The number of newly-registered enterprises in 2009 increased 29.4 percent from 2008. Almost all were private and foreign-owned. By that time State-owned firms accounted for just two percent of the total number of companies. Vietnam had 5,600 state enterprises in 2003 and 150,000 private enterprises in 2005. "This is one of the last frontiers in the business world," an American businessman told Tracy Dahlby of National Geographic magazine in the 1990s. A Vietnamese man told Dahlby. "My dream is to form a joint venture with an American company. They have the technology and capital. We have the cheap, highly intelligent labor force." The most obvious manifestations of economic reforms in Vietnam can be seen on the streets of Saigon, where hundreds of sidewalk bicycle repair shops, manicurists and cigarette vendors ply their trade.

With its gross domestic product rising at between five and seven percent a year, Vietnam's economy is among the fastest-growing in the world. Inflation and unemployment are low, and exports are booming. An array of international organizations are financing projects intended to help Vietnam bring its legal, accounting and banking systems up to international standards.

Vietnam’s first stock exchange, known as the Ho Chi Minh City Securities Trading Center, was established in July 2000. By the spring of 2005, the number of companies listed on the exchange had reached 28, representing a total market capitalization of only US$270 million. In March 2005, Vietnam opened an over-the-counter exchange, known as the Hanoi Securities Trading Center. The purpose of the second exchange is to expedite the process of equitization (partial privatization) of state-owned enterprises. Although these exchanges are still very small, officials have set the goal of expanding their combined market capitalization to 10 percent of gross domestic product by 2010 and gradually phasing out restrictions on foreign ownership of shares. [Source: Library of Congress, 2005]

Stock of narrow money: $37.05 billion (31 December 2012 est.), country comparison to the world: 53; $32.64 billion (31 December 2011 est.). Stock of broad money: $163.9 billion (30 October 2012 est.), country comparison to the world: 45; $132 billion (31 December 2011 est.). Stock of domestic credit: $140 billion (30 October 2012 est.). country comparison to the world: 47; $145.7 billion (31 December 2011 est.) [Source: CIA World Factbook]

Corporate tax rate: 25 percent to 22 in 2014, compared to 17 percent in Singapore and 35.6 percent in Japan.

Corruption, mismanagement and inefficiency at state-run companies — a pillar of the communist country's economy — are seen as fuelling longstanding economic woes. Well-connected state-owned enterprises have been allowed to run up massive debts while producing little of value, dragging do wn the economy.

Foreign Investors and Foreign Companies, See Separate Article

History of Entrepreneurs and Businesses in Vietnam

Ben Stocking wrote in the Mercury News, “ In the 1980s, before the government began loosening its doctrinaire embrace of Marxist-Leninist economics, Vietnamese citizens could get in trouble just for selling a chicken to their neighbor. Nguyen Kim Chi used to run an underground restaurant, dishing out an old Hanoi favorite — chao luon, or eel soup — to friends and neighbors on the sly. She didn't dare put a sign outside her shop or serve too many customers at once. "It was so miserable in those days,'' Chi said. "No one dared to open a shop, because if we did, we would be fined.'' [Source: Ben Stocking, Mercury News, April 15, 2004 \//]

“But by the late 1980s, as communist governments fell across Eastern Europe, Vietnam confronted the fact that its centrally planned economy was creating food shortages instead of an egalitarian utopia. With a stagnating economy forcing people to queue up for supplies, Vietnam implemented doi moi, an economic "renovation'' policy, embracing market reforms as a means of maintaining social stability. Since then, the economy has grown steadily stronger — and the personal liberty of the Vietnamese has grown. Chi has a sign outside her restaurant now, and a long line of customers, many of them in business themselves. \//

In 2000, a new enterprise law was passed that made it easier for Vietnamese to start new businesses. Two years after it took effect 35,000 new business companies, most of them small or mid-sized, were registered and they generated $4 billion of capital, an amount equal to the foreign investment Vietnam receives in a good year. A World Bank official told the International Herald Tribune, "It’s hard to think of a single law in Southeast Asia that has had a more positive effect on growth and development." Before the law was passed it was very difficult to start a legal business. To do so one had to get a license which was subject to five laws, six ordinances and hundreds of regulations, some of which contradicted each other. To get a license either required a long wait or money to pay off officials.

As of September2006, Vietnam had cut the number of government-owned companies to fewer than 3,200, from more than 5,600 in 2001, based on World Bank figures.

Entrepreneurs and Businesses Emerge in Vietnam in the 2000s

In 2004, Ben Stocking wrote in the Mercury News, “ Everyone's hustling for customers on the street outside Nguyen Phuong Hoa's house. Within 20 feet of her front door, two people operate sidewalk restaurants, one man sells popcorn to school kids, and a woman peddles papayas 12 hours a day. From their one-room apartment, Hoa and her family run a beauty salon and a convenience store, their open living room door offering a view of both their home life and a display of candy and cigarettes. It's mom-and-pop stuff, a step down from the upscale shops sprouting around the corner on Pho Hue, which hawk every modern convenience from cell phones to DVD players. [Source: Ben Stocking, Mercury News, April 15, 2004 \//]

Vietnam’s “fledgling private sector has reached a critical juncture. If the government moves swiftly to reform its money-losing state-owned companies and banking and legal sectors, Vietnam will make it easier for its private firms to flourish."We consider the private sector to be a permanent, integral part of the economy,'' said Nguyen Dinh Cung, an economist with the Ministry of Planning and Investment. "Businessmen used to be considered exploiters. Now they are considered job creators.'' Since the 2000 passage of a landmark Enterprise Law, which greatly simplified the procedures for starting a new business, at least 80,000 companies have registered, with an average of 20 employees each. \//

"Vietnam is developing incredibly quickly,'' said Alan Duong, who employs 35 people at her upscale Hanoi housewares business, which has exported lamps to Neiman Marcus. "You can see it and feel it in Hanoi, and even more in Ho Chi Minh City.'' In the new Vietnam, people still revere communist revolutionary Ho Chi Minh, but they have also embraced a new role model: Horatio Alger, the quintessential, up-by-the-bootstraps capitalist. Everybody is selling something, from stylish sales associates at Dolce & Gabbana to street peddlers in plastic sandals. One of the world's last bastions of communism has turned out to be one of the most entrepreneurial places on earth. "Nowadays, all you need is a head full of ideas and a willingness to take chances and you can get rich,'' said Chi, for whom rich is relatively a modest notion: the ability to buy a new motorbike and new furniture. But an emerging class of larger-scale entrepreneurs is also striking it rich, cruising around in luxury cars and spending $300 on cognac during a night out on the town. When Peter Ryder, an American businessman, arrived in Hanoi 12 years ago, nearly everyone wore drab clothes and got around on a bicycle. \//

