Vietnam Faces Emerging Hardships in Export

10:40:15 AM | 11/1/2022

Although the total export value in the first three quarters of the year increased robustly and resulted in a high trade surplus, many of Vietnam’s exports are forecast to face unpredictable challenges in the coming time.

According to the Ministry of Industry and Trade, as of October 21, Vietnam's import and export value reached US$620 billion and brought in a record trade surplus of nearly US$8 billion.

Currently, Vietnam had 32 exports generating at least US$1 billion each. Growth was driven by shipments to markets with FTAs to which Vietnam is a signatory, including textile and garment (up 24%) and footwear (up 36%). Some commodities were sold at higher prices than last year, for example chemicals, plastic products, fertilizers and steel.

Besides, businesses effectively utilized FTA advantages to boost their exports. They have fully tapped traditional markets while opening new ones to increase exports.

According to the Ministry of Industry and Trade, in the remaining months of 2022, Vietnam's imports and exports will face a lot of challenges. For instance, gasoline prices may continue to fluctuate. Political tensions may disrupt Vietnam's ability to access important inputs for production and business. High inflation in most countries may result in demand contraction.

The decline in orders is an "early warning" for the textile and garment industry. Weakening demand in many export markets such as the United States, the European Union, Japan, South Korea and China began a fall in orders and unit prices. The export value of textiles and garments tumbled US$1.2 billion in September or 27% over August to only US$3.2 billion.

According to SSI Securities Company, fourth-quarter orders plunged by 25-50% from the strong growth period of the second quarter of 2022 due to high inventories in import markets. Many companies have started to receive orders for the first quarter of 2023 but arrivals are still well below the production capacity of textile and garment producers.

Worse still, exporters are being hit by a stronger US dollar (USD). After the State Bank's move to raise the USD/VND spot exchange rate band from 3% to 5% from October 17, the USD rebounded sharply in recent days. On October 26, the USD/VND exchange rate was quoted at 24,870 on the interbank market. Although exporters are getting certain benefits from rising USD because they receive this currency for their exports, heavy pressures still weigh on input importers. Companies in other manufacturing industries such as plastics, apparel, food and electronics which import many inputs for domestic production said that they are distressed by the rising USD which is already high.

According to experts, although many exporters earn USD revenue, many costs are also paid in USD such as input costs, logistics costs and loan interest expenses. When their sales outlooks turn doom, their business performances will be adversely hit, especially companies with high dollar costs.

Moreover, companies export not only to the U.S. but also to markets where their currencies are depreciating strongly against the greenback such as Europe, the UK and Japan. In addition, some industries are facing the risk of falling orders due to cumbersome administrative procedures, slow VAT refunds that affect their capital turnover and growing labor competition among industries. Imports and exports still depend on large but potentially risky markets, while the export capacity of wholly Vietnamese enterprises, especially small and medium-sized ones, is still not high.

Huong Ly (Vietnam Business Forum)