Vietnam, once seen as on its way to joining economic tigers
Taiwan and South Korea, has seen foreign investment decline sharply
amid labor problems, crumbling roads, and the global financial
Vietnam's economic future is on the rocks.
Foreign firms in this ramshackle but once booming factory
district just outside Ho Chi Minh City are watching bottom lines and
studying other markets closely, both of which have become threats to
Vietnam's economic growth.
But after the global financial crisis, foreign direct investment
pledges fell from $66.5 billion in 2009 to $20 billion in 2010. Now,
the number of foreigners leaving Vietnam slightly exceeds those
entering, contrasting a 4-to-1 ratio favoring arrivals in 2008, says
Ralf Matthaes, regional managing director with market research firm
Nightclub clientele has dropped, foreign patrons say, bubble tea
shops popular with Taiwanese business people have closed, and Bien
Hoa's four-star hotel is barely half full.
"Most foreign firms will wait," says Nguyen Xuan Thanh, public
policy director with the Fulbright Economics teaching program in Ho
Chi Minh City. "Of course some will choose [to invest] elsewhere.
There are serious structural problems [in Vietnam]." He adds that
there's some concern among investors about whether Vietnam will ever
return to the type of growth it once knew.
Five years of struggles with inflation, a slipping currency, and
intractable labor problems have squeezed profits for the thousands
of foreign firms that came to the impoverished country in 1987 when
the Communist government suddenly opened to outside investment with
the promise of cheap land and labor.
Investors built up this industrial heartland, filling its
potholed roads with 24-hour truck traffic and lifting economic
growth nationwide to an average of 7 percent per year during the
Now, foreign business people who flocked to invest in Vietnam's
budding economy, particularly in manufacturing, say that since 2007
they have been hit by a volatile mix of economic pressures.
The limited pool of reliable and skilled workers around Ho Chi
Minh City has hindered growth in foreign firms. And the inflation of
11.1 percent that followed economic overheating before 2008 has
fueled a growing number of pay-related, nonunion strikes, 336 in the
first four months of 2011 compared with 541 in all of 2007.
Struggling to stay afloat
In the Bien Hoa Industrial Zone, some 20 miles outside of Ho Chi
Minh City, wary managers with the Taiwanese-owned manufacturer Taya
Electric Wire & Cable have averted strikes at a 280-employee factory
by raising pay, even though wages exceed the legal minimum that has
gone up three times in 2011. …