DANANG - WAITING FOR INFRASTRUCTURE INVESTMENT TO PAY OFF

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001270

SIPDIS

SENSITIVE


E.O. 12958: N/A
TAGS: ECON PGOV ETRD EINV SOCI VM ASEAN LABOR
SUBJECT: DANANG - WAITING FOR INFRASTRUCTURE INVESTMENT TO PAY OFF

REF: (A) HCMC 1240, (B) HCMC 1238


1. (SBU) SUMMARY: A Consulate visit to Danang led by the CG
highlighted the city's eagerness to serve as a gateway to Central
Vietnam and mainland Southeast Asia. City leaders have boosted
infrastructure investment, developing roads and a deep-sea port;
now they are hoping their efforts will pay off in the form of
increased trade and foreign direct investment. While Danang has
active academic and NGO communities, it seems to lack some of the
entrepreneurial spirit of Ho Chi Minh City. In addition to
promoting Danang as an entry point to the region, authorities and
developers have visions of developing the Danang and Quang Nam
province seaside (the famed China Beach) into a resort mecca the
likes of Phuket, Thailand. Consular and religious affairs
issues are reported in reftels. END SUMMARY.

DANANG AS A GATEWAY TO MAINLAND SOUTHEAST ASIA


2. (U) A ConGen HCMC team, including the Consul General, PolOff,
EconOff and a ConOff, visited Danang September 29-October 1.
First Vice Chairman of the People's Committee, Tran Van Minh,
explained that Danang is in a unique position to serve as an
economic gateway to Central Vietnam and mainland Southeast Asia
through its deep-water port and proximity to the East-West
Corridor, a highway that runs from Quang Tri, Vietnam, just north
of Danang, through Laos and Thailand to Mawlamyine port in Burma.
He said the Corridor is complete except for a bridge over the
Mekong River in Laos that is expected to open in early 2006.
(NOTE: In addition, the largest tunnel in Southeast Asia, Hai Van
tunnel, is scheduled to open at the end of 2004. This 6km tunnel
will shorten the old 20km route through the Hai Van pass between
Danang and the East-West Corridor. END NOTE.) Minh noted that
land-locked Laos already relies heavily on Danang as a transit
point for its exports and imports. Laos exports wood and gypsum
through Danang and imports cement, iron and fuel. Danang leaders
hope its connection to the East-West Corridor will make it a focal
point for increased Vietnamese exports of agricultural goods,
seafood and coffee to Laos, Thailand and Burma. Danang's local
government also hopes to draw Thai tourists to the area.


3. (SBU) According to Vice Chairman Minh, city fathers recognized
the need to develop Danang's infrastructure as a means of
attracting increased trade and investment to Vietnam. They
convinced the central government to allow Danang to keep 95
percent of its tax revenues from 2000 to 2005 to fund
infrastructure development, including roads, bridges, the port and
housing. After 2005, this arrangement will be phased out over
time, with Danang keeping a decreasing portion of its revenues.
According to Danang Department of Planning and Investment (DPI)
Vice Director Lam Quang Minh, Hanoi agreed - "after quite a fight"
-- to the unusual arrangement as a stopgap measure because there
were no central government funds available to support Danang's
infrastructure development ambitions.


4. (U) Now that most of the infrastructure development is
complete, Danang is waiting to reap the benefits. Minh noted
Danang's potential as a location to add value to Southeast Asian
exports, e.g. wood processing. He also highlighted Danang's plans
to attract tourists, pointing to Danang's beaches and its
proximity to World Heritage sites like Hue and Hoi An as reasons
to think tourism can be big business in Danang.


5. (U) At Danang's Tien Sa Port, Vice Director Nguyen Xuan Dung
noted that while the port is the third-largest in Vietnam in terms
of freight throughput after Ho Chi Minh City and Haiphong, Tien Sa
Port is the country's deepest port, capable of handling ships up
to 30,000 deadweight tons (DWT). Currently the relatively low
volume of cargo transiting the port (2.4 million tons to date in
2004) is both a cause and a result of slightly higher total costs
and longer waiting time for cargo shipped through Danang. While
Danang's port charges are lower than those in HCMC and Haiphong,
cargo often must wait to depart Tien Sa Port until there is enough
cargo to fill a ship. Along with other Danang leaders, Vice
Director Dung hopes the completion of the East-West Corridor and
the installation of two gantry cranes for container cargo will
bring a boom of business to the port by raising cargo volumes and,
consequently, reducing costs. Dung also cited the location's
potential as a port of call for cruise ships and other visiting
vessels. A 2,000-passenger Star Cruises ship calls annually in
Danang, and the USS Curtis Wilbur's visit in July was the first
call by a foreign military ship to Danang in 15 years.


