How Hanoi Repels Investors
In the early 1990s, Vietnam had the stripes of a new Asian tiger. The U.S. trade embargo was lifted, Washington and Hanoi established diplomatic ties, and foreign investors moved to cash in on the promise of the government’s doi moi, or renewal, with the economy growing at near double-digit rates. Today, bitterly disappointed investors are moving out of Vietnam as quickly as they moved in, and economic growth is dwindling. The frustration is at least partly because of the investors’ unrealistically high expectations. But most of Vietnam’s problems are homemade.
The government, dominated by Communist hard-liners, has backed away from its own reform rhetoric. Change remains largely on paper, and the economy is run on a set of arbitrary rules administered by corrupt bureaucrats. Hanoi has yet to learn that it will not prosper under the old Communist system of a command economy.
Fifteen years of reform in Vietnam have delivered some positive results. Life is easier for millions of people, and the economy avoided the 1997-98 financial meltdown that crippled many Asian countries. Yet it remains among the poorest, with a per capita gross domestic product closer to that of most African countries than to its Asian neighbors. Nearly half the children under five suffer from malnutrition.
The World Bank predicts Vietnam’s economy will grow 3.5% this year, far below the 9%-10% growth in the mid-1990s and not enough to provide employment for the 1 million new job seekers each year. Foreign investment, which peaked at $8.3 billion in 1996, plummeted to below $2 billion last year and continues to slide.
What drives investors out of the country is not so much the poorly developed financial system or the occasional campaign against the “social evils” of outsiders. Rather, it is Hanoi’s failure to stick to reform, its capricious legal system and pervasive corruption.
Last summer, in a trade deal with Washington, Hanoi agreed to reform its banking, distribution and telecom sectors and disband the state monopoly on trade. Yet Hanoi balked when it came to signing the deal, sending a clear signal, as Moody’s rating service put it, of its “hesitance to allow further foreign participation in its economy.”
Vietnam’s attraction will fade even further when China joins the World Trade Organization and international markets open up to its exports. Clearly, the Hanoi government will have to give up some control over the economy by opening up to outsiders. Better trade relations with the United States, its old enemy, is the lifeline. Hanoi should reach out for it.
