VZCZCXRO3386
OO RUEHDT RUEHPB
DE RUEHHM #1088/01 3581137
ZNR UUUUU ZZH
O P 231137Z DEC 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5240
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 3489
RUEHHM/AMCONSUL HO CHI MINH CITY PRIORITY 5470
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUCPDOC/USDOC WASHDC PRIORITY 0095
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

UNCLAS SECTION 01 OF 04 HO CHI MINH CITY 001088 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, OES/STC 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
HHS/OSSI/DSI PASS TO OGHA (MABDOO) AND FDA (MLUMPKIN/RCAMPBELL) 
CDC FOR COGH AND CCEHIP/NCEH 
TREASURY FOR CHUN 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EIND EAGR PGOV SENV SOCI TBIO VM
SUBJECT: DIVERGENT DEVELOPMENT PATHS IN THREE "DEEP SOUTH" PROVINCES 
 
REF: HCMC 1075 
 
HO CHI MIN 00001088  001.2 OF 004 
 
 
¶1. (U) Summary.  Vietnam's "deep south" provinces of Ca Mau, Bac 
Lieu and Soc Trang are among the roughest business environments 
in the southern provinces of Vietnam.  Both private and 
state-owned enterprises say they are struggling with poor 
infrastructure, weak consumer demand and inadequate access to 
capital, especially during this global economic downturn.  Until 
recently, one bright spot had been aquaculture, where the "deep 
south" provinces have leveraged environmental conditions and 
cheap labor to become a global player in fish and seafood trade. 
 During our recent visit, officials raised concerns over 
aquaculture trade issues because industry concentration makes 
the "deep south" particularly vulnerable to declining 
aquaculture export markets.  Since this region is also among the 
World's most vulnerable to climate change, provincial leaders 
applauded broadening bilateral cooperation with the United 
States on the environment (e.g., the recently opened Delta 
Research and Global Observation Network institute -- DRAGON). 
End summary. 
 
¶2. (SBU) EconOff visited Ca Mau, Bac Lieu and Soc Trang 
provinces in late November to talk with provincial leaders, U.S. 
investors, state-owned enterprises and companies trading with 
the United States.  Each province is poor, with per capita 
incomes ranging from 625 dollars per year in Soc Trang to 673 
dollars per year in Bac Lieu, well below the national average of 
835 dollars per year.  According to provincial officials, 
incomes are rising as the pangasius ("catfish") and seafood 
processing industry grows.  In the region, agriculture and 
aqua-culture dominate the economy while industry and services 
are poorly developed.  Interestingly, these provinces have 
adopted different attitudes toward economic reform, as 
demonstrated in the USAID-funded Vietnam Provincial 
Competitiveness Index (VPCI), the annual business survey ranking 
each of Vietnam's provinces from one to 64.  The leadership in 
each province was keenly aware of their rank in this year's VPCI 
survey, but none more-so than Ca Mau. 
 
Ca Mau:  Building From a Low Base 
--------------------------------- 
¶3. (SBU) EconOff met with the provincial People's Committees 
(PPC) and the Departments of Planning and Investment (DPI); 
Industry and Trade (DOI); External Relations (ERO); Agriculture 
(DOA) in each province.  Officials in Ca Mau told EconOff they 
are focusing now on improving transparency and government 
accountability in order to attract foreign investment. 
[Comment:  This is clearly a provincial, even national priority. 
 In an extraordinary move this September, Central Party 
Committee member Nguyen Tuan Khanh (then Deputy Head of the 
powerful Communist Party Central Organizing Committee) was 
appointed Ca Mau Party Secretary to clean up the province, 
replacing notoriously corrupt former Party Secretary Nguyen 
Thanh Binh.  End comment.]  Through efforts to streamline 
bureaucracy and improve infrastructure, Ca Mau province has 
risen steadily from being of Vietnam's worst performing 
provinces at number 57 in 2006, to number 29 in 2007 to number 
18 in the just-released 2008 survey.  In fact, in 2008 Ca Mau's 
ranking increased more than that of any other province in 
Vietnam over 2007. 
 
¶4. (SBU) Ca Mau does has some advantages -- land for development 
is readily available because the soil is not suitable for 
commercial rice cultivation, DPI said, and the province has a 
one-stop shop for investors to handle license applications.  PCC 
representatives said the focus on creating a better business 
climate is starting to yield results -- Ca Mau now has five FDI 
projects worth 10 million dollars. 
 
