Vietnam's Glow Fades for US Investors

Despite initial promise, difficulties of doing business drive many away

September 19, 1997

For Edward Behne there was then and there is now. "It was easier then," he says with a wry smile and a twang in his voice, "because I could shoot back."

Mr. Behne flew helicopters with the US Army in the former South Vietnam from 1967 to 1970. He retired as a major in 1979, but even today wears a company uniform - creased trousers and a polo shirt, both the same shade of navy blue - with military crispness.

For the past year-and-a-half, working with a government-owned Vietnamese firm, he has tried to operate a civilian helicopter service from Tan Son Nhat Airport in Ho Chi Minh City. The business has all but failed because of what Behne describes as excessive bureaucratic red tape, competition from a rival military-run firm, and Vietnamese "paranoia" about private helicopter flights around their country.

Behne would like to put an end to his frustrations by going home, much as the US government did 22 years ago, but he can't afford to pull out. Sending his two helicopters from Southeast Asia back to Houston, where Behne's Tex-Air Helicopters Inc. is based, would cost $300,000, he estimates, on top of losses of more than $1.5 million. "I ought to be out of here, to be honest," he says.

Behne's conclusion is one that many American investors are reaching. No one doubts that someday Vietnam's ongoing free-market reforms will create a tempting place to do business, but many investors are realizing they can't wait it out. Turning a profit in Vietnam, it seems, is like winning hearts and minds - tougher in practice than in theory.

American businesspeople implored the US government to lift its trade embargo and normalize diplomatic ties, which it did in 1994 and 1995, respectively. They said they were losing ground to Asian and European investors in what was certain to be the next Southeast Asian "tiger" economy.

Now some of these same people privately describe an "exit march" of foreign investors and say they want Washington to use negotiations over a US-Vietnam trade agreement as a way to push for reforms.

US and other foreign companies are pulling out or downgrading their presence, maintaining offices by reducing staff and expectations. "They're sending in the 'B' teams," says Lisa Tosi, managing partner of the Ho Chi Minh City office of Daedalus Cita Trade Services.

Greig Craft, a Hanoi-based consultant who has worked for several American corporations, says he remains an optimist about Vietnam's economic future and America's role in it. "Having said that," he adds, "you can't underestimate the difficulty of doing business here."

And sometimes, good news doesn't see the light of day. "People who are making money don't talk about it because the tax system is so arbitrary and capricious," says a US businessman with years of experience in Ho Chi Minh City. Profitable companies worry that announcing their success will produce huge tax bills or reprisals from competitors.

The problems that US companies face have everything to do with Vietnam's transition from a system of central control to a free-market economy. After a decade of reforms, the country's Communist leaders still have a way to go.

One international lawyer says the rule of law in Vietnam, despite reams of new and revised regulations, is still the least developed in Southeast Asia, with the exceptions of Cambodia and Burma. And businesspeople complain bitterly about the country's state-run enterprises. Investors must often work with these firms, either as customers or business partners.

"There's no incentive for state-owned companies to develop any capacity, because it's quicker and less risky to do a short-term deal," says Ms. Tosi, whose firm represents manufacturers of industrial equipment in several countries. "In China," where she previously worked, "the word was 'expand.' Here it's 'protect' or 'control.' "

Even the International Monetary Fund expressed concern this summer about Vietnam's commitment to continue reforming its economy. Vietnamese observers concede that the country is in a holding pattern while a new troika of top leaders gradually assumes power, a process that should be completed by fall.

Some 6,000 state-run enterprises have been told they must swim or sink, says Nguyen Xuan Oanh, a private businessman and government adviser based in Ho Chi Minh City. "We have to give them a period of trial and error.".

Behne says that part of his problem was competing with a state-run firm - a helicopter service operated by Vietnam's military. He believes his difficulties in obtaining pilot licenses, visas, and approvals for individual flights can be traced to the military's unwillingness to engage in competition.

Still, he shows little ill feeling. "I still feel like the economy in this place is going to take off," he says. "And there's a need for helicopter flights here right now" - Vietnam has an offshore oil industry and plenty of visiting investors who would like to aerially survey the country.

He also found it impossible to get current maps of Vietnam, documents that are considered sensitive by an authoritarian government. "I buy [maps of Vietnam] all the time," counters Mr. Oanh, "in New York."