its investment strategy from large-scale projects tomedium-sized manufacturers concentrated in the emerging industrial zones.Singapore continues to seek out projects and this year has been the leadinginvestor in terms of the value of approved projects.

A growing proportion ofFDI consists of 100%

foreign ventures

An increasing proportion of investment is flowing into 100% foreign-ownedcompanies rather than into joint ventures. During the first half of 1996 almosthalf of the licensed projects, representing about 30% of the capital in foreign-invested firms, was in the form of 100% foreign-invested projects. By compari-son, of all projects approved since 1988, 27% are 100% foreign-owned,representing 18% of cumulative capital value. Until recently, most of the 100%foreign-owned projects have been small or medium-sized. The development ofindustrial and export processing zones (EPZs) has made it easier to invest inVietnam without a local partner, and this also helps to explain the trend. Otherbusiness people have avoided joint ventures because of the unanimity ruleswhich give minority owners a veto over all the major business decisions.

A significant fraction ofFDI projects fail—

As of the beginning of August the licences of 14% of all foreign investmentprojects, representing $1.4bn (6% of total approved investment), had beenwithdrawn. This rate of withdrawal are said to be in line with those experi-enced in other countries in the region. The main reason for cancellations hasbeen that the foreign partner was unable to come up with its capital contrib-ution, or the local partner was unable to secure the land-use rights it promised.

—but the foreign-investedsector is leading economic

growth

The foreign-invested industrial sector is leading economic growth. During thefirst six months of 1996 this sector grew at an annual rate of 34% in Ho ChiMinh City, 50% in Hanoi and 85% in Haiphong, while the domestic industrialsector in these cities grew by 16%, 10% and 2% respectively. Foreign-investedfirms (in all sectors) now employ about 130,000 workers.

Turnover and exports of foreign-invested enterprisesa

($ m)

1988-91 1992 1993 1994 1995

Turnover 192 230 358 850 1,277

Exports 52 112 115 350 400

a Not including the oil sector.

Source: Vietnam Investment Review.

FDI creates tensions— The success of foreign-invested firms has also led to the emergence of someanti-foreigner sentiment. This springs in part from the recent widely publicisedcases of maltreatment of Vietnamese workers in foreign firms, including physi-cal abuse (see Employment and wages). Some local businesses are losing marketshare and believe they do not have deep enough pockets to compete. Foreigners

Vietnam 21


are increasingly numerous—about 6,500 now live in Hanoi—and they are well-off compared with even the best-paid Vietnamese, which causes envy. Some ofthe social tensions which accompany rapid economic growth in Vietnam, suchas rampant corruption and unrealised expectations for the good life, are some-times attributed to the foreign presence.

—and foreign investorsalso complain—

Foreign investors also have complaints. A recent visit by a delegation of Japanesebusiness leaders, headed by the chairman of the Japan-Vietnam EconomicCommittee, Akira Nishio, stressed the need for Vietnam to compete more vigor-ously for overseas investment, which will otherwise flow to other South-eastAsian countries. Mr Nishio focused on high taxes, air fares, and hotel and tele-phone charges, and called for changes in these areas. Businesses also neededclearer rules on borrowing money.

One Japanese industrialist whose experience was cited was able to get an invest-ment licence to operate in the Tan Thuan EPZ within just 15 days of submittingthe necessary documents, but then had to wait two and a half months to getpassports and visas for the 11 Vietnamese workers that the company wanted tosend to Japan for training. The director of Taiwan’s External Trade DevelopmentCouncil, Huang Chi Yuan, says that Taiwan businesses are most concernedabout the “second preparation phase” where they have to get land-use permitsand arrange infrastructure. Others complain about the mountain of paperworkneeded to accomplish a simple task such as registering a car. Further commoncomplaints are that bureaucrats and business partners demand bribes and kick-backs, that firms are forced to take on unwanted board members and that thelocal partners exaggerate the value of their land assets.

—as they do everywhere Some perspective is also in order. Writing in Nikkei Weekly recently, a columnistnoted: “This is Vietnam but the complaints are familiar to someone from Japan.There’s too much bureaucracy. The economic system is inefficient. The marketis over-regulated. Local business customs are mystifying. These complaints inJapan are voiced about Japan. In Vietnam, they are voiced by Japanese business-men about Vietnam.” At a recent Great Mekong forum, Vietnam’s investmentenvironment was considered to be the most favourable among countries inthe region.

