Over the past years, the Vietnamese wood industry has made breakthroughs with increasing export revenues. Wooden products are among the country’s key export items and make a great contribution to the national export growth. However, since the period of late 2007 and 2008, due to the global financial crisis and difficulties such as capital shortage, high interest rates and investment cost rise, the sector has encountered lots of challenges and risks of export drop in the upcoming time. Last year, wooden products’ export revenues reached USD 2.78 billion.
Causes Economists said the world economic slowdown has affected demand of wooden product consumption. The demand of the US and EU countries is estimated to fall by 30 per cent in 2008. This has badly impacted Vietnamese wood processors despite the local government’s efforts to curb inflation and trade deficit last year as Vietnam’s wood sector mainly depends on imported materials. Profits of wooden product export maximally reaches 10 per cent, meanwhile, the input materials make up 18 – 20 per cent, which is a burden for businesses. Besides, more sophisticated trade protection policies have appeared in big markets. Wooden products exported to the US and EU must be put under quality and source of material control in line with importers’ current laws such as the US’s LACEY.
Under the law, exploitation, use, transport, sales or export of wooden products that do not follow any country’s laws is considered breaking the US’s law. According to the EU’s Forest Law Enforcement, Governance and Trade (FLEGT), all of exports into this market will be licensed by local authorised agencies after being checked for legality via original evidences. Additionally, oil price hike has pushed material transport prices to sharply increase. The prices for the transport from South Africa to Vietnam hold 27 per cent of wood prices, from South America (37 per cent) and from South of Pacific Ocean (45 per cent). Furthermore, Vietnam’s material purchase competitiveness is weaker than China, Malaysia and Indonesia.
The fall in export growth has affected the business situation. The industrial production value between 2000 and 2005 increased 4.4 times compared to 2000. However, the 2006-2008 figure just made up 2.5 folds against the 2000 – 2005 phase. If calculating capital effect (fixed and working capital), Vietnam needs VND1.07 to create a VND1 revenue in 2006. The needed capital was 0.97 in 2007 and 0.91 in 2008. Labour productivity reached VND102 million per year in 2006. The productivity rise in 2007 could not cover high interest rate, price hikes and investment costs. In spite of efforts to overcome the difficulties, several Vietnamese wood companies have to stop production, even suffer from loss and bankruptcy.
Challenges According to economists, Vietnam’s wood export will drop in the coming time. Export of interior and outdoor wooden furniture to the US and the EU will reduce by 30-35 per cent and even signed contracts are likely to be delayed or cancelled. Importers will not have enough money to pay Vietnam as before as banks in their countries carry out the tight monetary policy. Besides, the appearance of more sophisticated trade protection policies in big markets such as newly-issued Lacey in the US is also a barrier for Vietnamese wood exporters.
The law, which takes effect late this year, will tighten control over origin of wooden products. Under the EU’s FLEGT, all of exports into this market will be licensed by local authorised agencies after being checked for legality through original evidences. In addition, enterprises still bear high interest rates of 17-18 per cent per year for loans. This increases production costs, affecting competitiveness of wood products for export. The export revenue growth of wooden products is expected to stand at just 8 – 10 per cent this year.
Experts said businesses should check forward contracts and particularly pay attention to their partners’ liquidity. They should also be careful with payment methods and conditions for potentially risky transactions. Businesses need to improve their capacity to update and analyse legal information to prevent and mitigate when implementing export contracts, especially in countries affected by the global financial crisis. In this current difficult situation, companies should propose solutions to save production costs and raise product competitiveness in the regional and world markets.
Solutions Experts warned that businesses should adjust VND interest rates. This is an effective way to boost demand and production. The country needs to carry out credit priority policies to ensure enough capital for wood firms to buy materials. Besides, taxes imposed on natural resources and exported wooden products should be considered for reduction. Extension of lending limit and payment should be offered for wood companies.
Export credit lending interest rates applied at the Vietnam Development Bank needed to be lowered. Vietnam needs to work out solutions to deal with the trade protection policies set by the EU and the EU. It is important to update and analyse the market to make frequent reports for firms. Particularly, Vietnamese trade offices should boost the supply of information about the partners’ liquidity to mitigate risks for exports.
P.V
Vietnamese
