AmericanTCB Directors Travel Blog

Hanoi was a cool 65 degrees for much of our stay in January. There are several reasons to celebrate. The mid-winter festival of Tet (Lunar New Year) was in mind and much color and a sense of holiday anticipation hurries the pace of the city at home, on the street and in the office: finish business before the end of the year to enjoy the holiday. Oh, and do some shopping.

The other reason is the 1000th anniversary of the founding of the city (official celebration on 10/10/10).

During our week in Hanoi and Ho Chi Minh City we managed to get a top-down and left-right view of Vietnam’s current state of affairs and some prospect for its future. For a country that struggled to feed itself in the late 1970s and 80s to becoming a net exporter of food and finished goods, the prospect is bright. For many Vietnamese, finding work is not a problem: the unemployment rate is around 5% country-wide. The main cities of Hanoi in the North, Da Nang in the center and Ho Chi Minh City in the South are swollen by workers coming in from the villages to find work. Real challenges exist in transportation and transparency. Transportation is key to delivering goods to domestic markets and to ports for export. Transparency is key to allow outside interests input on economic planning. It’s all about flow. There’s no lack of motive power, that is for sure.

As an indicator of Vietnam’s expansion, consider the ubiquitous scooter: In 1990 there were a few hundred thousand scooters in the country. Presently, the estimate is close to 35 million. These are basic tools for transport, hauling, delivery and sources of livelihood for most of the developing class in the country. Everyone drives them from farmers to construction workers to ladies in high heels and splendid ao dais.

And if you have to run a sheet of plexiglas over to the job site, tap a friend with two good hands, keep your right hand on the throttle and put your head into it, so to speak. Thankfully, helmet laws were enacted a few short years ago, else this task would have been a bit of a rub on the noggin. If you can’t find a friend, you’ll just have to haul it yourself.

Our dash through Vietnam was choreographed to get support for our Environmental and Climate Change Conference, our third with our partners at STAMEQ and QUATEST3. The conference, planned for the week of May 24th will examine solutions to Vietnam’s burgeoning environmental issues, focusing on technology and business solutions to overcome these problems. It is a multi-dimensional issue, dealing with the simple fact of micro-economics (will building designers take the long view and implement more expensive, but sustainable green technologies?) to the more complex issues of providing aid development funds for infrastructure projects and getting them applied in the right manner.

Vietnam, with her extensive coastland and low-lying areas--particularly in the South--is extremely vulnerable to climate change and sea level rise. The Mekong River Delta area, an enormous expanse of waterways, agriculture, fisheries, tourism and trade is particularly threatened. Although “Impossible is Nothing” there are some major challenges in dealing with Vietnam’s environmental needs as it expands from a country with no real functioning economy 25 years ago, to a dynamic, sophisticated society with huge urban populations.

This trip was arranged and planned with Peter Gourlay, President of The Maryland Environmental Partnership (MDAEP) and Alex Koff, Director of Global Practice for Whiteford Tayor Preston, LLC in Baltimore, MD. Washington Laboratories and Whiteford Taylor Preston are each founding partners of the MDAEP, which is developing cross-ties and cooperation between US Technology Firms and the Asia environmental opportunities. Peter and Alex have extensive experience in the environmental and business practice sector and can navigate the halls of the aid agencies, consulates and streets of Ho Chi Minh City with aplomb.

This development mission allowed us to engage multiple stake-holders in the country, from the US and Vietnamese governments to private industry and academic organizations. Listening in on many of the conversations gave us a lot of insight on how to shape a program that, as one of our contacts framed, has the “Rallying Soundbite.”

To get there, it is necessary to extract the right information and where the sensitivities lie in the public and private sector. For example, the government places high emphasis on environmental protection, however, in contrast is the much-needed focus on the development of electric power using coal-fired technologies. Balancing the need to keep an effervescent population moving in a growth direction is a real challenge for the central planners. Artificially-low power prices, for example, keeps the citizens’ qualms low, but creates a deficit in the state-owned utilities that leave little capital available for investing in clean and efficient power production facilities.

Just a macro conundrum. There are numerous examples of the challenges of doing business on the ground as the Vietnam government tries to blend market economics with socialist politics (certainly not unheard of this in this part of the planet). In contrast to China, however, which is very centrally controlled, Vietnam’s decision-making process focuses on consensus, rather than top-down control. This sounds good in theory (multiple parties get to weigh in) but can often lead to a stagnation of decisions in the backwaters of bureaucracy (not unheard of in any part of the planet).