"It's a stunning change,'' Ryder said. "You've got really rich people here now, lots of them.'' Indeed, as the nouveau riche flaunt their newfound wealth, concerns are emerging that the gap between rich and poor could become extreme. Income inequality is still much less pronounced in Vietnam than it is in most other countries, said Martin Rama, chief economist for the World Bank in Hanoi. But with the bulk of new private wealth being generated in the cities, Vietnam must work to extend capitalism's benefits across the country, Rama said. And if the government isn't scrupulous about developing a level economic playing field for private firms — with open accounting rules and a rational legal system — then Vietnam could still wind up with a form of crony capitalism that mainly benefits the powerful and leaves everyone else behind. "This could still become a place where people make money not because of their business skills, but because of their connections,'' Rama said. \//

Small Businesses in Vietnam Thrive While Large Companies Remain in State Hands

Ben Stocking wrote in the Mercury News, “But for all the economic dynamism that has been unleashed, most companies in Vietnam's private sector remain clustered at the bottom of the economic pyramid. At the top, huge state-owned firms continue to dominate the most important sectors, from electricity to telecommunications. [Source: Ben Stocking, Mercury News, April 15, 2004 \//]

While an emerging urban class of wheeler-dealers is cruising around in Mercedes-Benzes and BMWs, most Vietnamese remain very poor, especially in rural areas. Per capita income has more than doubled during the past decade, but is still only $485 a year. Government officials say they are building a "market economy with a socialist orientation.'' They want to make room for capitalism while maintaining their profitable national corporations, just as some European nations do. \//

"The Vietnamese economy is moving on a two-track system,'' said Susan Adams, the International Monetary Fund representative in Hanoi. "It's a huge experiment.'' But for its private sector to truly flourish, Adams and other Western economists caution, Vietnam must speed up its efforts to privatize unprofitable state-owned firms, root out corruption and improve the transparency of its banking and legal sectors. "Vietnam's private sector has made good progress, but it's very fragile, with mostly small-scale, service-sector companies instead of robust, value-added industries,'' said Amanda Carlier, an economist with the World Bank in Hanoi. "There needs to be more concerted action to accelerate the exposure of the state sector to real competition.'' \//

“Vietnamese officials pledge to continue loosening their grip on the domestic marketplace and to regain the interest of foreign companies, which flocked to Vietnam in the 1990s only to become disillusioned by red tape and corruption. The pace of change isn't always quick enough to satisfy outsiders. But if government officials say they must proceed deliberately and cautiously, they do seem eager to proceed. Vietnamese businessmen say the country's business environment has improved greatly, but big state-owned firms are still granted easier access to land, loans and market information. \//

When Hoang Huu Chuong founded the Nguyen Hoang Garment Co. In 1992, state-owned banks set extravagant collateral requirements and turned down his loan request, even as they praised his business plan. He was forced to scale back and raise money from friends and family. And his request for land in Hanoi languished on a bureaucrat's desk for three years before he finally gave up and opened his factory in a neighboring province. As a schoolboy, Chuong was taught that businessmen were self-interested exploiters of the working class. That message was eagerly reinforced by his father, who served in the Fatherland Front, the Communist Party organization that promotes adherence to revolutionary principles. "The government had to change its attitude toward private business,'' said Chuong, whose company employs 700 people and has become Vietnam's biggest supplier of children's clothes. Even Chuong's father, the aging revolutionary, has become a business booster. At 85, he doesn't get out much anymore. But once a year, he insists that Chuong take him for a tour of his factory, where the workers once idealized by Vietnam's revolution have made clothes for export to Kmart. \//

Changing Business Climate in Vietnam in the Mid 2000s

David Fullbrook wrote in the Asia Times, “Vietnam's business climate is becoming increasingly sophisticated, thanks to the country's rapidly growing, export-oriented private sector. Ironically, its most visible manifestation is state-owned Vietnam Airlines, emerging as Vietnam's first global brand. Yet this is an exception, as most state firms, or those recently privatized, remain bureaucratic and inefficient, still clutching the old public-sector mentality that shuns innovation, risk-taking and service. [Source: David Fullbrook, Asia Times, December 2, 2004 ==]

“In the early 1990s, foreign investors in Vietnam brimmed with optimism. A few years later they left, fed up with sour deals, bad regulations and suffocating bureaucracy. Things appear better now, with the economy booming and investors, particularly from Japan, Korean and Taiwan, flocking back. "The quality of production in Vietnam is higher than almost everywhere else," says Kevin Snowball, director of PXP Vietnam Asset Management. "There is a lot of relocation of footwear from Indonesia and China." Trade deals have opened doors for deals — and experience — for Vietnam's burgeoning private sector. Thanks to a trade deal, US-bound textiles worth just US$50 million in 2001 shot up to $950 million in 2002. ==

"Most Vietnamese companies are changing now; they are learning to be more effective in marketing," says Hoang Kim Chuong, international sales and marketing director for Vietnam's Trung Nguyen Coffee. "Vietnam is becoming more open, interacting more with other countries and markets. We are becoming more aware. We have to be better, faster, cheaper." "What I see is a lot of people making a lot of money, especially in the [Mekong] Delta, in shrimps, fish and farming. One of the signs that they're making a lot of money is this booming real-estate market. Prices have exploded. The don't put it [their money] in the bank, they don't buy stocks, they put it in land," a foreign energy executive with two decades of experience in Southeast Asia says. "What we're seeing here is an example of the Vietnamese inherent skill as businessmen. They absorb business skills rapidly." ==

