Reconsidering Vietnam’s political system

November 26th, 2012

Author: Benedict J. Tria Kerkvliet, ANU
Despite being a one-party state, Vietnam’s political system has often been responsive to peasants, workers and others pushing for better economic, social and political conditions.

Major policy shifts in the last 25 years — especially replacing a centrally planned economy with a market economy and abandoning collective farming in favour of individual household farming — have been consequences, to a considerable measure, of bottom-up pressure for change, to which the country’s Communist Party leadership has acquiesced.

Businessman paid for Vietnam bank governor's son to attend British university to 'curry favour', court hears

SFO takes tough line on bribery by foreign companies  Photo: REUTERS

A business tycoon “desperate” to secure a £90million printing contract paid for the son of a Vietnamese bank governor to attend a British university to "curry favour", a court has heard. 

Bill Lowther, 73, is accused of paying £18,000 in tuition fees and thousands of pounds more for student accommodation for the son of a Vietnamese bank governor to attend Durham University.

Vietnam’s November Inflation Accelerates to 6-Month High

(Bloomberg) – Vietnam’s inflation quickened to a six-month high as health care and education costs climbed.
Consumer prices gained 7.08 percent in November from a year earlier, after rising 7 percent in October, the General Statistics Office in Hanoi said today. That was the biggest increase since May and the third straight acceleration. Prices rose 0.47 percent from the previous month.

Unilever to launch world's first Toilet Academy in Vietnam

Breaking the taboo and creating a sustainable and long-term solution to sanitation

• Unilever
• Guardian Professional, Thursday 22 November 2012 10.06 GMT  

For 2.5 billion people across the developing world, having no access to even the most basic sanitation is a reality faced every day Photograph: Ahmed Jallanzo/EPA

Life without access to a toilet

For the overwhelming majority of the developed world, a clean and functioning toilet is something we take for granted and perhaps don't even think to question. But for 2.5 billion people across the developing world - that's almost one third of the global population - having no access to even the most basic sanitation is a reality faced every day. Of these, 1.1 billion are forced to suffer the indignity of practising open defecation – the riskiest sanitation practice of all.

Southeast Asia’s Economic Poster Child Is Stalling

How the Communist Party is fiddling while Vietnam burns.

BY BEN BLAND | NOVEMBER 20, 2012

"Long live the glorious Communist Party of Vietnam," proclaims one of the many red-and-yellow official banners that loom over central Hanoi.

Like citizens of other one-party states, most Vietnamese have developed a handy ability to block out propaganda as they buzz through the streets on their ubiquitous scooters in search of subsistence, stability, or greater riches. "Is the Party really attempting to send a message to the people, or merely trying to reassure itself?" quips one Vietnamese academic, unwilling, like most in this police state, to speak openly about the future of the country's self-appointed rulers.

Vietnam must look to rural economy

By Elliot Brennan and Tung Phung Duc

Vietnam's economic growth will slump this year to a level not seen since 1999, if forecasts are accurate. As a result of this and factional in-fighting over this issue, Prime Minister Nguyen Tan Dung on October 22 apologized for the government's "weakness" in managing the economy.

While poverty rates continue to fall in Vietnam, concerns about sustainable growth and employment are becoming more prominent. After a strong process of industrialization, Vietnam's economy is now stiffening as local enterprises find credit harder to attain and many export manufacturing contracts move to cheaper countries such as Bangladesh.

Much of the problem is attributed to the estimated 10-15% of bad loans in the banking system. Many of these loans reside with state-owned enterprises (SOEs) that have had, many claim, preferable treatment in attaining capital. Approximately 30% of these enterprises closed in 2012.

This has been coupled with high interest rates and weak banking regulation as well as growing competition in the Asian markets for, among other things, manufactured goods and textiles. These myriad factors have rattled foreign investment and the stability of the predominantly export-oriented economy.

The growing debt and bankruptcy of many SOEs across the economy, including those in agriculture - such as Vinacafe Buon Ma Thuot, a coffee producer owing an estimate US$100 million in debt - will undoubtedly effect jobs and livelihoods. The rural economy is of particular importance given that over 70% of the population still live in rural areas. Rejuvenating the health of the rural economy is thus important both for the wider stability of the economy and to accommodate unemployed workers in a tougher economic climate. As such, lessons from South Korea's rural renaissance could be applicable.

