US embassy cable - 02HOCHIMINHCITY154

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000154 
 
SIPDIS 
 
STATE PASS TO USTR FOR EBRYAN 
USDOC FOR 3132/OIO/EAP/KELLEHER 
USDOC FOR 1431/MAC/AP/HPPHO 
USDA FOR FAS/FAA AND FAS/FFPD 
 
E.O. 12958:    N/A 
TAGS: EAGR, ECON, ETRD, VM, SOE 
SUBJECT:  STATE ENTERPRISES GROW, FDI FLOPS IN CAN THO 
 
 
1.  SUMMARY: CAN THO, THE MEKONG DELTA'S ECONOMIC AND 
COMMERCIAL HUB, IS HUNGRY FOR FOREIGN INVESTMENT, SAY LOCAL 
OFFICIALS, BUT THE CITY'S POOR TRANSPORTATION LINKS AND 
STRING OF FAILED FOREIGN PROJECTS SUGGEST REAL DIFFICULTIES 
IN DEVELOPING AN ECONOMY BASED ON FDI.  THE PROVINCE SEEMS 
TO HAVE FOUND EASIER SUCCESS WITH STATE-OWNED ENTERPRISES 
(SOES) IN GENERATING EXPORT AND OVERALL ECONOMIC GROWTH. 
WHETHER RELIANCE ON SOES WILL RESULT IN SUSTAINABLE GROWTH 
IS OPEN TO QUESTION. 
 
STRONG ECONOMIC GROWTH 
---------------------- 
2.  CAN THO PROVINCE, WITH A THRIVING SEAFOOD INDUSTRY AND A 
STRONG AGRICULTURAL BASE, IS THE ECONOMIC AND COMMERCIAL 
CENTER OF THE MEKONG DELTA. OFFICIAL GVN STATISTICS, WHICH 
ARE PROBABLY INFLATED, POINT TO ECONOMIC GROWTH AVERAGING 8% 
OVER THE PAST 5 YEARS, REACHING AN IMPRESSIVE 9.65% IN 2001. 
EVEN IF THESE NUMBERS ARE OPTIMISTIC, CAN THO IS 
EXPERIENCING STRONG, STEADY ECONOMIC GROWTH.  BASED ON A 
VISIT BY CONGENOFFS TO THE PROVINCE LATE LAST YEAR AND IN 
SUBSEQUENT CONVERSATIONS WITH LOCAL OFFICIALS AND BUSINESS 
PEOPLE, IT APPEARS THAT CAN THO IS COUNTING ON 
INFRASTRUCTURE DEVELOPMENT AND STATE-OWNED ENTERPRISES 
(SOES) TO KEEP THE ECONOMY GROWING. 
 
BUT ALMOST NO FOREIGN INVESTMENT 
-------------------------------- 
3.  THIS GROWTH HAS NOT BEEN DUE TO FOREIGN DIRECT 
INVESTMENT (FDI), WHICH HAS BEEN DISMAL.  TOTAL IMPLEMENTED 
                       UNCLASSIFIED 
 
PAGE 03        HO CHI  00154  01 OF 02  210957Z 
FOREIGN CAPITAL AMOUNTS TO ONLY ABOUT $55 MILLION FOR THE 
ENTIRE PROVINCE OVER THE LAST TEN YEARS.  THIS COMPARES TO 
MORE THAN $4.8 BILLION FOR HO CHI MINH CITY DURING THE SAME 
PERIOD. 
 
4.  TOURING THE SLEEPY TRA NOC INDUSTRIAL ZONE JUST OUTSIDE 
CAN THO CITY, CONGENOFFS SAW VEGETABLES GROWING ON LAND 
WHERE IT WAS HOPED THAT FOREIGN COMPANIES WOULD BUILD 
PRODUCTION FACILITIES. TO BE FAIR, LOCAL OFFICIALS CLAIM 
THAT THE THREE INDUSTRIAL PARKS IN THE PROVINCE EMPLOY ABOUT 
10,000 PEOPLE, AND A THAI-OWNED SEAFOOD PROCESSING PLANT AND 
A TAIWAN-INVESTED NAIL FACTORY WERE LOCATED IN THE IZ.  MORE 
NOTEWORTHY, HOWEVER, WERE THE WIDE-OPEN SPACES. 
 
5.  WHEN CONGENOFFS POINTED OUT ONE GLEAMING BUILDING IN THE 
PARK AND ASKED WHAT IT WAS, THE DIRECTOR OF THE AUTHORITY 
GRIMLY REPORTED THAT IT WAS A CUBAN-INVESTED RAT POISON 
FACTORY THAT HAD NOT PAID ITS RENT FOR MORE THAN A YEAR AND 
A HALF.  HE WENT ON TO STATE THAT DUE TO CUTS IN THE COST OF 
LAND RENTS AT THE IZ, THE GOVERNMENT AUTHORITY RESPONSIBLE 
FOR MANAGING THE SITE COULD NO LONGER AFFORD TO EFFECTIVELY 
ADVERTISE AND MARKET TO PROSPECTIVE TENANTS. 
 
