Cablegate: A Tale of Three Central Coast Provinces: The Good, the Weird

VZCZCXRO6134
RR RUEHDT RUEHPB
DE RUEHHM #0688/01 3620701
ZNR UUUUU ZZH
R 280701Z DEC 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 6193
INFO RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHI/AMEMBASSY HANOI 4084
RUEHHM/AMCONSUL HO CHI MINH CITY 6436

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000688

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STATE FOR EAP/MLS, INR/EAP

E.O. 12958: N/A
TAGS: ECON EINV PGOV SOCI VM
SUBJECT: A TALE OF THREE CENTRAL COAST PROVINCES: THE GOOD, THE WEIRD
AND THE LUCKY

REF: HCMC 535 -- Paths to Provincial Leadership

HO CHI MIN 00000688 001.2 OF 003

1. (SBU) Summary: The three south-central coastal provinces of
Khanh Hoa, Phu Yen and Binh Dinh may occupy the same long
stretch of coast, but strong local leadership commitment to
economic reform enables Binh Dinh to thrive while Khanh Hoa
meanders and Phu Yen stumbles. The annual Vietnam Provincial
Competitiveness Index, a nationwide survey of businesses in
Vietnam, reflects this clearly with Binh Dinh in the top tier
(#11) while Khanh Hoa (#36) and Phu Yen (#39) rate average. New
roads and industrial parks are paving the way for expanding
industrial activity and a glittery new resort complex in Binh
Dinh, augmenting its furniture manufacturing base and Vietnam's
third busiest port. On paper, Phu Yen boasts the largest
investment projects of them all, yet none have materialized nor
are there convincing signs that they will. Khanh Hoa province
has begun several huge industrial and tourism projects,
sometimes side-by-side as in massive Van Phong Bay with its
large ship building factory, but the economic downturn has made
the future of these projects uncertain. Projects in the three
provinces have sharp contrasts in terms of strategic approach,
management and economic viability - which ultimately will have a
big impact on their success. End Summary.

With Good Potential: Binh Dinh

------------------------------

2. (SBU) Quy Nhon City sits where Highway 19, the Central
Highlands' main access to the sea (courtesy of the U.S. Army
Corps of Engineers in the 1960s), meets National Highway 1 on
its way from HCMC to Hanoi. Agricultural products like
sugarcane and tapioca flow out from the Central Highlands while
cement, steel and other building materials flow in. Most of
these goods pass through Quy Nhon, making it the third busiest
port by volume with 3.5 million DWT shipped in 2008, behind HCMC
and Hai Phong, but ahead of Danang or Nha Trang. Economic
diversity has helped Quy Nhon Port weather the global economic
downturn, and has kept shipping rates low and the port growing
strong: 50 percent of its activity is export of agriculture,
forestry and mineral products, 30 percent is imports of
fertilizer, construction materials and machinery, and 20 percent
of throughput is domestic. The port's biggest challenge is
raising capital, because national infrastructure development
plans favor developing new facilities elsewhere on the coast
rather than expanding existing facilities in response to demand.

3. (SBU) According to the Binh Dinh Provincial People's
Committee (PPC), growth of local industry has reversed the flow
of migrant labor back to Quy Nhon in recent years. Leaders
boast that administrative reform is the PPC priority, citing the
province's #11 ranking and good marks for transparency, lack of
bias toward state-owned enterprises, and good infrastructure.
Businesses ranging from local furniture manufacture My Tai to
agriculture titan Cargill confirmed what the PPC said, "Binh
Dinh is a great place to do business because local leaders
actively encourage investment." Provincial leaders have also
looked beyond industry toward promoting tourism development, as
evidenced by the $500 million Vinh Hoi resort development
project located on a stunning bay north of Quy Nhon City. Mr.
Tran Duc Canh, the Vietnamese-American managing the development,
told EconOff that the Ritz Carlton, the Marriott, and the
Outrigger are already on board with their five-star hotels, with
the first set to be operational in 2013. Mr. Canh echoed other
businesses sentiments about provincial cooperation, noting that
Quy Nhon authorities recognize the economic potential and
employment opportunities (around 4,000 just for the hotels) the
resort area will bring and have been "easy to work with."

The Weird: Phu Yen

------------------

5. (SBU) There is no shortage of big dreams in Phu Yen province;
PPC Chief of Cabinet Ho Van Tien listed dozens of promised
investments climbing into the billions, but couldn't articulate
steps taken to turn these plans into reality. Instead he
steered conversation to the advantages of Phu Yen's special
breed of 'yellow cow' noting there are 300,000 domesticated
animals in the province. In a similar disconnect, provincial
advocates pointed to a scenic 186-mile detour through the
Central Highlands on the way to Tuy Hoa as an infrastructural

HO CHI MIN 00000688 002.2 OF 003

"advantage" for visitors over its southern neighbor which is
merely a straight shoot up the national highway from HCMC.
Because Phu Yen's coast is not protected by mountainous bays,
the fresh flow of water keeps it "cleaner," advocates explained,
and has thus been keenly sought out by investors despite being
one of the more storm-prone areas in Vietnam. The disconnect
between plans and results is also reflected in Phu Yen #39 PCI
ranking in 2008, with "informal charges", "proactivity" and
unsurprisingly, "transparency" indicators scraping the bottom of
the barrel.

