Norio Hattori, former Japanese ambassador to Vietnam

Five-star hotels, high-tech industrial parks, luxury shops and pricey restaurants have transformed the face of Vietnam’s major cities like economic hub Ho Chi Minh City and the capital Hanoi.

Recent years have seen a high annual increase of international visitors to the country, from backpackers to business people, all eager to partake in the new developments.

Since the end of the Vietnam War over three decades ago, the country has done a remarkable job of advancing from a centrally planned, state-subsidized economy into a roaring market-oriented economy, posting impressive growth figures.

Last year, Vietnam reported 8.5 percent growth, one of Asia’s highest for 2007.

Now referred to as “Asia’s latest economic tiger” and “new investment hot spot,” Vietnam has outdone some of its neighbors in attracting foreign capital.

In the first quarter of 2008, the country raked in more than $5 billion in foreign direct investment, ranking sixth behind China, India, Russia, the U.S. and Brazil.

Since joining the World Trade Organization in 2007, the country has fulfilled vital commitments to open up services like telecommunications, distribution and finance to foreign competition, as well as reduce tariff barriers and create new opportunities for foreign investors.

The response from the business community has been very positive. Up to 90 percent of domestic and foreign-led enterprises in Vietnam plan to expand business in the country, citing favorable economic prospects, market opening, reform and expansion as key factors.

A young, educated labor force is another of Vietnam’s greatest strengths, with 70 percent of the labor force under 30 years old 95 percent of its population literate.

According to former Japanese Ambassador Norio Hattori, Vietnam is well positioned in Asia, being at the crossroads between Southeast Asia and the Greater Mekong region.

“The position of Vietnam is rising. Its potential has become a reality. Politically and socially, Vietnam is the most stable economy within ASEAN. Geographically, the country stands at a very strategic location,” says Hattori.

2008 marks the 35th anniversary of the establishment of Japan- Vietnam diplomatic relations and ties between the two countries are growing stronger than ever.

“We are at the height of our relationship, at the pinnacle, given our long history,” says Hattori, who has made significant contributions to boosting cooperation and implementing programs particularly in trade and investment during his five-year tenure.

Kenji Yoshioka, managing director of the Japan External Trade Organization (JETRO) in Ho Chi Minh City, praises the state of bilateral ties.

“Japan and Vietnam share many similarities in terms of culture. This has been the basis for the strong and sustainable development over the years, particularly in terms of politics, economy, culture, education and tourism,” he says.

Attracting Japanese investors

Investment growth in Vietnam fuels expansion opportunities. Zamil Steel has added a second factory, with a capacity of 50,000 metric tons, bringing the yearly total of steel buildings in Vietnam to 100,000 metric tons.

Japan heads the list of foreign countries investing in Vietnam, having long recognized the country as an attractive destination for Japanese firms looking to expand overseas. It has become the first choice of Japanese firms seeking to reduce their dependence on China and spread out their investment risk.

“Vietnam’s integration into the WTO and the talks on an economic partnership agreement between the two countries will provide increasingly favorable conditions for investment movement from Japan,” says Takashi Miyama, chairperson of the Japanese Business Association of Ho Chi Minh City.

On the fifth anniversary of the Japan-Vietnam Investment Agreement, Japan is Vietnam’s largest ODA provider with a total commitment of 1.26 trillion yen. Tokyo has provided Hanoi with preferential credits in infrastructure projects since 1993 in the fields of energy, transport, postal systems, telecommunications and the environment.

Major projects implemented by the Japanese government in Vietnam this year include the construction of the country’s first subway system, the North-South express highway, Hoa Lac high-tech area and most recently, a nuclear power plant to be operational by 2020.

“In terms of quantity, Japanese investment ranks as the fourth largest in Vietnam. But in terms of capital and value of projects, Japanese investment is considered most effective,” says Dr. Vu Tien Loc, chairman and president of the Vietnamese Chamber of Commerce and Industry.

Crowd pleaser

Like the surge of foreign direct investment into the country, Vietnam has welcomed a massive wave of tourists from around the globe, with arrivals totaling 1.3 million in the first quarter of 2008.

Bustling business center Ho Chi Minh City accounts for the majority of foreign visitors, but an increasing number of vacationers have been making their way inland and north from the Mekong Delta to cities like Hoi An, Da Nang, Hue, Hanoi and Halong to explore ancient villages, colonial architecture, exotic fare and scenic wonders.

Chinese, American and Korean visitors top the charts in numbers while vacationers from Sweden, Finland, Australia and Hong Kong were reported to spend the most money in services. Japanese travelers account for about 10 percent of the total and the figure is increasing.

While the steady influx of tourists boosts income and employment, the growth of tourism has exposed challenges faced by the tourism industry, such as high hotel prices, room shortage, lack of service and unbalanced competition.

But the sector has increased efforts to develop tourism products and train personnel as the country gets ready to welcome 5 million foreign tourists in 2008. By 2016, Vietnam is predicted to be among the world’s Top 10 destinations .