Will Vietnam roar again?

The stock exchange in HCMC, a first for Vietnam

By BBC News Online's Tanya Hines

President Clinton's visit to Vietnam is not only highly symbolic but it is also extremely important to American business, which is hungry to gain a foothold in the economic regeneration of a country that was bombed heavily by US warplanes a quarter of a century ago.

As President Clinton's plane touched down in the capital Hanoi, he arrived in a city where the communist old guard still rules, despite the gradual opening up of a market economy.

It follows a landmark deal which opened US markets to Vietnam in July.

A milestone in the normalisation of the two countries

Le Phuc Nguyen, army newspaper

Freewheeling Saigon in the south, or Ho Chi Minh City, as it is officially known, is widely seen as the nation's economic powerhouse.

It is Hanoi, where the government's decisions are made, which has proved a major block to any foreign companies wanting to do trade there.

General Electric already has interests in Vietnam

Despite this, international investor interest has been reawakened with Mr Clinton's visit. More than 50 US companies have travelled with him there, including such big names as Nike, Coca-Cola, General Electric, Citigroup and General Motors.

And they are looking forward to it:

"This trip looks to the future as part of building a lasting relationship with an important country with vast potential," said Lionel Johnson, an executive of the world's biggest financial services company, Citigroup which wants to expand its operations there.

Vietnam's biggest foreign investors

1 Singapore

2 Taiwan

3 South Korea

4 Hong Kong

5 France

6 British Virgin Islands

7 Russia

8 United States

9 Thailand

10 Australia

The companies want to get involved in a country that has a highly educated, youthful population of 78 million people, with very low wages, and vast natural reserves of oil and gas.

Vietnam, one of the world's poorest countries, is hoping that further international investment can help it accelerate economic growth.

The Asian tiger fails to growl

After years of isolation, it was in 1994 that the punishing trade embargo was lifted against Vietnam, and the re-establishing of diplomatic relations followed a year later.

But little substantial change has followed since a series of free market reforms stalled in the late 1990s.

Vietnam's economy is still highly state-controlled

That is not to say foreign companies did not try.

Ten years ago, the country was tipped as the next Asian economic tiger.

Global names like Unilever, BP and Shell jumped in, forming joint ventures with local Vietnamese companies.

Firms from South Korea, Hong Kong, Taiwan and Japan were quick to set up clothes factories and to build investment zones.

But in the mid 1990s, many started to scale back their operations, some even pulled out, citing endless frustrations over dealing with government bureaucracy.

Climate change?

But the commercial climate started to improve this year, especially with the signing of the bilateral trade agreement between Vietnam and the US in July.

Trade levels between the US and Vietnam are still extraordinarily low. US exports to Vietnam over the past few years have hovered around $250m per annum, which is about the same as the value of US exports to Japan over a three day period.

This has now begun to pick-up. Last year Vietnam exported $500m to the USA, and the Vietnamese government hopes that this year it will be $600m.

Vietnam's exports to the US

2000 $600m (est)

1999 $504m

1998 $469m

1997 $273m

1996 $204m

Even so, the US is only the eighth largest source of foreign investment in Vietnam. But it is still an improvement from 1995 -1999, when the US did not even make it into the top ten.

And there is a feeling of widespread optimism in Vietnam itself over Mr Clinton's visit.

Le Phuc Nguyen, an editor of the army daily Quan Doi Nhan Dan has said that the trip will be "a milestone in the normalisation of the two countries".

But in the local media, government officials have been more guarded. Foreign minister Nien Dy Nguyen commented that the US President's visit was "a chance to boost mutual understanding" and "it would ultimately be beneficial for both sides."

US investors

Main exports from Vietnam

garments

footwear

seafood

coffee beans

crude oil

rice

Rhetoric is fine but what about the reality? After a tourism company called BBI China Beach, the global giant Coca-Cola is the second biggest US investor in Vietnam, according to the Lao Dong workers newspaper.

Coca-Cola has three factories - in Hanoi, Danang (in the centre) and Ho Chi Minh City. The group has invested more than $180m in the country, and employs 2000 workers - around the same as it employs in Belgium or Italy.

Another giant with a big presence in Vietnam is Nike, the US shoe manufacturer, which already produces around 10% of its total world output in the country. Most of these shoes end up in Europe because of high US trade tariffs.

As well as footwear, Vietnam also exports crude oil, rice, garments, seafood and coffee. But the country currently ranks 72nd on America's list of trading partners, so there is plenty of room for improvement.

Removing trade tariffs

Trade between the US and Vietnam is expected to increase significantly in the coming years.

If, as is widely expected, Congress ratifies the deal signed with Vietnam in July, Vietnamese goods will be taxed at the same rates as products from most other nations with which the US trades.

Goods such as coffee, tea, spices and seafood will not be much affected by this so-called "most-favoured nation" status, as their tax rates have always been at 0%.

But sales of items such as footwear, clothing, rice, cashews and traditional handicrafts are expected to benefit greatly.

For those who have been waiting years for access to the US market, these recent developments are long overdue.

Vietnam's business sector is just starting up. The country's first stock exchange opened earlier this year.

Many Vietnamese businessmen now hope that the burgeoning US market will provide them with the opportunities to expand, following in the footsteps of countries like South Korea and Thailand.