Another interesting article by Wall Street Journal reporter James Hookway. He raises an important point -- silly capital and resource allocation decisions by the government certainly do not help growth of the Vietnamese economy. However, a massive oil refinery is going to get a lot of government attention in any country. I think this piece reflects the usual journalist bias to portray every story they write as being more important than it really is. This works in both up and down directions -- the only thing the media loves more than building something up is tearing it down. These things go through cycles.
Mr. Hookaway makes a spot-on point about differences between the North and South though. The South definitely is more freewheeling and pro-business, whereas the North is more buttoned down and government-oriented. Southerners I've met think Northerners are uptight, and Northerners I've met think Southerners are crass and unsophisticated.
Old Habits Undermine Vietnam's Emergence
Central Planning, North-South Rivalry Threaten to Squander Foreign Investment
By JAMES HOOKWAY
August 9, 2006; Page A4
DUNG QUAT BAY, Vietnam -- Three decades have passed since Vietnam's north and south were reunified under communist control after years of war. But lingering tensions between the regions -- and the government's persistent commitment to central planning -- still threaten the country's budding economic boom.
Vietnam's gross domestic product has been growing 8% to 9% annually in recent years, making it one of Asia's most popular destinationsfor foreign direct investment. But much of the country remains poor,with per capita income of $638 in 2005 and the fruits of growth concentrated to a large extent in the south.
A long-delayed attempt to kick-start an industrial transformation at an undeveloped village in the middle of Vietnam's 1,500 mile-long coastline, far from the major cities of Hanoi and Ho Chi Minh, shows how regional tensions and central planning could stunt the country's long-term economic growth.
The Dung Quat Economic Zone used to be a sleepy fishing village on a thin spit of land between the South China Sea and the towering Annamite Mountains to the west. Today, the tiny town boasts wide new highways leading to the beach, a 200-bed hospital and a half-completed sports stadium. Scrub-covered land is getting cleared for a golf course and a roller-coaster theme park. In the middle of it all, the steady pounding sounds of jackhammers signal that construction of a $2.5 billion oil refinery is finally under way after years of false starts and arguments about whether it should be built there at all.
"Vietnam has the crude oil and the natural gas to power the refinery and make it a success, especially now that prices are high. But that's way down south, not up there in Dung Quat," says John Vautrain, a vice president at energy consultancy Purvin & Gertz Inc.
Would-be investors from France, the U.S., Malaysia and Russia have spurned the project during the past decade, leaving Vietnam to go it alone after prolonged delays. State oil company Vietnam Oil & Gas Corp., known as PetroVietnam, broke ground in November, and the refinery is scheduled to be finished in 2009.
The way Vietnam's
leaders decided to build the country's first oil refinery here, far from major markets, offers a blunt reminder to investors: Despite the country's recent growth spurt, state-planned economics
is still the order of the day. And that can hamper efforts to build the
power plants, ports and roads that Vietnam, which has 84 million people, needs to sustain its takeoff. At present, Vietnam lacks facilities to convert its own oil output -- about 18 million barrels of crude oil a year -- into usable fuels.
A decade ago, central planners decided that building a refinery should be a crucial part of the country's development strategy. The problem was deciding where to build it.
Southern Vietnam, which fell to communist rule in 1975 after years ofwar, was the logical place. It is closer to the offshore oil fields andhas one of the country's few deep-water ports where tankers can easily dock.
The south is also the locus of Vietnam's economic surge. Last year, Vietnam attracted $5.8 billion in pledged foreign investment -- just $2 billion behind India -- and much of it went to ventures in the south.
Steelmakers, textile factories and semiconductor manufacturers such as Intel Corp. have been drawn by southern Vietnam's low labor costs, its well-educated work force and more business-friendly local
governments, which erect fewer of the bureaucratic hurdles often seen in the north.
Overseas Vietnamese, many of whom trace their origins to the south, also prefer to channel their investments there. As a result, fuel-hungry Ho Chi Minh City and its surrounding provinces in the south account for 40% of Vietnam's economic output and 70% of its exports.
Political power, however, still lies almost completely in Hanoi, which wants to spread development around more evenly -- and doesn't hesitate to instruct investors where to put their money.
Though there is no political challenge to the unity of Vietnam, the strains from the wars against France and the U.S. and the division of north from south haven't entirely healed and continue to influence policy.
The Communist Party in Hanoi, analysts say, is wary of allowing the south to continue gathering a disproportionate share of the country's wealth at the risk of alienating people in other parts of Vietnam. So planners decreed that the refinery be built in the comparative isolation of the country's central coast.
Some analysts say Vietnam needs $45 billion to $60 billion to raise the standard of its infrastructure to that of nearby Thailand, to which Vietnam looks as a measure of potential economic development. Christopher Bruton at Bangkok consulting firm Dataconsult Ltd. is skeptical of Vietnam's ability to continue growing 8% or 9% a year without much greater spending for power plants, water supply, railways and a modern road system.
But execution isn't easy. The $2.3 billion government-sponsored Son La hydropower plant being built in the north of the country is criticized by some economists as unnecessarily expensive and another sign of Hanoi's determination to go it alone on controversial big-ticket projects.
Le Van Dung, director of the Dung Quat Economic Zone's investment-promotion center, predicts the entire project will create 20,000 jobs by 2010. Some 2,000 people have already found jobs helping to build the refinery.
The longer-term issue is whether Dung Quat can avoid becoming the kind of state-sponsored white-elephant project that burdens many developing economies.
While high oil prices have improved the margins in the refinery business, that doesn't guarantee success, says Alan Gelder, vice president of downstream oil at the London offices of energy consultancy Wood Mackenzie Ltd. "Only the right ones in the right places will be commercially viable," he says.