The new administrativecourts are flawed

In response to complaints such as these, the government has set up a system ofadministrative courts. The first came into operation on July 1, but the systemhas a fatal flaw. Individuals and organisations, including firms, can file suitsagainst administrative decisions issued by ministries, government offices, thepresident’s office, the National Assembly office and local administrative author-ities. A formal complaint must first be filed with the individual or organisationwith whom the plaintiff has a grievance, and the individual or organisation issupposed to reply in writing within 30 days. The administrative court will nothear a case until the reply is received, and there is no procedure for forcing theaccused to reply, which effectively allows the accused to block a hearing. Inaddition the prime minister has the power to overturn the decisions of thecourt, and the procedure for enforcing an administrative judgment has not yetbeen specified.

22 Vietnam


Proposed changes to theLFI are modest

The government has also proposed a series of amendments to the Law onForeign Investment (LFI), which will be considered by the National Assemblyduring its current session. The LFI came into effect in 1987 and was amendedin 1990 and again in 1992. The most important changes are as follows.

• Foreign partners will be allowed to contribute foreign or Vietnamese cur-rency to the legal capital of a joint venture. By permitting the use of dong, thismay encourage reinvestment and reduce the demand for foreign exchange.

• Special reinvestment incentives will apply both to joint-venture and 100%foreign-owned enterprises, but they are restricted to high-priority areas such asinfrastructure, and the production of import substitutes and exports. This codi-fies current practice.

• 100% foreign-owned enterprises will be banned from investing in telecom-munications, insurance, auditing, hotels, port and airport construction, andelectricity generation and distribution, although joint ventures will be allowedto invest in these areas. Foreign investment will be barred from exploitingforest products, wood processing, and broadcasting.

• At present most matters require the unanimous approval of a joint venture’sBoard of Management, which has the effect of giving the minority partner aveto over almost all business decisions. One of the proposed amendmentswould shorten the list of decisions requiring unanimity, although unanimitywill still be needed for many decisions, including hiring and firing of key staff,borrowing, adoption of the budget and plan, and revisions to the companycharter. Most foreign investors are disappointed that this amendment does notgo further in weakening the unanimity provision, although this perspective isnot universal. Some feel that the unanimity provisions force genuine cooper-ation between partners, and avoids the resentment that might otherwiseemerge.

• In addition to being licensed nationally foreign-investment enterprises willalso have to obtain a local licence. Although this is seen by some as a formality,and would bring foreign-investment licensing into line with the provisions forestablishing local companies, there is concern that this will give local author-ities even more control over foreign-invested businesses.

• Local private firms will probably not be allowed to contribute the value ofland-use rights to joint ventures, which will make it harder for such firms toform joint ventures.

• The government will be more forthcoming with foreign exchange for infra-structure projects or projects which substitute for imports.

• Capital imports are to continue to be exempt from import duties.

• Earlier rules on the establishment and taxation of industrial zones are to becodified and given the force of law.

• The maximum period for evaluating projects for licensing is to be shortenedfrom three months to two.

• Some of the rules transferring technology are to be “liberalised” in the senseof protecting the technology for somewhat longer.

Vietnam 23


The net effect of these changes is likely to be an encouragement of moreforeign investment, but the timid changes to the unanimity rules are likely tobe of limited value in reassuring potential investors that Vietnam is a betterplace to invest than some of its South-east Asian neighbours.

Outcry over foreignhousing tax forces an

about-turn—

On September 9 the Ministry of Finance introduced a regulation which morethan doubled the tax on houses and flats rented to foreigners. For instance, incentral Hanoi or Ho Chi Minh City the monthly tax on the main floor area of avilla was raised from $9 per sq metre to $22 per sq metre, whereas on flats therate was raised from $6 to $10. This would raise the total tax on a villa of200 sq metres from $21,600 to $52,800 per year. Landlords are also taxed at arate of 30% on their gross rental income (which is, however, widely under-stated), and so would be forced to raise their rents by substantially more thanthe taxes indicated here in order to preserve their net income or, in some cases,to avoid losses. The new rules come at a time when rents have been falling, asthe supply of high-quality housing continues to expand. The ruling provokedsuch an outcry from landlords, tenants, and other ministries that the Ministryof Finance has since revoked the increases.

