Vietnam’s Capitalism Learning Curve

Vietnamese authorities are disappointed by the results of this year’s initial public offerings of state-owned enterprises.  The companies were able to sell only 27% (84 million) of the more than 300 million shares offered –and foreigners bought only 10 million.  Proceeds totaled $49 million.

The lack of enthusiasm among investors is being attributed to the offerings being mostly companies doing public works business in the property sector that has experienced falling prices.  Also, Vietnam’s economic recovery has been relatively weak so far, and the government is not expected to boost public works spending.

But that doesn’t explain why investors are repelled by Vietnam’s state-owned companies at the same time they have driven up Vietnam’s stock prices by nearly 20%.

The explanation may be simpler:  The companies are pricing their shares higher than the market wants to pay for them.

Vietnam’s government will have more success privatizing their businesses once it fully accepts the way capitalism works.  In capital markets, the government doesn’t get to decide how much a company is worth; the market does.

When Vietnam lowers its expectations in pricing its IPOs, the country will successfully sell shares in the 432 state-owned enterprises scheduled to be privatized by 2015.

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Will Vietnam Achieve 14% Annual Growth?

Vietnam’s economy has grown 5% this quarter, slightly faster than the first quarter in 2012 and 2013, with a $1 billion trade surplus and growth especially robust in the Saigon region.  But the striking economic news in a country that was experiencing runaway inflation in recent years:  Vietnam’s consumer price index declined in 0.4% in March and now is below an annual rate of 5%.

The data suggest Vietnam is on an economic path toward reaching its long-term potential.  But what is its potential?  Some economists think Vietnam is headed toward the middle-income trap that stalls many developing countries, such as the Philippines, Indonesia, and Thailand.  Others see Vietnam as the Japan (or South Korea) of the 21st Century.

The latter viewpoint got a boost in a forum in Hanoi this week that featured Harvard’s Robert Lawrence, who forecast 13.5% economic growth for Vietnam in 2025.  That’s assuming implementation of the Trans-Pacific Partnership (TPP) agreement that is expected to dramatically increase Vietnam’s global trade.

Lawrence projected many other TPP partners (the US, Canada, Mexico, Peru, Chile, New Zealand, Australia, Singapore, Malaysia, Brunei, and Japan) would experience significantly slower growth.  His numbers suggested Vietnam’s exports would increase 37%, compared to 14% for Japan and 12% for Malaysia, and 4% for the US.

The TPP has yet to be completed, so Vietnamese officials were quick to point out their country would not necessarily benefit the most from it — because its economy is starting far behind the other partners.

 

 

Just How Determined Are the Vietnamese?

In the 20th Century, the West learned a lot about the tenacity of the northern Vietnamese, whose determination repelled the American military and drove out European colonialists.  Now comes a story from a village near Dien Bien Phu, where France surrendered in 1954, that shows the enduring power of Vietnamese will.

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Delivering a bagged and dry pupil

When recent storms caused flooding in Dien Bien Province, a raging river took out the suspension bridge that separated Sam Lang village  in the far northwestern corner of Vietnam from its schoolhouse.  Anyone else would have postponed classes, but not the Vietnamese.

Vietnamese newspaper Tuoi Tre published pictures showing what happened next:  The father of one of the children grabbed a large plastic bag, instructed his child to get into the bag, and then swam across the river with the bag to deliver his child to primary school.  Then he returned and repeated the process for every child in the village.

The children arrived safe and dry.  School went on as usual.  Despite nature’s inconvenience, the children of Sam Lang walked a day further on the road to prosperity.  If you think this event showed unusual commitment to education, you don’t know the Vietnamese.  

 

 

 

The Americanization of Vietnam’s Food

McDonald’s has been in business for one month in Vietnam, and it’s already clear the culinary culture of this leading producer of rice and seafood has changed forever.  Just one restaurant served 400,000 customers in the month after the grand opening on Feb. 8.

So far, the Saigon McDonald’s served 61,980 Big Macs for $2.84 apiece, well above the daily income of a typical Vietnamese rice farming family.

This is just the beginning.  McDonald’s is the latest chain to join the fast-food reformation of Vietnam’s diet, but it should have no problem surpassing Burger King, Domino’s Pizza, Popeye’s Louisiana Kitchen,  KFC, Subway, and others.