The problems
The "Doi Moi", or "Renovation", reforms in Vietnam of the late 1980s were fundamental to poverty alleviation and increased agricultural production. The Doi Moi reforms and the subsequent land laws of the 1990s and in the early 2000s established farms as the basic economic unit in Vietnam. Initially possession of these was for a 10-15 year period. This was then extended to 20 years for annual crops and aquaculture, with a two-hectare plot limit, and 50 years for perennial crops, with a 10-30 ha limit.

Further reforms saw land-use certificates (LUCs) awarded and farmers were given the right to gift land to their relatives. This is often complicated, however, for households who receive just one LUC for several plots of land. It remains complicated and costly to transfer land-use rights and the difficulties therein lead to illegal and opportunistic behavior. Estimates put the number of plots of land today at 75-100 million - on average seven or eight plots per household. The integrity of the communist government necessitates equitable distribution, yet the large number of plots makes for inefficient production.

These issues, which beg reform in order to improve and increase production, put pressure on the health of the agricultural sector. Yet reform of the agricultural sector has at times been forgotten in favor of industrial growth.

As the economy has developed, Vietnam has experienced a common shift from agriculture to industry. The agricultural sector, as a proportion of GDP, declined from 40% in 1990 to approximately 21% in 2010, and is expected to decline further over the next decade. Meanwhile, according to a 2012 World Bank Report, the industrial sector has almost doubled its share in total GDP to 41% 2010 from 23% in 1990. Migration has thus, in recent decades, pushed from rural areas to urban areas where most factories and jobs are located.

Job creation has been a key argument for new agro-industry developments. From the 1970s to the 1990s the Vietnamese population grew by an average of 1.2 million people annually with the majority living in rural areas. This increasingly young population created a labor surplus that continues to put pressure on the rural economy.

Rural to urban migration has also been exacerbated by poor management of agricultural lands, as indicated by the above inefficiencies in the awarding of LUCs. Poor land tenure delineation and documentation as well as poorly implemented production technology has stunted growth. The forestry sector has been neglected as land tenure and land classifications in the sector remain fraught with difficulty, particularly in upland and mountainous areas. LUCs have consequently been much slower to be issued in the sector.

Yet as demand for manufactured goods from Vietnamese factories staggers, and as many SOEs face bankruptcy, the sector as a whole requires restructuring. Those people once pulled to the promise of higher wages in factories will likely be pushed back to rural areas or on to the streets of big cities, creating further problems and raising the potential for conflict. Rural reform therefore becomes an imperative in preventing an increase in poverty and the possibility of civil unrest.

Lionizing the farmer: Saemaul Undong
South Korea faced a similar problem in the early 1970s. Between 1964 and 1970, growth in the non-agricultural sector ran as high as 14.5%, while growth in agriculture was a meager 2.8%, according to Bank of Korea figures. Similarly, in the same period, the farm population decreased by over one million farmers. From the 1964 base of 15.5 million, this figure would continue to decline and reached 12.8 million in 1976.

The trend needed to be reversed. The implementation of Saemaul Undong, (SMU) or New Community Movement, offered this change and was implemented in the early 1970s. It was successful in alleviating poverty in rural areas and, subsequently, narrowed the urban-rural divide.

The SMU reversed labor migration flows. The 1960s had seen a strong trend of migration from rural to urban areas. Rapid industrialization needed a labor force and the attraction for a young rural population was significant. There was a strong pull to urban, industrial environments, yet little incentive to move back to poor rural jobs.

Notably, South Korea's strong centralized government meant that communities had to fall into line with the policy and land reform, regardless of the direct benefit to them. Through a government-run campaign, the country was mobilized to champion rural development and lionize the role of the farmer in the state economy. As a result, South Korea avoided the great unrest witnessed by other Asian countries in the throes of development, and instead experienced land redistribution that was relatively conflict free.

Preventing conflict through reform
Vietnam can learn from South Korea's successful shift. Indeed, an acceleration of the country's rural development is necessary, and has been for some years. As Vietnam shifts from central planning to a market economy, this development needs to go hand in hand with strong agricultural reform.

The 2010-2020 National Target Programme-New Rural Development (NTP-NRD) and its relevant by-laws, currently being implemented albeit sluggishly, are intended to aid this development by promoting new rural criteria, community ownership, and a stronger, more supportive role for the state. Currently, however, the program implementation is not moving fast enough. This is largely due to a tiny budget for the NTP-NRD of approximately US$85 million suitable only for pilot programs in communes. Thus, balancing economic development and social pressures within rural areas and within rural populations continues to be difficult.

