Vietnam eyes investment boom as newest WTO member

By Kay Johnson Jan 10, 2007, 11:44 GMT

Hanoi - Vietnam has set an ambitious goal of attracting 11 billion dollars in foreign investment this year, hoping its entry Thursday into the World Trade Organization will attract new money from overseas.

The communist-run country, already Asia's second-fastest growing economy behind China, becomes the WTO's 150th member on Thursday.

'Everyone is preparing for an economic boom,' said Luong Van Tu, deputy minister of trade.

'The first effect of Vietnam's entry into the WTO that we can see this year is the rise in foreign direct investment,' Tu said.

How hot is Vietnam right now? On Thursday, the US Trade Development Agency will present Vietnam's ambassador to Washington with a certificate declaring it 'Country of the Year' for 2006.

Many investors seem to agree with the US agency's assessment. Last year marked the most successful year for foreign direct investment (FDI) since the Communist Party launched economic reforms 20 years ago.

Following Hanoi's hosting of the Asia-Pacific Economic Cooperation (APEC) leaders' meeting, November and December saw a late-year investment surge that brought the year's FDI total to 10.2 billion dollars - far surpassing the year's target of 6 billon dollars and higher per capita than both India and China.

As a newly minted WTO member, Vietnam hopes to become a leader among Southeast Asian economies - even though its total GDP of 56 billion dollars is still barely a third that of Thailand's.

It's easy to see why Vietnam is attracting so much attention. The country has a large, educated and youthful workforce with 57 per cent of the population under age 30. Wages are lower than even China's.

Plus, as countries like Thailand and Indonesia face internal dissent, Vietnam can boast political stability, with the Communist Party firmly in charge.

Seeking to position itself as a low-wage alternative to more populous China and India, Hanoi has set a goal of at least 11 billion dollars in foreign investment in 2007 along with GDP growth of 8.5 per cent, said Phan Huu Thang, head of the country's Foreign Investment Department.

'Most of the new FDI this year is expected to be poured into industrial production and construction, especially high-tech industries, mining and infrastructure development,' Thang said.

But along with investment, Vietnam's WTO membership will also bring new competition as global companies rush in to tap Vietnam's emerging consumer market.

As a latecomer to the world trading club, Vietnam was forced to agree to stringent terms requiring it to open domestic markets in services like banking, insurance and retail distribution faster than almost any previous member has had to do.

For example, Vietnam must allow foreign banks to have full market access by April this year - after only four months of WTO membership.

China, by comparison, was granted at least five years delay in opening its banking market, and only recently began to comply.

'Foreign banks could come in and really do a lot of business,' said Jonathon Pincus, lead economist for the UN Development Programme in Vietnam. 'The foreign banks will come in and they will take the first tier of customers.'

That would likely hurt Vietnam's state-run banks, and the same thing is likely to happen in state-dominated industries like insurance and retail - also required to open up quickly. State-run and private domestic companies will be forced to become more competitive or go bankrupt.

However, the pain of WTO adjustment is likely will be offset by greater choice for Vietnam's 85 million people.

'It's good for consumers,' Pincus said. 'They'll have a wider range to choose from and they'll probably get better quality products.'

For all the challenges the WTO may bring, almost everyone in Vietnam seems to agree the advantages of membership will outweigh the disadvantages.

'We don't know yet what industries will face difficulties,' said Tu, the deputy trade minister. 'But we all believe that the WTO will help Vietnam reach its goals.'