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The old and the new: the Vietnamese government is attempting a delicate balancing act as new money pours into the former Communist country |
ON NGUYEN SIEU Street in District 1 of Ho Chi Minh City the foundations of an ambitious 12-storey apartment block are being laid. The Saigon Residences is a joint venture between Tran Phu Printing Co of Vietnam and Frasers Centrepoint of Singapore. The new building is a good illustration of modern Vietnam: ambitious, confident and brimming with cash from overseas investors keen to get a slice of the action in one of Asia’s biggest growth stories.
Unfortunately, in the process of digging out the new building’s foundations, a five-storey building nearby started to tilt and ended up on the verge of collapse, forcing the evacuation of the 25 families living there.
In September, the collapse of the Can Tho Bridge, under construction 100 miles south of Ho Chi Minh City, killed dozens of people and left more than 100 others injured (the official casualties have not yet been confirmed). The project has heavy Japanese involvement, through consultants Nippon Koei-Chodai and constructors Taisei, Kajima and Nippon Steel, and is funded by the Japan International Cooperation Agency.
The recent bridge collapses in Dubai and the US show construction risk is not particular to Vietnam. However, they also illustrate that getting the foundations right is crucial to long-term success in any field.
It is with this in mind that the Vietnamese government is attempting the highly delicate balancing act of keeping the country’s soaring growth on track while trying to prevent the economy from overheating.
Certainly the fuel for the fire is there. The flood of funds into the country shows no sign of abating. Some 20 new country funds have been set up this year, with new funds of up to $4 billion ready to invest in the country. About 50 funds are now looking at Vietnam. This is on top of the estimated $10 billion of foreign direct investment this year.
ANZ, in its latest research on the country, says: "The State Bank of Vietnam (which is not independent of the government), faces a policy conundrum as it tries to manage inflation in a booming economy and at the same time meet the government’s target for the VND to depreciate to support the local export sector."
Balancing these contradictory objectives requires a steady hand from the bank. Inflation has quickened throughout 2007 and reached 8.8% in September. A large part of this can be attributed to spiralling food prices, as food is far and away the largest component in the consumer price index.
Things will not get any easier. ANZ predicts inflation will ease in 2008 to 7% to 7.5%. But capital inflows will continue to flood in as the economic boom runs on and that will continue to put pressure on the dong. The government has increased its 2008 growth target to 9.2%.
Prime Minister Nguyen Tan Dung told the National Assembly Legislature last month, against a backdrop of 8.5% GDP growth this year – the highest for a decade: "The government is trying to decrease the cash volume in circulation, increase goods supply and undertake other measures to keep the CPI at a lower level than the GDP growth rate."
Everywhere you look, the country seems to be taking off. The accession to the World Trade Organization in January this year, and even more remarkably its choice as Asia’s non-permanent member of the United Nations Security Council for 2008, show that Vietnam is being taken seriously.
At the beginning of November, Vietnam also qualified for loans from the International Bank for Reconstruction and Development. Robert Zoellick, president of the World Bank, said: "Vietnam has achieved remarkable progress during the last decade in overcoming poverty."
Also in November, US commerce secretary Carlos Gutierrez brought the first cabinet business development mission to the country, along with 23 US companies, 13 of which are in the Fortune 500. The aim, said Gutierrez, was to expand bilateral trade ties and boost US export opportunities.
However, there is still much to be done. The average monthly wage is still only about $60. There is a huge demand for new property. Foreign institutions say there is a serious shortage of people with the necessary skills, although basic education levels are good. HSBC, for example, has opened its own training centre.
"There’s a young, well-educated population, particularly in Ho Chi Minh City and Hanoi," says Tom Tobin, HSBC’s president and chief executive in Vietnam. "But in technical skills and banking a lot of those people are already taken up so it means we have to train people up and give them experience and that takes time. We’re investing significantly in that. We’ve just opened a training centre and we are all of us training all the time."
Vietnam has a youthful population, which has, seemingly, the young’s sense of invulnerability. The great majority of the millions who rush everywhere on their scooters and motorbikes do not wear helmets, although a new law is due in December to address this. Not a moment too soon, as the National Safety Committee says 43 people a day die on the roads and that figure has been rising steeply.
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Food leads the price rise |
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Vietnam’s consumer price index |
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Source: ANZ |
"We are told we should wear helmets but Vietnamese girls don’t want to mess up their hair," one tells Euromoney.
In attempting to ease the notoriously frenetic traffic, progress is being made on the construction of the Ho Chi Minh City metro.
In April this year, the government approved the start of the 100-mile project, the first stage of which is being majority funded by the Japan Bank for International Cooperation, which is putting up $905 million. Siemens of Germany and China Shanghai Corporation for Foreign Economic and Technological Cooperation are also looking to be involved in further development of the project.