Revisions to the proposed land laws, which should come into effect next year, have been made and are a step in the right direction. The most significant of these is the proposed extension of land-use rights from 20 to 50 years for farmers. This reform has to be thoroughly carried through. Even then, land-use rights of 50 years are still too short a period for sustainable development. Longer land-use rights would provide incentive for farmers and their families to develop their plots over time and improve land quality and production.

Despite this and as a result of sluggish reform, the chance of further conflict amongst rural populations on rural issues continues to grow. Contested land rights and different views on land-use planning continue to be the most prominent cause of conflict in land disputes in the developing world.

Vietnam, despite often being seen as a strong and stable developing economy, is no different. Defining unclear land tenure is the simplest way to correct problems of land rights and resolve conflict. This also needs to be supported by relevant institutional frameworks, while avenues for arbitration, dispute and settlements are similarly important. A the 2006 World Bank report stated that careful policy design in Vietnam is necessary to minimize risks in "surmounting conflicts".

In Vietnam, which has one of the highest rural population densities in the world, effective and efficient rural management is an imperative for stability and growth. The government must address land tenure issues which would allow for the greater productivity and efficiency of the rural economy. Sufficient funding for such programs as the NTP-NRD needs to be made available. Rural development should be prioritized as a key issue for stability and growth.

Lionizing the role of the farmer and championing rural communities as pivotal to the health of the nation; that is, a changing of attitudes could go a long way in cushioning such change. In a period of economic slowdown in the country, effective rural reform will address many of the needs of the country's large rural population while also providing for a strong and stable platform for the growth of the Vietnamese economy.

Elliot Brennan is Project Coordinator in resource security (Vietnam) at the Institute for Security and Development Policy, Sweden, and Tung Phung Duc is Chairman of Indochina Research Consulting, and associated expert with the Information Center for Agriculture and Rural Development, Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD), Vietnam. www.isdp.eu

(ISDP and IPSARD are collaborating in a SIDA-funded research program in rural development in Vietnam. )

(Initially published by The Institute for Security and Development Policy. Republished with permission. Copyright Elliot Brennan and Tung Phung Duc 2012).

Reference

Vietnam's 'tiger' economy losing its roar

A worker welds at the construction site of a bridge in Hanoi, Vietnam, Nov. 1. Vietnam's economic growth target is 5.5 percent next year, similar to the expected rate of expansion in 2012, the government said.

Kham/Reuters

The Ben Hai river running through this small mountain village in central Vietnam marks the 17th parallel, what was the dividing line between North and South Vietnam prior to the exit of US troops and the communist victory in 1975.

It is a historic but neglected part of Vietnam – a world apart from the bustling capital Hanoi, with cell phone coverage disappearing on the snaking road up to the village as the early morning drizzle falls over the steep and green foliage-laden slopes on either side.  

Most of the people living along the rural river area are Van Kieu, one of 54 officially-recognized ethnic groups in Vietnam, where rising income levels for urban Vietnamese have not been matched by improved living standards in some isolated rural areas where minorities live. 

Despite Vietnam's "tiger" economy years "upland farmers [including and in particular the minority ethnic groups of the Central Highlands] have been left behind," says Roger Montgomery of the London School of Economics.

The Vietnamese government has repeatedly said that it wants to boost living standards in such areas, part of its overall ambition to achieve a modern industrial economy by 2020. But its ability to live up to these pledges are being constrained by bigger challenges facing the country and the ruling Communist Party, raising questions about the direction of Vietnam’s economy.

Several recent corruption scandals and multibillion dollar losses incurred by mismanaged, behemoth state-owned enterprises have belied hidden fault lines in Vietnam's economy which could in turn lead to reduced growth.

"The veneer of short-term high growth rates made it hard for the government to move forward on reforms. Why fix something that doesn't appear to be broken? Unfortunately, when growth in the region and major international markets such as Europe, the US, and China slowed, Vietnam's economic weaknesses were exposed," says Ernest Bower, southeast Asia analyst at the Center for Strategic and International Studies. 

While Vietnam grew by around 7 percent on average during the decade up to 2010 – lifting Vietnam to World Bank “middle-income” status and pulling in big-ticket investors such as Boeing and Intel – growth for next year is expected to dip to around 5.5 percent.

In Vinh-O, needs are basic, but vital support could be hindered by that dip, especially if slower growth means spending cutbacks or a nervous ruling party stalling on economic reforms. “We need better irrigation canals, better water systems. Eighty-three percent of the people in this area are poor,” says Nguyen Thi Hai, deputy chair of the local People's Committee of the ruling Communist Party of Vietnam.