—and a rise in theimputed profits tax runs

into flak

In a separate case fabric sellers at Hanoi’s Hang Da market protested an increasein the profits tax. Because sales receipts are unavailable (and unreliable), theDepartment of Taxation levies the profits tax on the basis of estimated turn-over levels. Sellers claim that the estimated levels of turnover are two to threetimes higher than in reality, and that, in the words of the traders’ petition,“taxes are imposed at random and ... the taxation department doesn’t careabout our performance”. The tax department claims that it is willing to base itstaxation on actual receipts, provided that proper records are kept. Increasinguse of receipts will be necessary in all businesses over the next few years as theproposed VAT is introduced.

Industry

New boards are to speedequitisation—

In another attempt to stimulate equitisation the prime minister, Vo Van Kiet,has established a system of equitisation boards. The boards are to be set up inall state-owned enterprises earmarked for equitisation. Although some of theshares will be held by government (central, provincial or local), typically amajority are to be sold to the public. The boards will be responsible to equitis-ation committees established at provincial and ministerial levels, coordinatedin turn by a National Equitisation Board headed by the minister without port-folio, Phan Van Tiem.

—but firms still prefer tobe state-owned

These bureaucratic changes do not get to the heart of why equitisation hasbeen so slow. The incentives are modest. An equitised firm gets a 50% cut inprofits tax for the first two years if profit is reinvested in the business, bankloans “according to regulations and rates applicable to state enterprises” and“permission to export goods”. Some state-enterprise managers have beenquoted in the press as saying that they believe these regulations are unfeasibleand are intended to merely boost the morale of equitised enterprises. It is also

24 Vietnam


believed that the government is mainly interested in shaking off the burden ofsubsidising enterprises while still retaining control of them.

Quite apart from enjoying a quiet existence there are other reasons why state-owned enterprises are likely to favour going private. For such an enterprise,35% of after-tax profit may be reinvested with the remaining 65% going toworkers’ bonus and welfare funds. Workers are unlikely to favour equitisationwhen they already, without owning shares, receive a share of profits. There isalso great reluctance to allow foreigners to buy shares in equitised companies,especially now when the state-owned banks have excess cash which somewould like to apply for this purpose.

Foreign and localenterprises get different

privileges

Foreign and Vietnamese-owned enterprises do not face a level playing field, butit is not clear which way it is tilting. On the one hand, foreign-invested enter-prises have three advantages: they enjoy a lower profit tax, they may importequipment and materials without import duty, and expatriate workers paylower personal income taxes (but higher taxes on housing). On the other hand,foreign firms have to pay a tax of up to 10% on profits remitted abroad, theirlicences are for a finite period (usually 20-30 years), they face much higher landrents, they pay more for utilities such as phones, power and water, and they aregenerally required to agree to export a certain proportion of their output.Future changes are likely to tilt the playing field towards domestic enterprisesthrough the proposed unification of the profit tax, tighter rules on exemptionsfrom import duty, and expected reductions in the income tax schedule forVietnamese earners.

Agriculture

Severe storms and floods,north and south

Vietnam has had more than its usual quota of natural disasters over the past fewmonths. Six major tropical storms have hit the north and centre since thesummer, the worst series in 25 years. The death toll has exceeded 400 and over500,000 houses were damaged, including 38,000 which were completely de-stroyed. An estimated 300,000 tons of paddy rice were lost. In the Mekong Deltafloods have killed at least 20 and have inundated more than 200,000 homes.

A bumper rice crop— After a bumper rice crop, which was harvested before the recent flooding in theMekong Delta, rice exports are expected to reach as much as 2.8m tons thisyear, up from 2m tons in 1995. Production of paddy rice is expected to rise toabout 25.8m tons, up from 24.8m tons in 1995.

—and a higher-quality onewill boost export

earnings—

Although Vietnam is a major player in the world rice market—it has been thethird or fourth largest exporter every year since 1989—it is generally considereda supplier of last resort. This is because of the unreliable quality and timing ofdeliveries, which in turn means that Vietnamese rice typically sells for less thanthe average world price. The differential has been narrowing, however, from$27 per ton in 1993 to $20 per ton in 1994. Improvements in the quality of therice, including the cultivation of new varieties, have contributed to the change.

