Vietnam Is Back on the Radar Screen
This time it's hunting foreign investors

When President Bill Clinton lifted the economic embargo against Vietnam six years ago, predictions that the nation would become Asia's next economic tiger seemed credible enough. Thanks to economic reforms launched in 1986, nearly $8 billion in foreign investment had been pledged to Vietnam by 1994, and U.S. companies were expected to pour in billions more. But the nation's communist rulers, it turned out, weren't ready to abandon a command economy. Reformers would open the door to the West one minute, only to see hard-liners slam it shut the next. Tired of battling red tape, corruption, and protectionism, many foreign investors took their money elsewhere.

Now, it seems, Vietnam is poised to reappear on the radar screen. Clinton is to visit the country this month, making him the first U.S. President to do so since what the Vietnamese call the American War. And investors, while cautious, seem increasingly willing to take a second look. As recently as last year, says Dominic Scriven, who manages the $26 million Dublin-listed Vietnam Enterprise Investments Limited Fund, portfolio investors wouldn't take his calls. ''Now when we ring up,'' he says, ''people are definitely interested.''

The optimism comes in a year of developments that could prove a turning point in Hanoi's on-again, off-again reform program, now presided over by Prime Minister Phan Van Khai. Most important is a trade pact that the government signed with the U.S. in July. Expected to be ratified by both sides next year, it will confer on Vietnam the low tariffs enjoyed by most U.S. trading partners, and supposedly gives the U.S. unfettered access to Vietnam's market of 77 million consumers.

While no one is predicting the accord will unleash a flood of new investment right away, it will at least force Vietnam to play more fairly with foreign investors. ''The trade agreement has signaled that Vietnam wants to be a serious player on the international scene,'' says a senior U.S. official in Hanoi.

NO TROUBLE. Vietnam also has enacted internal reforms. In January, it passed an enterprise law that put into place a simple, two-week process to set up a business. ''In the past it was absolutely horrendous to set up a private company,'' says Dinh Thi Hoa, who is establishing a food-processing plant in southern Vietnam. ''Now 99% of the difficulties are gone.'' And after nearly a decade of false starts, the government finally has opened a stock market.

The trade deal will provide an immediate fillip to Vietnamese exports. Average tariffs on U.S.-bound goods will drop to 3% from 40%, with shoes, textiles, and light manufactured goods expected to benefit the most. Analysts reckon exports to the U.S. will grow to $1 billion next year, up from $650 million in 1999. ''This is Vietnam's biggest opportunity since the beginning of economic reforms,'' says government economist Le Danh Doanh.

Theoretically, the trade deal will mean that all companies, domestic and foreign, are treated equally--paying the same minimum wages, taxes, and telephone charges--and are subject to the same laws. Optimists also hope state firms will be less likely to use political connections to their advantage. One example: Ford Motor Co. (F) spent $102 million in the mid-1990s to build a factory near Hanoi. But thanks to pressure from local rival Vietnam Motor Corp., it took 16 months for Ford to get approval to sell its Laser sedan. Ford is just beginning to recover from the setback; it sold only 957 cars in the first 10 months of this year, a far cry from the 14,000 it had expected to sell annually. But under the trade accord, government approvals are supposed to be weighed objectively rather than politically.

In another sign that Hanoi aims to be more investor-friendly, foreign companies are being allowed to wholly own local subsidiaries, or buy out troublesome joint-venture partners. Full foreign ownership was technically possible as far back as 1987 but was effectively blocked. The government has finally begun to realize that foreign companies will not set up in Vietnam unless they can do business without fear of being blindsided by their local partners. No one has forgotten the experience of American Rice International, which pulled out in 1998 after a bitter dispute with state-owned Vinafood.

Clearly the trade deal with the U.S. is no guaranteed elixir for investors' headaches. Penetrating Vietnam will require a ''serious campaign,'' says Chris Tragakis, general director of American International Insurance Co., which in April finally received the necessary approvals for an investment license--after trying for seven years. Observers caution that the signing of the trade agreement almost certainly owed more to Vietnam's recent economic travails than Hanoi's wholehearted embrace of capitalism.

Indeed, hard-liners still wield considerable influence, and the Communist Party remains deeply divided over the pace of liberalization. A draft of the next five-year economic and social blueprint is replete with conflicting messages. In one breath it says the development of the private sector is good; in the next it says the state will remain the dominant force in the economy. And while increasing foreign competition could force Vietnam's 5,500 coddled state-owned enterprises to restructure, they can be expected to drag their feet every step of the way.

Relatively robust growth of 6.5% also could embolden the hard-liners to slam on the brakes. But the clock is ticking, and the longer Hanoi waits, the greater the cost of reform--and the more the country will fall behind the rest of the world. ''Vietnam,'' says government economist Doanh, ''must restructure its economy and accept competition at international standards.'' Clinton no doubt will tell his Hanoi hosts much the same.

By Frederik Balfour in Ho Chi Minh City

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Vietnam Is Back on the Radar Screen

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