This summer, the country's central bank conceded that bad debts amounted to as much as 10 percent of all bank loans. And analysts speculate that the real number could be at least twice that.

To compare, total nonperforming loans at four of China's biggest banks came to just 1 percent of all loans last year, meaning Vietnam's bad loans are likely closer to figures for Spain, where around 10 percent of bank loans are not being repaid according to the country's Central Bank.

Rare apology by the ruling party

With the country under such an economic pall, Prime Minister Nguyen Tan Dung recently made a rare apology for problems at state-owned enterprises – which make up 35 percent of the Vietnamese economy. The prime minister was on the end of a public rebuke from rival Communist Party bigwigs, leaving the party looking divided over the troubles facing the Vietnamese economy and the effect these travails could have on its legitimacy.

“Capitalizing on public grievances, mainly inflation, unemployment, and corruption, the old guard led by President Truong Tan Sang and Party Secretary General Nguyen Phu Trong has challenged Prime Minister Nguyen Tan Dung over the failure of his economic policies,” reported political risk consultancy Maplecroft, recently.

Despite the humble-sounding apology and internal Communist Party jostling, slowing growth and increasing public resentment at perceived government mismanagement and corruption has prompted the one-party Vietnamese government to intensify an ongoing clampdown on criticism. 

Party control

"While Prime Minister Nguyen Tan Dung and President Truon Tan Sang represent competing political positions within the Communist Party of Vietnam, both prioritize party control above all else," says Christian Lewis of political risk consultancy EurasiaGroup.

On Oct. 30, the government jailed two songwriters in Ho Chi Minh City for alleged antigovernment propaganda, a vague catch-all accusation in a country where advocating for democracy can be deemed a crime. The sentencing comes soon after a Sept. 24 jailing of three well-known writers and journalists on similar charges. 

Some dissident criticisms have focused on graft, a factor that is spooking investors and hitting growth, with Vietnam slipping in global league tables such as the World Economic Forum's Global Competitiveness Report, dropping 16 places from 2010 to 75th for 2012. Foreign investment into Vietnam peaked at just over $70 billion in 2008, but figures for 2012 to date show it at only $10.5 billion, a drop of 28 percent on 2011, according to the government.

Officials are worried that Vietnam will have trouble continuing to attract investors, and, perhaps in an effort to demonstrate a type of transparency they think the West wants to see, some are speaking more candidly than in the past about the challenges facing Vietnam's economy. 

Vietnam's skills-base needs improving if the country is to continue to attract investors, with neighbors and challengers such as Myanmar and Indonesia offering lower-wages and bigger markets respectively, says Mai Thi Thu, director of the National Centre for Socio-Economic Information and Forecast, a think-tank at the country's Ministry of Planning and Investment. 

“I know many investors come to Vietnam and face many difficulties to recruit appropriate labor,” she says.

For Vietnam, a failure to attract higher-tech investment and create better-paid, better-skilled jobs could mean becoming snared in the much-touted “middle income trap,” in which countries can no longer offer cheap labor because of rising costs but cannot compete with advanced economies in terms of skills or infrastructure. 

“I don't think it can be easy for Vietnam to overcome this trap,” says Mai Thi Thu.

Nonetheless, she’s quick to point out that Vietnam's economy has come a long way since doi moi or “renovation” reforms introduced after 1986, when the country was one of the world's poorest, and officials in Vinh O are optimistic about the future.

“Five years ago we did not have the good road to here,” Nguyen Thi Hai points out, adding “and I think if you come back in five years time, you will see a very different place here again.”

Reference

Vietnam's Prime Minister urged to resign

Posted 14 November 2012, 22:08 AEST

Vietnam's embattled Prime Minister on Wednesday faced an unprecedented call in the communist-dominated parliament to step down over mistakes in his stewardship of the troubled economy.

Vietnamese Prime Minister Nguyen Tan Dung (Credit: AFP) 