Vietnam 25


—but improvements arestill needed

A senior official of the UN Food and Agricultural Organisation (FAO), ElmarMuller, points to several reasons for the continued discount paid for Vietnameserice exports. The state-owned companies which export rice do not have enoughcapital to buy the rice after the harvest and store it properly. By waiting untilthey have a buyer before purchasing from farmers, these companies often fail toobtain enough rice to fill their order. Moreover, the companies face exportquotas which can affect their ability to deliver.

Export monopolies hurtfarmers

A striking example of these problems is found in An Giang, one of the rice-bowl provinces in the Mekong Delta. In early 1996 exports from the provincewere running at half the level of the same period in 1995, and in March theprice fell from D1,700 (15 cents) per kg to D1,100 per kg. The deputy-directorof the provincial trade department blamed the fall on a new rule appointingthe An Giang Food Company as the sole direct exporter. In addition the PriceStabilisation Fund did not lend the D500bn ($45m) that it had offered in thepast at below-market interest rates to enterprises wishing to buy rice. Thedeclining profitability of rice is encouraging farmers to turn to other crops. Italso contributes to widening the income gap between town and country.

By July the price of medium-quality rice in the Mekong Delta had risen toD1,550-1,600/kg. To encourage exports, in June the government reduced therice export tax from 2% to 1%, and the prime minister ordered the PriceStabilisation Fund to pay 1 percentage point of the interest rate on loans takenout by companies which were buying rice. Neither the summer storms in thenorth nor the recent flooding in the south had much effect on rice prices, andby late September strong demand was boosting both the price and quantity ofexports out of the port of Saigon.

Coffee volume is up, butthe price is down

Although coffee production rose by 11% and the volume of exports increasedby about the same amount (compared with 1994/95), earnings from coffeeexports fell by 25% in the 1995/96 growing season. This is because of a reduc-tion in the world price of coffee, from over $2,000 per ton to about $1,500 overthe past year. Despite the fall in price investment in the coffee sector remainsstrong, both to add to the area cultivated and to improve the processing andhandling of beans.

New and lost speciesare found—

As Vietnam opens up its wilderness areas, new species of animals are beingdiscovered at a surprising rate. The latest find, announced on September 27, wasa freshwater fish, 8-10 inches long, with a golden stripe on its back and a silverbelly, weighing about 3 pounds. It was discovered in the rather inaccessiblemountainous region abutting Laos. Just a few weeks before, a pair of Edwardspheasants were captured in Thua Thien-Hue province in central Vietnam. Thepheasants had been thought to be extinct in the wild.

—highlighting the valueof forest protection

Mindful of the value of the forests, officials from Laos, Thailand, Cambodia,Vietnam and Myanmar met in Hanoi in late September to discuss how toprotect and manage the forests of the region. The Vietnamese prime minister,Vo Van Kiet, called for a formal agreement to combat timber smuggling. Forestscover 19% of Vietnam, down from 43% half a century ago.

26 Vietnam


Energy

A nuclear power plant ismooted

The deputy director-general of the Vietnam Electricity Corporation, Tran VietNgai, has said that Vietnam is likely to need to develop a nuclear industrywithin the next 15 years. Electricity demand is growing by 15% annually, andhe believes that thermal and hydro stations will not suffice. Apparently a $3bnnuclear power plant is being studied, but there is also widespread oppositionon environmental and safety grounds.

Infrastructure

Hanoi market reopens tocontroversy

The Dong Xuan market in Hanoi, which was gutted by fire in July 1994, hasreopened. But the reopening has been marred by controversy, with a demon-stration by traders complaining that they were being allocated stalls in lessdesirable locations despite the fact that they had paid their rent in advance andhad two to three years left on their six-year leases. The number of stalls on theground and first floors has been reduced from 2,279 to 1,930.

Daewoo branches outinto road-building and a

bus service

Consolidating its position as the largest single foreign investor in Vietnam,South Korea’s Daewoo recently signed a deal to build a $370m motorway fromHo Chi Minh City to Vung Tau. The 91-km road will be developed on abuild-operate-transfer (BOT) basis, and will shorten the journey between thetwo cities by about 30 km. A detailed feasibility study has begun, but many ofthe details remain to be worked out, including a possible guarantee permittingthe repatriation of profits from the project. Daewoo has also arranged a part-nership with the Hanoi Bus Tourist Company to run a public bus service inHanoi. It remains to be seen how this venture will manage to be profitable, butit will provide an outlet for Daewoo vehicles.

