"an average household of four people in Ho Chi Minh City or Hanoi spent the equivalent of $20,000 in 2002. "It's quite extraordinary," says Rob Swinkels, senior poverty economist at the World Bank in Vietnam."
Urban Vietnamese Get Rich Quick
By MARGOT COHEN Staff Reporter of THE WALL STREET JOURNAL October 26, 2004; Page A22
HANOI, Vietnam -- At a bright new furniture showroom here, a banner exhorts shoppers to find "Simple Ways to Make a Difference" in their home decor. Try $2,500 for a red leather sofa with matching chairs, or $11,000 for a 50-inch flat-screen television.
Such price tags might seem outrageous for Vietnam, where annual per-capita income officially stands at $480. But a sharp increase in urban consumption is countering Vietnam's overseas image as a deeply impoverished land. For the growing middle class both here in the capital and in Ho Chi Minh City, splashing out on home computers, mobile phones and overseas package tours is now par for the course.
Many factors contribute to this conspicuous consumption. Some analysts point to a nexus of government corruption and a speculative real-estate boom. But it isn't all funny money: The rapid growth of Vietnam's private sector during the past four years has provided many urban families with more cash than they ever had. Much of this wealth isn't captured by official statistics because of widespread tax dodging and a large underground economy.
"Disposable income has grown at an astronomical rate," between 1999 and 2004, says Ralf Matthaes, managing director of Taylor Nelson Sofres Vietnam, the Ho Chi Minh City branch of a global market-research company.
In a Taylor Nelson survey conducted in March, 1,200 respondents across all social classes in Hanoi and Ho Chi Minh City -- formerly known as Saigon -- said that on average, disposable income represented 55% of their total income. That is up from 18% cited in a similar survey five years ago. Also in the March survey, savings accounted for 26% of total income, up from 17%. Meanwhile, the share put aside for necessities such as groceries, toiletries and utilities shrank to a mere 19% this year from 65% five years ago.
Economists at the World Bank have made their own startling calculations in measuring the rapid growth in purchasing power in Vietnam's two major cities. Starting from the assumption that one dollar spent in Vietnam is worth five times as much as a dollar spent in the U.S. because of what it can purchase in goods and services -- a measure called purchasing-power parity -- they say an average household of four people in Ho Chi Minh City or Hanoi spent the equivalent of $20,000 in 2002. "It's quite extraordinary," says Rob Swinkels, senior poverty economist at the World Bank in Vietnam.
Consider that the Hanoi outlet for Louis Vuitton leather goods will triple its floor space in time for Christmas after counting visits by 170 customers a week this year. Regular Vietnamese clients spend as much as $5,000 a visit, say the Vuitton sales staff. Baubles from Cartier and Bulgari also have made glittering debuts in Vietnam recently.
Perhaps the most striking example of runaway consumerism is in the market for toilets. Toto Ltd., a Japanese manufacturer, launched a $29 million factory in Hanoi in July. It is focusing on medium- to high-end ceramic toilets at prices as high as $420.
"Rich customers go to the shop and ask, 'Which is the most expensive toilet?' Then they say, 'OK, I'll take two or three,' " observes Hiromoto Harano, general manager of the sales division at Toto Vietnam Co.
This kind of spending far outstrips that in Vietnam's countryside. Using the same purchasing-power-parity scale, a four-person household in a rural area would have spent the equivalent of $2,560 in 2002. By this measure, the World Bank estimates average household expenditures in Hanoi and Ho Chi Minh City are nearly eight times as high as in rural areas.
While the gap between urban and rural spending is undoubtedly widening in Vietnam, it isn't nearly as extreme as in China, analysts maintain. During the past several years, many Vietnamese villagers have acquired some basic goods, such as TVs and inexpensive Chinese-made motorbikes. They also are putting cash into repairing or expanding their houses. And with the exception of ethnic-minority households in the most remote corners of Vietnam, rural families also are benefiting from rising remittances from overseas relatives as well as cash brought back by migrants to Hanoi and Ho Chi Minh City.
Unilever Group now records 60% of its sales in household and personal-care products to buyers in rural areas. But for most manufacturers, the rural-urban spending gap remains a worrisome constraint. After all, the combined residents of Hanoi and Ho Chi Minh City represent a market of only 10 million of Vietnam's total population of 82 million. Smaller cities including Haiphong and Danang are perking up, but residents there still don't reach spending levels recorded in the two major cities.
It is no secret that senior officials in Hanoi control billions of dollars in foreign aid and wield power to issue licenses at a stiff price to both local and foreign firms. But rather than hoarding the booty, sharing is the norm to hedge political risk. "Corruption is filtering down through the entire system as more people have more fingers in more pies," Taylor Nelson's Mr. Matthaes says