It is believed to be the first time ever that a Vietnamese prime minister has been publicly urged to resign by a member of the one-party state's 500-strong National Assembly.
"It's time to take real responsibility not just apologise," lawmaker Duong Trung Quoc said as Prime Minister, Nguyen Tan Dung, looked on calmly.
Mr Quoc, an outspoken historian and one of the less than 10 percent of lawmakers who do not belong to the Communist Party, urged Mr Dung to "start the government's progress towards a resignation culture".
"The people are asking why it seems the prime minister does not value his responsibilities to the people as highly as he does those to the party," he said.
Mr Quoc's comments attracted an outpouring of support on Vietnamese-language online forums and blogs, which are hugely popular in the heavily-censored country, where the communist party tightly restricts political debate.
A second lawmaker, Nguyen Ba Thuyen, said Mr Dung's failure to set out a plan to overcome the country's economic woes had damaged public trust in the Communist leadership.
The growing pressure comes as Vietnam grapples with slowing economic growth, resurgent inflation, falling foreign direct investment and rising fears about toxic debts in the fragile banking system.
Mr Dung, 62, escaped punishment at a key Communist Party meeting last month over a string of scandals that have tainted the country's leadership.
But in an attempt to deflect increasing criticism, the party issued a rare self-rebuke and Mr Dung apologised for corruption, inefficiencies and major losses at state-run giants such as shipbuilder Vinashin.
Responding to Wednesday's rare public attack, a cheerful-looking Mr Dung said that he had never sought high office for himself.
"The party assigned me to continue to be the prime minister," he said, adding that he had been a loyal party member for 51 years.
"I did not lobby, I did not ask for, nor refuse, any assignment given by the party and state," he said.
The National Assembly is currently considering a resolution that could force senior leaders to win a vote of confidence to remain in office, but it is unclear whether the vote would be anything more than symbolic.
Mr Dung, a former central bank governor whose second five-year term was approved by the communist-controlled parliament in July 2011, is said to have become the country's most powerful prime minister ever.
The National Assembly, however, has also gradually become more outspoken.
In 2010 a lawmaker called in vain for Dung to face a confidence vote after the near-collapse of Vinashin.
The lawmaker's attack on Dung highlights rising dissatisfaction in Vietnamese society over the political dominance of the Communist Party, according to one Hanoi-based analyst.
"What is good for the party is not necessarily good for the people," he said.
"(Quoc's) question raises a key issue: is the supreme leadership of the party good for the country? And is it the only correct choice?"

AFP

 Reference

Apocalypse Now For Investors? A Vietnam Investment Review (And Reality Check)

The Economist recently entitled a story about Vietnam, "A tiger at bay," but perhaps a more thorough Vietnam investment review by the magazine's editors would have led to the title: "Apocalypse Now." That might be overly harsh as Vietnam clearly has the potential to someday be a tiger for investors, but for most American investors right now, an investment in Vietnam would strictly be limited to the Market Vectors Vietnam ETF (VNM) - which also contains a few surprises. More adventurous investors could look at VinaCapital (VCVOF.PK), which manages the following three closed-end funds: The VinaCapital Vietnam Opportunity Fund Limited (VOF), VinaLand Limited (VNL) and Vietnam Infrastructure Limited (VNI). On the other hand, those Vietnam closed-end funds trade on the AIM Market of the London Stock Exchange - meaning they are probably out of reach for most American investors. With that said, why might Vietnam be an "Apocalypse Now" for investors at this point in time?

A Vietnam Investment Review: Stock Market, Real Estate and Now Golf Club Membership Bubbles…

I should mention that I lived and worked in Vietnam for roughly a year - meaning I have heard my share of rosy economic and foreign investment statistics and forecasts for the country along with my share of not so rosy first hand experiences that investors should keep in mind before investing in Vietnam through the Market Vectors Vietnam ETF or VinaCapital's closed-end funds.

So let me start my Vietnam investment review by mentioning the country has the distinction of having had a couple of investment bubbles already which began when the Ho Chi Minh Stock Exchange opened in 2000 and many previously state owned enterprises began trading on it. A Chinese-Vietnamese friend of mine who was a math whiz and taught at a local university focused on banking and math studies where he earned just a few hundred dollars a month, was among the first Vietnamese to get in on the action. And at first it was easy to make money and paper stock certificates were even being traded in the coffee shops. In fact, he said he made over US$350,000 - before the inevitable crash came causing him to lose most of it.

Luckily, he had bought an apartment in an area set for redevelopment with some of the profits, but many other wealthy Vietnamese who were burned in the stock market also began investing (or rather speculating) in real estate. This has resulted in a number of eerily dark upscale apartment high rise complexes scattered about Ho Chi Minh City, and I was told that it was much worse up in Hanoi (where few incomes ever hit the $2,000 a month level - still not enough to afford the kinds of apartments being built).

However, what I saw on a November 2010 trip to the Da Nang / China Beach area might be enough to surprise even veteran China watchers and show the pitfalls of too much central planning. The day I arrived, the nearby World Heritage town of Hoi An was chest deep in water due to the heavy rains that part of Central Vietnam receives during the wet season and the weather was decidedly dreary during most of my stay. Moreover, and at least during the wet season, China Beach is clearly a surfing beach (with wet suits required as the water is not warm) rather than a swimming beach.

