Export Thrives, Trade Deficit Stays Safe

The country’s export turnover is expected to top US$70 billion in 2010, far exceeding the initial target. In the first 10 months, Vietnam exceeded the target set by the National Assembly - the highest legislative body - by 17.3 %. Particularly, foreign-led enterprises raked in US$31 billion in the January - October period, up 25.85 % year on year, while domestic companies took home US$26.8 billion, up 20.4 %.

 

Fast-growing exports included steel, chemicals, electrical wires and cables, cashew nuts and coal while major imports were rubber, petroleum products, dairy products and wheat.

 

The Ministry of Industry and Trade said exports grew up month after month thanks to increasing prices. Apart from price factors, apparels and wooden furniture like some other key products also enjoyed other advantages.

The Foreign Market Department under the Ministry of Industry and Trade said exports to all markets expanded, citing shipments to Asia climbed 28.4 %; Africa, 27.9 %; Americas, 27.3 %; Europe, 13.7 %; and Oceania, 13.6 %.

 

In addition, prices of most exports rebounded. Prices of cashew nuts increased 20 %; pepper, 38 %; cassava, 78 %; rubber, 82 %; crude oil, 35 %; and coal, 55 %. However, volumes of many exported staples plunged. For instance, the volume of exported pepper slid 11 %; cassava, 53 %; crude oil, 44 %; and coal, 22 %. Another boost to the export growth in the first 10 months was the robust shipments by FDI enterprises.

 

On the export chart in the January - October period, the proportion of agriculture, forest and aquatic products and natural minerals tended to decline and the %age of processed industrials climbed. Specifically, the group of agricultural, forest and aquatic products made up only 20.7 % of the total earnings, compared with 21.7 % in the same period of last year and natural minerals constituted 11 %, compared with 15.5 % in the same period of last year while the proportion of processed industrials soared to 68.3 % from 62.8 % in the first 10 months of 2009. In conclusion, the economic structure and the export structure were on the right track although the speed was a bit slow. If Vietnam can earn US$6 billion in each of the two remaining months, it will bag US$70 billion in the whole year. This is clearly an endeavour of the business community.

 

October is the fourth straight month in this year the trade deficit was brought to lower than the target of 20 % of the export revenue set by the National Assembly. The trade gap was US$9.1 billion in the first 10 months.

 

Vietnam was estimated to spend US$67.28 billion on imports in the first 10 months of 2010, including US$7.35 billion in October. The trade deficit in October stood at US$1.1 billion, an equivalent of 17.6 % of the monthly exports. Thus, the trade gap is expected to reach US$12.5 billion in 2010, equal to 17.8 % of the yearly exports. The Ministry of Industry and Trade estimated the imports to top US$82.5 billion in 2010.

 

The October importation of raw materials and machines tended to increase over the previous month. Machines and parts cost US$1.1 billion, followed by steel with US$592 million, electronic appliances and computers with US$570 million and cloth with US$$490 million.

A higher exchange rate will benefit exporters but it will cause more difficulties in buy and sell foreign currencies. If companies sell the US dollars to banks at official rates, they will suffer losses as the exchange rate on the so-called “black market” is higher. Meanwhile, they have to pay a lot of “surcharges” to buy the greenback at banks, leading to higher business costs.

 

Furthermore, the control of trade deficit and exchange rate fluctuations in the last months of the year is a hard task in the context of rising domestic demand. Exporters should pay attention to the dollar exchange rate fluctuations on both free market and official market. In the last two months, the Ministry of Industry and Trade needs to make forecasts about exchange rate to help companies to deal with export plans.

 

I think ministries and branches need to continue coordination in the implementation of comprehensive measures to promote the use of domestic raw materials, and regulate interest rate and exchange rate at reasonable levels.

Normally, compared with normal months, companies need double or treble amount of capital for its activities in the last months because they have to complete business plans and plan financial turnovers in the following years. Hence, they are likely to lack financial capital and inputs. If shoemakers lack capital, they will difficultly carry out signed orders. This is foreseeable. I suggest that banks give priority to financing manufacturing and export fields rather than real estate and consumer lending.

 

Chinese businesses have recently shifted many of low-valued orders to Vietnam because China is in the crisis of manpower shortage in major apparel producing provinces such as Jiangsu, Zhejiang and Guangdong.

 

Moreover, China is taking strong measures to cut power consumption, forcing disqualified factories to reallocate their production facilities. Thus, a lot of Chinese companies are coming to Vietnam to place export orders. The Vietnamese garment and textile industry should to take this trend into account given that domestic firms are under high pressures of personnel shortage and growing labour costs. This year, garment companies had to pay up to VND3.5 million to VND4 million to keep workers.

 

I think if the economic efficiency of Vietnamese garment companies will be very low if they passively receive orders. This is a concern for Vietnam in 2011 and subsequent years.