I thought all along we had the inside track on the Intel investment if only because they already have a similar but smaller facility in Cavite. Surely, I thought, at this stage of Vietnam’s development, we couldn’t be that worse off in terms of the usual things investors look for. Plus we had the advantage of long years of relationship with Intel, we are also more advanced in IT-related manufacturing, we are not communist and we speak English. But Vietnam still got that billion dollar investment. I want to know why we lost.
The consensus of my lunch group was simply, we didn’t fight for it. According to them, including one whose previous work involved selling the Philippines to potential investors, we were just not hungry enough.
I thought they were being very kind. My gut feel tells me the reason we lost a billion dollar potential investment is that the leadership in DTI is finding Ate Glue’s regime a tough sell to investors, beyond the cheap platitudes like that "expression of confidence in her economic reforms" that Malacañang said Intel’s Craig Barrett gave her at Davos.
Or, the DTI top honchos just don’t know how to sell the country as an investment destination, if their lives depended on it. Didn’t they just snub a group of potential German investors who were all set to listen to their pitch?
Consider the following observation made by a recent article in the Financial Times about Vietnam and see that Vietnam was not a shoo-in.
"Even as it attracts investment, Vietnam is grappling with its Marxist past. Its education system devotes considerable time to Marxism-Leninism and Ho Chi Minh thought."
As if that’s not bad enough for Vietnam, FT reports that "port congestion, power shortages and other infrastructure deficiencies are already big investor headaches, even before the anticipated post-WTO surge of exports, which some business groups forecast will grow 25 percent a year for the next several years…
"The lingering legacy of the centrally-planned economy, decades of rule by fiat and pervasive corruption have left the government with formidable challenges in trying to meet investors’ requirements: modern infrastructure; predictable, transparent and timely bureaucratic decision-making; and a credible legal and regulatory system."
That sounds like FT was describing us, only worse. But Vietnam still managed to beat us out of a billion dollar investment, which in fact, was worth a whole lot more. An Asia Times Online article noted "where Intel goes, the IT industry often tends to follow. Intel going in means they will bring along their supplier network – these are global companies that have to move with Intel."
Additionally, Asia Times reports that Intel’s preference for sourcing locally will likely provide opportunities for dozens, if not hundreds, of new Vietnamese technology companies. That growing mass of suppliers will in turn make Vietnam more attractive for other global IT manufacturers. It is clear that if our DTI officials didn’t think the Intel investment was worth fighting for, something is really wrong with them.
Official statements from Intel try to explain why they chose Vietnam. "After an extensive search, Intel selected a site in the Saigon High Tech Park because of its good physical infrastructure, the available workforce and the tremendous interest in information technology in Vietnam as evidenced by the rapid growth of the industry there," Asia Times quotes Rick Howarth, general manager of Intel Products Vietnam in Ho Chi Minh City.
The US Ambassador also tried to explain why. "They (Intel officials) have built a partnership through four years of negotiations and have come to the point where they’re very comfortable operating here, and they wouldn’t be making this kind of investment if they weren’t," said US Ambassador Michael Marine.
They could have said that about us too. What did the Vietnamese officials do that our DTI officials missed out? An Associated Press report I monitored in the online edition of Silicon Valley’s The Mercury News gave some details of the deal.
"To sweeten the deal, Vietnam offered attractive incentives. Santa Clara, Calif.-based Intel will not pay corporate taxes for the first four years of operation and will enjoy a 50-percent tax break the following nine years, said Pham Chanh Truc, head of the high-tech park in Ho Chi Minh City. After that, Intel will pay only 10 percent in taxes, compared with the normal 28 percent corporate rate. The incentives are offered to all businesses that invest in the site, Truc said."
Are our tax breaks uncompetitive? Possibly. But the reform bill for our investment incentives law is still being considered by Congress. It isn’t as if we are helpless in the midst of this kind of competition. Vietnam took four years to negotiate with Intel. Surely, we can pass a competitive bill in that time.
"The reasons we chose to invest here in Vietnam are evident," the AP quotes Brian Krzanich, Intel’s vice president and general manager for assembly and test, who announced the investment. " A very vibrant population, an increasingly strengthened education system, a strong work force and a very forward-looking government."
Labor, AP adds, remains cheap in Vietnam, where education and self-improvement are rooted in the Confucian tradition and more than 60 percent of the population is younger than 30. Vietnam also has one of the world’s fastest growing economies and was recently invited to join the World Trade Organization.
Mercury News observes "while the country remains a staunch one-party system, the communist government is opening up and pushing for economic reforms that will lead to a market economy." Vietnam obviously wanted the investment badly enough to do everything to get it. Vietnam is hoping Intel’s investment will help build investor confidence and put the country on the path of other high-tech powerhouses like India.
Asia Times observes that "recent big-ticket investments from the multinational likes of Intel and Canon could soon establish Vietnam as a low-cost IT leader in the region, challenging the positions of such countries as Thailand and the Philippines… Canon is spending $1 billion on a new printer factory in Hanoi, while Alcatel, Fujitsu and Siemens are all increasingly sticking ‘Made in Vietnam’ on their products."
Governance, according to Asia Times, is the one big reason for Vietnam’s sudden edge on its more economically established neighbors . "For instance, Thailand’s bureaucratic legacy and deeply ingrained approaches to managing the economy make it hard to overturn and reform because it would threaten so many vested interests, often connected to political cliques. The Philippines and Malaysia similarly suffer from bureaucratic morasses.
"Vietnam’s autocracy is often crude, and its strict structures are certainly no paragon of efficiency. But despite this and rapidly growing corruption, the communist government tends to issue clearer policies and implement them with more determination than Thailand’s and the Philippines’ fits-and-starts democracy, some economic experts contend."
Oh well… No wonder it was all quiet at DTI when we lost this billion dollar plus investment. The lesson is simple: Competitive tax perks help a lot. Infrastructure helps too. And don’t forget a good educational system. But the best investment incentive is good governance. A country may not have it yet, like Vietnam. But investors must have been convinced by Vietnam that good governance is serious work in progress. Investors want predictability.
Rudi Giuliani summed it up best: "Government has got to work in order to allow people to have confidence in it." It’s as simple as that. That’s how we lost a billion dollar investment. Ate Glue’s government doesn’t inspire confidence… lacks credibility. And that’s the sad truth whatever else they might have told her at Davos!
Girl to her boyfriend: One kiss and I’ll be yours forever.
The guy replies: Thanks for the warning.
Boo Chanco’s e-mail address is bchanco@gmail.com