Nevertheless, Vietnam's government seems determined on turning the Da Nang / China Beach area into its own showplace version of Phuket or something, as all along the beach were luxury home, condo, hotel and casino projects in various stages of construction or completion being built or funded by groups like VinaCapital. Plus, it looked like much of Vietnam's infrastructure budget (and no doubt venture capital money and bank depositor money) was being diverted to make the city's infrastructure world class. The trouble is, I am not so certain who would want to buy all of those luxury homes and condos or stay in the hotels being built on China Beach as foreigners have plenty of other options (with nicer weather) around SE Asia to choose from, while the beach towns of Nha Trang and Mui Ni are closer to Ho Chi Minh City where much of Vietnam's wealth and middle class is concentrated.

Wealthy Vietnamese also recognized a real estate bubble in the Vietnam real estate market as the Wall Street Journal recently reported that golf club memberships have become latest "investment" craze - especially given the Communist leadership's disdain for the bourgeois sport of golf and their moves to limit new golf courses. Never mind the fact that the golf club market in Japan and the rest of Asia crashed back in the 1990s, taking the money of many investors with it.

Vietnam's Talent Problem

Moving beyond bubbles, it's worth noting that while Vietnam's low labor costs have attracted numerous multinationals to set up factories in the country, there is a severe shortage of highly qualified talent and especially technical talent that is preventing Vietnam from moving up the manufacturing value chain. This talent shortage is not helped by the fact that many Vietnamese who study abroad are either those who are wealthy or well connected or they opt not to return, while those who do return can be difficult to hire as they often demand unrealistic salaries.

And then there is the job hopping. I had seen CVs of Vietnamese who have had eight jobs in the past five years or less because as soon as a different employer offered them a higher salary, they were out the door without so much as a second thought. The economic downturn may have limited that kind of job hopping, but those with good qualifications and skills never have a shortage of tempting offers (and no doubt demands for raises).

In addition, what talent there is tends to be concentrated in what was South Vietnam (or rather Saigon). And while there seems to be no problem relocating Hanoians to Ho Chi Minh City (in fact, many would probably jump at the opportunity to earn more money in the more capitalist South), sending a Southerner up north to work will inevitably lead to problems (that is, if you could find a Southerner willing to relocate north where salaries are smaller and the people are "more difficult" to put it politely).

One final problem is that some Vietnamese employees can be especially clever at finding ways to be "entrepreneurial" - especially in some sectors like retail where there are no shortage of opportunities for kickbacks.

Vietnam: Too Much Corruption and "Too Many Old Men" at the Top?

That brings me to corruption, which some say pervades Vietnam. As a Westerner, I should say that I was generally not exposed to much corruption, but Taiwanese friends would explain to me how it worked in that a government official (usually a low ranking one) would be dispatched by a higher ranking government official to collect a payment from Taiwanese owned factories. After all, other Asians (along with the French who have extensive investments in Vietnam) know how the game is played and will usually pay up. That's why McDonald's (MCD) has largely left the Vietnam fast food market to Korean or Filipino brands and why Wal-Mart (WMT) has left the retail market to the French (after all, the land is technically owned or controlled by the government and you won't get a nationwide footprint built without violating the Foreign Corrupt Practices Act).

So what can one say about Vietnam's government? As a foreigner from a country that backed the losing side, I should not pass judgment, but it's worth repeating that a Vietnamese who returned permanently to Vietnam from the States once complained to me that there were "too many old men" running the country. Most Vietnamese were born after the war or are too young to remember it, but most of the country's senior leaders and members of the Politburo would be collecting Social Security and Medicare right now had they been on the losing side of the war and forced to move to the United States.

Vietnam's Persistent Foreign Exchange Problem...

Finally, and right before I left Vietnam in the middle of 2010, I had coffee with a friend of mine (whose father was among the first foreign investors to come and set up a business in Vietnam back in the 1990s) after he had just come from an event where a foreign Ambassador had given another rosy speech with the usual upbeat note about the Vietnam economy and then my friend joked: "Yea, and they only have one month of foreign exchange reserves to pay for imports!"

Vietnam's foreign exchange reserves have apparently improved enough to cover 2.4 months' worth of imports, but the real problem is that Vietnamese (especially the younger Vietnamese who make up most of the country's population) love to buy imported foreign brands because the country has only a few well regarded domestic brands of its own.

