On the outskirts of Ho Chi Minh City, the former Saigon, dozens of foreign companies have set up factories that churn out shoes, circuit boards and cigarettes. Workers at a Nike plant headed home recently.


 Widening Economic Gap Keeps Vietnam Divided



By Mark Landler , April 21, 2000


HAIPHONG, Vietnam, April 19 -- Just outside this port city on Vietnam's northeastern coast lies the Nomura-Haiphong Industrial Zone, a 377-acre swath of land as green and table-flat as the rice paddies next to it. Where the smokestacks and assembly lines of giant factories were supposed to rise, there are only windswept fields, stretching unbroken to the horizon.

Nomura, the Japanese bank, has fought a losing battle to lure foreign companies since it opened the zone in 1997. Only two set up shop here last year, an auto-parts maker and a chemical plant, both Japanese. Ho Dinh Tien, the zone's good-natured executive director, who keeps watch from a dozy office at the front gate, said Nomura no longer even sets goals for the number of new occupants.

"There was a time when foreign companies came to Vietnam," Mr. Tien said as he gazed wistfully out the window. "Now is not that time."

In its grandeur and folly, Nomura's field of dreams epitomizes what has gone wrong with the Vietnamese economy since it first opened to the outside world in 1988. Built to catch the flood of foreign investors into Vietnam, the zone -- and many others like it in northern Vietnam -- has been strangled by government red tape, balky customs officials, and overly aggressive tax collectors.

Yet 700 miles south, on the outskirts of Ho Chi Minh City, the former Saigon, one finds an entirely different world. There, in Dong Nai province, factories have sprung up like tumbleweeds along the dusty north-south highway. Nike, Fujitsu, and dozens of other foreign companies are churning out athletic shoes, circuit boards, and cigarettes. Despite ramshackle facilities and an almost comical lack of central planning, Dong Nai has become the fastest-growing region in the country.

"You have these two competing forces in Vietnam: one focused on production and the other on extraction," said Thomas J. Vallely, the director of the Indochina program at the Harvard Institute for International Development. "The question is, which is going to prevail?"

For years, Mr. Vallely and other experts believed that Vietnam's enterprising south would drag the more cautious, politically encrusted north into the global economy. But 25 years after the war that unified Vietnam, the north and south remain divided economically. And the gap is widening: Dong Nai's exports grew by 22 percent in the first half of 1999, while Haiphong's declined by 15 percent.

Despite the south's success, some experts say it is the old-style Communists in Hanoi, not the capitalists in Ho Chi Minh City, who have the upper hand in the battle for Vietnam's future. Hanoi has balked at signing a trade agreement with the United States. And despite years of promises, it has done little to clear the bureaucratic underbrush that makes Vietnam a deeply frustrating place to do business.

"Sadly, although Vietnam has become more competitive in absolute terms, it is less competitive relative to its Asian neighbors than it was a few years ago," said Wolfgang Bertelsmeier, the chief of mission of the International Finance Corporation, a division of the World Bank.

Foreign direct investment, which used to pour into Vietnam at a rate of more than $4 billion a year, trickled to $1.4 billion in 1999 and is likely to fall further this year. Those numbers overstate the actual dollars flowing into Vietnam, since the government approves many more projects than are built. Experts figure that the country drew no more $600 million in hard dollars last year.

Some of the decline is due to the Asian crisis, which forced big spenders like Japan and South Korea to pull in their horns. But much of it can be laid to Vietnam's stifling bureaucracy. Companies like Oracle have folded their tents, while others, like Procter & Gamble, have fallen into bitter disputes with their Vietnamese partners.

Dwindling foreign investment has sapped Vietnam's exports and hobbled its growth. After barreling along at 9.5 percent in 1995 and 8.8 percent in 1997, Vietnam's economic output fell to 5.8 percent in 1998 and 4.8 percent last year. Economists say it will be lucky to match that this year.

While neighbors like the Philippines have developed thriving electronics industries, Vietnam is struggling to hold on to its handful of technology investors. Even those companies that are welcomed by the Vietnamese, like Fujitsu, must wait years to get their projects approved.

