Vietnam Loses Appeal to Foreign Investment amid Economic Woes

Article excerpt

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 crisis.

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 TNS Global.

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.

What happened?

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 past decade.

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. …

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