Another issue has been the black market for dollars. Some months before I left when I had already drawn down my Dong bank account, I discovered a neat foreign exchange trick that worked out well in my favor: Rather than go to the ATM machine to withdraw Dong at the official exchange rate from my US account, I would have my parents withdraw money from my US bank account and wire it to me via Western Union where I would receive it in dollars and then I would go to a money changer to get the black market foreign exchange rate.

Even though the Western Union transfer would cost $10 plus inconvenience my parents (who inevitably withdrew a little extra money to treat themselves to Bahn Mi sandwiches at the local Vietnamese takeout!), I would still come out well ahead with the black market rate to make the whole exercise worthwhile. However, the Financial Times noted that even more entrepreneurial Vietnamese would go so far as to visit Cambodia where the ATMs dispense dollars and then come back to Vietnam to exchange those dollars at black market exchange rates.

The government eventually had enough of all of this and started cracking down on the gold traders and money changers giving black market rates, but there appears to be no shortage of dollars sloshing around Vietnam as when I would go to the bank to pay my rent, there would inevitably be someone next to me at the counter making a dollar deposit that was the size of brick (and don't ask where all of those dollars came from). However, so much money earned from unknown sources is simply disappearing from the economy or the country - something government officials may be loath to address if they are also in on the action.

A Vietnam Investment Review: The Market Vectors Vietnam ETF

With all of the above issues in mind, the easiest way for American investors to invest in Vietnam would be through the Market Vectors Vietnam ETF which attempts to replicate the price and yield performance of the Market Vectors Vietnam Index (MVVNMTR). The Market Vectors Vietnam ETF has existed since August of 2009 and it's up over 8% since the start of the year, but the ETF is still down over 38% since inception (as of mid-November or so):

Much of the Market Vectors Vietnam ETF's decline this year started with the arrest of local tycoon Nguyen Duc Kien, the co-founder of the Asia Commercial Joint Stock Bank, one of the country's largest banks, for undisclosed financial or economic crimes. The arrest caused depositors to panic and withdraw five trillion Dong ($240 million) in one day (Nguyen Duc Kien also owns stakes in the Kien Long Commercial Joint Stock Bank and the Vietnam Export-Import Commercial Joint Stock Bank plus he is heavily invested in local football clubs).

Then at the beginning of this month, Dang Van Thanh, the Chairman of Sacombank, resigned amid reports that he too was under investigation for unknown reasons and the State Bank of Vietnam (SBV) announced it was preparing to inject 28 trillion Dong ($1.4 billion) to shore up things over there.

The good news could be that Vietnam is finally serious about tackling corruption and cleaning up the troubled banking sector, but investors will still want to limit their exposure to that sector (along with real estate). A quick look at the holdings of the Market Vectors Vietnam ETF reveals the following holdings:

The Market Vectors Vietnam ETF Holdings (As of November 9, 2012)

Holdings	Weight
Vincom JSC	8.77%
VietinBank	8.13%
Baoviet Holdings	7.16%
JSC Bank For Foreign Trade (Vietcombank)	6.83%
PetroVietnam FER	5.47%
Minor International NVDR	5.07%
Charoen Pokphand NVDR	4.98%
Gamuda BHD	4.96%
SOCO International PLC (SIA)	4.64%
Saigon Thuong Tin Commercial JSB	4.21%
Oil and Natural Gas Corporation Limited (ONGC)	4.19%
Premier Oil PLC (PMO)	4.00%
PetroVietnam TEC	3.40%
HAGL JSC	2.76%
Vietnam Construction and Import-Export JSC	2.65%
	77.22%

So just what is the Market Vectors Vietnam ETF's exposure to the country's troubled banking sector along with that real estate bubble I mentioned earlier in China Beach and other parts of the country? Here is a more thorough look at Market Vectors Vietnam ETF's holdings:

