A few years ago, Vietnam looked set to lead the pack among "frontier markets," the next wave of emerging players to offer cutting-edge growth and investment opportunities. Banks were setting up Vietnam funds. Unfortunately, the country's sometimes profoundly inadequate civil service, its amateurish management of economic risk, and the continuing power of more advanced emerging markets to dominate investor interest combined with the global slowdown to hit the country harder than some of its neighbors. The highest inflation rate in the region in 2008 threatened the political survival of reformist Prime Minister Nguyen Tan Dung. For all these reasons, Vietnam's sunrise dropped back below the horizon.
Day may finally be about to break. Vietnam remained politically stable through the tough times, and, despite pressure from conservatives, the bureaucracy has largely remained committed to reform. The new buzzword is stability, not growth at all costs, but investors are again buzzing about opportunities in Vietnam's major cities and its provinces with export zones, and we're seeing a spike in interest (particularly from Japan, South Korea and the multilateral institutions) in Vietnam's export infrastructure. The government is now both willing and able to spend more on power generation, roads and rail. There's good reason to believe these investments will soon bear fruit.
Outsiders are impressed. Eager to showcase one of their few genuine successes,
the World Bank and Asian Development Bank have ample incentive to double down
on Vietnam's growth. The prime minister has kept their confidence by pressing
ahead with market-oriented reforms despite the spike in inflation in 2008 and
the economic turbulence of recent months. A few concessions to
conservatives -- meant to bolster social stability with targeted social spending
projects -- will probably see him through to a second term in 2011.
The predictability his government provides will only brighten the country's investment outlook, particularly with so much uncertainty in the neighborhood. Japanese and Korean investors, in particular, are looking toward Vietnam to hedge their bets on China. Given the uncertainty surrounding Thailand's industrial policy (exemplified most dramatically by the ongoing controversy over work at Map Ta Phut, the country's most important petrochemical hub), and the political volatility that's likely to follow the death of Thailand's king, Vietnam has never looked sunnier.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)
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