Great assistance was provided by the Department of Commerce Commercial Services in both Hanoi and Ho Chi Minh City. Want the low-down? Talk to these experts. We also got great advice from the American Chambers of Commerce in both places.

As in any market, the real deal is local, so skip the Op-Ed columns in your local rag, hop a flight and go and try the pork barbecue near Hoan Kiem Lake.

There is good news for Vietnam (and good news for intrepid investors positioned in the right market). GDP growth in 2009 was a healthy 6% in a dismal global downturn, meaning more opportunities for the populace. A result of the expanding standard of living is a rather nasty 6.5% (official inflation--might be more like 11%). Wages are expanding at 12.3% (driving inflation). Unemployment is an enviable 5% or less. The increasing wealth is drawing in competitors, naturally, and consumers are getting picky on price and value.

According to information gleaned during an American Chamber of Commerce meeting in HCMC, the number one worry for Vietnamese consumers is health, followed by food prices, job security and, this is interesting: work-life balance. Work-Life Balance? Mazloff’s hierarchy is starting to expand when a society figures quality time with the wife and kids is jeopardized by an excessive commute and/or meeting the boss’ demands.

The notion that health is a top priority has expanded the market for health-conscious food and food supplements, enriched “waters” (not unlike the US) as well as a suspicion of food imported from potentially harmful suppliers (read: big neighbor to the North). Locally-supplied food is preferred for personal consumption, although I don’t know if large-scale food processors, tempted by cheaper raw materials, screen their supply chain. I tend to doubt it, unfortunately. The combination of pricing and increased competition has this vendor worried, particularly from the nattily-dressed newcomer setting up shop around the block (would you buy fresh pineapple from this guy?).

Food supply, fortunately, is not a problem in Vietnam. The country is extremely productive and has developed an active export market for various commodities. Vietnam exports large volumes of peppers and cashew nuts (number one in the world). Coffee, rice and seafood figure prominently also. Food safety is reaching a critical point and scrutiny over contaminated food products will continue to harm the export side of the food market. This is an opportunity for quality control and food-handling specialists as the entire farm-to-chopstick cycle needs improvement, from pesticide and good-practice through cold-handling infrastructure (critically important in hot Vietnam with a troubled electrical infrastructure). It does mean that fresh is not a stale word.

For food producers, the surest way for export success is to adopt practices that align with international standards. This provides a two-fold advantage in the competitive international food market: first, it will improve the safety of the food supply and second, it will engender confidence from export partners. Since its accession to the WTO, Vietnam, and our partners at STAMEQ, have been busy updating and upgrading the VN norms to comply. Given where they started, significant progress has been made. One prevailing attitude in some circles is the fear that the Vietnam “Brand” will suffer from the same bad press attached to “Brand China.” Some of this pressure will ultimately come from the domestic market where food safety concerns resonate with the general concerns about health.

Forward-looking interest groups see rising waters as a distinct threat to the food supply. As the coastline is used extensively in agriculture and aquaculture, threats include disasters borne in by strong typhoons to the more insidious sea level rise and salt water intrusion into farming areas. The environment, in general, has contamination problems with the increasing industrialization of the country. Legacy toxins due to Agent Orange (dioxins) contaminate farm areas.

Trends point to 50% of future projects sponsored by the UN, USAID and other NGOs as focusing on climate change. These projects include the development of alternative energy (which is going to be a drop in the bucket in the carbon equation say, compared to the CO2 heavy US and EU) and mitigation techniques to save coastal zones from the acute effects of sea level rise.

The Dutch, not surprisingly, are active here. With their millennia of experience in coastal zone management, they are developing applications suitable for Vietnam’s threatened areas. Other international cooperation is under the aegis of “The Dragon Partnership,” initiated by the US Geological Service (USGS), which applies lessons-learned in the aftermath of Hurricane Katrina and the general dismal shape of the Mississippi delta to the Mekong area. This is a regional issue. Kampuchea (Cambodia) and Lao share much of the same ecosystem and wet geography with Vietnam.

On one trip, we were taking a tour of one of many of the watery byways in the Mekong Delta. Rounding a corner we passed by the local motor repair guy who made his living fixing the internal combustion machines that power the sanpans that putt-putt-putt people and goods about. The rocks on the side of the river were black with oil. Seems the quickest way to get into the motor is to split the crankcase and spill the oil on the shore. Less than fifty yards away, young kids swam and played in the muddy brown and contaminated waters.