Preparations begin forhigh-tech zone near Hanoi

A satellite city is being planned for Hoa Lac, about 30 km west of Hanoi.Groundbreaking has begun for a six-lane motorway which is expected to costD329bn ($29.9m). The city will be centred around an ambitious high-tech zone,which will be developed in three phases between 1998 and 2020 at an estimatedcost of $10bn. The zone, which is being planned with Japanese support, willhost manufacturing plants and research centres. Hoa Lac will house a newnational university campus and the planned Vietnam Cultural Park.

Employment and wages

Unskilled wages areregionally competitive—

The minimum wage for workers in foreign-invested enterprises in the majorcities rose from $35 to $45 per month in July. Most foreign employers alreadypay at least this amount. According to a survey of foreign-invested factories,undertaken during the first five months of 1996, the cost of employing anunskilled worker in Vietnam was $1,483 per year, substantially less than inIndonesia ($2,468), China ($2,796), Thailand ($4,394) or Taiwan ($12,057).The employment cost includes wages and contributions for social insurance(15%) and medical insurance (2%), to which employees add a further 6%.

Vietnam 27


—but skilled personnel arehard to find—

Many foreign firms cannot find enough experienced mid-level personnel. Onedifficulty here is that the income tax rates for Vietnamese employees are muchsteeper than for foreign employees. A foreigner with a gross salary of $36,000annually would net about $30,000 while the Vietnamese would take homeabout $17,000. The National Assembly is expected to consider relaxing theincome tax schedule for Vietnamese employees during its current session.

—and the rules foremploying foreigners are

tightening

On October 14 the government announced new rules for foreigners working inVietnam. As of March 1997 all foreigners will require a work permit, may takea job only if a suitably qualified person is not available locally and will beallowed to be employed for a maximum of three years. The regulations wouldnot apply to company directors, foreigners hired by the government, membersof donor or international organisations, or individuals working for news com-panies. The rules are in line with those of some other countries in the region,and will have the effect of shifting control over foreigners from the Ministry ofForeign Affairs (which issues visas) to the Ministry of Labour, War Invalids andSocial Welfare.

Frayed labour relations insome foreign-invested

firms

The fragile state of labour relations in some foreign-invested enterprisesclaimed public attention again on August 1, when Jang Mi Baek, a supervisorwith the South Korean firm, Sam Yang Vietnam, received a three-month sus-pended sentence. Upset by what she considered to be shoddy work, she linedup 15 employees and beat them around the face with an unfinished shoe. Thecompany’s workers, about 1,000 in all, then staged a wildcat strike in protest.The company sacked her the same day.

The incident is one of several which have occurred in joint-venture, and partic-ularly South Korean, firms. There have been widespread calls for strongerworker-protection rules. Of the 35 strikes in Ho Chi Minh City since 1990involving Vietnamese employees at foreign firms, 20 arose from alleged viol-ations of “worker dignity”. Sam Yang is a subcontractor for the US shoe giantNike. In the USA there have been calls for a boycott of Nike shoes to protestagainst working conditions at some of its subcontractors. Nike has put pressureon Sam Yang to improve its labour relations, and the government of SouthKorea has posted a labour attaché to its consulate in Ho Chi Minh City.

The right to strike iscurtailed

On September 7 the government introduced rules “regulating” the right tostrike, which effectively prohibit strikes and walkouts in several key sectorsincluding electricity, telecommunications, air and sea transport, banking, andnational defence.

Money and finance

Interest on dong Treasurybills falls

Since early June there have been regular auctions of one-year Treasury notes.The initial coupon rate of 9.5% on June 5 had fallen to about 8.3% by July, anddipped further to 8% in the most recent auction on October 2. At each auctionbetween D50bn ($4.5m) and D100bn worth of bonds were auctioned; the mainbuyers have been the state-owned banks and the Vietnam General InsuranceCompany (Bao Viet).

28 Vietnam


In mid-September the Hanoi Treasury successfully sold D39bn of two-yearbonds. These were the first two-year bonds to be offered, and they carried an(annual) interest rate of 12%. There was no foreign interest in the Hanoi bondsor in similar bonds sold by the Ho Chi Minh City Treasury.