But “thousands of state-owned, or formerly state-owned, firms may not be quite so on the ball. "The state-owned enterprises are still very bureaucratic, very slow. They're one of the things that's holding Vietnam back," says the energy executive on condition of anonymity. "The Vietnamese people are extremely hard working. If you could get the government out of the way, they would be extremely successful." “Reforming state enterprises is never easy, much less switching from one economic system to another while trying to raise living standards and development. Even eastern Germany still trails the western half on many indicators, 15 years after reunification with one of the world's richest countries. Vietnam has traveled far since beginning doi moi (change and newness) reforms 18 years ago, but it still has a long way to go to become a serious agriculture and manufacturing competitor. ==

Vietnamese Businesses Grow Fast in the Late 2000s

John Ruwitch and Jason Szep of Reuters wrote: “Nguyen Duc Tai was on a mission one sweltering January morning in Vietnam's commercial capital, Ho Chi Minh City.Flush with cash from his annual bonus, he wanted to buy his wife a new mobile phone, a gift for the coming Tet lunar new year holidays. In a country where the average annual income is about $1,100, a good phone is a big investment. Tai wanted to make the right choice with his 5 million dong ($250). "It was so confusing. I went to two shops, but no one could give me the full picture of what I could get for my money. They showed me one or two phones. That's not enough. If they could show me 10 at similar prices I could make a decision. The 35-year-old smelled opportunity. "I said to myself, 'There's something wrong here. I have money. I'm willing to pay. But I cannot find what I want. There is a mistake somewhere and if I can fix that, the customers will support me'." Fast-forward six years and Tai is chief and co-founder of Mobile World, Vietnam's largest cellular phone retailer, part of a new breed of fast-growing companies tapping a swelling middle class in the Communist-run country of nearly 90 million people. [Source: John Ruwitch and Jason Szep, Reuters, January 13, 2011 ]

“Vietnam has emerged over the past decade from the hangover of war to play a central role on Asia's factory floor, producing everything from footwear to computer parts. An economy once built around carpet-bombed rice paddies now boasts gleaming shopping malls and towering skyscrapers. BMWs and Rolls Royces jostle for space on streets clogged with motor-scooters and bicycle rickshaws. As northern neighbor and former imperial ruler China begins the transition from sweatshop economy to consumer society, Vietnam hopes to follow. Companies such as Mobile World could lead the way.

Despite Vietnam's chronic economic problems, Mobile World for instance has grown from seven stores to more than 70 over the past three years with nearly 4,000 staff. Revenue doubled last year to $150 million and is projected to double again this year. Net profit, $5 million last year, is expected to triple this year to $14 million. "We don't care about politics," laughs Tai. "We care about the customer." Interviews with business executives, investors and independent analysts reckon Vietnam's burgeoning prosperity trails China's by a decade or so. Young executives, and the overseas' investors who back them, have settled on a simple premise: what works in China, should work in Vietnam. "China is basically five to 10 years ahead of Vietnam. So it is a good leading indicator for what's coming," said Chris Freund, managing partner at frontier-market investor Mekong Capital, whose funds invest in 21 Vietnamese companies including Mobile World.

Vietnam's middle-class has more than doubled in the past decade to 64 percent in urban areas, according to Asia-Pacific research consultants Cimigo. Sixty percent of the population is under 35 years old. The economy more than tripled to over $100 billion from $30 billion just a decade ago, along with per capita wealth, although off a low base.

Risks and Problems with Vietnamese Business

John Ruwitch and Jason Szep of Reuters wrote: “Vietnam's problems have overshadowed its promise — from spiraling inflation to a stumbling currency, red tape, a debilitating trade deficit and creaking infrastructure. Policymakers face critical choices in the next few years that could either make Vietnam the world's next emerging-market star or deepen its economic malaise. Stabilizing the economy is a hot topic behind the scenes. But doubts are growing over whether authorities can pilot the economy deftly enough to turn Vietnam into Asia's next tiger.[Source: John Ruwitch and Jason Szep, Reuters, January 13, 2011 ]

Henry Nguyen, of IDG, is frank about Vietnam's challenges. "There are three issues that keep me up at night long term," he said. At the top of the list is physical infrastructure — a long-standing problem in Vietnam, where from the early 1900s until the early 1990s development was on hold by conflict and ill-conceived collectivist policies. "Even when I say Vietnam is China circa '97-'98, it's actually much further behind in terms of physical infrastructure," he said. Vietnam's existing ports are overstretched, it lacks highways and the electricity grid is chronically short of power making blackouts common. Second is governance and corruption. "In the end most people feel pretty cynical about government, and probably in most cases rightfully so." And third is education, perhaps the most common refrain among business owners and investors. He notes, for instance, that nearly 2 million students sit for exams annually for 750,000 seats at full-time universities.

Red tape is "Vietnam's biggest non-tariff barrier," said Burke at Baker & McKenzie. Policymakers, he added, have deeply rooted concerns over competition, including a fear of Chinese companies taking control of Vietnam's rice supply if they open private trade too quickly. "Protectionism is still a problem," said Burke, a founding member of the American Chamber of Commerce in Vietnam. But he is encouraged by a three-year-old reform plan known as Project 30 that promises to cut administrative procedures by 30 percent.

See Red Tape Under Bureaucracy.

Vietnam Shores up Its State-Owned Enterprises

“State-owned enterprises (SOE) have been sucking up capital and increasing risk in the banking system without producing big advances in economic growth and job creation. "In the long term, it's just not sustainable what they're doing," said Jonathan Pincus, dean of the Fulbright Economics Teaching Programme in Ho Chi Minh City and a former economist for the United Nations in Vietnam.

“A study by Vietnam's Central Institute for Economic Management and the National University of Singapore's Lee Kwan Yew School of Public Policy presented to the government last month showed Vietnam's incremental-capital output ratio, or ICOR, a measure of the efficiency of capital use, was actually worsening because of money poured into SOEs. Vietnam's ICOR averaged 4.8 in 2000-2008 and 5.4 for 2006-2008, substantially less efficient than Taiwan, South Korea and Thailand during similar phases of development. Yet the party seems as committed to the state sector as ever, a decade after enacting an Enterprise Law that opened the floodgates for private businesses.

"The SOEs really do see it as their right to monopolize the market," Pincus said. Big investments in the state sector squeeze the fiscal balance and exacerbate inflation pressures. More state spending, plus inefficient use of capital translates into less output per dollar and higher prices for goods. Preferred access to land and capital only make the problems worse.