These are behavioral, micro-matters, really and it has not been very long in our past when such blatant insult was served up to the US ecosystem. While we have a long way to go, there has been a lot of progress. The difference (pan-Asia) is that the population is ten times the population of the US, so the overall impact is more than local.

Water, as Peter says, is a common link in all the development issues, not the least of which is energy.

We had meetings with representatives from the private energy sector, whom will remain nameless here. Not that the issues that were discussed are particularly sensitive (much of it is discoverable in the press), but that the situation is so complicated that to compress it to a simple analysis is beyond my minimal skills. I’ll offer up what we heard for consideration.

Suffice it to say that the burgeoning population--buying appliances, computers and other devices--are putting great demands on the electricity supply. Power demands are growing by 15% per year and are served by a state-owned monopoly Electricity Vietnam (EVN). To meet these needs, the path of least resistance is the construction of coal-fired plants. There are a number of reasons why this route is attractive. First, the technology is “easy” and mature and a plant can be commissioned in a relatively short period of time. Second, coal is easily transported (compared to, say, natural gas) and has a developed domestic source and is purchased from China.

The major downside, of course, is the impact on the carbon/environmental picture in Vietnam. Emissions standards for coal plants are not fleshed out with no particulate or CO2 limits. Uncertainty in the regulations and an unbalanced application of standards favors the dirty domestics over foreign-invested plants.

One of the struggles of the multi-national firms we visited was the development of natural gas supplies to provide a cleaner alternative to coal (thermal) plants. There is no pipeline to handle the gas and development of these infrastructure projects is long and painful.

Power generation capacity in the country is around 15,000 Megawatts (MW). As a comparison, electric power generation in the US is around 1,100,000 MW or 1.1 TerraWatts (TW). So Vietnam, with one-quarter of the population of the US, uses about ten percent of the electricity of the US, in round numbers. On a per-capita basis, US citizens use 23 times as much electricity as Vietnamese.

Demands will be enormous in the coming years. This will create many opportunities in a more sophisticated market as Vietnam moves along. However, the short-term concerns will dominate and one of these is the low power prices offered in the VN electricity supply. Currently, EVN mandated to provide affordable power to the populace. This power is sold below cost to consumers as the central party ‘buys’ civic calm with subsidized power. Recent efforts to raise the price to create much-needed capital upgrades are met with outcry.

It creates a circular-illogic conundrum: If prices don’t rise, the infrastructure won’t develop; without improvements in the infrastructure, the economy won’t move. Without well-priced power, the incentive from foreign direct investment (FDI) is suppressed. So a shock to the system is needed to arrest the arrhythmia, however, going back to VN’s consensus-based decision process, no one is willing to stick their neck out to suffer the political backlash necessary to raise prices to market rates. Sound familiar?

Wind and water account for an increasing part of Vietnam’s portfolio. Water power, of which Vietnam has an abundance, is being built out and as the west has known for decades, creates enormous side effects in the environment. At some point, expansion will slow in that sector. There is a great deal of nascent wind energy (estimate of 500,000 MW!), particularly along the coast, but in the best of economic models, the price of wind energy is twice that of traditional. Given Vietnam’s preference on pricing, this won’t significantly contribute to the solution any time soon until some critical juncture in the economics and policies occurs. Nukes? One or two coming on line. That’s another onion. Solar? Four times the current rates.

They also need to find a few dong to upgrade their communications distribution. It’s no wonder that cell phones are the communication media of choice.

Sometimes you need a friend on the road and you can always visit the Well-Wishers Gallery. We’re on our way back, but wish you well, wherever you are.

Directions are Always on Your Lips

“When my father passed away, we brought the urn with his ashes to put them in the temple, in the south. My mother, sister, brother and I were driving to enjoy a dinner before we left him in his final resting place. On the way, we were joking and remembering the things about dad that use to piss him off. He was kind of stern, you know, and he had a strong temper--some of it, I am sure was because of the hardships they faced when they left the mainland.

We were laughing with all of the stories and my brother suddenly realized we were lost. The temple was in the mountains, the roads were windy and it was getting dark. We said that dad must be angry with us for laughing at his memory, so we all said a little prayer, asking for his forgiveness. We found the right road and soon we arrived at the temple, just as dinner was being served.

The monk at the temple listened to our story and he said that dad just wanted to spend a little more time with us--that is why we were driving around, seemingly lost.

‘He, too, was having a little fun,’ he said, ‘but didn’t want us to be lost for too long. Directions are always on your lips,’ pausing, he added: ‘you just have to ask and you will find your way.”

Father VN

-- CHD, Unpublished notes