In 2000 — 14 years after adopting doi moi (renovation) — Vietnam removed the last constraints on private enterprise, established a stock market and signed a trade pact with its erstwhile enemy, the US. Since then, GDP growth has averaged around 8%, boosting living standards and enabling the creation of a broad economic base. Vietnam has a natural entrepreneurialism, with SMEs one of the cornerstones; over half the population is under 35 and are enthusiastic to improve their lot. 


However, confidence has darkened recently amid fears that Vietnam’s boom may be running into Baltic-style difficulties. Inflation is a major concern, rising from around 12% to 27% over 2008. Meanwhile, despite a continued strong export performance, the current account deficit has mushroomed to 13% of GDP – the highest in south-east Asia – putting pressure on the national currency, the dong, despite the fact many of the imports are for capital projects rather than consumption. Although the government is tightening monetary policy and is confident inflation can be brought back to around 13% in 2009 – assuming energy and food prices stabilise – during 2008, nervous investors turned Vietnam’s stock market into one of the worst-performing in Asia, not helped by the decision of ratings agency Fitch Ratings to lower Vietnam’s rating from stable to negative (BB-, three levels below investment grade) in June. 


Perceptions have hardly been helped by continued underlying problems. The political structure remains Leninist and thus quite unreformed (the party is the government) with investors complaining of endemic corruption at all levels. This is borne out by Transparency International’s 2008 Corruption Perceptions Index where Vietnam is in 121st place, between Togo and Eritrea. 


Skills shortages – particularly at the middle and senior management level and within ICT – remain another big concern, along with Vietnam’s chronically underdeveloped physical infrastructure, which it is feared may constrain future growth (although numerous road, rail and port projects are underway, it will take years until they are ready). An opaque, highly politicised legal system continues to be a bane for investors and domestic entrepreneurs alike, while slow progress in reforming large state-owned industries has put a continuing drag on the budget. Although privatisation has continued patchily, critics suggest state assets have been overpriced; the failure to find a strategic investor for Vietcombank despite the considerable opportunities in commercial banking (less than 10% of the population has a bank account and credit card use is in its infancy) bears this out.


Optimists, however, say investors should focus on Vietnam’s positives, which are considerable. Its location at the crossroads of south-east Asia makes it an ideal place to establish operations, as do wage levels which are a fraction of those currently prevailing in southern China. With trade now accounting for 160% of GDP, this is one of the world’s most open economies, its population of 85 million making it a sizeable market in its own right. Meanwhile World Trade Organisation membership – secured last year – means Vietnam will be obliged to gradually remove the constraints on business and improve intellectual property rights. 


“This is a great time to be doing business 
in Vietnam,” says Nguyen Duc Vinh, trade and investment officer at the British Embassy in Hanoi. “Despite whopping inflation and the tottering stock market, registered foreign investment pumped into Vietnam in the first eight months of this year topped a record $47.2bn [€34bn], more than four times 
that of last year.” 


Compare this to the $1bn attracted for the whole of 2000. Not surprisingly, most types of Western business have been drawn to the country; Accor and InterContinental Hotels’ presence reflects Vietnam’s appeal to the hotels and tourism sector, while one of the earliest investors – Nike – reflects Vietnam’s traditional strength in the fields of footwear and clothing manufacture. 


Perhaps the most significant investor to date – not least because of its significance to where Vietnam would like to see itself in several years time – has been Intel, which in 2006 upgraded its investment in a chip assembly and testing plant in Ho Chi Minh City to €723m. The plant is Intel’s largest, and is also the biggest foreign investment in Vietnam. Meanwhile, one of the most significant recent joint ventures has been between Malaysia’s Lion Industries and the local shipbuilding concern Vinashin to construct a €7bn steel mill, which when completed in 2025 will have an annual capacity of 14.4 million tonnes. Another attractive business prospect is oil refinery Dung Quat: Shell, India’s Essar Oil and Russia’s Rosneft are reportedly among the companies angling for a stake. 


The fact Vietcombank failed to find a strategic investor is hardly stopping financial sector investment. HSBC and Standard Chartered were recently given permission to expand – reflecting Vietnam’s WTO obligations – from their current two branches; HSBC plans ten more in the next two years while Standard Chartered hopes to open 30 by 2012. 


Observers believe all this activity proves Vietnam’s appeal remains undimmed; after all, the 2008 slowdown is still expected to see GDP growing by around 6%, only 2% below the medium-term norm and a rate most countries in 2008 would kill for. Provided the government can tackle bottlenecks – notably the skills shortage, which requires careful investment in education – and get a grip on corruption, the outlook is encouraging. 


“People are fond of comparing Vietnam to China but this can be misleading: it is some 15 years behind, has a long way to catch up and anyway is more concerned with the quality of growth, rather than the amount. Stability is prized, above all,” says Ewing. Given the global instability that has wracked 2008, this should be music to investor’s ears.