Impact of WTO Membership on the Vietnamese State-Owned Industries

As Vietnam prepared to join the World Trade Organization (WTO) in January 2007, Alan Sipress wrote in the Washington Post, “The new trade system could fall much harder on state-owned industries that have depended on government protection to succeed and may now face strong competition from abroad. These include pharmaceuticals, cement and fertilizer. Vietnamese banking, dominated by inefficient, under-capitalized state institutions, could also come under pressure as limits on foreign ownership are lifted. But Pincus and other analysts said this sector remains small and of limited interest to large foreign banks, perhaps giving the domestic industry a few years to adjust before facing an onslaught from abroad. [Source: Alan Sipress, Washington Post, July 15, 2006 ==]

Karl John wrote in the Asia Times, “ Vietnam's economy is still very much in transition from a command to a free-market system. Many outward-looking local businesses and entrepreneurs, while excited about the prospects of WTO membership, are still struggling to comprehend international business practices. At the same time, more foreign imports and competition will inevitably lead to wrenching change and dislocation across many industries, creating potential social pressures on the government. [Source: Karl John, Asia Times, January 12, 2007 //]

“WTO-mandated removal of subsidies and increased foreign competition will directly hit and potentially send into bankruptcy as many as 2,000 state-owned enterprises, which currently account for 38 percent of GDP and provide millions of jobs. The government has applied pressure to speed up the privatization process, which in Vietnam is referred to as "equitization". How the government handles dismantling these inefficient state industries will have huge implications for social stability and the country's future attractiveness as a destination for FDI. //

To deal with these weighty issues, the Communist Party-led government is already re-examining its now-meager social safety net, particularly in relation to income insurance and vocational training schemes. WTO accession will require not only a drastic overhaul of human resources, but retraining for thousands of stuck-in-their-ways state bureaucrats. That includes an overhaul of the agriculture sector, which accounts for nearly 20 percent of GDP and where more than half of the population is employed. Under WTO rules, Vietnam will be required to cut subsidies on a wide range of agricultural products, which will undermine the international competitiveness of many commodity exports. //

“Another area where WTO-encouraged foreign competition promises to be transformative is the banking sector. With the help of foreign banks, many Vietnamese financial institutions have already expanded their operational network, increased chartered capital and modernized their banking technologies, though there is no doubt still a long way to go. According to the State Bank of Vietnam, foreign banks have already established 34 branch offices, four joint ventures and 40 representative offices in the country. //

Vinashin Shipbuilding Debacle

John Ruwitch and Jason Szep of Reuters wrote: “Some signs are not encouraging, such as the Finance Ministry's decision to sign away proceeds of Vietnam's first international bond to state-owned Vietnam Shipbuilding Industry Corp, or Vinashin, in 2005, handing over all $750 million from the oversubscribed 10-year issue. The arrangement was part of the Communist Party's plans to try to keep the state sector in control of the "commanding heights" of the economy by bankrolling the big ones, monopolizing the sectors they operate in, and creating state-owned conglomerates modeled on South Korea's powerful chaebols.[Source: John Ruwitch and Jason Szep, Reuters, January 13, 2011 ]

“Despite the huge sum, Vinashin's chief executive Pham Thanh Binh said at the time the amount was barely a quarter of the funds needed to reach its ambitious shipbuilding targets over the next five years, during which he expected 30 percent growth. So he sought more cash — from the government, the capital markets and foreign lenders. Instead of focusing on producing more and better boats, though, Vinashin sprouted subsidiaries at an alarming rate, often in unrelated fields such as hotels, motorbikes and stockbroking.

“Then the global economic downturn struck, sucking the wind out of the shipping industry's sails. Vinashin's debt problems were too big to avoid at some $4.4 billion by the middle of last year. The Communist Party declared the firm on the brink of bankruptcy and the government ordered it re-organized. Binh and other executives were sacked and later arrested Vinashin has become a prime example of the risks inherent in the government's industrial policy and has sparked heated debate within the party, according to sources close to the communist leadership.

“The government ordered Vietnamese banks to freeze their loans with Vinashin to give it breathing room. But as the company drifted toward default last month on a $600 million loan by international creditors, all three ratings agencies downgraded Vietnam, raising the cost of capital when it critically needs to raise funds to improve infrastructure. "What's going to happen when the chickens come home to roost on Vinashin? I think they'll just run out of money. It's going to get very expensive for them to get debt and they're broke, so what happens if a couple of banks blow out? They're not China. They're not sitting on $3 trillion in reserves."

Challenges to Private Sector and Foreign Companies in Vietnam

John Ruwitch and Jason Szep of Reuters wrote: “The result is a warped competitive environment that puts private business at a disadvantage. Examples are plentiful. Jetstar Pacific, an airline partly owned by Australia's Qantas Airways Ltd, has had many setbacks in Vietnam, where the skies are dominated by flag carrier and SOE Vietnam Airlines. In April 2008, for instance, it had trouble securing deliveries of fuel from the state jet fuel monopoly, Vinapco, a company under Vietnam Airlines. [Source: John Ruwitch and Jason Szep, Reuters, January 13, 2011 ]

In the grocery store space, South Korean supermarket Lotte Mart, part of Lotte Shopping Co Ltd, opened its first shop in Ho Chi Minh City in 2008 but faced long delays getting approval to open a second in the city where home-grown and state-owned Saigon Co.op Mart has been eager to cling to its market share. The excuse, said Fred Burke, a managing partner at international law firm Baker & McKenzie, was that it did not meet an "economic needs test" that Vietnam was allowed to retain under its 2007 World Trade Organization agreement. In reality, he said, it was pure protectionism.

Deputy Prime Minister Nguyen Sinh Hung has made privatizing state enterprises a priority over the next four years after about 144 sold shares to the public last year. That's good news to Andy Ho, managing director and head of investment at VinaCapital, the country's largest private equity firm. "We look at dilapidated, beat up companies where we can make a difference. We love the SOEs," he said. "We invest in a lot of businesses that cater to the consumer growth."

