Rising star

India and China are not the only Asian nations looking for investment from the Gulf. Andrew Mernin reports on the resurgence of Vietnam.
Rising star
By Andrew Mernin
Sun 01 Apr 2007 12:00 AM

While China and India have largely been the Asian market of choice for Arab businesses heading East, more and more companies from the region are looking further afield, to sample the many opportunities of Vietnam. Often overlooked in the past in favour of its colossal Asian neighbours, the rapidly emerging nation - with its burgeoning tourist and property sectors - is fast becoming a honey pot for oil-rich Arab investors. According to Arthur Ting, chairman of the Central Trading and Development Corporation - one of the largest property developers in Vietnam - the once-troubled nation is now the third most lucrative Asian market for Arab investors. Ting also predicts a "huge surge" in Arab investment entering Vietnam over the next five years, as Middle Eastern businesses target the nation's "tremendous opportunities." He tells
Arabian Business

: "If Middle Eastern businesses go to Asia, China, India then Vietnam will be the top three choices in terms of investment.

"Vietnam is one of the safest and steadiest growing economies in Asia. It is growing at 8% and has been for the last 17 years. I've noticed a lot of interest from Arab investors in the Vietnamese real estate and equity markets, where there are tremendous opportunities," he adds. Ting also states that, in the longer term, an increasing number of Middle Eastern businesses will tap into Vietnam's maturing manufacturing industry, where "costs are reasonable but quality is high".

Of course, Middle Eastern companies are not the only ones making the most of the Vietnamese boom and multinational competition is rife, with more and more foreign businesses heading to the country.

Vietnam's acceptance into the World Trade Organisation in November 2006 was seen as a milestone for the country, after it worked to open its economy and encourage trade and investment from overseas in accordance with WTO regulations.

In the first two months of 2007, Vietnam attracted over US$1.9bn in foreign direct investment (FDI), a year-on-year increase of 45% according to the nation's Foreign Investment Department of the Ministry of Planning and Investment. In February alone there were foreign-run projects with a combined capital of US$1.2bn, resulting in a year-on-year rise of 27%. With the Vietnamese government aggressively targeting an influx of foreign cash, it seems there are a multitude of opportunities in a range of sectors for Middle Eastern companies looking to break into the Asian market.

Real estate

Perhaps the most accessible and, at the same time, lucrative Vietnamese sector for Middle Eastern investors is real estate. This month over 1000 Middle Eastern representatives will descend on Singapore to visit Cityscape Asia, the largest property exhibition in the Far East.

UAE-based Cityscape is well-known across the Middle East for hosting the world's largest property show, and is now set to host Cityscape Abu Dhabi in May. According to Neil Hickman, director of Cityscape, these potential investors will have the chance to run the rule over some of the most attractive opportunities in Vietnam. "Around 50% of our pre-registered visitors are from across the Middle East - that's at least 1000 participants," he says.

"Ho Chi Minh City has a 90 sq m stand representing over 25 companies. While they are looking for a lot of Asian investment, they are also coming through the Cityscape brand because they know that it gives them access to the Middle Eastern investment they are looking for."

As Hickman explains, the potential property acquisitions on offer will give Middle Eastern investors the opportunity to enter a number of emerging Vietnamese industries.

"[The Vietnamese exhibitors] are looking for a range of investments across the board. The main area is hotel investment but they also have 12 large industrial zones, and a software development economic zone as well as two hi-tech manufacturing zones," he says. "They are looking to do a lot of joint venture partnerships, not just on the property development side, but also on the industrial and manufacturing side as well."

While Hickman champions Ho Chi Minh City as the gateway to the rest of the country, he admits that it has become an increasingly expensive place for developers.

He does, however, claim that there are a number of areas outside the city that would be the perfect venue for the Middle East's major property empires, which have driven the development of the GCC's urban areas in recent years. "I think there is a lot of opportunity for the big master developers that are not just going in to put one hotel in or a tower block here, but build township developments and master-planned communities. Also, Vietnam has 2000km where waterfront projects could be developed - its coastline has remained pretty much untouched," he adds.

Hospitality

As an increasing number of Asian investors continue to pump huge sums of revenue into developing Vietnam's hospitality infrastructure, the country has established itself as a tourist destination to rival Thailand, Singapore and Hong Kong. According to the Vietnam National Administration of Tourism, the country will welcome 4.4 million foreign visitors this year, an increase of 800,000 on 2006. Ho Chi Minh City is expected to attract around 2.7 million tourists in 2007, up 15% on the previous year. Furthermore, judging by the size of hospitality investment in Vietnam coming from Asian companies, developers are confident that the tourism sector's rapid growth will continue well into the future. For example, Malaysia's Gamuda Group plans to invest US$1bn in developing hotels and a conference centre, while Japan's River Group plans to build a US$500m five-star hotel in Hanoi - both lucrative projects that are a vote of confidence in the sustainability of Vietnam's ongoing growth as a tourist destination.

