CAMBRIDGE, England — Foreign investors have not been showing any confidence in Vietnam’s Doi Moi (liberalization) program recently. Socialist market economics, Vietnamese-style, have not proved as attractive as the Chinese version. After the initial euphoria of the early 1990s, when foreign companies were almost falling over themselves to get a piece of the action, they are now more often found stumbling over each other as they head for the exit door.

The decline in foreign direct investment inflows began in 1996 — i.e., before the Asian financial crisis. Of the $7.9 billion promised in 1996 only about one-third arrived. The average actual FDI, as against that promised, was around $2 billion annually from 1995-1997, according to the World Bank. The Bank also estimates that actual FDI fell to $800 million in 1998 and $600 million in 1999. By the beginning of the new millennium, Vietnam was scrabbling to find foreigners willing to invest in the country.

The World Bank puts the decline in FDI in Vietnam down to two things. Other Asian countries have taken a more serious approach to economic reforms and introduced measures to make their economies more competitive. Second, the Vietnamese government has spent more time discussing problems, actually slowing the process of reform in Vietnam.

The government has not introduced the reforms in banking, the state-owned sector, trade policy, labor laws and the overly bureaucratic management of the industrial and commercial sectors that are needed to convince foreign investors that it is serious about liberalization and welcomes FDI. Nor has it tackled corruption and organized crime. As the World Bank put it in a recent report, “Vietnam has not created a conducive environment for restored investment.”

So how come an international consortium led by British Petroleum has just announced that it has struck a $1.5 billion deal with the Vietnamese government? BP officials obviously have little hope that there will be any improvement in the overall climate for foreign investors in Vietnam: They have secured a further commitment from the government that any future changes to the country’s tax structure or laws on FDI will not apply to this project. While the deal is not yet signed, BP seems confident that it will go through and that development work can start in November. The government may just be scared enough by the decline of FDI and by the recent movements in world energy prices to justify BP’s confidence. Maybe.

While this project may now go ahead, because of its importance for the Vietnamese economy, other potential sources of FDI will probably continue to be wary. That is wise. The ideological battles are still being fought. Many officials and Party members find it hard to come to terms with the notion that turning the economy around so that it can sustain economic growth at a rate sufficient to make a meaningful difference to the majority of Vietnamese will require “collaboration” with foreigners. Nobody is standing on the ramparts yet or raising the portcullis and shouting “Let the robber barons come,” as the president of Sri Lanka did some years ago. In Hanoi, they are more circumspect. They have been looking north to see how their Chinese comrades successfully brought foreigners in to support the development of the socialist market economy.

At a comparable stage in China’s political adjustment to economic reality, they Chinese government set up five special economic zones in the southeast of the country, a comfortable distance from Beijing. These zones were to be laboratories for economic experiments, including allowing foreign investors to set up shop, initially in joint ventures with locals. Firms investing in the zones were given tax and other privileges, but, more important, they were allowed to do things they would not have been allowed to do in other parts of the country. While some Western economists have doubts about the cost-benefit balance of the zones, there is no doubt that they played a very important role in changing the political environment in China.

The benefits of capitalism and FDI in bringing efficient, internationally competitive businesses into China was demonstrated convincingly enough to the leaders of the Chinese Communist Party that they were willing to welcome FDI into most of China. Various groups of Vietnamese officials and Party cadres have suggested that there might be a lesson here to be learned from their friends in the north.

But just as the Chinese were not keen to have foreign capitalists too near Beijing, the Vietnamese Communist Party is not keen to see too many close to Hanoi or Ho Chi Minh City. So they have come up with the idea of using the old U.S. Air Force base at Chu Lai on the coast in the central province of Quang Nam as a special economic zone.

However, the location at Chu Lai has none of the advantages of the special economic zones in China. Those zones were located in places with strong physical and cultural ties to extensive populations of overseas Chinese, who took the lead in developing the zones. Vietnam does not have the equivalents of Hong Kong, Taiwan or Macau, which were so important in developing the zones at Shenzhen, Xiamen and Zhuhai respectively. Nor does Chu Lai have a major transport route or good connections with the main economic centers of Vietnam.

Hanoi’s unwillingness to take the main lesson from the Chinese — that FDI can play a key role in modernizing the economy and stimulating and sustaining fast economic growth — will probably mean that Chu Lai, if it is built, will become a white elephant.

For the time being, the government is going ahead with plans for Chu Lai while holding back on the policy reforms necessary to attract large-scale, long-run commitments of FDI in Vietnam as a whole. The political climate that produced this result may end up making BP’s investment an albatross round its neck rather than the first swallow of the FDI spring that the Vietnamese government is hoping for.

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