¶5. (SBU) The occupancy rate at the one American-invested hotel 
in Ca Mau city has climbed over the last year, up from 20 
percent to 40 percent, the investor said, adding that he 
believes this is due to Ca Mau's improved investment 
environment.  The U.S. investor point out that while 
infrastructure is a challenge for the Mekong Delta as a whole, 
Ca Mau does have daily flights to and from Ho Chi Minh City 
(HCMC), giving it a distinct advantage over its neighboring 
provinces.  New roads under construction using Central 
Government funds have enable construction of other projects, for 
example the Malaysia-Vietnam joint venture Ca Mau I power and 
fertilizer plant, a DPI official stated. 
 
Bac Lieu:  Falling into the Ocean 
 
HO CHI MIN 00001088  002.2 OF 004 
 
 
--------------------------------- 
¶6. (SBU) Bac Lieu province provided a marked contrast.  Eleven 
years ago the province asked the central government to split Bac 
Lieu off from the province then called Minh Hai because the 
budget and state investment were being spent disproportionately 
in Ca Mau City.  Since then, Bac Lieu enjoyed a flurry of 
central government funded investment in the province's 
infrastructure (as well as one of the "nicest" People's 
Committee and Party Headquarters complexes in the Mekong Delta). 
 In recent years though, Bac Lieu province is slowly settling to 
the bottom, as measured by the VPCI.  The province has fallen 
from number 58 in 2006 to number 60 in 2007 to number 62 in 
¶2008.  In contrast to Ca Mau's 600 million dollars in seafood 
exports, Bac Lieu expects less than 300 million dollars in total 
exports. 
 
¶7. (SBU) As if reading from a script, each provincial official 
we talked with thought increasing seafood exports, modernizing 
agriculture and vague "eco-tourism" projects were the building 
blocks of their province's economic future.  The lack of skilled 
workers and poor infrastructure (most exports go by boat to 
HCMC) must be overcome if the province is to attract investment, 
provincial officials agreed.  The southern provinces are also at 
risk from climate change, they added, and will suffer from 
saline encroachment and disruptive weather patterns including 
floods. 
 
¶8. (SBU) One of Bac Lieu's oldest FDI projects is a 
U.S.-invested shrimp farm, licensed in 1994 when solid 
relationships with local officials were a determining factor in 
a ventures success.  A lot has changed in 15 years, the manager 
said.  Now the rapidly rising cost of inputs, the threat of 
trade remedies and evolving food safety regulations are the 
biggest challenges this investment faces, according to the 
director.  Management there said the low cost of labor and the 
company owner's Bac Lieu roots were the reason he continues to 
build on his initial 10 million dollar investment. 
 
Soc Trang: Middle of the Road 
----------------------------- 
¶9. (SBU) Soc Trang province chose a third way.  Led by steady 
People's Committee Chairman (and local Viet Cong revolutionary 
prior to 1975) Huynh Thanh Hiep since July 2003, Soc Trang's 
VPCI ranking bobbed up from number 19 in 2006 to number 11 in 
2007 before dipping back down to 29 in 2008.  In 2007 in 
particular, the PPC chief of staff told EconOff, the province's 
ranking improved because the province focused on streamlining 
official procedures and created a one-stop shop for licensing. 
Transparency is another crucial effort, he said, adding the PPC 
is trying to change the mindset from "responding before the 
deadline" to responding "as soon as possible" to applications. 
 
¶10. (SBU) Still, just two FDI projects are located in Soc Trang, 
a Taiwanese food aquaculture company and a U.S.-invested jewelry 
factory licensed in 2007.  According to the provincial DPI, 
PetroVietnam was also recently licensed to build a 650 mw 
coal-fired power plant in Soc Trang. 
 
¶11. (SBU) Land is widely available for industrial parks and 
investors, PPC chief of staff told EconOff, and in fact the 
province is plans to build seven new industrial parks once the 
PPC has decided on zoning.  DPI added that relocating landowners 
has been an issue for Soc Trang for two reasons: price and 
method.  In the past, price was the biggest issues where land 
owners would agree to a price then seek additional compensation 
later.  Outside of investment parks the land is largely owned by 
farmer who can negotiate compensation to sell their land use 
rights (LUR).  To help improve transparency, the Soc Trang PPC 
has directed that Department of Natural Resources and 
Environment (DoNRE) officials "be held responsible" for land 
issues relating to investment. 
 