6. (SBU) Even our private sector contacts reflected this
schizophrenia. Smack in the middle of the provincial capital
Tuy Hoa City is the Cendeluxe "five star hotel and Eco Tourism
Complex," owned and operated by the Thuan Thao Corporation. The
company had humble beginnings in 1975, when its chairman, Madame
Thao, started a small consumer-goods distribution business.
Gradually she expanded into transportation and now the company
is stretched in a dozen business areas and has become the
richest company in the province. Thuan Thao's Deputy Director
Mr. Cu noted that the company has very close relations with the
provincial government. Just how close this "close relationship"
is was demonstrated last year after media reported that Thuan
Thao was illegally digging up trees on city streets and
replanting them inside their hotel and eco-complex; Thuan Thao
was never penalized for stealing the trees. The newly forested
Cendeluxe Hotel seems out of place at best in a poor city like
Tuy Hoa and it is not immediately obvious who the hotel might
attract as guests. Mr. Cu noted that the hotel, which is
branding itself as a conference hub, has already staged a number
of national competitions such as a beauty contest and a national
music festival and is actively marketing to European tourists,
despite being more than 2.5 miles from the beach.

7. (SBU) Mr. Cu acknowledged that many large potential
investment projects in Phu Yen province, even after receiving an
investment license, never make it off paper. There are
currently only three foreign-invested companies in Phu Yen and
he did not know whether U.S.-based Galileo Company's
multi-million "Creative City" project "to create a Hollywood,
Harvard and Disneyland all in one" would come through, but he
did verify that the company is renting office space in Tuy Hoa.
Mr. Cu also talked about a group of Dubai investors who had come
to Phu Yen keen to invest $533 billion dollars, almost 8 times
the total GDP of Vietnam. Because the deal involves such
massive sums of money, Cu said it is being handled by Deputy
Prime Minister Nguyen Sinh Hung and the media is prohibited from
reporting on the deal. Despite all the province's purported
advantages and signed licenses promising tens of billions in
investment, the empty, locally-financed Cendelux complex stands
alone in Phu Yen province.

Blessed by Luck: Khanh Hoa

--------------------------

8. (SBU) In contrast, parts of Khanh Hoa really do reflect
development Phu Yen can only fantasize about. Ms. Truc of the
Khanh Hoa provincial tourism authority said that Nha Trang has
been "blessed by luck" and remains a draw for both domestic and
international tourists, with the total number this year expected
at 1.5 million. Although foreign tourism took a slight dip in
2009, Ms. Truc attributes that less to the economic slowdown
than to concerns about H1N1 outbreak, particularly among
overseas Vietnamese; she expects foreign tourism to rebound in
2010.

9. (SBU) Khanh Hoa is also blessed by central planning. The
province boasts a huge 150,000 hectare project underway in Van
Phong Bay, about 30 miles north of Nha Trang City that will be
dedicated to a variety of industrial, residential, and tourism
projects. Mr. Hoang Dinh Phi of the economic-zone authority
said all areas have been registered by investors and the zone is
big enough to accommodate industrial and tourism projects at
once. There will be an oil refinery, a bonded fuel depot with
one million ton capacity and two shipyards, one of which -- a
Korean-Vietnamese joint-venture -- has recently begun
constructing ships after many years of ship repair (note:
another shipbuilding venture has been indefinitely postponed
based on financing.) Mr. Phi said that one of the industrial

HO CHI MIN 00000688 003.2 OF 003

parks around the bay will be geared toward hi-tech industries
and an American solar panel company is among the foreign
investors there. Vietnam's national port development plan also
envisions an international transshipping terminal in Van Phong
bay that will one day take a place alongside regional shipping
powers like Singapore and Hong Kong. Besides good road, rail,
and seaport networks, Mr. Phi noted, Nha Trang's principal
airport would go international on December 11, hosting the first
international flights from Singapore and the Ukraine.

10. (SBU) Khanh Hoa's leadership has steered the middle course
of economic reform to 36th place in the 2008 PCI. The province
retains an appreciation for big, centrally-planned projects,
resulting in a disappointing "SOE-bias" and "land access and
tenure" scores, but ranks with Binh Dinh near the top of the
infrastructure rating.

Comment

-------

11. (SBU) Adjacent provinces that share virtually identical
climate, geography and even similar infrastructure can produce
radically different investment environments. Our observations,
backed up by those of thousands of businesses contributing to
the Vietnam Provincial Competitiveness Index, indicate that
commercial realities can be a reflection of provincial
leadership and their economic policies. Khanh Hoa, which has
storm-shielded bays and a well-established reputation, is making
progress toward its development goals one big project at a time.
Meanwhile, there appeared to be a sharp contrast in the
relationship between officials and business in Phu Yen and Binh
Dinh based on meetings there, with the former providing a more
intricately woven paternal role for business, and the latter a
looser one. The highest party and government officials are
native to each province though only Phu Yen's People's Committee
Chairman boasts wartime credentials (reftel). Local leadership
and the resulting investment climate, not central government
plans and assistance, are defining the path of development in
these south central coastal provinces.

12. (U) This cable was coordinated with Embassy Hanoi.
FAIRFAX

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