Inflation is expected to be6-7% in 1996—

Consumer price inflation rates are now expected to fall to an annual average of6-7% in 1996, down from 12.7% in 1995. Prices actually fell every month fromApril to August, and by September the year-on-year inflation rate had declinedto 2.9%. In mid-September the deputy prime minister, Tran Duc Luong, ex-pressed concern about the low inflation rate, and suggested that steps mightneed to be taken to prevent deflation. This echoed the sentiments of thegovernor of the State Bank of Vietnam (the central bank), Cao Si Kiem, whosaid in early August that further falls in inflation would hurt the economy.

—and the State Bankplans to relax credit

ceilings—

One response of the State Bank to the falling inflation rate has been to suggestthat credit limits now imposed on 19 out of 46 commercial banks may be raisedby 20-21% some time before the end of the year. How the credit limits aredetermined for each bank is unclear, and bankers have been seeking greaterclarity.

The effect of an easing of credit would be modest because a number of bankshave not yet hit their loan ceilings. In mid-August the banks had excessreserves of about D2.8trn, or about 5% of outstanding loans. Over 80% of loansare short-term; few enterprises were profitable enough to be able to borrowmedium-term at the annual interest rates (19.2% per year) which prevailed atthe time.

One alleged cause of the capital glut at banks was the overuse of deferred lettersof credit. Firms would open a letter of credit to pay for imports (at low dollarinterest rates), import goods and sell them domestically, and deposit themoney (at higher dong interest rates) until the letter of credit matured. TheState Bank restricted the use of letters of credit in June, requiring importers todeposit at least 80% of the value of the letter of credit in advance, but rescindedthe rule in August after an outcry from importers. It now appears to have putin place a limit, adjusted each quarter for each bank, on the volume of foreignloan guarantees which banks may make.

9

10

11

12

13

14

15

16

Mar14 Jun5

Jun 26Jul 11

Jul 24Aug 7

Aug 14Sep 11

Sep 23Oct 2

One-year Treasury-bill rates % change

Source: Press reports.

3

4

5

Mar Apr May Jun Jul Aug Sep Oct

Inflation%

Source: Press reports.

Vietnam 29


—but is constrained bylow-quality loan portfolios

Also moderating the expansion of credit is the State Bank’s growing concernabout the quality of loans made by the state-owned commercial banks. Aninspector from the State Bank has claimed that almost half of the outstandingloans of these commercial banks were made in violation of credit regulations.The party newspaper, Nhan Dan, claimed in early October than 42% of the debtowed to state commercial banks is overdue. Corruption in the banking systemmay be widespread. In August, seven managers of the long-established NamDinh Textile Company were arrested for paying about $80,000 in bribes tobank officials locally and in Hanoi, in order to secure a low-interest $50m loan.

Interest rates are cut The second response of the State Bank to slowing inflation has been to lowerthe ceilings on interest rates charged by banks for loans. The maximum lendingrate for short-term dong-denominated loans was 2.1% per month in Januaryand was cut on October 1, for the fourth time this year, to 1.25% per month (a16.1% annualised rate). The ceiling on medium- and long-term loans was alsocut, to 1.35% per month.

Open-market operationsare planned for 1997

In the longer term, the State Bank plans to develop more sophisticated instru-ments of monetary control, which would allow it to eradicate regulations onceiling interest rates. With this in mind, Cao Si Kiem has said that the bank willlaunch open-market operations early in 1997.

REE sells first convertiblebonds

The Refrigeration Electrical Engineering (REE) Corporation successfully sold$4.5m in convertible bonds to five foreign investors in July. The significance ofthe move is that this was the first Vietnamese security marketed abroad, and soprovided the first opportunity for foreign investors to undertake a portfolioinvestment in Vietnamese manufacturing (3rd quarter 1996, page 26). Thebonds carry a fixed interest rate of 4.5% per year, and will be converted intoshares at a rate which will depend on the profits earned in 1996-1998. Thebonds are seen as “a trial issue” by the government. REE was only the secondfirm (our of a total of five) to be privatised (in 1993), and the original owner,the People’s Committee of Ho Chi Minh City, still holds a 30% stake in theenterprise. REE imports and services air-conditioners, and plans to use some ofthe proceeds of the bond issue to finance its share of two joint ventures, one tomake air-conditioners with the US firm Carrier, and the other to make refrig-erators with Hitachi of Japan.