Lack of Business Thinking and Quality Education in Vietnam

John Ruwitch and Jason Szep of Reuters wrote: “Vietnam's war-scarred past poses unique issues for private equity. Years of war and communist central planning wiped out a generation of entrepreneurs. Big investments by overseas-backed funds are often accompanied by training for local CEOs or, if the state retains control of a newly privatized firm, extensive talks to convince bureaucrats to think of the bottom line."We sit down with them and say, 'there are certain changes you need to make to grow your business'." About 75 percent of the companies listen, said Ho, whose firm manages $2 billion of investments. [Source: John Ruwitch and Jason Szep, Reuters, January 13, 2011 ]

Chris Freund, managing partner at frontier-market investor Mekong Capital and a religion scholar from University of California, Santa Cruz, runs classes for executives teaching them to think like Buddha. "If I go in and say 'American management gurus say you should do this, and this and this', it is in one ear and out the other. But if I ask them who was Buddha being as a leader, they will get it and try to apply it," said Freund, a former Templeton Asset Management Ltd portfolio manager who founded Mekong Capital in 2001.

The quality of tertiary education in Vietnam is failing, too. "It's a crying shame when you have people who are so ambitious, want to try hard, want to work hard, and most of them are getting the crappiest of education that you can imagine," he said. Those barriers have kept many competitors out of Vietnam's growing consumer market — from McDonald's Corp to Starbucks Corp and Wal-Mart Stores Inc, all of which have made big inroads in China. Starbucks chairman and chief executive Howard Schultz said in July he wanted to "explore opportunities" to enter Vietnam. But thick red tape might force the world's biggest coffee chain to franchise its stores, something it does not do in most other countries.

Retail in Vietnam

According to Associated Press: More than 60 percent of Vietnam's population was born after the Vietnam War ended in 1975, and there is a strong demand among youth in Hanoi and Ho Chi Minh City for branded clothing and accessories, no matter that the labels often are fakes, and average annual income is only about $1,500.

John Ruwitch and Jason Szep of Reuters wrote: “Mom-and-pop shops still hold sway over the Vietnamese consumer . In congested Ho Chi Minh City, a city of about eight million people, shoppers elbow their way through crowded Saigon Plaza, whose two floors of small rented stalls sell everything from clothing and jewelry to knock-off handbags and children's toys. "There's a lot of variety here and the prices range from low to high. Best of all, you can bargain," said Te Vinh Loc, a 34-year-old designer as he snaked his way through a maze of second-floor stalls on a Thursday afternoon. "Sometimes I look at the high-end places, but they don't have what I'm looking for so I come here." [Source: John Ruwitch and Jason Szep, Reuters, January 13, 2011 ]

“A few shops away, saleswoman Quynh Thi Bich Lai sells a blue-and-white soccer shirt with the Adidas logo for $6. "It's just good business," said Quynh, who moves about 200-300 units of clothing a month in a stall no bigger than 2 sq meters. Retailers at Saigon Plaza pay rent of about $600 a month and generate about $2,000 in revenue, pocketing about $500 a month in profit. Down the street, at the sparkling new Vincom Center, store attendants sat quietly in mostly empty stores, some thumbing messages on their phones. At a Versace store, women's handbags were on sale for around $2,600 each — more than double the annual salary of an average Vietnamese worker. Business is "not good but ok," said salesman Nguyen Anh Tuan. The shop attracts about 50 shoppers a day, he said, though only about five make purchases.

“But the potential for future growth means the luxury brands can't afford not to be in Vietnam. In usually staid Hanoi, paparazzi at a rope line snapped celebrities arriving in stretch limos for the September opening of a Gucci store opposite the landmark century-old opera house and Hanoi stock exchange building. Most days, however, shoppers are scarce. On a Monday afternoon, Nguyen Trong Minh had the plush shop to himself while buying a pair of sunglasses for his mother. The 24-year-old consultant, who recently returned to Vietnam after studying for five years in Minnesota, paused when asked how long it would take for a store like Gucci to really take off. "It'll be a while."

"Right now, foreign retailers have not made a dent in Vietnam," said Freund at Mekong Capital. "If Wal-Mart, for example, wants to come in and set up huge stores that will transform the future of retailing in Vietnam, they are going to have to jump through a lot of hoops." Wal-Mart has no plans to enter the market, said spokesman Kevin Gardner. Compare that to China, where Wal-Mart operates 189 outlets with more than 50,000 workers.

On business at a Japan-owned convenience store, the Yomiuri Shimbun reported: “On Friday afternoon, a food section of a Ministop convenience store in Ho Chi Minh City was crowded with students from nearby schools. "Adult consumers in this country are conservative, and many of them always use the same stores," a local operator of a distribution business said. FamilyMart Co. and Ministop Co. have adopted strategies of opening stores in Vietnam near schools and cram schools. Their food lineup contains many fast foods that target young people, such as onigiri rice balls, sandwiches and nikuman steamed meat buns. Because the average age of Vietnamese nationals is about 27, the companies aim to attract young consumers. [Source: Kazumichi Shono and Tomoko Hatakeyama, Yomiuri Shimbun, March 5, 2012]

Vietnamese Real Estate Market When It was Red Hot

On the real estate market in Vietnam when it was red hot in the mid 2000s, Nolan Crawford of the Bangkok Post wrote: “Though overcrowding, quality control and government corruption are ongoing issues, the property market is still one of the hottest growth industries in Vietnam, a trend that some analysts do not expect to abate any time in the near future. Motivated by 8 percent economic growth last year and the potential of easing real-estate regulations, it is not only developers that are cashing in, but also commercial banks and property funds. The basic overall picture, according to research by CB Richard Ellis (Vietnam) released earlier this month, is rapidly growing demand in all areas — office space, residential, serviced apartment and hotels — and not enough supply. It is a picture they foresee for at least the next three to five years. [Source: Nolan Crawford, Bangkok Post, March 31, 2007 ||||]

"To describe how young and new the market is, just take a look at office space. In Ho Chi Minh City we're talking about 350,000 square meters, whereas in Bangkok we're talking about 3.5 million square meters and in Jakarta four million," said Peter Dinning, the managing director of VinaCapital Real Estate Ltd, in a recent interview. "As a result, we see almost 100 percent occupancy in a lot of areas." Under the World Trade Organization agreement Vietnam signed at the end of last year, lawmakers plan to liberalise the property market from now until January 2009. Foreign developers will supposedly have greater access to the market once new policies take affect. ||||