POOR TRANSPORT MAY IMPROVE A BIT 
-------------------------------- 
6.  ONE PROBLEM IN ATTRACTING FDI HAS PROBABLY BEEN CAN 
THO'S POOR TRANSPORTATION INFRASTRUCTURE.  THE PROVINCE HAS 
NO AIR OR RAIL SERVICE.  TRAVELING BY ROAD FROM HCMC TAKES 
3.5 TO 4 HOURS AND REQUIRES A FERRY CROSSING.  THE ROAD IS 
FILLED WITH EVERY KIND OF CONVEYANCE IMAGINABLE, AND BRIDGES 
POP UP EVERY MILE OR SO, AND THEIR ABRUPT SLOPES UP AND DOWN 
                       UNCLASSIFIED 
 
PAGE 04        HO CHI  00154  01 OF 02  210957Z 
MAKE FOR A BOUNCY - OR BONE JARRING - RIDE DEPENDING ON YOUR 
POINT OF VIEW.  PORT FACILITIES ARE ALSO LACKING.  THE RIVER 
CHANNELS AND LOCAL PORTS CAN ONLY ACCOMMODATE SHIPS OF UP TO 
10,000 TONS, WHICH LIMITS WHAT CAN BE CHEAPLY SHIPPED IN AND 
OUT OF THE CITY.  MOST OF THE SEAFOOD AND AGRICULTURAL 
PRODUCTS ARE NOW TRUCKED UP OR FLOATED UP ON SMALLER BARGES 
TO HCMC WHERE THEY ARE THEN TRANSFERRED TO OCEAN-GOING 
VESSELS. 
 
7.  PROVINCIAL OFFICIALS, HOWEVER, POINT OUT THAT WITH 
SEVERAL PROJECTS UNDERWAY, TRANSPORT LINKS ARE IMPROVING. 
JAPAN IS FINANCING A $400 MILLION BRIDGE TO SPAN THE HAU 
RIVER, WHICH WILL ELIMINATE THE NEED FOR A FERRY CROSSING ON 
THE ROAD TO HCMC.  THE BRIDGE SHOULD BE COMPLETED IN 2006. 
LOCAL OFFICIALS STATE THAT CIVIL AIR SERVICE WILL START UP 
AGAIN IN THE THIRD QUARTER OF THIS YEAR, BUT ONLY WITH 
FLIGHTS TO/FROM HANOI.  MORE IMPORTANTLY, THE WORLD BANK IS 
FINANCING MOST OF AN $80 MILLION PROJECT TO EXPAND PORT 
FACILITIES AND WIDEN THE RIVER CHANNEL TO ALLOW LARGER BOATS 
TO REACH CAN THO. 
 
WHERE ARE ALL THE FOREIGN INVESTORS? 
------------------------------------ 
8.  TRANSPORTATION IS NOT CAN THO'S ONLY PROBLEM.  THE 
PROVINCE HAS FACED A RUN OF BAD LUCK - WHICH SOME WOULD SAY 
IS SELF-INFLICTED - WHEN IT COMES TO ATTRACTING FDI.  OF 
COURSE, CAN THO HAS HAD SOME SUCCESSES WITH FOREIGN 
INVESTORS, INCLUDING AMERICAN ONES.  AMERICAN INTERNATIONAL 
GROUP OPENED AN OFFICE THERE LAST YEAR, AND THEY CLAIM IT 
HAS BEEN WILDLY SUCCESSFUL.  CARGILL ALSO HAS A SMALL FEED 
MILL HERE.  BUT SOME OF THE PROVINCE'S FAILURES HAVE BEEN 
SPECTACULAR.  ONE OF THE MOST FAMOUS IS THE NOW DEFUNCT 
AMERICAN RICE, WHICH PRODUCED INSTANT RICE FOR EXPORT. 
AFTER FOUR YEARS OF BATTLING WITH ITS LOCAL PARTNER, THE 
FIRM FOLDED IN 1998. THE COMPANY'S EXPERIENCE IN CAN THO HAS 
BEEN WRITTEN UP IN A CASE STUDY THAT IS USED IN BUSINESS 
SCHOOLS THROUGHOUT THE UNITED STATES.  CAN THO MADE THE NEWS 
AGAIN IN 1999 WHEN PEPSI SIGNED A LEASE TO BUILD A NEW 
BOTTLING PLANT AT THAT SAME SLEEPY INDUSTRIAL ZONE OUTSIDE 
THE CITY.  AFTER PEPSI BEGAN PURCHASING EQUIPMENT AND MAKING 
IMPROVEMENTS ON THE LAND, ITS BUSINESS LICENSE WAS 
SUSPENDED, APPARENTLY TO BENEFIT A WELL-CONNECTED LOCAL 
BOTTLING CONCERN.  PEPSI NEVER BUILT THE PLANT. 
 
