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    Southeast Asia
     Oct 12, 2006
Vietnam opens wide to tourism
By Karl D John

HANOI - Vietnam's economic boom is filtering down to its highly underdeveloped tourism and travel industry, making it the latest local sector to undergo a full-blown capitalist transformation.

Tourist arrivals have grown on average 20% per year over the past 15 years, shooting up from 250,000 in 1990 to 3.5 million last year. The first quarter of 2006 saw more than a million tourists land in Vietnam, on pace to hit the government's target of luring 4 million tourists this year. Some industry analysts optimistically

estimate tourist arrivals will double to 8 million by 2010.

Although long popular on the backpacker trail, Vietnam is bidding to drive its tourism industry quickly up the value-added ladder, catering for higher-spending travelers. Compared with regional neighbors such as Thailand, Vietnam's tourism infrastructure is still antiquated. At the same time, many travelers prefer Vietnam's less commercialized, mass-market experience. The challenge, industry analysts say, will be striking the balance between preserving the country's many old-world charms while introducing more modern creature comforts.

Vietnam is one of the world's fastest-growing economies, and the growing number of tourist arrivals is attracting significant new foreign investment in tourism-related projects. VinaCapital, a Vietnam-dedicated investment bank, in July announced its acquisition of a 52.5% stake in the Hanoi-based Hilton Hanoi Opera, bumping its total ownership in the five-star hotel up to 70%.

Last year, the publicly listed investment group, which operates the US$205 million VinaLand Fund, took a 70% stake in the high-end Sofitel Metropole Hotel, Vietnam's most profitable hotel. And the investment company has stated plans to invest an additional $43 million in Hanoi's hotel and tourism sector, as well as $3.1 million in a 260-hectare resort and golf course in the central city of Danang.

The world's biggest hotel operator, InterContinental Hotels Group, recently announced its entry into Vietnam with its first property, which is set to open in 2009. In April, Hong Kong-listed property developer Lai Sun Development disposed of its 63% stake in the Furama Resort at Danang to an undisclosed registered company in the British Virgin Islands. Foreign capital is pumping up local expectations for the industry: the Bank for Investment and Development of Vietnam (BIDV) recently granted a $33 million, eight-year loan to the Caravelle Hotel joint-venture company to restructure its operations.

Vietnam's tourism sector has attracted 190 foreign direct investment projects with total registered capital of $4.64 billion, providing a major engine for economic growth. The hospitality sector is also creating many new urban-based jobs: Vietnam's tourism sector currently employs more than 234,000 people directly and an additional 510,000 indirectly in associated businesses and industries, according to official statistics.

This provides important employment opportunities as Vietnam makes the transition from a mostly agrarian to industrial and services-based economy. About 57% of the country's workforce is still involved in agricultural activities, and only 26% of the country's 83 million people are in urban areas, one of the lowest such percentages in Asia. Jonathan Pincus, senior country economist at the United Nations Development Program in Hanoi, said: "Tourism is a great industry for Vietnam. It's a great earner of foreign exchange; it employs lots of people, is very labor-intensive and can be very sustainable."

While Hanoi and Ho Chi Minh City are well stocked with luxury hotels and trendy restaurants, the provincial resort market is still highly underdeveloped. However, the legal and tax situation is changing in significant ways to attract more foreign investment in the provinces, in line with requirements for Vietnam's impending accession to the World Trade Organization.

Changing attitudes
Political attitudes toward foreign capital and domestic entrepreneurialism are also changing - though there are growing business concerns about the backlog of 100 or more decrees meant to support and implement new laws on securities and enterprises. The Communist Party Congress in April ushered in a younger generation of leadership, which has already made some interesting moves towards liberalizing the tourism industry.

That significantly includes the implementation of the party's draft decree on gambling activities, which is expected to be submitted to Prime Minister Nguyen Tan Dung this year. Vietnam has already quietly opened three functioning casinos, all in the northern region, as well as a wager-taking horse-racing track in the south - though the facilities there so far remain off-limits to Vietnamese citizens. Instead, they are geared to profit from the growing number of gambling enthusiasts from mainland China.

One of the casinos, about a two-hour drive from Hanoi, is the result of an investment by Macau gambling czar Stanley Ho. Another gambling facility, owned and operated by a group of Taiwanese investors, has applied to go public on Vietnam's stock exchange. The third, about an eight-hour drive from Hanoi on the eastern border with China, is owned and operated by Hong Kong interests. Licensed casinos would provide the government with a much-needed new tax source, economists note.

Still, there are plenty of hurdles for potential investors in the sector. For instance, it is still difficult to get reliable official market data, ranging from land-price comparables to government-approval processes. New investment laws have been designed to make it easier for foreign investors to operate without a local partner - though bureaucratic hassles and enduring extortion rackets mean new market entrants often still require the services of well-connected locals to operate without difficulties.

Provincial infrastructure, including well-functioning airports, is also a weak spot. The government has been slow to provide basic infrastructure to support and lure more tourism-related investments, some industry players say. For one, that's hindered the development of the highly touted Phu Quoc Island, which was originally designed to set the national standard for a foreign tourist-dedicated destination, but has lagged because the government has failed to build a promised international airport.

Potential investors in casino-related projects may have deep enough pockets to develop such facilities more quickly than relying on government bureaucrats to complete the job. But if, as rumored, officials make contributions to building provincial airports a condition for winning a casino license, the policy could backfire and deter rather than attract new foreign funds into the sector.

Karl D John is chief executive officer of The TCK Group (www.tckgroup.org), a Vietnam-based investment consulting group. He has more than a decade of involvement with Vietnam and lives in Hanoi.

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Vietnam's tourism grows (Mar 21, '06)

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