Vietnam’s Economic Transformation and Vingroup’s Rise
We've seen Vietnam year by year become one of the fastest growing economies in Southeast Asia. Vietnamese consumers are very aspirational. You've got millions of people riding motorbikes and they want to be riding inside cars. Vin Group, Vietnam's biggest conglomerate, has really tapped into that. The founder and chairman, aspires to be the Elon Musk of Vietnam. Vuong is Vietnam's richest man with outsized ambitions. He wants to sell cars not only to the Vietnamese but also Americans and other consumers around the world. And so with his company Vimfast, Vuong is planning to build an electric car factory in North Carolina with an initial investment of $2 billion. US President Joe Biden has praised Vaughn's plan, but finding success in one of the world's most competitive car markets won't be easy. I think it's a huge uphill battle for VinFast to build brand recognition in the US. For a consumer to try something new, to buy a VinFast vehicle that hasn't really been tried and tested, it's a huge hurdle for consumers to jump over. Fat network wants to promote his own business, but he also wants to contribute to Vietnam's image as a rising power in Southeast Asia. No car company has been able to do that. If Vinfast is successful, that goes very well with the ambition of the Communist Party of Vietnam. But if they fail, it will be very very heart blow to Vin Group and also to the national economy.
The fall of what was Saigon marked the end of America's disastrous intervention in support of South Vietnam. After the Vietnam war ended in 1975, the North took over the whole country and they imposed the same socioeconomic model across Vietnam. That means Vietnam adopted a centrally planned economy with the state sector playing a very dominant role. There was almost no foreign invested or private sectors back then. Uh but that kind of policy led to poor economic development with high rate of poverty and there was lack of even essential consumer products.
Economic Reform and the Private Sector’s Role
In the late 1970s and 80s, Vietnam's economic troubles were exacerbated by a trade embargo imposed by the US and international isolation following Vietnam's military intervention in Cambodia. Fearing the collapse of the regime, the Communist Party of Vietnam adopted the "Doi Moi" or economic reform policy in 1986. That means they allow foreign investment and also the private sector to play a bigger role in the economy. The private sector in Vietnam has been growing very strong over the past uh 30 years. Uh now uh they accounts for about 40% of Vietnam's GDP and contributes about 30% of Vietnam's tax revenues and more importantly it accounts for about 60% of uh jobs uh in Vietnam. So they play a very important role in uh keeping uh the economy growing but the key issue is that most of the private companies in Vietnam are small and medium-sized enterprises. Vietnam really needs strong leading private companies to lead the national economic development and Vinroup uh is one of such national champions.
Vingroup is the country's biggest private company with a market capitalization of 11 billion. In 2021, its total assets accounted for about 5% of Vietnam's GDP. What makes Vinroup so successful today is that its businesses and brand reach into every aspect of Vietnamese life. You can have a Vietnamese born into a Vinroup owned hospital They can eventually go to a Vinroup school and eventually university that's operated by Vin University as well. They can live in a Vinh home and shop in Vin Malls as well. The Ving Group umbrella covers over a dozen businesses and the Vietnamese government points to the company's growth and success as a sign of Vietnam's modernization.
Vin Group is one of the key players whose strategy aligned with the uh strategy of the government. They have been mostly a real estate developer. Uh that means they have been relying on natural resources, land, you know, to grow the company. There have been concerns about the possible environmental risks of one planned Ving Group project. In 2019, the government approved a $9 billion residential and tourism project on reclaimed land in the coastal Kangao district of Ho Chi Min City. despite concerns that it might damage the mangro forest nearby. In July 2020, a group of environmentalists, academics, and researchers signed a petition calling for an independent assessment of the project. So, you have a large part of forested area and then you have a you have a small city and along the city you have a beach and then they want to reclaim this lands. The project is not removing mangrove. However, it can have some side effects. especially on the hydraology and sedimentary dynamics of the mangroves. Depending how it's the project will be uh done, it can change how the water can flow in. If this project is preventing sediment to reach the mangroves, then the mangroves will retreat. The mangrove forest is really the buffer between the sea and the city. If the mangrove forest disappear, then the impact of sea rise, storm surge will be much more important for city.
Vuong’s Journey and the Birth of VinFast
While some believe that the political connections of Vingroup's founder Famnit Vuong are crucial to the company's success, this is something Vuong himself has denied. And in fact, he says he really wants to stay away from politics. But you know, a lot of people in Vietnam don't really believe that because it's really hard to be as successful as they've become without really political support. Vuong sees himself as a patriot entrepreneur. He wants his Vin Group to be really successful to really make a mark on the world stage.
Famn Vuong studied mining and geology at a university in Hanoi before he was sent on a scholarship to study in Moscow. After graduating in 1992, he moved to Kharkiv in Ukraine and set up a company making instant noodles and other dried food. That company was a huge success and it distributed way beyond the the Ukrainian borders to other nations there in in Eastern Europe. And eventually he sold that company to Nestle. Now, he wouldn't disclose to us how much he sold it for, but we think it was over $150 million.
The fortunes of Vietnam were also improving. Following the government's economic reforms and the US lifting its trade embargo in 1994, the country's private sector started to flourish. And so after accumulating his initial wealth, Vuong went back to Vietnam in the early 2000s and started investing in real estate. He saw uh immense, you know, opportunities uh in the country back then. He started to build a lot of uh real estate projects across the countries and help to transform the skyline. of these cities, especially in Hanoi and Ho Chiming City. He went down to Nyang, which is a coastal beach city, and there was an island there just off the coast, and he decided to build a fancy five-star resort there, something that most Vietnamese had never seen. In 2012, Vuong's real estate and tourism companies merged to become Ving Group, making him Vietnam's first billionaire.
Rio Estate remains the cash cow of the group. Most of uh Vin Group's other businesses are making losses. They have to rely on real estate to fund um the operation of the whole group and also the expansion of Win Group into other sectors. So what do you think of the cars? It's incredible to create something in such a short space of time is really really incredible. You know, it really is. Vim pass is a miracle for Vietnam.
In 2017, Vin Group launched its automotive unit, VimFast, a step towards Vuong's goal to turn the group into a technology company by 2028. They basically built this state-of-the-art plant from scratch out of a swamp. And they did it with breakneck speed. You've got really cool robotic arms all around the factory. You see very few employees on the ground there. It's all done by these machines, even down to the painting of it.
Source: Bloomberg Originals. (2022, August 19). Vietnam’s richest man wants to sell EVs to America [Video]. YouTube. https://www.youtube.com/watch?v=DLLkPjh2hWU