Good Morning Vietnam

So I just got back from the Saigon Market where apparently my business negotiation skills are not as polished as I thought... Not to mention the taxi driver tried to rip us off royally (I blame Kathryn’s blonde hair). Pretty ridiculous but oh well. Let me backtrack and tell you about Vietnam so far...

We arrived in Saigon (Ho Chi Minh) last night and have already had a very busy Monday. We had a very interesting panel this morning with speakers from the U.S. Consulate, Citibank Vietnam, E&Y, and The Mesa Group (P&G’s largest distributor in Vietnam). The panel provided an overview of business dynamics in the country.  

Vietnam is a young country. War, suffering, and starvation have wiped out much of the middle and aging demographics. Vietnam’s economy is also young. After two decades of disastrous economic policies, the Doi Moi Policy was enacted in 1986, opening up markets in Vietnam.   The U.S. did not reestablish relations with Vietnam until 1995. The official stock exchange (HOSE) did not function until 2007.

From 1995 to 2008, there was a drastic reduction in poverty (from 55-70% to 13% in 2008). Per capita GDP also increased significantly during this time period. In 1995 GDP per capita was approximately $230, and in 2008 it was estimated at over $1200. However, these GDP estimates do not accurately reflect the current economic situation in Vietnam. The urban vs. rural divide is significant as 70% live outside major cities. Most of the wealth is held in the cities; for example Saigon accounts for 25% of GDP but only 7% of population. This urban/rural divide is similar to Indonesia’s landscape.

Here are a list of Vietnam’s Current and Future Challenges that I gathered from the panel this morning:

1. Infrastructure (including power generation/electricity)
2. Depreciating currency
3. Inflation (estimated at 20% in Q3 this year)
4. Trade Deficit
5. Foreign Exchange Reserves
6. Economy driven by domestic consumption
7. Stock market (off 67% from all-time high)
8. Human Resource Management and Education (pressure to employ)
9. Bureaucracy, government red tape, and corruption

Let’s take a closer look at the capital flows in Vietnam. Vietnam is a cash based society. One big takeaway from this morning is the fact that is more money held in gold (an estimated $44 billion USD) than invested in the stock market. Much of the country’s wealth is held in US dollars as well. The rapidly depreciating Vietnamese Dong (VND) contributes to this, and also causes massive inflation. Another tidbit, only 30% of Vietnamese have a bank account (similar to Indonesia). Recall that in Indonesia, it is estimated that only 5 million (out of 89 million people) have credit cards. While I do not have the exact figure for Vietnam, I would imagine it to be a similar situation here. 

Okay, enough business jargon for now, but I thought some of you might find this stuff interesting.  I gotta go get ready for the UVA Alumni Reception that is being hosted at the Temple Club, owned by a McIntire Alum turned Vietnamese entrepreneur.  Should be interesting to see how this social gathering stacks up compared to the events in Singapore and Jakarta.  We are hoping to check out a rooftop bar afterwards called Saigon Saigon.  Dean Z said it is pretty classy, and the servers are dressed like they are on an old Hollywood movie set.  Tomorrow we have a full day sponsored by Pier 1 Imports.  We met with the CFO back in Charlottesville three weeks ago, and now we are going to see some of their suppliers (Johnson Wood) as well as visit the Cai Mep Port.  It will be really interesting to take a look at their supply chain from end to end.  Finally tomorrow night, they are hosting a dinner and a riverboat cruise.  Stay tuned for more pics, but for now, here are some pictures that I had the lovely Steve Le take for me out the window of the plane yesterday :)  

Borobudur at Sunrise (Yogyakarta)

Jakarta: Focus on Infastructure

The eajor problem with development in Indonesia is infrastructure. The country cannot even ensure clean water for its citizens. Decentralization is another issue as far as governments are concerned. After democratic rule took over in 1998, the government became decentralized. Before this shift, Suharto (and his “cronies”) held all the power in the central government. To give an example, let’s turn to the topic of bribes. Bribery isn’t uncommon in Indonesia. In fact, an economist (Dr. Basri) explained bribery in terms of efficiency. His studies suggest that there as an efficient amount of bribery, in so far that it can save time and energy. For example, let’s say a cop pulls you over for making an illegal U-turn. Whether or not it actually was illegal may be a different story, but that is beside the point. If a policeman pulls you over, you basically have the option to pay him off, or pay a lesser fine and have to deal with standing in lines at the police station and going to court. So, morals aside, paying off the cop may render both parties better off, economically speaking. The driver pays a premium to resolve the issue without wasting additional time dealing with bureaucracy, and the policeman makes money.  

Similar situations are said to occur in business. The problem with decentralization is that the terms and conditions of bribery are unclear. As one businessman said, before [with Suharto] you knew exactly how much to pay, whom to pay, and what that would get you. Now things are much less efficient. Local and regional governments vie for a piece of the pie and outcomes are unclear.

Driving in Jakarta is borderline terrifying. Rarely do drivers follow traffic rules in Jakarta, i.e. motorcycles weave in and out of the ‘buses only’ lane. In fact every time I rode in a bus or taxi, I felt like I had at least one near death experience. Our bus nearly sideswiped motorbikes, bicycles, or pushcarts. Yet surprisingly, I did not witness one accident. The ultimate Jakarta driving experience took place in a taxi. Riding with Lisa, Laura, and Aaron from the hotel to PT Lautan Luas, our cab driver did not speak English or even know where we were going. He stopped three times to ask locals for directions, abandoning us in the lane with the flashers on and doors unlocked. I was convinced we were either going to get crushed by incoming traffic or hijacked by one of many looming shady characters. When our taxi driver stopped and showed a shopkeeper the address on a busy highway, he realized he has overshot the left hand turn by about 300 meters. Now they drive on the opposite side of the road in Indonesia (as they do in Singapore and Hong Kong), and the way this highway was constructed, plus traffic, meant it would have taken up to an additional 20-30 minutes to turn around. This did not cross my mind however, when he decided to turn on his flashers and just back up in the lane into oncoming traffic. I couldn’t bear to look, but Lisa and Laura screamed and shouted about watching out for an old man on a bicycle, not to mention trucks and motos. Not like the taxi driver explained any of this to us, he just smiled and kindly collected the fare once we safely reached PT Lautan Luas for the company visit (15 minutes after the other taxis dropped off our peers).

Traffic in Jakarta

Aaron in the front-seat of our abandoned Taxi. 

Jakarta: Out of the frying pan and into the fire

Monday, June 6

Gone is the swift, secure infrastructure of Singapore. Upon landing in Jakarta, we immediately headed to Sundakulapa, a traditional port and its surrounding slums. The experience was very eye opening, to say the least. They say a picture is worth a thousand words, and so I am going to let these photos speak for themselves.