6. (SBU) A call to the Danang branch of the Vietnam Chamber of
Commerce and Industry (VCCI) highlighted Danang's deficiencies in
entrepreneurial initiative. VCCI's Vice Director, Nguyen Cuong,
indicated a desire to improve Danang's competitiveness, but
lamented a lack of access to information on how to go about doing
this. Cuong spent most of the meeting explaining why Danang
business was not moving faster, but had no ideas or programs to
put forward. He requested U.S. assistance in acquiring more
information about the U.S. market and in aiding Danang to promote
itself to U.S. businesses.
A TOURISM MASTER PLAN


7. (U) DPI Vice Director Minh outlined the city's tourism master
plan, which calls for the development of approximately 24km of
coastline - which includes the former U.S. R and R point of China
Beach - into high-end beach resorts. This ambitious plan includes
creating a large lagoon, adapting a former U.S. military airstrip
into a helipad and converting land behind the resorts into
shopping and office space. Vice Director Minh assured the Consul
General that authorities are taking into consideration the
potential for boom and bust in their tourism planning, but did not
specify how they will adjust.


8. (SBU) The ConGen team also met with Rick Mayo-Smith of
Indochina Capital, an American financial services firm based in
Southeast Asia, and Alfonso DeMatteis of Delta Equipment and
Construction Company, a U.S. construction management company based
in Vietnam that has overseen the construction of the U.S.
Consulate in HCMC and other projects. Indochina Capital, Delta
Construction and other partners are developing a five-star resort
at the southern end of the beach in neighboring Quang Nam
province, near Hoi An. The partnership is selling elegant 3-
bedroom beachside villas on a 31-hectare section of the beach for
$1 million. The hotel that will be part of the resort will rent
rooms for $200-300 a night. Mayo-Smith and DeMatteis hope their
resort and the greater Danang resort area will rival the resort of
Phuket, Thailand. DeMatteis told us that although all beachfront
property from Marble Mountain near Danang to Hoi An has been
leased for future tourist ventures. One beach resort development
site near DeMatteis' site was foundering and its Viet Kieu owner
was seeking to unload the lion's share of his beachfront property
to other investors.

EDUCATION: DEVELOPING A SKILLED WORKFORCE


9. (SBU) During a visit to Danang University, the ConGen team met
with university staff and student leaders. The university has
more than 34,000 students, many studying engineering and
economics. According to the rector, most students stay in Danang
after graduation, which means the city is developing a skilled
workforce that could prove attractive to investors. However,
others in the city told us that Danang still has a hard time
competing for talent with the higher paying and livelier HCMC.


10. (U) While at the university, ConOff gave a briefing on
student visa procedures to a packed house of more than 100
students and parents. The majority of students were interested in
advanced study in the U.S. at the master's or Ph.D. level,
contrary to the typical Vietnamese student visa applicant, who
wishes to go to the U.S. to study English or take classes at a
community college.

NGOS IN DANANG: A MODEL FOR OTHER PROVINCES?


11. (SBU) The ConGen team visited several NGOs that are providing
assistance to street children and the handicapped, as well as
infrastructure support to schools, hospitals and medical clinics
in Danang and Central Vietnam. All the NGOs reported receiving
strong support from the Danang government. They are allowed to
operate independently, face little political pressure and have the
power to turn down projects or beneficiaries proposed by
government agencies. One NGO, East Meets West, has been allowed,
after a lengthy debate with the local government, to provide
direct aid via turnkey projects without having to go through the
government. East Meets West has also had success with educational
projects that aid ethnic minorities in rural areas in Quang Nam
province near the Central Highlands province of Kon Tum.
COMMENT


12. (SBU) Danang has many strengths - well developed but still
underused infrastructure, an increasingly educated workforce and a
strong NGO community. The city's political and business
leadership is hoping that these strengths will attract increased
trade and investment. They clearly hope that the East-West
Corridor and tourism can provide the boost to ignite more rapid
growth. However, Danang, no matter how beautiful, is not Phuket.
Moreover, city leaders seem not to understand the need to be more
proactive in reaching out to both foreign and domestic investors
to convince them that Danang is now open for business.

WINNICK