“Demand in the office segment of the market is being driven by entrepreneurs opening shop, foreign direct investors wanting to set up shop, and local firms deciding whether to trade up for something with modern amenities. "The office market has been predominantly foreign," said Mr Dinning, "but we've seen a shift in the last two years with local companies wanting to show they can compete in the global market by upgrading, especially now the country is a World Trade Organization member." Short supply and strong demand has certainly driven prices higher. CB Richard Ellis quotes Ho Chi Minh City Grade-A office rental space at US$23 a square metre in the first quarter of 2006 and now estimates it at around $29.50. ||||

The hotel segment is seeing similar growth, helped along by an influx of travellers. The Vietnam National Administration of Tourism estimates that international arrivals grew by 3 percent last year to 3.58 million people. The government hopes the figure climbs to more than 5.5 million by 2010 as the country taps into the allure of its mountainous regions and 3,000-plus kilometers of shoreline. As for the residential segment, an emerging middle class that has benefitted from decreasing unemployment and consistent economic growth over the past five years is beginning to invest in property. ||||

"Local demand is huge, though the actual number of people who can afford new homes is still very limited," said Nguyen Quoc Tuan, an associate director of research with CB Richard Ellis.This situation is likely to change, said Tuan. The hope is that Vietnam will continue its current trajectory as Asia's third fastest-growing economy through 2010. In addition, consumers are becoming savvier about various financial products, such as home loans. Commercial banks over the last few years have begun pushing mortgages and are still in the early stages of offering long-term, fixed-rate loans to consumer who have the right credit rating. "You can get a 12-year long term loan, but rates are still very high [for local consumers]," said Tuan. "That too should change as the market matures." ||||

“Mr Dinning added that the residential sector has potential for long-term sustainable growth because of the huge local demand, but of course there will be the usual peaks and troughs in the short run. In the meantime, the securities market may be an alternative avenue in which to fund housing purchases. Viet Nam News and other publications have run stories in the last two months regarding small investors who have ridden the stock market wave over the past year and are cashing out. They are taking their newfound wealth and buying real estate, a more traditional investment channel in Vietnam similar to gold and foreign currency. Despite all the upbeat banter, analysts have issued a number of warnings targeted at consumers, property-fund managers and developers alike. ||||

In its 2006 Real Estate Transparency Index report, Jones Lang LaSalle put Vietnam at 56th, right at the bottom of the list, below regional competitors such as China, in 42nd place, and Thailand, ranked 39th. The report also indicated a strong correlation between a market's lack of transparency and the level of corruption. Again, Vietnam was at the bottom of the index. Earlier this month, Nguyen Dinh Than, a director at state-owned Vinaconex, was found with 200 million dong (405,950 baht) in alleged kickbacks from a local contractor. The case is now before the courts. The government also maintains tight controls on the market. Currently, foreigners are not allowed to own real estate, though there are the usual loopholes if a person is married to a Vietnamese. Secondly, overseas-based development companies must enter a joint venture with a local partner in order to invest. ||||

“Another negative factor is potential overcrowding in the market. "There is a lot of money chasing too few good deals," said Rick Mayo-Smith, the managing director of Indochina Capital. "If you plan on coming in on your own, it maybe difficult The property market [in Vietnam] is not necessarily the godsend that people say it is." The key, he says, is a thorough understanding of the local environment and the ability to find good deals, which is not always easy given the transparency issues. He also warned that with about one billion US dollars already invested in the market, competition is tough. Indochina Capital is expected to make 25-30 percent returns on its first property fund, but the second fund will be much more difficult "with the market that is much more crowded and expensive", said Mr Mayo-Smith. ||||

In 2008, the Yomiuri Shimbun reported: “Trade in land-use rights is roaring, creating a housing bubble in the country. The assessed value of the land per square meter in front of the Ben Thanh Market, in the center of Ho Chi Minh City, was 200,000 dollars, or 21.7 million yen, in 2006— more than the 19 million yen the same-sized piece of land would cost in Tokyo's ritzy Ginza 2-chome.” Some people have become quite rich. One casino patron told the Yomiuri Shimbun, "I made a fortune thanks to my connections with the [Vietnamese] government. I bought some real estate after obtaining some useful information and sold it on. With the surging property market, I knew I'd make money." [Source: Makoto Ota, Yomiuri Shimbun, February 1, 2008]

Property Market in Vietnam Takes Off in the Late 2000s with Availability of East Credit

Chris Brummitt of Associated Press wrote: “In the late 2000s, when Communist authorities encouraged state-owned banks to hand out easy credit to investors and developers as part of an effort to stimulate the economy, resulting in sharp land price increases. It was a new phenomenon for Vietnam, which only began opening its centrally planned economy in the 1980s. Many of the developers were state-owned enterprises that had no experience in property. Despite hopes of bringing home ownership to the masses, buyers were often speculators, seeking to buy off the plan and realize a quick profit. "Suddenly everyone stopped manufacturing shoes, widgets or whatever and became developers overnight," said Marc Townsend, managing director of the Vietnam unit of CB Richard Ellis Group, a global real estate firm. "And the remains are all around town."[Source: Chris Brummitt, Associated Press, September 19, 2013]

Xinhua reported: “Land price in Vietnam is believed to be the most expensive in the world. In 2011, the Vietnamese people's average income was ranked 120th in the world while its real estate price ranked 20th. Analysts are worried that the real estate bubble in Vietnam will burst if the government does not make remedial measures to help the ailing real estate industry. One analyst said that if the government has enough capital reserves, it can come up with a timely stimulus package to support key sectors of the economy, including real estate. "Apart from a stimulus package, flexible legal regulations relating to real estate should also be applied so investors can re- adjust their business plan," the analyst said, adding that lowering the land rental tax for investors would be a significant move. According to him, having a strong capital reserve is a big problem for real estate investors, especially those who have to borrow money from banks to run their business. Only those with enough capital reserve can survive during this difficult time, he said. [Source: Xinhua, December 31, 2012]

In Vietnam today, residential houses are selling quite well because the average-income families can afford to buy them backed by low-rate bank loans. However, this still can not solve the problem of high inventories in the overall real estate business. Nguyen Khanh Phuong, director of a property transaction company in Hanoi, seemed to be a "lucky" businesswoman, as she told Xinhua that her business went "okay" throughout this year, despite lots of difficulties. "We have to re-adjust our business lines to suit to the market's fluctuations and to meet the buyers' diverse demands," Phuong said, adding that "there are clients from different walks of life, with different income levels, and we try to satisfy each one of them."

