Eye on Vietnam: Notes From Ground Zero

Our COO and the head of our Hong Kong office, Michael Blum, recently visited Saigon and relayed to us some of his anecdotal thoughts from the trip.  As many of you know, Saigon, also known as Ho Chi Minh City, is the largest city in Vietnam with a population of 7,123,340, which is ~90% ethnic Vietnamese.  While the city accounts for only 0.6% of the land area and 7.5% of the population of Vietnam, it accounts for over 20% of the GDP.

Vietnam is still a relatively poor country with purchasing power of ~$3,300 per capita; it has also had one of the highest growth rates globally over the past decade.  The country’s primary industries are: manufacturing, information technology, and agriculture.  The country also has one of the most open economies in Asia with two way trade estimated to be ~160% of GDP, more than twice that of China and four times India.

Michael’s notes are below:

Saigon is bustling. The new Intercontinental Hotel, located opposite of the US Consulate, will open its 300 rooms in the coming weeks – a small hotel by most standards these days. Yet in Saigon, they are much needed, even though the country’s economy has seen a rollercoaster ride since I last visited in early 2007. The manager of a nearby 5-star hotel says to me:  “Under normal circumstances, the competition might depress occupancy but there is a lack of luxury rooms in Saigon – I’m not expecting any adverse impact on my business.”

Traffic around town is at a point where getting from A to B is a challenging task. The city is known as the world’s capital of the motorbike. Everybody seems to be up-grading their motorbikes to newer, bigger and better models – even the old lady has traded her bicycle in for a motorized version. The local BMW dealer is doing well and I hear that the newly affluent class has taken a fancy to Harley Davidson.

While inflation has hit the local population very hard, Saigon has become much more commercial, more colorful and more international and the population has grown. All of the international fashion brands are now present. There are cafes everywhere, small stores crowd every inch of street front property and upscale restaurants do very well. Just a few years ago, they were quiet refuges. Now, reservations are essential. And everyone wants to get paid in USD – even though technically illegal unless you are a specially licensed 5-star hotel – to have a stable currency against the 30+% inflation of the Dong.

Yet for the expatriate community here, however small it may be, Saigon is a boring place. “There is no theater, no ballet, no opera. We only recently got a somewhat nice movie theater but it doesn’t show many movies from overseas. A concert by an international performing artist is unthinkable.”

An overseas Vietnamese contact of mine, who returned to Saigon 9 years ago explains: “There are only two things the Government still controls: access to land and culture. If they let go of either, their days are numbered. They know this and so it will never happen – the last instruments of power.”

Saigon’s first luxury condominium tower is going up not far from the Opera House near the Saigon River. At US$8,000 per square meter, the developer will start selling units in the coming weeks – the highest price ever achieved in Vietnam. Two years ago, they would have gotten bribed by buyers to get access to a unit. In this market, they expect to sell out – “but it will take a few weeks work.” Target market: The newly affluent generation of Vietnamese. One of the partners tells me: “You can’t invest in Vietnam based on the math that works elsewhere. We looked at various pieces of land 10-years ago. The prices were so high, we could not justify the investment. No matter what we would have bought then, today’s price is at least 10x higher. Had we built this tower in Singapore, we would probably achieve just short of US$20,000 per square meter. But GDP per capita in Singapore is well over US$30,000, here it is right only around US$1,000.”

The stock market crash has also taken its toll. No one has raised any money in recent memory to invest in Vietnam I am told. Many local funds had to fire large portions of their staff or close down. Even the most renowned investment firms were at the brink of collapse. But the market has rallied 50% this year. Can it do more? Everyone hopes so – the fall was a steep one.

Daryl G. Jones
Managing Director