Benefit from FX Rise

The Vietnamese economy depends heavily on exports and the rise in exchange rate is a positive impact on exports. The widening of trading band will have a direct positive impact on agricultural commodities of Vietnam like rice and seafood as the prices are cheaper, thus strengthening their competitive edge.

 

If the exchange rate had been kept unchanged, the competiveness of Vietnamese exports in third markets would have reduced. Hence, the revision of exchange rate has offset deficit in third export markets on the one hand and has erected technical barriers to restrict the flow of cheap Chinese goods into the Vietnam market, thus protecting domestic production on the other.

 

The FX growth brought unexpected gains for some businesses. The garment and textile industry enjoyed surprisingly high profitability. Over 80 percent of listed garment and textile companies posted 1.5-fold profits in the first six months as they sold their commodities in US dollars.

 

A report by the Vietnam Textile and Apparel Association (Vitas) showed that the sector’s export value maintained a double-digit growth in the first six months of 2015, reaching US$12.18 billion, up 10.26 percent over the same period of 2014.

 

Binh Thanh Import Export Production and Trade Joint Stock Company (Gilimex) reported that its six-month revenue slightly declined to VND515 billion but its net profit soared 127.5 percent year on year. Borrowing costs and administrative expenses slumped while revenue from financial activities surged 104 percent, mainly driven by exchange rate gains.

 

According to its Consolidated Semi-annual Financial Statement 2015, Saigon Garment Manufacturing Trade Joint Stock Company (Garmex Saigon) posted its revenue at VND656 billion and net profit at VND49 billion, up 11 percent and 88.5 percent over the same period of 2014, respectively.

 

Vietnam National Textile and Garment Group (Vinatex) earned VND228 billion of net profit in the first six months of 2015, up 19 percent year on year.

 

Apart from exchange rate hike which resulted in an increase in financial activities, the garment and textile industry had stable export markets while some countries increased imports when free trade agreements (FTAs) and TPP Agreement prepared to take effect. Given current positive development, the garment and textile industry can fetch US$27.5 billion of export revenue this year.

 

Vietnam imports fertilisers in great volume. In the first eight months of 2015, the country’s fertiliser imports climbed 15.7 percent in volume and 14.2 percent in value from the same period of 2014. Higher exchange rate pushed up import prices; thus, domestic manufacturers gained competitive advantages. In the first eight months of 2015, urea fertiliser output was estimated to reach 1,431,300 tonnes, up 0.7 percent year on year while the NPK fertiliser output reached 1,675,400 tonnes, up 2.9 percent. Particularly, Vietnam National Chemical Group (Vinachem) manufactured 375,300 tonnes in the first eight months of 2015, up 9.1 percent year on year. According to the Ministry of Industry and Trade, Vietnamese fertiliser manufacturers are taking benefits, particularly urea fertiliser and DAP fertiliser producers.

 

Mr Nguyen Hoai Nam, Deputy Secretary General of Vietnam Association of Seafood Exporters and Producers (VASEP), praised the timely exchange rate adjustment by the State Bank of Vietnam (SBV) as it supported exporters.

 

Seafood exporters are struggling because currencies in importing market depreciate, particularly in the EU, Japan and South Korea. Previously, a euro was exchanged to US$1.3-1.4 but the result is now just US$1.05. Competitors like India and Thailand also devalued their local currencies. As s result, our seafood prices were higher than those offered by rivals in the same markets. In addition, customers pressed us to bring down prices by 10-15 percent. This FX adjustment is helpful to the struggled seafood industry.

 

The exchange rate hike also benefited rice export. The 5 percent broken rice cost US$340 a tonne before the policy changed. After the adjustment, the cost fell to US$335 a tonne. This helped Vietnamese rice better compete with other rivals.

 

However, gains from the exchange rate hike will not last long. Vietnam still competes with China, from commodity line to export markets. Vietnam, with its position in global supply chains, will continue to import machinery and raw materials from China to serve the production and export. Therefore, it is quite hard to clearly tell benefits and losses of enterprises.

Regarding exports, Vietnamese exporters will have comparative advantages in prices but partners will also soon require them to bring down prices to share benefits of exchange rate adjustments with them too.