Ha My and her husband are among Phuong's clients who bought high-class apartments at the Golden Palace building in the newly- developed hub at My Dinh area in capital Hanoi. The project is scheduled to be completed in 2014. The couple, who are in their thirties and both working for foreign companies for more than 10 years, bought a 105-square- meter apartment through Phuong's company. They have to pay for their future apartment (32 million VND, or 1,600 US dollars, per square meter) in four installments, with the first one covering 30 percent of the house's value paid when they signed the purchase contract, and the final one in 2014 when they move into the house. "My clients, like My and her husband, are not rare. They buy houses where they can live with the help of the bank. I hope we can sell more products. But I think the country's real estate market can only recover in 2014, and thrive again from 2015," Phuong said.

Vietnam's Real Estate Market Stagnates and Collapses in Early 2010s

In December 2012, Xinhua reported: Vietnam's real estate market has been in the doldrums for the past five years, but more especially in 2012, and there are no indications of recovery."If the government does not intervene with appropriate and timely measures, the real estate sector would suffer more," an executive of a real estate firm told Xinhua. The executive has been working in a city-run housing trading and brokerage company since 1989. The company has now been converted into a share-holding company. At one time, his company had up to 600 employees, but now it only has a staff of 60."I have to reduce my staff to the minimum, which helps in lowering our budget and in going through the current tough and competitive environment," the executive said. [Source: Xinhua, December 31, 2012]

He said that in 2012, the year-end bonus for their employees would be equal to only one-month salary compared to three-month salary years ago. "I have no choice. The company's profit this year was only one- tenth of the previous years' figure that reached up to 200 billion VND (roughly 10 million US dollars) per year.

Some years ago, the real estate sector was considered the most profitable business in Vietnam. However, since the real estate market has hibernated along with Vietnam's economy, apartments and houses have been left unsold, and investors are losing money. Though many projects have been on sale with big discounts, sales have continued to dip.

Official statistics showed that at the end of the third quarter in 2012, the turnover of real estate businesses listed in the stock markets decreased by 20-25 percent and their profit fell down by 35-40 percent year on year. Le Dat Chi, head of the Financial Investment Department of the HCM City Economics University, said that because of the current unfavorable global economy and limited sources of capital at home, investors can't expect a faster economic growth without which the government could not afford to have a stimulus package for the real estate industry. "There will be a pessimistic scenario for the national economy in the coming years, and investment channels, including the stock market and real estate industry, are going to be affected," he said.

Chris Brummitt of Associated Press wrote: “As countless other countries have learned, house prices can drop as quickly as they rise. Vietnam's did so with a vengeance in late 2010 as the economy slipped. Prices are down by 50 percent in some parts of the country, and no one is predicting a rebound. Banks are weighed down with bad debt, much of it secured against property, and are reluctant to lend, strangling growth in the once red-hot economy. With half-finished skyscrapers and housing complexes scarring parts of Hanoi and elsewhere, tales of runaway developers are emerging in online forums and in the tightly-controlled media, opening up a new avenue of anger at Communist authorities who oversaw the rampant speculation. [Source: Chris Brummitt, Associated Press, September 19, 2013]

Pressure on Vietnamese Banks After Property Market Collapse

Chris Brummitt of Associated Press wrote: “Real estate agents fear other property investors are in for a nasty surprise as inexperienced developers and poorly regulated banks with loans secured against failing projects get squeezed further. The government formed an asset management company to buy the bad debts and take them off bank balance sheets, but few in the industry believe it has sufficient resolve or power to fully address the issue. [Source: Chris Brummitt, Associated Press, September 19, 2013 ^]

The banks, many of which are run by politically connected chairmen and shareholders, appear unwilling to take losses, preferring to fudge the extent of their exposure and bet a global economic recovery will lead to asset prices rises. Two years after the crisis became apparent, no bad loans are known to have been sold and there has been no accurate reckoning of the amount of debt in the system. "To make the changes you need to recognize there is a problem and here they don't realize there is a problem," said Sameer Goyal, the financial and private sector coordinator for the World Bank in Vietnam. ^

Vietnamese Property Laws for Foreign Buyers

Under a law that took effect on January 1, 2009, foreigners are allowed to buy apartments, but not houses, and each individual or organization can own one apartment that cannot be leased or used for other purposes except living. The law, which was to be implemented on a trial basis for five years, also stipulates that only five categories of foreign individuals and organizations are allowed to own apartments: 1) individuals who invest directly in Vietnam or who are employed in management positions here; 2) foreigners who receive certificates of merit or medals from the president or government for their contributions to the country; 3) those who work in socioeconomic fields, hold at least a bachelor's degree or higher, and possess special knowledge and skills that Vietnam needs; 4) foreigners who are married to Vietnamese nationals; and 5) foreign-invested companies operating in Vietnam, except for those in the real estate industry, that need to buy homes for their employees. [Source: Thanh Nein News, December 30, 2013]

But most foreigners in Vietnam do not belong to the five categories. According to the construction ministry, only 126 expats and foreign organizations had purchased apartments in Vietnam as of the end of June 2013, most of whom were in southern and south-central localities like Ho Chi Minh City and Ba Ria-Vung Tau, Binh Duong and Khanh Hoa provinces.

