Jamie Dunkley: The red flag is still flying high but Vietnam is back on the growth path

 

It has been almost 40 years since North Vietnamese tanks rolled through the gates of Saigon’s Presidential Palace, marking the end of the country’s civil war.

Decades have passed but the red flags still fly across the Socialist Republic of Vietnam and the country is being forced to step up the pace of reform as it tries to keep up with its neighbours in the fast-growing region of South East Asia.

Modern Vietnam is a far cry from the country that emerged from the ruins of war in 1975, although it was not until the mid 1980s that it started implementing the “Doi Moi” reforms designed to part liberalise its economy. Fashion boutiques now sit alongside the Saigon Opera House and McDonald’s is about to open its first outlet in Ho Chi Minh City, the country’s commercial heart.

Dominic Scriven, a 50-year-old Briton, has witnessed the pace of change since he arrived in Vietnam as a language student more than 20 years ago. His company, Dragon Capital, is now a $1bn fund manager that invests heavily across Vietnam, and he believes the country’s economy is poised for an exciting period of growth following a period of overheating.

“After two and a half years of painful monetary and fiscal discipline, inflation is well down in the single digits, the currency is anchored, the trade deficit is modest and forex reserves have tripled,” he says. “However, the flipside of stabilisation has been a growth slump, led by a virtual cessation of new lending but I believe growth drivers remain intact.”

Earlier this year, the International Monetary Fund cut Vietnam’s growth forecasts because of the slow rate of reform across its banks and state-owned enterprises, highlighting what still needs to be done. 

The IMF lowered its projection for Vietnam’s growth rate from 5.8 per cent to 5.2 per cent in 2013, and to  5.2 per cent next year from 6.4 per cent. This cut was one of the biggest for any Asian country, putting it behind regional peers such as Indonesia, Myanmar and Thailand.

“State-owned enterprises have been reorganised as limited liability companies and many top executives have been jailed or disgraced,” Scriven adds. “As a result, they have seen their funding slashed and their borrowing costs move to commercial rates. They are being forced to divest non-core assets, and money that used to flow their way for indiscriminate spending has been throttled very much. They are still here but are a receding force in the economy.”

While Vietnam’s rising middle class may be playing catch-up with other parts of the world, one area in which the country appears to lead the way is in promoting the role of women in corporate life; they now dominate the boards of many of the country’s largest companies. 

Among these women is Nguyen Thi Mai Thanh, the head of engineer Ree Corporation, who spent five years with the Viet Cong in the jungle during the Vietnam war. She is one of the “long-haired warriors” who became soldiers and formed militias during conflicts with US forces; many of them were rewarded for their service with plum roles in post-war Vietnam.

More modern types of female executive include Le Thi Thu Thuy, head of the property company Vingroup, who studied overseas  and became an investment banker at Lehman Brothers before returning to Vietnam. There is a belief across the country that women make less-risky decisions than men, and she believes that businesswomen like her can drive change alongside the Government. 

“The global economy is gaining momentum, and in Vietnam the concerns about weak demand, high inflation and inaccessible credit have been eased out,” she says. “In 2014, the Vietnamese economy is expected to rise up, offering new opportunities for companies that are flexible and have strong capabilities.

“Within Vingroup, we will continue to innovate and improve corporate governance, with a special focus on developing our human resources to differentiate and enhance our competitive ability – to reach new heights.”

McDonald’s is just one of many foreign companies in Vietnam, and British groups such as Topshop, HSBC and Prudential already operate in a country where, in spite of their presence, market penetration remains low.  The country is also set to benefit from the Trans-Pacific Partnership agreement, a controversial trading bloc of 12 members that includes the United States, Japan and Australia, but not China. 

Overall, however, it seems that much will depend on the extent to which the state is willing to advance the pace of reform across the economy, with restrictions such as limits on foreign ownership of domestic companies still in place. Most agree that the omens are good and future growth prospects look brighter than in other parts of the world.

“We used to think of Vietnam as a 7 per cent GDP growth country, but even though it’s currently more about 5 per cent, investors like the return to earth,” says Bill Stoops, chief investment officer at Dragon Capital.

“Vietnam has turned the corner ... a breakout is coming and it is poised to soon regain its status as Asia’s next ‘Tiger’.”

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