The Eurobond issue isdelayed again

Once again Vietnam’s plan to launch a Eurobond issue has been delayed, until1997 at the earliest. It will have to await final agreement on the details of theLondon Club agreement, which wrote off and rescheduled much of thecountry’s debt with private creditors (3rd quarter 1996, page 29). The Eurobondissue will aim to raise $100-150m, and is mainly intended to establish Vietnam’scredibility in the international capital markets. The issue was mandated toMerrill Lynch and Nomura, with Deutsche Morgan Grenfell as senior co-lead.

Meanwhile First Commercial Bank of Taiwan has been chosen to organise a$200m syndicated loan for Universal Cement Corporation, to finance its invest-ments in Vietnam. The loan will have a duration of ten years and cost Londoninterbank offered rate (LIBOR) plus 1.75%. The bank has also participated in a$39.6m syndicated loan to the Vietnam-Taiwan Sugar Corporation.

30 Vietnam


The Vietnam Funds stillseek investments

The eight Vietnam Funds still have funds to invest. Most of them originallyexpected that a stock market would be set up at an early date, so they would beable to make portfolio investments in the country. Since a stock market is nowunlikely before the end of the century, and will be small for a decade after that,the funds have taken a more active stance, operating like venture capitalists.None of the funds has yet been able to place all of its capital in suitable invest-ments, which need to yield between 25% and 30% per year to be attractive.

Investment by Vietnam funds

% disbursed$ m or committed

Vietnam Frontier Fund 50 71

Beta Vietnam Fund 71 57

Templeton Vietnam Opportunities Fund 112 n/a

Vietnam Enterprise Investments 16.5 53

Vietnam Fund 59 50

Lazard Vietnam Fund 56 30

Vietnam Investment Fund 90 40

UOB-Walden Vietnam Fund 30 0Source: Financial Times.

Tourism

Tourist numbers rise, butnot fast enough for the

overbuilt hotel sector

Tourism continues to expand at a brisk pace. There was a 23% increase inforeign tourist arrivals during the first half of 1996, bringing the total to640,000. The number of local tourists is estimated to have risen even moredramatically, by 54% to about 3 million. Despite these large increases, turnoverin the tourism sector did not live up to expectations. Because of growing com-petition the large state-owned SaigonTourist found that although it received 6%more guests in its hotels during the first seven months of the year (comparedwith the equivalent period of 1995), its (dong) turnover fell by 2%. Ho Chi MinhCity now has about 5,400 hotel rooms, up from less than 3,000 in 1993, andoccupancy rates in all the luxury hotels have fallen. Less than 20% of theirbusiness is attributable to tourists, and investors in hotels overestimated thegrowth of demand for rooms by business people. In part this is due to theopening of a number of residential complexes, which have siphoned off most ofthe long-stay guests.

Vietnam Airlines reachesnew heights

Vietnam Airlines has continued to expand, carrying 32% more passengers in1995 (2.2 million) than in 1994 and increasing cargo loads by 61%. The com-pany owns four ATR-72 turboprops and leases two more. It also leases sixBoeing-767s and one Airbus A320. In the near future it plans to take delivery oftwo Fokker-70s and to dry-lease nine more Airbus A320s. The airline losesmoney on its domestic service, which accounts for 60% of its total traffic,and now competes with over 20 foreign airlines which fly into the country’sairports.

Vietnam 31


Quarterly indicators and trade data

Quarterly indicators of economic activity

1994 1995 1996

2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Agricultural production Annual totals

Rice ’000 tons ( 23,530 ) ( 24,800 ) ( n/a )

Exports Qtrly totals

Rubber: net ’000 tons 11.0 17.0 19.0 13.0 11.0 18.0 21.0 16.0 8.0a n/a

Foreign trade Annual totals

Exports $ m ( 4,054 ) ( 5,200 ) ( n/a )

Imports “ ( 5,245 ) ( 7,520 ) ( n/a )

Exchange rate End-Qtr

Official rate D:$ 11,007 10,871 11,073 11,212 11,034 11,023 11,011 11,013 11,014 11,028

Note. Annual figures of most of the series shown above will be found in the Country Profile.a Total for April-May.

