Banking on further prosperous times

American firms are leaving a more visible footprint on Vietnam’s investment landscape

Fifteen years after the normalisation of Vietnam-US diplomatic relations in 1995, the US Export-Import Bank dropped anchor in Vietnam.

It signed a $500 million financing facility deal with the Vietnam Development Bank in mid-June 2010 to bolster two-way trade and investment activities.

The major reason for the bank’s appearance in Vietnam is to help increase US goods and service exports to Vietnam, which it defined as one of the nine most potential markets for the US in the future.
Vietnam’s deputy finance minister Tran Xuan Ha said the signing of this financial facility deal was not only important for both banks, but a “vivid symbol” for strong cooperation between the US and Vietnam governments.

“This is a very important opportunity for the US Export-Import Bank to continue with its investment projects in Vietnam and the arrival of more US firms in Vietnam and further cooperation of both countries’ businesses in trade, investment and service areas,” Ha said.

US ambassador to Vietnam Michael Michalak said the relationship had evolved from deep-seated mutual distrust to a robust partnership based on mutual respect and cooperation.

“From where both sides saw little or no common ground upon which to base diplomatic relations, today we collaborate on a wide range of issues, from trade and investment, to education and health, to security and defense,” Michalak said.

The US became the biggest foreign investor in Vietnam last year with total investment registered capital at $9.8 billion, mostly in real estate, energy, banking and finance and processing industries.

Bilateral trade between the two countries climbed to $15.4 billion last year from just $451 million in 1995. Two-way trade was robust particularly after the two countries implemented the bilateral trade agreement in 2001 and negotiated an open skies cargo agreement in 2008.

Bilateral trade and investment is expected to be furthered as they cooperate with each other and other partners to form the Trans-Pacific Partnership regional free trade agreement.

“Over the last 10 years, bilateral trade has increased more than 17-fold. I don’t believe that has happened anywhere else during this period. Even during the global economic downturn in 2009, US exports to Vietnam grew by 11 per cent while they dropped by double digits in most other ASEAN countries,” Michalak said.

“The bilateral trade figures so far this year are very strong and it looks to me like 2010 will be another record-breaking year for bilateral trade,” he said.

Two-way trade between Vietnam and the US reached around $6 billion in the first five months of this year, including $5 billion worth of Vietnamese goods exported to the US, up 22 per cent year-on-year and nearly $1 billion worth of the US goods imported into Vietnam, up more than 40 per cent on-year.

Vietnam’s major export goods to the US market include garments and textiles, footwear, seafood, woodwork and other processing food products.

“The US market is very important for Vietnamese firms, particularly fishery processing enterprises,” said Ngo Phuoc Hau, chairman of An Giang Fisheries Import-Export JSC (Agifish).

“The normalisation of the US-Vietnam relationship opened up a new era for the development of Vietnamese products in the US market. Seafood enterprises were among the first Vietnamese businesses setting their presence in the US after this normalisation,” Hau said.

According to Michalak, in the mid-to-long term, the Vietnam-US bilateral relationship would be built from strength to strength. Ongoing trade and investment negotiations have the potential to open up even more opportunities for companies from both countries.

“In particular, I think US companies can and will make critical contributions as Vietnam builds its infrastructure and looks for products, technologies and education systems that will help bring it firmly and beyond middle-income status,” he noted.

This year has witnessed intensive trade and investment exchange activities between firms. In mid May 2010, US firm Lockheed Martin Corp won a contract to provide a second telecommunications satellite, Vinasat 2, to Vietnam.

In April, the US-based AES Corporation signed a build-operate-transfer deal with Vietnamese authorities and firms to develop the $2.1 billion Mong Duong 2 coal-fired power plant in northern Quang Ninh province.

Citibank has also signed an agreement with Vinacomin, in which the US banker will provide a $200 million loan for the Vietnamese coal corporation to finance the Lam Dong bauxite alumina project. PetroVietnam and GE Oil & Gas also signed an agreement in April to develop an offshore gas pipeline in Vietnam.

“As we have continued to deepen our cooperation with Vietnam in the areas of trade, education, health and environment, we have also expanded our relationship in ways that were unimaginable just five years ago,” Michalak said.

Bilateral ties have deepened and matured in the 15 years since the normalisation of diplomatic relations in 1995. The then US President Bill Clinton announced the formal normalisation of diplomatic relations with the Socialist Republic of Vietnam on July 12, 1995. After the announcement, both nations upgraded their liaison offices opened in January, 1995 to embassy status in August, 1995.

As diplomatic ties between the two nations grew, the US opened a consulate general in Ho Chi Minh City and Vietnam opened a consulate general in San Francisco. In 2009, Vietnam opened a consulate in Houston while the US received permission to open a consulate in Danang.

The earliest point of engagement with Vietnam began in the two governments’ discussions over the search for missing in action soldiers from the war. Momentum toward the opening of relations quickened in July, 1993 when the US dropped its objections to bilateral and multilateral lending to Vietnam.

In February 1994, Clinton announced the removal of the longstanding trade embargo on Vietnam. Trade relations advanced significantly in March, 1998 when the Clinton administration granted a Jackson-Vanik waiver to Vietnam, which was required as part of an annual US Congressional review of Vietnam’s normal trading rights.

US-Vietnam ties took a major step forward on July 13, 2000 when the US and Vietnam signed a bilateral trade agreement (BTA), which went into force in December 2001.

The BTA not only altered fundamentally US-Vietnam economic ties, spurring trade and investments and bolstering Vietnam’s own efforts to liberalise its economy, but changed the tenor of the bilateral relationship as a whole.

Along with increased economic engagements came an increase in tourism and cultural and educational exchanges. The most visible sign of a revitalised relationship came in November, 2000 when Clinton became the first US president to visit Vietnam since the end of the war.

The Vietnam-US relationship has become increasingly cooperative and broad-based over the past decade, propelled by a series of bilateral summits, including the visit of the then US President George W. Bush to Hanoi in November 2006, Vietnamese President Nguyen Minh Triet’s visit to Washington in June, 2007 and Prime Minister Nguyen Tan Dung’s visits to Washington in June, 2008 and April, 2010.

In January, 2007 the US Congress approved Permanent Normal Trade Relations (PNTR) for Vietnam, which paved the way for Vietnam to join the World Trade Organization.

In October 2008, the US and Vietnam inaugurated annual political-military talks and policy planning talks to consult on regional security and strategic issues. Bilateral and regional diplomatic engagements continued during Vietnam’s two-year term on the UN Security Council and at ASEAN, which Vietnam chairs this year.