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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