In part, that’s because the owner of the McDonald’s franchise has the political clout to get things done; he’s the prime minister’s son-in-law who, like McDonald’s itself, is a Chicago native.

McDonald’s Vietnam owner Henry Nguyen spent two summers as a teenager working at McDonald’s in Chicago before moving to Ho Chi Minh City a decade ago and ultimately impressing McDonald’s as “the ideal mix of business acumen, proven record, passion, and ability.”

Similarly, Vietnam’s hunger for American products and culture makes it an ideal market for McDonald’s — as it is for American soft drink, alcohol, tobacco, and other brands that are contending with legions of skeptical consumers at home.

The Race to Satisfy Vietnam’s Hi Tech Hunger

Vietnam’s science ministry reports four technology exchanges accounted for 5,482 service and equipment transactions worth $129 million last year — 34% more than a previous year, and far exceeding expectations.

In Haiphong alone, 40,000 people exchanged scientific views and searched for  technologies.  The Danang exchange has recorded 5,321 domestic businesses and 153 foreign companies registering 7,754 technology transactions over the past five years. 

These are signs that Vietnam is serious about being a global technology leader and consumer.   The government projects a 15% annual increase in technological product and service sales through 2020 as exchange projects expand countrywide and universities grow the country’s tech expertise.  

 These developments have generated a growing awareness among global technology leaders about Vietnam’s potential.  This week’s examples:

  • On Thursday the Vietnamese and Finnish governments signed a $14 million agreement to implement the second phase of their joint innovation partnership to enhance the capacity of Vietnam’s information technology system and increase activities in scientific research and technology development.
  • On Friday Microsoft formally agreed to a long-term partnership with Vietnam to focus on four technologies (1) IT infrastructure, (2) cyber security, (3) cloud apps development and (4) IT human resources.

The race is on to capitalize on hi tech hunger in a promising frontier market of nearly 100 million people.  

Dreaming in Vietnam on $1 a Day

Vietnam’s statistics office and the World Bank shed new light on income in the country — and quantify the  rural-urban gap.  They say the typical city dweller earns $142 a month compared to $76 for rural residents.  Average earnings for Vietnam’s poorest citizens are estimated to be $24 per month, a 39% increase over the highly inflationary period between 2010 and 2013.

This helps explain two things: (1) why the world’s multi-national manufacturers are flocking to Vietnam to source their products, and (2) why entrepreneurial dreams are flourishing in the world’s 13th most populous country.

Vietnam has a young, educated, eager — and, most important, plugged-in — workforce accustomed to wages far behind its peers in China and elsewhere in Southeast Asia.  Even citizens who earn $1 a day tend to be literate and have someone in the family who is connected to the Internet.

And despite urban migration that is spurring explosive growth in Hanoi, Saigon and other cities, Vietnam’s population remains mostly rural and the employment mostly agriculture.  In this sector, $1 dollar a day remains the standard wage — and a job offer from a Japanese or German widget-maker looks like an attractive stepping stone to the entrepreneurial dreamland that is the World Wide Web.

 

 

Saigon Galloping in Vietnam’s Year of the Horse

This is shaping up to be a break-out year for Ho Chi Minh City (Saigon), Vietnam’s business and financial center, and its most populous city — 9 million headed toward 14 million by 2025.

Sales and services revenue is up 12% this year and approaching $5 billion. February exports are up 15% to $1.8 billion.  Agricultural production is up 6%. The city hosted nearly 400,000 tourists in February, a 10% increase, and licensed 2,700 new businesses accounting for 25,000 new jobs.

And all of this precedes the conclusion of Trans-Pacific Partnership (TPP) negotiations that are expected to boost trade further between HCM City and the US, Australia, Malaysia, and Singapore, among others.

Perhaps the strongest sign of robust economic conditions in HCM City is the rise in foreign direct investment (FDI).  The city says it granted 12% more investment licenses so far this year than at this time last year (46) — with an aggregate of $164 million capital, up 267%.

This suggests the year of the horse will be powerful for the former Saigon — and as goes Saigon so goes all of Vietnam.