Stripping Vietnam of its soul

Posted on August 9, 2012


Vietnam’s poor infrastructure impedes investments and rampant land speculation hinders economic growth

THE air is choking and the noise incessant. Out on the streets of Saigon, one may survive the chaotic traffic but it may also be only a matter of time before the noxious fumes take their toll.

On my latest visit to the city, a little more than four years since my last and eight years since my first, Vietnam seems to have gone over something of an economic crest to end up somewhere in a trough. Although it was once assessed glowingly by fund managers and economists along with the other regional darling, Indonesia, the country seems to be going through a harsh reality check.

Double-digit inflation, rising inequality and a deeply troubled banking sector has brought the Vietnam economic miracle to a standstill, a fact admitted even by the state-controlled media. According to English language newspaper Viet Nam News, Vietnam is expected to miss this year’s GDP growth target of 5.2-5.7%. With the spectre of rampant inflation looming and a domestic credit crunch, the government’s hands are tied in attempting any expansionary measures. Instead, Prime Minister Nguyen Tan Dung has had to call for the State Bank of Viet Nam to restructure debts and reduce bad debts.

The effect of the heady years of the last decade can be felt most strongly here in Saigon, the de facto commercial capital of the country. On the leafy streets of District 1, once bustling shops now seem tired and jaded. Where stores on the main shopping street of Dong Khoi once did brisk business, storefronts are now either closed or taken over by large property developers to be converted into faceless shopping malls or bland office towers.

“It is very tough now. Locals are not spending and tourists are buying much less. Our export markets in Europe have also dried up so we are now only staying afloat with our stock inventory,” said Duong, an entrepreneur who runs one of Vietnam’s top interior furnishing stores.

To add to her difficulties, Duong has had to move her Saigon store from its prime location just off Dong Khoi, after 10 years building her business and reputation.

“The shop was sold to an owner who wants to break down 10 shops to build a hotel. We are being crowded out by big businesses with deeper pockets,” she said.

The visual impact of this is that from the vantage point of the Saigon Opera House, a stone’s throw from Duong’s former store location, the charming skyline is now marred by glass towers and neon shopping centre lights which clash sharply with the unique architecture that so defined Vietnamese cities like Hanoi and Saigon.

In 2004, on my first visit, it appeared that Ho Chi Minh City thrived on local enterprise. Now, that spirit seems to have been replaced by a sense of desperation to get rich quick at a cost that was stripping the city of its very soul.

Some members of the Vietnamese art community believe that Vietnam’s inability to get itself out of crisis mode has very much to do with this.

“The establishment is very conservative. It does not encourage creativity or independence. Even in art, the establishment believes there is only one type of Vietnamese art and everyone is supposed to abide by certain guidelines,” said Dinh Le, one of Vietnam’s top contemporary artist. “When you take this approach to deal with the crisis, you are in trouble. The government simply does not know what to do.”

The one silver lining that the difficult times has created is the condition for more debates on how Vietnam sees its future. Long time Saigon resident, Australian Zoe Butt believes that the opening up of new media channels has enabled many more young Vietnamese to exchange views on how they want the country to go forward.

“The government’s instinct is to clamp down on debate but it is so much harder to stop people from discussing these issues now,” she said. “Facebook has made a huge difference.”

It may be a while before Vietnam can regain its stride. As with many other developing countries, its fate is tied in with that of developed countries that are now going through their own crises. How soon and how strong the Vietnamese recovery will be depends on how the world economy picks itself up. It will also depend on whether enough time will have passed for the Vietnamese to figure out how they want to move forward.

Mun Ching

Members of EuroCham Concerned about their Business in Vietnam

According to a press release put out by EuroCham in Vietnam, the results of the 8th quarterly Eurocham Business Climate Index (BCI) survey, conducted in July 2012 and released Thursday 2nd August, 2012, shows that business confidence and outlook among European businesses in Vietnam has fallen below the “neutral” index midpoint of 50 for the first time. EuroCham members that participated in the survey expressed an increasing concern about their current business situation and outlook as well as the overall macroeconomic outlook in Vietnam.

Danish EuroCham Chairman, Preben Hjortlund commented on the survey.

“During 2012, EuroCham’s BCI has decined from 56 to 48 points, indicating a declining confidence in Vietnam as an investment destination. For the first time since we started this survey in the 3rd Quarter 2010 the index has dropped below the mid-point of 50 pointing towards an overall negative business sentiment! It appears that businesses are losing their patience and this further underlines the urgency with wich Vietnam needs to improve its competitiveness and attractiveness as a place to do business.”

EuroCham Executive Director, Pail Jewell added that “The further drop of EuroCham’s BCI is caused by slow progess on many of the issues that were addressed in the last year’s Whitebook. Despite some progress on inflation, there is a torrent of new ongoing issues that are eroding confidence in the business environment in Vietnam: Macroeconomic troubles, lack of adequate infrastructure and administrative burdens continue.”

The EuroCham Business Climate Index dropped 5 points further to 48.

38% of the businesses that participated in the survey are active in the services industry, about 30% in manufacturing and the rest in trading or other activities.

Unease about current business situation

Compared to our last survey, there was a 7% drop in respondents assessing their current business situation as ‘good’ from 34% to 29%, down from 43% one year ago. Only one percent of respondents described their current situation as ‘excellent’. The neutral assessment of the current situation remained constant at around 30%. But worryingly, there was an increase in the number of businesses viewing their current business situation ‘very poor’ to 10%. A total of 39% have a negative view of their current situation.

Mixed attitude towards investment plans

When asked about their investment plans for 2012, Very Poor respondents are roughly split in thirds about whether to increase their investment, maintain the same level, or reduce their investment in Vietnam. Only 32% of respondents were looking to increase their investment in the country. That is a slight fall from 36% in the last survey and a plunge from the 52% that were planning to do so one year ago. A staggering 33% of businesses in this survey are planning to reduce their investments with 20% of them stating that they will ‘significantly reduce’ their investments in Vietnam this year. In EuroCham’s survey one year ago, only 4% of respondents anticipated a significant reduction of their investment in Vietnam. This shows a continuation of the trend that businesses are getting more cautious about investing and some are starting to plan a reduction of their activities in Vietnam. The number of companies that are looking to maintain their current level of investment slightly dropped, but remained relatively constant at 31%.

Anxiety and confusion about new Labour Code

The new Labour Code coming into effect on the 1st May 2013 is causing uncertainty and concern among European businesses in Vietnam. The vast majority of 42% expected the new Labour Code to have a negative effect on their business. 28% stated they were unsure what the new legislation would entail, hinting at a lack of information available about the new legislation and what exactly it will mean for day-to-day business. 5% thought the new Labour Code will positively affect their business.

73% of companies concerned about tighter restrictions on foreign workers

When asked what aspects of the new Labour Code are the biggest concern to them, the most cited concern was tighter restrictions on foreign workers (73%) followed by an increase in maternity leave (46%) and new overtime work limitations (34%). EuroCham will continue recommending that employers should be allowed to select the right candidate based on their own discretion and internal processes.

Posted in: Corruption, Politics