DEVELOPMENT IN CENTRAL VIETNAM: A VISIT TO QUANG NAM, DANANG

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 001276

SIPDIS

USDOC
SENSITIVE
SIPDIS

DEPARTMENT FOR EAP/MLS
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO

E.O. 12958: N/A
TAGS: ECON ETRD EINV EWWT PGOV VM
SUBJECT: DEVELOPMENT IN CENTRAL VIETNAM: A VISIT TO QUANG NAM, DANANG
AND THUA THIEN HUE

REF: 05 HCMC 1118 B) 05 HCMC 1270

HO CHI MIN 00001276 001.2 OF 003



1. (SBU) Summary: In a recent visit to the coastal provinces of
Central Vietnam, Econoff discussed with area contacts the
region's economic development, particularly infrastructure
upgrades and its impact on attracting investment. The region
has yet to see a significant influx of foreign investment in
non-tourist sectors of the economy, despite expectations
following road and seaport upgrades. There are indications,
however, that China and Japan are planning large-scale
investment in the region. Despite infrastructure upgrades,
human resource weaknesses and a lack of capital for domestic
private investment continue to be some of the biggest challenges
to the provinces' sustained economic growth. End Summary.


2. (SBU) EconOff visited Quang Nam and Thua Thien Hue provinces
and the centrally-administered city of Danang in Central Vietnam
September 18 - 20. 2005 GDP per capita is below the national
average of USD 640 in Quang Nam (USD 390) and Thua Thien Hue
(USD 500),while far above in Danang City (USD 1,015). In 2005,
the three provinces experienced above-average annual economic
growth rates -- Thua Thien Hue at 11.3 percent, Quang Nam at
12.45 percent and Danang at 14 percent -- in comparison to
Vietnam's national growth rate of 8.4 per cent, according to
provincial Departments of Planning and Investment (DPI).


3. (SBU) An HCMC-based economist who works as a consultant in
central Vietnam told EconOff that provincial growth statistics
are inflated by the inclusion of infrastructure expenditures and
do not reflect real rates of provincial economic growth, which
he believes to be much lower. Growth in central Vietnam is
mostly generated by tourism projects and not the large-scale
manufacturing the province's infrastructure upgrades were
designed to attract. The economist added that some high-ranking
GVN officials fault Danang's Party Secretary, Nguyen Ba Thanh,
for spending large amounts on infrastructure upgrades that have
failed to generate investment.

DIFFERING PATHS TO DEVELOPMENT
--------------


4. (SBU) Planning and Investment officials were unanimous in
their desire to see increased investment in Danang City and the
provinces of central Vietnam. Vice Director of Danang DPI Le
Huu Duc admitted, however, that investment in non-tourism
related projects in Danang has been slower than expected. He
hopes that further infrastructure upgrades, official development
assistance (ODA),and the completion of the East-West corridor
linking Burma, Thailand, and Laos to Vietnam (Ref B) will
improve the region's prospects.


5. (SBU) While meeting with representatives from the DPI of Thua
Thien Hue, two different perspectives on the role of government
in development emerged. Both Phan Canh Huy, head of
international economic cooperation at the Hue DPI, and Le Van
Thu, Director of the Management Board of the Chan May - Lang Co
Economic Zone, highlighted the natural advantages of the
province as well as the positive impact that unfettered foreign
investment can have on the province. The two stressed the
importance of the provincial government's role in improving
infrastructure and providing a positive investment climate to
attract investment, downplaying the role of central planning in
specific project development.


6. (SBU) Huy and Thu's comments contrasted with those of their
superior, Le Dinh Khanh, Deputy Director of the Provincial DPI.
His late entry to the meeting with EconOff silenced Huy and Thu.
Khanh echoed his colleagues' positive assessment of the
investment potential of the province, then turned to a detailed
description of how the provincial government was managing and
planning individual projects, even highlighting his personal
preference to have three cement plants in the province as
opposed to the currently planned two. Khanh then turned his
attention to the United States, blaming the US for dioxin
defoliation that allegedly is the cause of the lack of tourist
visits to the western part of the province. (Note: the A Shau
and A Luoi valleys were a key portion of the Ho Chi Minh trail
and the scene of fierce fighting during the Vietnam War. End
Note.) He also criticized American firms for not investing
heavily in the province and urged the USG to provide ODA for
provincial infrastructure projects.