In terms of tourism, Vietnam is seen as one of Asia's undiscovered jewels, with an abundance of untouched natural rainforests, mountains and beaches. The country is steeped in French colonial history and diverse Vietnamese culture. It is considered one of the safest places in Asia and consistently features in travelogues and magazines, drawing increasing numbers of tourists. One of the first Middle Eastern companies looking to tap into the tourism sector is Kingdom Hotel Investments (KHI). The Dubai-based group behind the Mövenpick, Fairmont and Four Seasons regional hotel chains will develop a US$65m ‘Raffles' hotel in the tourist hotspot, Da Nang. Due for completion in 2011, the project will comprise 150 hotel suites and 15 private residential villas on 154,000 sq ft of beachfront.

Speaking at the launch of the project, HRH Prince Alwaleed bin Talal bin Abdulaziz Al Saud, chairman of KHI, said: "Vietnam is one of South East Asia's fastest growing economies and is ranked as having the 6th highest growth forecast in the world according to the World Travel & Tourism Council. As inbound leisure and business tourism increases, we will be well-positioned to offer the market a leading international hotel property." Highlighting Vietnam's strategic location as a gateway into surrounding Asian hospitality sectors, a KHI spokesperson tells
Arabian Business

: "Vietnam has excellent transport links to other places in the East - Singapore, Hong Kong, Thailand, etc. Asia is a key destination for KHI so there could potentially be expansion [within Vietnam] but there is nothing currently on the horizon at the moment."

As visitor numbers into Vietnam continue to soar, expect to see more Arab hospitality giants vying for sites in Ho Chi Minh and beyond in the near future.

Manufacturing

While the many opportunities in the Vietnamese real estate and hospitality sectors are increasingly being recognised by Arab investors, the manufacturing industry remains largely untapped. According to Adnan Mansour, president of Zamil Steel - a Saudi industrial group that has had a presence in Vietnam since 1993 - the rewards are waiting to be reaped by labour-intensive Middle Eastern companies. "The operating costs here are about 25% cheaper than in Saudi Arabia. It's a lot cheaper than many countries [in Asia] and I expect it to stay like this for at least five years," he says. "We are also closer to the raw materials and China is next door," he adds.

Today the company - the largest producer of pre-engineered steel buildings in Asia and the MENA region - has operations in Vietnam worth around US$50m, with one factory in Hanoi, and another set to open in Ho Chi Minh City. For Mansour, who believes that any Arab business "that is labour intensive" can prosper in Vietnam, it is the local government that has really helped his Asian operations grow over the last two decades. "The system that the government has established encouraged us investors to come here instead of the surrounding South East Asian countries. It's a very stable country, there have been no strikes and there are lots of government rewards encouraging us to set up there," he continues. "The government helps in export, they give exemptions on tax for the first three years of operation, and they are very flexible in terms of local regulations, so it's been a very successful venture for us," he adds. Mansour goes on to explain that being located in Vietnam has allowed Zamil Steel to break into Japan, last year becoming the first company to export a pre-engineered building to the country.

Seafreight

As Vietnam's manufacturing industry grows at lightning pace, so too does the need for a first-rate logistics and seafreight network to export Vietnamese goods across the world. As one of the largest marine terminal operators on the planet, DP World has already made a foray into the sector.

In December 2005, the company entered into a US$249m concession with a local government entity to build, equip and operate a greenfield container terminal near Ho Chi Minh City. The project is an 80:20 joint venture between DP World and the Vietnamese state-owned Tan Thuan Industrial Promotion Company. Upon completion, the terminal, located on the Western shore of the Soa Rap River in the Hiep Phuoc Industrial Park will have the capacity to handle 1.5 million 20-foot equivalent units (TEUs) a year. Saigon Premier Container Terminal should be operational by Q3 2008. With over 700km of canals and deep water locations, the maritime industry in Vietnam is booming and the government forecast suggests a phenomenal growth of 30% a year in 2007.

As the economic epicentre of Asia's second fastest growing economy, Ho Chi Minh City is well-served by various port and terminal facilities along the Saigon River. Moreover, it needs to be with the container market in the city growing by a massive 16% in 2005. As the government looks to phase out inner city ports, however, most of these are scheduled for progressive closure over the next 10 to 15 years. With Vietnam now looking to develop a maritime infrastructure to handle rapidly increasing volumes of goods coming in and out of the country, there is certainly room in the market for the Middle East's logistics and shipping experts to get onboard.

Oil and gas

Although it remains relatively unexploited, Vietnam is well stocked in oil reserves. The BP Statistical Review of World Energy 2005 estimated that Vietnam had 2.96 thousand million barrels of proven reserves at the end of 2004. And, according to Mansour, the Vietnamese government - that "didn't invest a lot into the oil sector" in the past - is now looking to exploit more reserves in an effort to drive its ongoing economic development; news that will no doubt alert Middle Eastern oil explorers. Last year, Pearl Energy - a subsidiary of Abu Dhabi's Aabar Petroleum Investments Company - won a contract to exploit one third of Vietnam's offshore Nam Con Son Basin field. The area covers 4148 sq km located 350km off the South coast of the Far Eastern state.

Richard Lorentz, chief business development officer at Pearl Energy, believes that now is the time for Middle Eastern energy companies to add Vietnam to their ambitious expansion agendas. He tells
Arabian Business

: "Vietnam has a long-established and proven oil and gas industry, but the country as a whole remains significantly under-explored. "With its strong economic growth and a ready market at hand, as well as some recent exploration successes, the country is one of the more attractive exploration plays in the region."

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