Provinces Divesting From SOEs, but Central SOEs Remain 
--------------------------------------------- --------- 
¶12. (SBU) Leaders in each of these three provinces told Econoff 
that they had privatized most if not all of their provincial 
state-owned enterprises (SOEs).  Still, the largest investment 
underway in the "deep south" is the natural gas/fertilizer plant 
at Ca Mau, a partnership between centrally state-owned 
enterprise PetroVietnam and a Malaysian company.  Unfortunately, 
while our contacts in the province said they were eager to meet 
to talk about the projects and demonstrate progress, they later 
 
HO CHI MIN 00001088  003.2 OF 004 
 
 
called to cancel, saying that headquarters in Hanoi would not 
grant permission.  People's Committee Chief of Staff told 
EconOff Ca Mau I "is a Central Government project located in the 
province, we don't have any knowledge of its current status or 
influence over its operations." 
 
¶13. (SBU) Ca Mau province has just three SOEs, DoIT officials 
told us, working on water supply, forestry development and 
environmental protection.  However, also present is Petrolimex, 
a central government-owned SOE trading and retailing fuel. 
Petrolimex officials told EconOff that it has proven extremely 
difficult for the central SOE to compete with local companies or 
grow to 20 percent market share in Ca Mau.  Echoing a common 
concern voiced by foreign investor, the SOE complained the 
provincial master plan limits retail outlets (e.g., gas 
stations) in number and location and "somehow our local 
competitors Ca Mau Materials Company and Bac Lieu Provincial 
Trading Company have already locked up the good locations." 
 
¶14. (SBU) Bac Lieu DPI and PPC officials said that with the 
exception of the provincial lottery and water treatment 
companies, all provincial SOEs have been equitised.  The former 
SOEs pay taxes (and dividends to the government as a 
shareholder), but the PPC Chief of Staff said the province no 
longer supervises these enterprises.  The director of the 
lottery SOE said that the company is nevertheless at arm's 
length from the government aside from regulation by the Ministry 
of Finance, just paying into the provincial budget as it has 
since the company's creation 1981. 
 
¶15. (SBU) Equitised SOE companies, especially small- and 
medium-sized enterprises, have become some of Soc Trang's best 
performers, according to the provincial People's Committee.  For 
example, fish feed producer SauTau became more efficient and 
localized decision-making, PPC representatives added. 
 
Adjusting to the U.S. Economic Downturn 
--------------------------------------- 
¶16. (SBU) Industry leaders in the Delta know that exporters need 
to diversify their market profile and production.  U.S. 
antidumping action brought against Vietnamese catfish exporters 
in 2002 seriously harmed the Delta's economy because too much 
labor and investment was concentrated into too few industries, a 
Ca Mau seafood processor explained.  At that time 50 percent of 
Vietnam's "catfish" (pangasius) exports went to the United 
States, he added.  Most confirmed that at this time, the prices 
companies can charge for fish and shrimp exports are being 
pushed down.  One shrimp processor said demand from his existing 
clients had fallen by 50 percent since this summer, though he 
was expanding to new customers at lower prices like Costco, 
Wal-Mart and Sam's Club to make up the difference.  Several 
seafood companies said their current customers are trying to 
renegotiate payment terms at lower prices, or want to pay on 
sale rather than upon receipt of consignment. 
 
¶17. (SBU) Each set of provincial leadership noted that 
inflation, tight monetary policy and high interest rates have 
hurt companies in their provinces.  Vietnam's monetary policy 
also concerns seafood companies, though May 2008 seems to have 
been the worst period because of the high inflation and high 
interest rates, said a shrimp exporter.  His Ca Mau factories 
have improved technologies and procedures so that while salaries 
climbed 25 percent in keeping with inflation, July 2008 
productivity was up 100 percent of July 2007.  Most exporters 
have watched warily as the foreign exchange rates of 
competitors' currencies (Thailand, India and Indonesia) 
depreciated relative to the dollar, making Vietnam's exports 
relatively more expensive. 
 
Comment: 
-------- 
¶18. (SBU) Perhaps because they are amongst the poorest of 
Vietnam's southern provinces, Ca Mau, Bac Lieu and Soc Trang 
demonstrate the role of leadership in fostering economic reform. 
 These provinces are generally trying to open their provincial 
economies, but when it comes to SOEs at least, clearly some 
tensions remain between provincial and central government. 
Nevertheless, provinces know they rely on the central government 
to carry the torch on the big issues: climate change and U.S. 
trade policy have a profound impact on these provinces, in 
particular because the U.S. is a major export market for the 
aquaculture industries that have helped pull many southern 
 
HO CHI MIN 00001088  004.2 OF 004 
 
 
workers up out of poverty.  To end on a brighter note, while 
outlandishly expensive, we found U.S. table grapes on sale in 
the Bac Lieu market.  End comment. 
 
¶19. (U) This cable was coordinated with Embassy Hanoi. 
DICKEY