7. (SBU) While Khanh in Hue stressed the importance of state-led
development and investment, officials in Quang Nam Province have

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a different approach, one that lets investors take the lead.
For example, the GVN has given Quang Nam permission to negotiate
build-operate-transfer (BOT) deals with foreign firms. DPI Vice
Director Truong Quanh Dung reported that a planned upgrade of
the Chu Lai Airport will be the first BOT project negotiated by
Quang Nam authorities.

CHINA AND JAPAN TAKE AN INTEREST
--------------


8. (SBU) As part of Danang's ongoing push to upgrade its
infrastructure, city authorities are working with a Chinese
company from Guangdong Province to expand the capacity of
Danang's port, known as Linh Chieu Seaport. The port, currently
Vietnam's deepest, is 12 meters deep and is capable of
supporting ships up to 50,000 deadweight tons (DWT) and handling
five million tons of cargo annually. Officials anticipate that
the expansion project, which will be partially funded by ODA
from the PRC, will allow the port to handle up to 10 million
tons of cargo annually. (Note: Danang port operates well below
capacity at present, resulting in both longer delays and higher
shipping costs than the overextended Ho Chi Minh City ports.
Danang officials have long counted on the East-West Highway
connecting Danang with northern Thailand to provide economies of
scale for port operations. End Note.) Danang contacts told
EconOff that prominent Ho Chi Minh City businessman Vuu Khai
Thanh is reportedly acting as intermediary for the Chinese
government in the port project negotiations. Thanh, a
Vietnamese of ethnic Chinese background, founded Biti's, one of
Vietnam's largest footwear companies. (Note: In addition,
Vietnamese media recently reported that the China Railway Sixth
Group Ltd. signed a VND 1 trillion (USD 67 million) deal with
the state-owned Vietnam Railway Corporation to upgrade Vietnam's
rail network from Vinh in north central Vietnam to Danang. This
project is being funded by a preferential loan from the PRC.
End note.)


9. (SBU) A HCMC industrialist that leads the Vietnam-Japan
Association and joined Prime Minister Nguyen Tan Dung on his
recent trip to Japan told EconOff Japanese business is
restructuring its investment in Vietnam, with roughly 20 percent
going to the Danang area. Some Japanese companies are looking
to increase their presence in central Vietnam in order to
benefit from the completion of the East-West corridor. In
addition, the Government of Japan (GOJ) plans to provide ODA to
upgrade the corridor's road system as well as improve roads
linking northern and southern Vietnam by way of Danang. Our
source said that the GOJ's upgrade of central Vietnam's
infrastructure is reportedly a step in a strategic reorientation
by Japan to shift investment from China to Vietnam.

HUMAN RESOURCE AND CAPITAL ACCESS CONSTRAINTS REMAIN
-------------- --------------


10. (SBU) Contacts in all three provinces stressed a lack of
human resources and educational opportunities as a major
impediment to further economic growth. Nguyen Cuong,
Vice-Director of the Danang chapter of the Vietnamese Chamber of
Commerce and Industry (VCCI),reported that a recent survey by
the EU ranked service standards in the city 2.5 out 5,
highlighting the province's continued need for experienced
managerial and service personnel. Thua Thien Hue DPI Deputy
Director Khanh said the province, a traditional center of
learning in Vietnam and home to several universities, lacked the
managerial and human resource capacity to compete on an
international level. Quang Nam province, home to 1.5 million
people, currently has no colleges or universities. There are
plans to open a university in 2007 in Hoi An, Quang Nam's
tourism hub.


11. (SBU) Provincial planning and investment officials also
cited inadequate access to capital as an additional impediment
to private sector development in the region. Quang Nam DPI Vice
Director Dung and Thua Thien Hue Vice Director Khanh both blamed
deficient investment capital on the lack of provincial financial
institutions and hoped that foreign banks would enter the local
market to fill the void. Phan Canh Huy, head of international
economic cooperation at the Hue DPI, added that local
entrepreneurs lack the expertise to adequately package and
defend their investment proposals, with the result that local
banks are reluctant to support privately invested projects. None
of the DPI officials cited preferential treatment enjoyed by
state-owned enterprises in receiving loans from state-owned

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banks as a culprit in the capital crunch.

COMMENT
--------------


12. (SBU) Officials in Central Vietnam, particularly in Danang,
have spent the last few years heavily focused on improving the
region's infrastructure, particularly transportation networks.
However, they still are waiting for the new infrastructure to
bring significant investment. Authorities in Danang and Thua
Thien Hue in particular seem to have an "if we build it, they
will come" mentality and are short on other initiatives to
attract investment, particularly much needed regulatory reform.
And while they are concerned about human resource and capital
access deficiencies, local officials did not spell out clear
plans for how they would confront these problems.
WINNICK