"When we first came here, we had many problems negotiating with Hanoi," said Shuzo Kawashima, the president of the Fujitsu factory in Dong Nai, which employs 2,728 workers. "They kept changing their minds. Now we deal only with the local government, which is much easier."

Mr. Kawashima showed a visitor around his factory, which has Vietnam's first "clean room" for assembling advanced computer circuits. At the rear of the plant is a loading dock, where customs officials from Dong Nai inspect and stamp boxes of Fujitsu circuit boards before they leave the factory. The boards are then exported to Japan, Thailand and the Philippines, where they are installed in laptop computers.

Unlike companies in the north, officials at Fujitsu said they rarely have trouble with customs officials. They said the provincial authorities were also helpful in the day-to-day issues of running a factory, like providing reliable electricity and adequate waste-water treatment.

Nike has also gravitated to southern Vietnam. All five of its contract factories are within a two-hour drive of Ho Chi Minh City, even though workers' salaries there are the highest in the country. Nike's contractors employ more than 45,000 workers, making it the leading source of private employment in Vietnam. Many of these people have migrated to Dong Nai from the north.

Nguyen The Thu Nga, a 27-year-old woman from Quang Binh province in north-central Vietnam, used to sell fish and vegetables in her village. Three years ago, she came to work in a Nike factory, where she glues together the rubber soles of running shoes. The work is grueling and the Korean bosses are strict. But life is better than in Quang Binh, where Ms. Nga said her village was ruined by recent floods.

"For a farmer in Vietnam, having a stable job and a basic wage is enough," Ms. Nga said, as she played with her baby after a 10-hour shift.

Executives at Nike said the Vietnamese government regularly encourages the company to shift manufacturing to the north. Among other things, such a move would stem the tide of migration to Ho Chi Minh City, which has become dangerously overcrowded in recent years.

But Chris Helzer, Nike's director of government affairs in Vietnam, said, "To build a factory up north would present problems that would be difficult to overcome."

Vietnamese officials are well aware of the north's poor reputation among foreign investors. They explain it as a vestige of Vietnam's history, in which the south was exposed to the capitalism of the United States while the north languished in the orbit of the Soviet Union. Over time, they insist, northern officials will shed old habits.

"The south is absolutely more dynamic and creative than the north, but only in the short term," said Nguyen Chon Trung, vice chairman of Ho Chi Minh City's industrial zone authority. "The government will develop policies to strike a better balance between north and south."

Mr. Tien of Nomura said some of the strongest resistance to change comes not from central but from local authorities. He said Vietnam's prime minister and Communist Party chief had traveled to Haiphong to urge the city to be more helpful to foreigners. This prodding came even after Haiphong donated the land for the industrial zone.

"Dong Nai was able to be more liberal because it was a rural area and the government didn't pay much attention to it," Mr. Tien said. "But Haiphong was always regarded as one of the country's industrial centers, so it was more tightly regulated."

Indeed, Haiphong may eventually realize its potential. The city should benefit from its proximity to China, which is likely to emerge as Vietnam's largest market.

Geographic disparities in growth are not necessarily harmful. In China, for example, the free-wheeling southern coastal provinces provided the kindling for the country's broader growth. In Vietnam, however, the imbalance could eventually damage the south.

The Vietnamese government steers more foreign aid money and tax dollars to northern provinces. It also spends more on public-works projects, as anyone flying from Ho Chi Minh City's somewhat decrepit airport to Hanoi's soon-to-be-expanded one can attest.

While prosperous, Dong Nai lacks decent housing, roads and public transportation. At 4 p.m., when the whistles at its factories blow, the streets are choked with motorcycles and bicycles. The migrant workers sleep four or five to a room in grim, hastily constructed cement blocks.

"The Vietnamese government could wreck Dong Nai by not providing adequate infrastructure around those factories," said Brian Quinn, the country coordinator of the Harvard Institute for International Development. "This is a case of starving the south to feed the north."

Go to: Vietnam Medal of Honor Citations


© 2000 by Neil Mishalov