• Vincom JSC develops real estate properties, manages and leases commercial and entertainment locations at Vincom Tower (an upscale office and mall complex in downtown Ho Chi Minh City) plus it has real estate operations, advertising and media and brokerage activities through its subsidiaries.
• VietinBank is one of the four largest State-owned commercial banks of Vietnam and its total assets account for over 20% of the market share of the whole Vietnamese banking system.
• Baoviet was the first and is a leading insurance group in Vietnam with 45,000 agents nationwide. HSBC also has an 18% stake in the group while Baoviet Bank is one of Vietnam's newest commercial banks.
• The Joint Stock Commercial Bank for Foreign Trade of Vietnam or Vietcombank is another state owned bank. Vietcombank is probably one of the Vietnam's best capitalized plus it has a strategic partnership with Mizuho Corporate Bank of Japan
• PetroVietnam is Vietnam's largest oil producer and second-largest power producer. However, PetroVietnam also has significant interests in everything from hotels and real estate to securities, insurance and even taxi cabs.
• Minor International is one of the largest hospitality and leisure companies in the Asia Pacific region, but it's actually based in Thailand where it was founded by an American who became a Thai citizen.
• Charoen Pokphand is another Thailand based conglomerate with core businesses in agribusiness and food; retail and distribution (including 7-Eleven in Thailand); and the telecommunications industries throughout Southeast Asia and beyond.
• Gamuda BHD is a major Malaysia based infrastructure and property developer with operations in Asia and the Middle East Regions.
• SOCO International PLC is a London headquartered international oil and gas exploration and production company that is active in Vietnam. Market Vectors Vietnam ETF, VinaCapital, The VinaCapital Vietnam Opportunity Fund Limited, VinaLand Limited and Vietnam Infrastructure Limited as there are plenty of bumps in the road ahead.
• Saigon Thuong Tin Commercial JSB is the actual name for the previously mentioned Sacombank whose Chairman has just resigned.
• Oil and Natural Gas Corporation Limited (ONGC) is an Indian multinational oil and gas company that's active in Vietnam and in other exotic locales like Cuba, Iran and the Sudan - places American companies generally aren't welcomed.
• Premier Oil PLC is a London based oil company with oil and gas interests in the UK, Asia and Africa. Premier Oil PLC is active in Vietnam plus it has been doing business in Myanmar since the 1990s - when the country's generals were still being routinely condemned by many Western governments.
• HAGL JSC is a real estate company with projects in Vietnam, Laos and Thailand. The HAGL JSC is also involved in trading, construction, football clubs, power, mining and plantations.
• Vietnam Construction and Import-Export JSC provides property development and contract construction services primarily in Vietnam.

In fact, nearly 30% of the Market Vectors Vietnam ETF's holdings are in non-Vietnam based companies that merely have some interests in Vietnam while out of the remaining holdings, there appears to be a good deal of direct or indirect exposure to the country's troubled banking and real estate sectors. Of course, there are a limited number of "high quality" Vietnam stocks to choose from to create a Vietnam ETF - meaning exposure to troubled sectors (even if it's through well managed companies) is probably unavoidable. However, that could also be another reason why investors might want to be cautious about emerging market ETFs in general.

VinaCapital and Its Vietnam Closed-End Funds

Finally, for more adventurous investors, VinaCapital was founded in 2003 as an investment management and real estate development firm in Vietnam with $1.6 billion in assets under management. VinaCapital's management team has extensive international finance and investment experience and they manage the following three Vietnam closed-end funds:

• VinaCapital Vietnam Opportunity Fund Limited (VOF). A diversified fund that invests in all asset classes, the VinaCapital Vietnam Opportunity Fund Limited's investments include listed and private equities, real estate and bonds.
• VinaLand Limited (VNL). A real estate fund, VinaLand Limited makes direct investments in residential, retail, hospitality and office properties.
• Vietnam Infrastructure Limited (VNI). An infrastructure focused fund, the Vietnam Infrastructure Limited's investments are in the transport and logistics, power, telecommunications and environmental sectors.

However, there is one big problem that venture capital or investment management firms or funds like VinaCapital have traditionally had in Vietnam: the money invested can disappear without much of a trace right after an investment is made while one has to wonder just what the "real" value is of any investment made - especially one in real estate when there is a bubble.

Vietnam Investment Review: Not an "Apocalypse Now" For The Long Term?

From my personal experience in Vietnam and with Vietnamese, I would conclude that there is no reason why Vietnam cannot be another South Korea or Taiwan because the Vietnamese do have a good work ethic like the Chinese (just don't mention the Chinese around any Vietnamese as the former ruled the country for 1,000 years and aren't liked by the latter, plus the Vietnamese don't always work "smartly" as the thinking can be rather narrow thanks to Confucianism and Communism). However, I don't see the country really taking off until the next decade, when there is a new generation of leaders in charge and some of the problems I mentioned above are worked out or resolved.

So for investors, a thorough Vietnam investment review may show the country is not an "Apocalypse Now" for the long term. For the short and medium term though, most investors will want to be cautious about investing in the Market Vectors Vietnam ETF, VinaCapital, The VinaCapital Vietnam Opportunity Fund Limited, VinaLand Limited and Vietnam Infrastructure Limited.

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