U.S. Developer Leaves Anger Behind in Vietnam

In September 2013, Chris Brummitt of Associated Press wrote: “American developer Edward Chi ducked out of a tense meeting with the prospective home owners” of a project he spearheaded “and never returned, leaving the rusting foundations of an apartment block and at least 128 angry investors, many who had already put down more than $150,000 from life savings or bank loans. Police say Chi has left the country and is unreachable. Chi was one of scores of developers drawn to Vietnamese property in the late 2000s, when Communist authorities encouraged state-owned banks to hand out easy credit to investors and developers."We were cheated and also feel disappointed with authorities, who have shown no sign of investigating the case," said Tran Thanh Hai, who made an initial payment of $180,000 to buy a 210-square meter unit in Chi's flagship Tricon Towers project on the western outskirts of Hanoi. [Source: Chris Brummitt, Associated Press, September 19, 2013 ^]

“Chi, an American citizen of Vietnamese descent, was well known in business and investment circles in Hanoi and Ho Chi Minh city before his abrupt departure last year. One real estate agent who knew him said Chi, who is 49 according to his business license, was in insurance before starting his property business. The company he formed, Minh Viet, appeared to have little trouble attracting investors when the Hanoi project launched in mid-2009. It touted three "ultramodern" 44-story towers housing 734 units and a handover date of late 2011. They were to be put up on the western outskirts of Hanoi, a district promoted by the government as a new commercial and residential hub. Minh Viet later marketed and took deposits for a second project overlooking Halong Bay, a tourist destination in Northern Vietnam. Construction never began there. ^

“Those with doubts over Chi's reliability took heart from his well-known foreign partner. He acquired the Vietnam franchise for Coldwell Banker, and used the American realtor's branding extensively in his projects. Coldwell Banker said it had terminated its deal with Chi in 2012 and declined further comment, citing the police investigation into him. One overseas Vietnamese investor said she trusted the Halong Bay project because of the Coldwell Banker name. She said she also assumed it had the backing of the Vietnamese government, citing the advertisements that appeared in the state-run media. She said that Chi appeared on a video call with his sales teams to close the deal. "I trusted it because of Coldwell Banker' fame, but now they are washing their hands of the project, just the same as the Vietnamese government is doing," said the investor, who gave a single name of Ngoc. On the slick website promoting the properties, Chi kept up the hard sell even as construction faltered and disputes between Minh Viet and the Vietnamese construction company, Coteccons, emerged. Media reports say Minh Viet owes the company $7.5 million. ^

“Nguyen Ngoc Tuan, a 37-year-old engineer, said he paid $180,000 to Minh Viet, $80,000 from savings and the rest a bank loan from a local lender. He used the contract signed with Minh Viet as collateral for the loan. He now rents a house, and plans to default on the loan. "The salaries of my wife and I are not enough to pay bank interest," he said. "I have asked the bank to freeze the loan, but they did not agree. In the future, I don't intend to pay interest because we just don't have enough to feed our family." ^

“A Vietnamese police officer said the force was investigating Chi after investors had filed complaints, but that he left the country last year. He didn't give his name because he was not authorized to speak to the media. It is unclear how far any probe has got. The AP spoke with two of Chi's colleagues at Coldwell Banker who remained in Vietnam. Both said they had not been contacted by police. Tran Thanh Hai, the investor, said in a meeting on July 12 last year, Chi promised to pay back customers by selling his houses in California if needed. He and others have been trying to trace Chi, but have discovered only more apparent deception. "We checked later on the Internet, that house was sold several times since 2006 and the last owner was not Edward Chi." ^

“These days, the once-gleaming showroom for Tricon Towers has been abandoned, a torn signboard blowing in the wind. Rusting steel poles and an expanse of concrete are the only signs of Chi's ambitions. On a nearby street once lined with real estate agents, only one remains. Nguyen Tuan Loi said that at the peak of the boom in 2010, months after Tricon launched, he was flipping houses just four days after buying them. Now, he says he is lucky to get one transaction a month, and has had to trade his car for a motorbike. ^

Vietnam Prime Minister Wants Property Market Open to Foreigners

In December 2013, Thanh Nein News reported: “Prime Minister Nguyen Tan Dung has thrown his support behind proposals that would make it easier for foreigners to buy homes in Vietnam, exhibiting yet another attempt to resuscitate the struggling property market and resolve bad debts. The ministries of construction and planning and investment have also pushed for relaxing the laws in a bid to add more liquidity to an ailing real estate market that has been frozen by a bad economy and soaring inflation. The property freeze has also aggravated banks' problems with non-performing loans, prompting a vicious cycle in which banks have dramatically cut lending, slowing property sales across the country and stalling many real estate projects. [Source: Thanh Nein News, December 30, 2013 ==]

“The news that the housing and real estate market may soon see an influx of foreign buys is music to the ears of real estate companies. "It is very positive and puts foreign ownership regulations [in Vietnam] alongside, if not further ahead, than in other Southeast Asian countries," Marc Townsend, managing director of real estate firm CBRE Vietnam, told Vietweek. "It would remove some irregularities and road bumps from the investment law and would make the idea of buying to occupy and investment much more palatable for foreigners working in Vietnam, for Viet Kieu [overseas Vietnamese] and [Southeast Asia]-based investors," he said. ==

“In a report sent to Prime Minister Dung by the Ministry of Construction last July, the ministry proposed new regulations that would allow organizations like foreign investment funds, banks, Vietnamese branches and representative offices of overseas companies, as well as all foreigners who have a visa to the country that is valid for at least three months, to buy homes " both apartments and independent houses "in Vietnam. But diplomatic institutions, NGOs, and their employees would not be allowed to purchase homes in the country, according to the proposed regulations. ==

“The ministry also proposed that foreign organizations and individuals eligible for home purchase in Vietnam be allowed to buy different types of properties, including townhouses and villas with less than 500 square meters of land and apartments. These properties could be leased if their foreign owners are not living in them and the houses could only be sold or given as gifts 12 months after the ownership certification is granted, if the ministry's proposals become law. Among the most significant changes in the proposals are the two options for the duration of ownership of housing properties by foreigners. The regulations would allow ownership for 50 years with the possibility of a 50-year extension, or 70 years with no extension. ==

“The construction ministry's proposal, however, mentioned no proposed change in ownership duration for foreign organizations. Under current regulations, an organization's ownership lasts until the organization's investment registration expires. But by and large, "allowing for a 50-year lease plus a further 50 years or straight 70 years lease and allowing the right to lease out are all game changers for foreigner investors," Townsend said. ==

“Though analysts say that opening up the property sector to foreign buyers will not be able to shore up the entire market, foreigners could become a much-needed layer of sustainable buyers as opposed to the groups just looking to speculate. "Over the past several years we have seen significant interest from foreign investors who are unable to purchase housing in Vietnam due to restrictions," David Blackhall, managing director of VinaCapital's real estate arm, told Vietweek. "Loosening these restrictions should help bring the demand needed to clear out the current stock, which is an important step towards a full recovery," he said. ==

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Vietnamtourism. com, Vietnam National Administration of Tourism, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, Fox News and various websites, books and other publications identified in the text.

Last updated May 2014

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