9.  WHEN ASKED ABOUT FDI IN MEETINGS WITH CONGENOFFS, LOCAL 
OFFICIALS SEEMED TO DWELL ON THE PROVERBIAL "ONE THAT GOT 
AWAY" (WHICH VARIED FROM INTERLOCUTOR TO INTERLOCUTOR): 
 
--THE AMERICAN COMPANY THAT PROMISED TO TURN LANDFILL 
GARBAGE INTO FERTILIZER - AND DID NOTHING, 
 
-- A PROPOSED BELGIAN PRESSED WOOD PLANT THAT NEVER GOT OFF 
THE GROUND, 
                       UNCLASSIFIED 
 
PAGE 03        HO CHI  00154  02 OF 02  210957Z 
 
--A FRENCH FOOD PROCESSING COMPANY THAT NEVER ACTUALLY 
FOLLOWED THROUGH ON PLANS TO START A PROJECT HERE, AND ETC. 
 
THE OFFICIALS APPEARED CONFUSED ABOUT HOW TO KEEP THIS FROM 
HAPPENING AGAIN. 
 
SOES TO THE RESCUE! 
------------------- 
10.  OFFICIALS SEEMED MUCH MORE COMFORTABLE TALKING ABOUT 
SEVERAL PROJECTS WITH SOE'S TO STIMULATE EXPORT GROWTH. 
ACCORDING TO THE DEPARTMENT OF PLANNING AND INVESTMENT, THE 
PROVINCE IS TRYING TO LURE VINATEX, THE COUNTRY'S STATE- 
OWNED TEXTILE CONGLOMERATE, TO OPEN TEXTILE PRODUCTION IN 
THE PROVINCE AS WELL AS WORK WITH LOCAL FARMERS TO RAISE 
COTTON IN LIEU OF "LESS EFFICIENT CROPS."  VINAMILK, ANOTHER 
SOE, IS ALSO WORKING WITH FARMERS TO RAISE DAIRY COWS TO 
SUPPLY A LOCAL MILK FACTORY.  SONG HAU FARM, THE HIGHEST 
GROSSING AND MOST PRODUCTIVE STATE-OWNED FARM IN THE 
COUNTRY, EMPLOYS MORE THAN 10,000 PEOPLE AND PRODUCES A 
VARIETY OF AGRICULTURAL PRODUCTS FOR EXPORT AND LOCAL 
MARKETS. 
 
11.  ONE OF CAN THO'S MOST NOTABLE SUCCESS STORIES IS THE 
SEAFOOD PROCESSOR CAFATEX, WHICH IS AN SOE OWNED BY CAN THO 
PROVINCE.  THIS YEAR THE COMPANY PLANS TO PRODUCE 10,000 
TONS OF SHRIMP AND 3,000 TONS OF FISH FOR PRIMARY MARKETS 
INCLUDING THE UNITED STATES AND JAPAN.  THE COMPANY 
CURRENTLY EMPLOYS OVER 5,000 PEOPLE AND IS EXPANDING. 
 
COMMENT 
                       UNCLASSIFIED 
 
PAGE 04        HO CHI  00154  02 OF 02  210957Z 
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12.  ALTHOUGH CAN THO HAS BEEN ABLE TO TURN IN A ROBUST 
ECONOMIC PERFORMANCE OVER THE LAST FEW YEARS, IT IS UNLIKELY 
TO CONTINUE THIS LEVEL OF GROWTH WITHOUT INCREASING FDI. 
PLANNED INFRASTRUCTURE IMPROVEMENTS MAY OFFER ADDITIONAL 
INCENTIVES, BUT IT IS UNCLEAR WHETHER THEY WILL BE 
SUFFICIENT TO DRAW INVESTMENT TO CAN THO.  THERE ARE SOME 
KNOWLEDGEABLE, CAN-DO OFFICIALS, BUT THEY ARE SCATTERED 
THROUGHOUT SLOW-MOVING DEPARTMENTS WITH FEW RESOURCES AT 
THEIR DISPOSAL.  AT LEAST FOR NOW, THE OVERALL LOCAL 
LEADERSHIP SEEMS TO BE WAITING FOR FDI TO COME COURTING CAN 
THO, RATHER THAN REALIZING THAT THERE IS LOTS OF COMPETITION 
THROUGHOUT THE SOUTHEAST ASIA REGION FOR THE FDI DOLLAR.  AS 
A RESULT, THE MEKONG DELTA'S POTENTIAL TO ATTRACT FOREIGN 
INVESTORS GOES LARGELY UNNOTICED AND UNTAPPED. 
YAMAUCHI 
 
                       UNCLASSIFIED