It is a dictum that Hoang Minh Tri, the factory's energetic owner, and many Vietnamese people have become all too familiar with on the bumpy road from central planning and widespread poverty to a more open, thriving economy.

Tri's factory makes LG TVs for sale in the domestic market and printed circuit boards for export-oriented electronics manufacturers such as Samsung and Canon.

This year, he is investing $1.5m to expand his factory, which employs 300 people. But soaring inflation, the chronic weakness in Vietnam's currency, and muddled government economic policies have forced him to curb his ambitions.

"In a normal situation, we could invest more in machines and technology," he says as he checks on progress on the factory floor from his office via a CCTV system. "But, with lending rates at around 20 percent, it's wait and see."

Nokia plans 200m euro plant

Nokia will build a new plant in Vietnam, increasing its production in emerging markets and underlining Vietnam's growing role as a manufacturing hub for global electronics firms Reuters reports.

The cost of the site near Hanoi, set to open in 2012, is about 200m euro ($278m), and further investments will follow, said the world's largest mobile phone maker by volume. "It's a great signal from European investors. Two hundred million euros is quite a significant investment for Vietnam," said Matthias Duhn, executive director, European Chamber of Commerce in Vietnam.

"We have some short-term issues, especially in manufacturing where we have power cuts. We have the usual education, infrastructure and bureaucracy issues, but that should not distract investors from the medium- and long-term prospects, which are still good," said Duhn.

Foreign investors rushed in to Vietnam in 2007 in the hope that economic development would accelerate, helping it to compete with neighbours like Malaysia and Thailand as a sophisticated manufacturing base.

But the economy overheated as a result of the inflows of hot money, and macroeconomic policy has undergone violent swings since. The government began by trying to control inflation, which peaked at 28 percent two years ago, before moving into stimulus as the financial crisis hit, and has since struggled to put the brakes on.

Anxious Vietnamese have hoarded gold and dollars as the currency, the dong, has been devalued every few months.

Unlike China, Vietnam has paid a high price for rapid economic growth, with fundamental imbalances leading to wide trade and budget deficits.

The problem is that a glut of cheap credit, often channelled to wasteful state-owned enterprises, has stimulated domestic demand to the point where industrial production cannot keep up. "Much of Vietnam's current economic concerns could be traced to insatiable demand, especially coming from state-owned enterprises," says Sherman Chan, an economist at HSBC.

Vietnam's manufacturers have to import components and raw materials, feeding the trade deficit, which was $12.4bn last year.

"Big companies like Panasonic, Canon and Samsung still have to bring in their parts from China or somewhere else," says Tri. "They can only make use of the cheap workers here but this advantage cannot last long, as labour will not be so cheap in five years."

Wages may be a third to a half of the average in southern China at around $100-$150 a month, say factory owners, but productivity is much lower. And, with annual inflation hitting 12 percent in January, workers are demanding higher wages.

"We'll have to increase salaries," says Tri, who is planning to lift manual workers' wages by 20-30 percent from the current average level of $100 a month, excluding overtime.

Despite the gloom, there is no doubt the gradual opening of the economy has transformed the lives of many in Vietnam.

"The price of everything has gone up but things are so much better than before," says 53-year-old To Thi Phuc as she sells boiled rats at a stall in a village a few miles away from the 4P complex.

Both her children work in the industrial zones and, as well as the rats, which go for 70,000 dong ($3.40) a kilogram, she sells tomatoes, beans and rice.

Vietnam reached middle-income status last year, according to World Bank criteria. John Hendra, the UN's resident co-ordinator in Vietnam, says the government's track record on poverty reduction is "pretty remarkable".

But the country faces "significant challenges" to survive the latest bout of macroeconomic fever unscathed.

In the short term, the government needs to stabilise the economy and fight inflation, says Hendra. And over the next five years, it will have to take more concerted action to ensure Vietnam remains competitive. Inefficient state-owned enterprises must be reformed, higher education must be revamped, the fight against corruption must be stepped up and rising inequality must be tackled, he says.

The government has moved to tighten monetary and fiscal policy. But it is still far from clear if it has the will to dole out the short-term pain needed to ensure the country fulfils its long-term potential.

The Financial Times - March 4, 2011