Vietnam Is Getting Inflation Under Control

Vietnam has reached a milestone in its perennial battle to get the cost of living under control.  The government reported inflation dropped in May into single digits: 8.3% from May 2011 and up less than 0.2% from April.  The cost of living increase peaked at 23% last August when it was highest in Asia.

The newly reported CPI index is more than a psychological lift.  It means the government may begin shifting its priorities toward economic growth and consider reducing interest rates for businesses.

Vietnam boasted one of the world’s fastest growing economies until 2009 — and still targets 6% growth for 2012.  Some economists think that may be too ambitious, but the taming of inflation will help.

More on Vietnam inflation in 2012

Vinalines Scandal Helps Vietnam’s Credibility

Vietnam is taking another important step toward boosting confidence among international investors that the world’s most promising frontier market is serious about competing on an international stage and playing by the rules of global business.

Arresting senior executives of the state-owned shipping company Vinalines for fraud and embezzlement, Vietnam is demonstrating intolerance of mismangement — continuing a tough anti-corruption policy that led to imprisonment of the top executives of Vinashin after scandal in the shipbuilding company was exposed two years ago.

Vinalines is not just the scandal of the year.  It is evidence Vietnam is preparing  to be a major player in the global economy.  Today Vietnam is the most exciting frontier market in the world.  To realize its potential, Vietnam needs to take on the challenges that are holding it back — including financial and monetary stability; legal protections for investors and intellectual property; and changing some of the elements of the business culture.

In some ways, Vietnam is taking a tougher approach toward mismanagement and corruption in its businesses than is common in fully developed countries.  In Vietnam, a senior executive who mismanages a  state-owned company is punished for doing harm to the people of Vietnam; theoretically, fraud for extensive personal gain can lead to execution.  How many Wall Street bankers have been executed in the US?

More on Vietnam’s Vinalines scandal

Vietnam’s Mushroom Ambitions

Add mushrooms to the growing list of agricultural products that Vietnam intends to be a world leader in exporting.   As mushroom cultivation rapidly expands in the soil-rich country, Vietnam expects to more than double its mushroom exports to as much as $200 million annually within three years.

This year Vietnam will produce 250,000 tons of mushrooms, mostly for domestic consumption.  But expansion capabilities are virtually limitless because of abundant straw, sawdust and sugarcane needed for mushroom production; the agriculture ministry says using just 10% of available growing materials would result in 1 million tons of mushrooms and $1 billion in annual export revenue.

Visionary Vietnam foresees rapid expansion of foreign demand for mushrooms, and rising prices, because of perceived health benefits.  Currently Vietnamese mushroom growers cannot keep up with demand for the 16 varieties they produce, mostly in southern provinces, where conditions are suitable to compete favorably with their exporting counterparts in South Korea, Japan and Taiwan.

More on Vietnam mushroom exports

Global Investment Banks Focusing on Vietnam

Credit Suisse anticipates a 25% increase in investment-banking fees in Vietnam this year, thanks to the latest push to privatize Vietnam’s public companies — as investment-banking revenue drops elsewhere in Asia.  This follows a 24% increase in investment fees in Vietnam last year — although Indonesia generated ten times the $46 million in Vietnam investment banking fees.

Vietnam says it will sell parts of 254 government-owned businesses this year, and several global investment banks, Goldman Sachs among them, are lining up to capitalize.

Even so, some international bankers are wary of Vietnam because of its history of stalling privatizations — such as the expected 2007 sales of part of Vietnam Airlines and the Bank of Investment & Development (BIDV).  Vietnam has work to do to convince the international investment community that it is serious about privatization.

More on Vietnam’s investment momentum 

Japan’s Successful Courtship of Vietnam

Japan has been cultivating a relationship with Vietnam for years with infrastructure assistance and business deals, and now that investment is paying off.  The Motley Fool says Japan needs Vietnam and vice versa because they complement each other — with Japan facing a debt bomb and an age bomb and Vietnam offering geographic proximity, growing consumerism, and an enviable young labor force that costs 3% of Japan’s labor.

That’s why Japanese investment into Vietnam doubled to $1.8 billion last year and surged to $2.3 billion so far in 2012 — including a $575 million tire factory near Haiphong complemented by a new port Japan is helping build.  Many Japanese companies, including Panasonic, Toyota, and Suzuki, are treating Vietnam as Japan’s Southeast Asian hub, a healthy development that offers resistance to China’s economic influence..

Meanwhile, Vietnam is reciprocating by giving Japan favored trade status: lower import taxes for Japanese autos, a drop from 70% to 5% in taxes on Japanese buses, tax reductions for electronics to be implemented in 2014, elimination of taxes on certain cameras, and tax reductions for garments from 13% to 9% and for household items from 19% to 14%.

More on Japan’s preferential treatment in Vietnam and the Japan-Vietnam connection

Vietnam’s Ambitions Appear in Latin America

Vietnam’s ambition to be a major player in global economy is evident in its measured diplomatic forays into Latin America — where Vietnam plans to triple its exports to $6 billion over the next three years by extending economic ties well beyond its main Latin trading partners: Brazil, Cuba, and Mexico.

As part of that plan, Vietnam is among nine countries meeting in Dallas this week to complete the Trans-Pacific Partnership (TPP) agreement that would facilitate its trade with the US, Chile, and Peru, using the latter two countries as gateways to exports to South America.

Meanwhile, as the Council of the Americas summarizes, Vietnam has been quietly negotiating separate trade deals with:

• Cuba, with which Vietnam has a longstanding relationship because the countries share communist political ideologies.
• Venezuela, which signed more than 50 cooperation agreements last month and is in an oil partnership with Vietnam.
• Colombia, Paraguay, and Uruguay, which Vietnamese trade delegations visited earlier this year.
• Dominican Republic, with which Vietnamese investors have partnered to build a $60 million auto and motorcycle assembly plant.
• El Salvador, the site of a telecommunications partnership with Vietnam.

More on the Vietnam-Latin America connection

Vietnam’s Latest Economic Stimulus

In an effort to boost Vietnam’s relatively slow economy, the country’s central bank started an economic stimulus this week with a proposal that includes cutting corporate income taxes 30%, deferring sales taxes for six months, reducing some land leases by 50%, and limiting the cost of business loans to 3% above deposit rates.

Although short-term commercial lending rates could still be as high as 15%, that’s significantly lower than last year’s rates when the inflation rate for Vietnam topped 20% at one point.  The cap applies to exporting industries  as well as relatively small enterprises.

The changes are another indication that Vietnam is attempting to move assertively to strengthen its economic growth while maintaining tis effort to get the cost of living under control, and perhaps down into single digits before the end of 2012.  Vietnam’s public equity markets have responded positively so far this week.

More on Vietnam’s 2012 economic stimulus