Foreign trade($ m)

Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1992 1993 1994a 1995a

Imports cifWheat 59 62 62 n/a Sugar 4 14 47 n/a Monosodium glutamate 53 55 52 n/a Petroleum products 615 614 696 856 Fertilisers 320 189 247 229 Cotton textiles 23 54 62 n/a Steel 104 189 135 n/a Machinery & spare parts 100 635 1,549 n/a Total incl others 2,535 3,532 5,245 7,520

Exports fobMarine products 302 427 489 620 Rice 86 110 234 549 Cashew nuts 41 44 59 n/a Coffee 54 74 95 n/a Rubber 54 74 95 n/a Coal 47 70 71 81 Petroleum 756 844 866 1,024 Textiles & garments 221 336 550 800 Total incl others 2,475 2,985 4,054 5,200

a Preliminary.

Source: World Bank, Vietnam: Economic Report on Industrialisation and Industrial Policy.

32 Vietnam


Trade with main partnersa

($ ’000; monthly averages)

Singapore South Korea Taiwan China Japan

Jan-Apr Jan-Apr Jan-Dec Jan-Dec Jan-Apr Jan-Apr Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports to Vietnam fob 1995 1996 1994 1995 1995 1996 1994 1995 1993 1994

Foodstuffs 2,960 3,299 858 1,202 97 91 2,657 3,932 1,241 621

of which:

cereals & preparations 1,414 985 70 212 6 27 1,517 1,698 984 366

Mineral fuels 46,288 47,815 6,021 4,549 594 1,201 597 519 1,881 3,727

Chemicals 12,931 15,372 13,103 13,931 8,932 11,008 4,244 9,431 4,773 5,787

of which:

elements & compounds 3,848 4,992 1,231 1,645 2,438 1,002 1,792 3,267 1,283 1,349

plastics 3,572 3,392 6,383 8,116 3,646 5,820 332 573 1,073 2,532

Rubber manufactures 714 493 754 837 1,026b 1,507b 199 1,056 268 268

Paper, etc & manufactures 1,432 1,440 872 1,825 3,670 5,153 311 1,261 213 203

Textile yarn, cloth & mnfrs 2,607 2,056 19,198 28,160 23,107c 28,700c 2,395 4,442 3,769 5,449

Iron & steel 1,811 1,885 9,719 6,032 1,841 3,915 309 2,249 3,801 4,025

Non-ferrous metals 2,058 1,568 1,690 3,076 1,278d 1,521d 1,055 2,553 123 165

Metal manufactures 3,005 4,320 1,964 4,263 2,460 3,110 514 1,410 343 786

Machinery & transport eqpt 32,159 37,611 22,282 35,079 17,760 16,098 8,586 16,427 33,059 27,150

of which:

transport equipment 2,048 3,214 5,628 11,176 5,261 3,802 1,396 1,790 18,478 10,374

Scientific instruments 3,588 5,384 279 571 379 546 513 823 977 1,410

Total incl others 134,492 146,844 85,613 112,585 77,853 91,201 28,461 60,025 52,869 53,639#

Japan Singapore China France Taiwan

Jan-Dec Jan-Dec Jan-Apr Jan-Apr Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Apr Jan-Apr

Imports from Vietnam cif 1993 1994 1995 1996 1994 1995 1994 1995 1995 1996

Foodstuffs 21,116 30,209 20,641 7,376 5,377 10,908 2,644 3,712 1,891 2,514

of which:

fish & preparations 19,912 27,430 1,863 476 665 349 191 400 261 305

coffee, cocoa, tea & spices 803 2,076 17,800 1,661 63 100 1,709 2,785 388 395

Wood & cork & manufactures 1,162 1,577 0 75 530 757 446 615 6,937 6,221

Mineral fuels 45,938 47,965 17,351 12,111 6,894 9,022 886 390 396 520

Chemicals 94 59 383 771 111 185 80 65 331 577

Clothing 14,717 21,559 919 978 1 23 3,632 4,659 1,786 3,024

Footwear 343 771 152 958 0 1 6,273 8,960 137 605

Total incl others 88,711 112,339 48,943 31,935 15,943 27,672 19,258 25,771 22,253 24,181

a Figures from partners’ trade accounts. b Including crude rubber. c Including fibres. d Including manufactures.

Vietnam 33


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