By Frederik Balfour As our Boeing 747 United Airlines flight from San Francisco touched down in Ho Chi Minh City's Tan Son Nhat airport recently, I contemplated how much things had changed since my first visit there 12 years ago. Back then, Vietnam was still under a U.S. economic embargo, but the city was crawling with Australian, Taiwanese, French, Russians, and a handful of American carpetbaggers. There were no taxis, Internet, mobile phones, five-star hotels, or flights on U.S. carriers. United (UALAQ) began flying to Ho Chi Minh City, formerly known as Saigon, only late last year.
Deals were clinched in the bar of the only four-star establishment, the Saigon Floating Hotel, a barge that had been towed all the way from the Great Barrier Reef in Australia to the banks of the muddy Saigon River. Everywhere you went, the city was buzzing with how Vietnam would become the next Asian tiger economy.
YESTERDAY'S STORY? By the time I moved to the country as a correspondent for financial news wire AFX-ASIA two years later, Vietnam hype had reached fever pitch. Billions of dollars in foreign investment poured in, as opportunity seekers signed deals for 80-story office buildings, automobile plants, oil refineries, steel mills, and luxury seaside resorts.
When the Asian financial crisis hit in 1997, Vietnam had already begun to lose its luster. Its labyrinthine bureaucracy, opaque and unpredictable legal system, rampant corruption, and thinly veiled suspicion of foreign influences were proving major obstacles.
Projects were halted or abandoned altogether. Chrysler (DCX) exited before the first car ever rolled off its Vietnamese production line. The Sheraton (HOT) hotels in both Hanoi and Ho Chi Minh City stood half-built. The French pulled out of a billion-dollar oil refinery in the center of the country. Tourism shriveled, and foreign investment slowed to a trickle. News organizations started scaling back or closing their bureaus altogether. When I left in early 2000, Vietnam had become very much yesterday's story.
BIMMERS AND MERCS. But when I arrived in Ho Chi Minh City in late March as preparations for the 30th anniversary of the city's "liberation" on Apr. 30 were under way, the mood definitely felt upbeat. "Even the most hardened cynic will say things are better on almost all fronts, and I should know, because I am one," said Milton Lawson, a lawyer with Freshfields Bruckhaus Deringer, which has operated in the country for more than a decade. A couple of hours later, I bumped into another old Vietnam hand, Carey Zesiger, an American who gushed about the country's potential as he outlined plans to build several multiplex cinemas.
Everywhere I went, the city seemed to glow with economic well-being. The restaurant at the Sheraton Hotel on Ho Chi Minh City's tony Dong Khoi Street was packed with Vietnamese and foreigners wolfing down Easter brunch. The hotel's slot machines and blackjack tables were doing a brisk business, as were its boutiques selling Prada, Louis Vuitton, and Armani. When I first came to the city, the only private cars were Russian-made imports. Now one sees Bimmers and Mercs in the parking lot beside Q Bar, the hottest watering hole in town.
A block away, those preferring the nostalgia of yesteryear patronize the Rex Hotel. When I visited its kitschy rooftop at sunset overlooking the busy city, I overheard a former American GI declaring that "it was still one of the best bars in the world," as Peter, Paul & Mary's Puff the Magic Dragon played in the background (appropriately, Peter was coming to Vietnam to play a benefit concert for Vietnamese victims of Agent Orange).
ACTIVE RETURNEES. But while parts of Ho Chi Minh City may still seem straight out of Graham Greene's The Quiet American, the city now belongs to the post-war generation, with more than half the population under 25. It's also proving a magnet for returning overseas Vietnamese, like 31-year-old Henry Nguyen, who left the country with his family in 1975. He now runs IDG's $100 million venture-capital fund.
An extremely affable man in his early 30s armed with a medical degree and an MBA, Nguyen came to Vietnam three years ago to set up a voice-over-Internet company, and joined IDG a few months ago. The fund's first two investments show just how quickly things are changing. One is for a classified-ad Web site, the other focuses on software that helps manufacturers automate. Nguyen also is part owner in a wine-distribution business and a fusion restaurant in Hanoi called Vine, which features everything from ostrich Vietnamese spring rolls to tuna tartar.
Dominic Scriven, who runs Dragon Capital, a Saigon outfit that manages the $65 million Dublin-listed Vietnam Enterprise Investment Fund, is another entrepreneur with fingers in many pies. He runs an eco-resort on Phu Quoc island and a propaganda-art gallery, and has started up his own nongovernmental organization to protect endangered Vietnamese wildlife.
SWAMPS TO SHOPPING MALLS. A couple of days later I visited another returnee, Nguyen Huu Le, who came back from Canada in the late 1990s to help develop Vietnam's fledgling software outsourcing industry. A former Nortel (NT) executive with a doctorate, Dr. Le, as he's known, runs TMA Solutions, whose 500 software engineers write, test, and maintain code for his former employer Nortel, as well as Lucent (LU), NTT (NTT) of Japan, and a Singapore outfit called Equator 1.
As he showed me his R&D lab where his staff maintains firewall-switching equipment for one customer, he extolled the company's merits. "We're not just a back-office coder," he told me. "This is like any R&D lab in North America."
Across town I made a pilgrimage to Saigon South. When I first visited this site in 1996, it was still rice paddies and swamp. At the time, the Taiwanese developer's plan to build a 3,300-hectare city complete with universities, shopping malls, and apartment blocks sounded pie-in-the-sky.
But I was wrong. Today Saigon South boasts tree-lined streets with handsome villas, shops offering a fine selection of imported cheeses, locally made handicrafts -- I picked up a chocolate-scented candle -- and the soon-to-open campus of the Royal Melbourne Institute of Technology.
TOUGH WTO SCHEDULE. Nonetheless, Vietnam is still in the early stages of development. Gross domestic product per capita is around $540, though it's about four times that in Ho Chi Minh City. Its biggest foreign-exchange earnings come from basic commodities: Vietnam is the world's third-largest coffee exporter, third-largest rice exporter, and a net exporter of oil.
Since a bilateral trade agreement with the U.S. took effect in 2001, exports have quadrupled to $7 billion, thanks to soaring sales of Nike (NKE) shoes and garments, furniture, and agricultural products. Vietnam has also become a major contract manufacturer for the world's top bicycle companies.
But export growth is slowing this year. Vietnam isn't a member of the World Trade Organization, hence it's still subject to the textile quotas that were lifted at the beginning of this year for WTO members. And although Hanoi keeps hoping to make its self-imposed deadline to join by the end of this year, negotiators on both sides are skeptical.
GREATER KNOWLEDGE. One of the biggest sticking points is the insistence by trading partners like the U.S. and Japan that their businesses be given so-called national treatment, allowing them to compete on a level playing field with their Vietnamese counterparts in such areas as insurance and banking. Currently, for example, foreign banks must put up $15 million in registered capital for each bank branch or ATM, while Vietnamese banks need pay only $200,000.
Still, the prospect of WTO membership is a big talking point when you ask foreign investors about the renewed interest in Vietnam, and they swear they won't make the same mistakes the second time around. "Foreigners know a lot more about the Vietnamese, and the Vietnamese know a lot more about foreigners," says Scriven of Dragon Capital. The question is: Will that knowledge bear sweeter fruits? Balfour is Asia correspondent for BusinessWeek in Hong Kong