Last week, the United States State Department put on its third Indo-Pacific Business Forum in Hanoi. Countries from all over the region attended both online and in person. US Secretary of State Mike Pompeo was in attendance. During the forum, several deals were announced. This article will discuss the big deals signed between US and Vietnamese companies and governments and what that means for Vietnam.
First, the Indo-Pacific Business Forum is in its third year as a brain child of the US State Department to highlight the United States’ role in the region and to promote US businesses and companies to Asian buyers. News on the event tends to bear this bias and it is really all about the US in Asia. That said, Vietnam–with its US$46 billion plus trade deficit with the United States–was in a position to buy. And, in fact, was almost coerced into such purchases by recent US announcements of an investigation into Vietnam’s potential currency manipulation (see post here).
In an article reporting the Business Forum, the South China Morning Post quoted Murray Hiebert, a senior associate of the Southeast Asia Programme at the Centre for Strategic and International Studies in Washington, referring to the currency manipulation investigation. He said, ‘To be sure, the Trump administration is frustrated about how rapidly Vietnam‘s trade surplus with the US is growing, so it wants to send a warning to Vietnam.” This comes on the heels of previous threats to investigate Vietnam’s trade policies and possible imposition of trade remedies back in June 2019.
Whether or not Vietnam’s leadership has promoted the high status deals contemplated at the Business Forum last week, the result was that Vietnamese companies–many of them State owned–have entered into a few deals and a few MOUs with US companies measuring over US$5 billion in value.
The first such deal, came in the form of a Master Teaming Agreement between Delta Offshore Energy, Bechtel Corporation, General Electric, and McDermott for the development of the Bac Lieu LNG-to-power project for more than US$3 billion in U.S. equipment and services. While press reports didn’t specify the Vietnamese party to the deal, by its nature, it appears that the Vietnamese government signed off and will be responsible for payment.
The second deal was a joint venture agreement between the AES Corporation and Petro Viet Nam Gas Joint Stock Company for the development of the Son My LNG Import Terminal Project is valued at US$1.4 billion. Importation terminals for LNG fuel are necessary if Vietnam is to develop LNG power plants such as that contemplated in the Delta Offshore Energy deal.
An additional grant was signed between the U.S. Trade and Development Agency and the Viet Nam National Power Transmission Corporation. For just under US$1 million, the grant will go towards the development of a road map for the technological improvement of Vietnam’s power grid including IT, communications, and smart technology.
Other deals came in the form of MOUs, two more for power related developments and one allowing the import of a certain amount of US pork to be processed in Vietnam.
The deals, as they are, go towards leveling the trade deficit between the two countries as well as improving Vietnam’s projected energy deficits in the coming years. While these may not be the most earth shaking of deal announcements, especially given Vietnam’s previous commitment to increase LNG capability transfer from the US, they do create additional benefits for Vietnam.
First, the increased energy capacity will alleviate shortages in the existing infrastructure. This will allow Vietnam to provide improved services for manufacturers and investors coming into the country in the next few years and will increase the attractiveness of the country as an investment target.
Second, the projected power plants will provide secure and well paying jobs to Vietnamese citizens. While foreign experts will probably be required for some time to come after operations commence, the bulk of the work at the plants and importation terminals will be conducted by Vietnamese laborers. This will not only provide jobs, but increase the taxable income provided to government budgets.
Third, in a linked benefit, LNG energy overall is relatively cheap, comparable, in fact, to the ever decreasing costs of most renewable energy sources. By purchasing cheaper and more efficient energy, Vietnam’s overall expenditure on energy will decrease as a percentage of GDP. This will free up tax revenues and State budgets to invest in other infrastructure and development projects, particularly port and transportation corridor projects necessary to improve infrastructure for manufacturing exporters seeking to invest in the country.
Finally, the savings will–theoretically–filter down to the end user. That means that energy costs, though they may not go down, will not increase as much or as quickly over time for consumers. This frees up individual incomes for other purchases, savings, or investments.
While the nearly US$5 billion in deals puts a dent in the trade deficit, the nature of the deals is such that Vietnam and its citizens will benefit from the diminution of the trade imbalance with the US. There are worse things on which the Vietnamese government could spend its money.
