From Quantity to Quality?

This is the lowest first-quarter GDP growth since 2009. Low economic growth usually entailed the potential risk of stagnation in production and consumption. High level of inventories, slowing agricultural export, more bankrupt companies darkened the first-quarter economic picture.

 

Ho Chi Minh City - the largest economic centre in the country, reported the GDP growth of 7.4 percent in the first quarter of 2012, lower than 10.3 percent from a year earlier and lowest since 2009. Industry, agriculture, service, construction, export, import and many other sectors saw slowing growth. The primary reason was attributed to surging input prices, hurting both production and consumption.

 

These are common issues of the economy. Agriculture, forestry and fishery expanded 2.8 percent in the quarter, compared with 3.65 percent from a year ago. Industrial and construction sector also had very low growth rates, standing at 2.9 percent. Particularly, industry advanced 4 percent, compared with 6.78 percent in the same period of 2011, and construction sector contracted 3.8 percent. The service sector increased 5.3 percent.

A number that can persuasively depicts general difficulties facing the business community and the entire economy is the decline in new companies. In the year to date, the country had only 15,300 new businesses with a combined registered capital of VND74.6 trillion, down 8 percent in companies and 12 percent in capital over the corresponding period in 2011.Meanwhile, the number of bankrupt and dissolved companies augmented rapidly. More than 2,200 compnaies filed for bankruptcy and over 9,700 companies registered to end operations with tax authorities from the start of the year. The Ministry of Planning and Investment said the number of companies dissolved or suspended rose some 6 percent from one year ago. Bankrupt companies surged 57 percent.

 

The freezing, risk-laden real estate market caused the construction sector to shrink as a result. Producers of construction materials like cement, brick, pottery and especially steel are struggling with slow sales. The Vietnam Steel Association (VSA) said steelmakers will be still fraught with difficulties in at least six months to go, even through 2012. Lending rates of 17 - 18 percent per annum remain too high to rely on. Worse, input costs continue to rise because of higher selling prices of electricity, gas, oil and coal but steelmakers cannot make corresponding price hikes because of competition pressures and slow sales.

 

Coffee industry lacks capital for production and business. Notably, domestic coffee companies are vigorously competing with foreign rivals. According to the Vietnam Coffee - Cocoa Association (Vicofa), FDI companies account for 50 percent of Vietnam’s total coffee output, an equivalent to 600,000 tonnes. They have tremendous advantages in capital, experience and market and they potentially take up export coffee production zones in Vietnam. Meanwhile, most of more than 150 domestic coffee exporters do not have enough money to stockpile coffee to wait for better time than harvesting period to sell. Some coffee companies are reportedly incurring too much debt to recover. For instance, Vinacafe Buon Ma Thuot has a bad debts worth VND2,000 billion.

 

Seafood exporters are struggling to survive after many years making glorious business victories. This year, the seafood sector targeted at export turnover of US$6.5 billion in 2012 but it posed hosts of weaknesses and problems. Many companies temporarily have halted production or are operating perfunctorily because of capital shortage and debts with banks and suppliers.

 

Perhaps, difficulties are seen in most economic sectors. And, this is translated into the country’s GDP growth in the first quarter.

 

Worriedly, inventories are at a high level, according to the General Statistics Office and the Ministry of Planning and Investment. The inventory index of processing and manufacturing industries in the first quarter rose 34.9 percent from the corresponding period in 2011. Meanwhile, the consumption index edged up a merely 0.5 percent in the period. Sectors with the high rise in inventory index included fruit and vegetable processing and preserving sector (87.2 percent), fertilisers and nitrogen compound production sector (62.7 percent), iron and steel production sector (59.1 percent), lime and cement production sector (55 percent), and motorised vehicle production sector (38.7 percent).

 

Normally, when the production is considerably expanded, the inventory index rises 12-15 percent from a year earlier to ensure stable supply and demand. But now, when the production shrinks, the inventory index rises 34.9 percent. This is unusual for the economy. This sparks fears that the economy is falling into recession and production is stagnated. Sales plummet as purchasing power weakens. While input costs soar as a result of price hikes of electricity, coal, petroleum, wage rise, selling prices of products cannot be raised correspondingly.

 

As inventories increase, circulating capital will be “congested” and “backlogged”. Rising production costs will force many companies to scale down production or halt operations and stop paying taxes. Indeed, the economy needs a stimulus to increase production - business operations, support businesses and take care of people’s livelihood.

 

However, the Government keeps optimistic look on the economy. The State Bank of Vietnam (SBV) has made great efforts to stabilise the currency and credit markets. Monetary and credit policies are flexible enough to satisfy the requirements of curbing inflation, upholding credit growth and boosting liquidity for economic development.

 

Informing remarks by the Prime Minister and cabinet members at the regular monthly meeting for March, Minister and Chairman of Government Office Vu Duc Dam said the number of new companies is greater than that closed. In the first quarter, prices were kept stable. Consumer price index (CPI) climbed only 0.16 percent in March and 2.55 percent in the first quarter, the lowest growth rates in recent years.

 

Minister Dam noted that the economy grew a bit slowly in the first quarter but it proved that the Government was shifting from passive response to inflation and instability to target-specific administration.