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Vietnam Economy Highlights

[Industry] With lower growth rates in the first quarter compared to the same period last year, domestic industrial producers will have to pull up efforts in the next months to achieve the goal of contributing to GDP growth of 6 percent this year.

According to statistics from the Ministry of Industry and Trade, the index of industrial production (IIP) rose by 4.1 percent in the first quarter. This is a low growth rate over the same period last year (industrial growth rate last year increased by 9.6 percent compared to the previous year). In which the mining industry increased 3.2 percent, processing and manufacturing industries 3.2 percent, and distribution and production of electricity, gas and water 13.7 percent (specific data are in the following table).

Compared with the increases of the same period last year, the distribution and production of electricity, gas and water marked the highest growth rate which was above the nine percent rate last year, especially distribution of electricity with an increase of 14.2 percent. The second was the mining industry, with a growth rate higher than the 1.3 percent rate of a year earlier, mainly in crude oil and natural gas.

In contrast to the growth of the two industries above, the processing industry is in difficulty, with growth rate in the first quarter much lower than the 13.4 percent rate attained in the same period last year. Of the 32 main items of the processing industry, 18 decreased in production including cement, steel, textile yarn and fabric production, and footwear. Along with the decline in production, the consumption indexes of these items were also down a lot by about 15 percent over the same period last year including non-alcoholic beverages, crumpled and packaging paper, steel, and cement. As a matter of fact, the inventory of fertilizers and nitrogen compounds increased 62.7 percent, iron and steel 59.1 percent, beer and malt 48 percent on March 1.

According to Deputy Director of Ministry of Industry and Commerce·s Planning Department Nguyen Thanh Hoa, low industrial production growth rate in the first quarter was due to the long Tet holiday, economic slowdown, and people·s cuts in spending on nonessential items. In addition, input price increases, restricted access to credit, high interest rates and inventory of seasonal items were also negative elements that led many producers into difficulty.

With the evolution of the economic situation, the first quarterly decline of industrial production was predicted from the last quarter of 2011. Accordingly, any solution to remove difficulties for enterprises is of great interest. On February 22, the Ministry of Industry and Trade issued Directive 04/CT-BCT to implement the Government Resolution 01/NQ-CP issued on January 1 and the Minister of Industry and Trade·s Decision 443/QD-BCT issued on January 18 on the issuance of a sectoral action program with key solutions to direct and administer the implementation socioeconomic development and the state budget in 2012, focusing on restructuring the economy and state enterprises to improve operational efficiency. In addition, the State Bank also decided to reduce interest rates by 1 percent. This is a good opportunity for enterprises to access loan capital sources. Along with measures to remove difficulties the Government and the Ministry of Industry and Trade have applied producers· proposals to continue promoting research activities to improve technologies, management, use of materials research and machinery will be considered.

According to Deputy Director of the Ministry of Industry and Trade·s Electricity Regulatory Agency Dinh The Phuc, with total installed capacity up to 24,000MW and based on the current amount of water and hydrological forecast, electricity supply can meet the requirements of domestic production and consumption during the dry season this year. The abundance of power will create favorable conditions for industrial production in the following months and the GDP growth target of 6 percent this year is very likely to achieve./.- Source: Vietnam Economic News, 09/04/2012,5

[Economy] The business community has petitioned the Government to continue the austerity measures aimed at macro-economic stabilization.

This petition was voiced at a direct discussion with senior government officials at the Vietnam Business Forum (VBF) 2011 held in Hanoi last Friday.

Christopher Twomey, chairman of the American Chamber of Commerce (AmCham) in HCMC, said AmCham encouraged the Government to go on with Resolution 11 focusing on macro-economic stability rather than growth. He insisted the U.S. business community supported such a resolution as well as the economic restructuring focusing on public investment, commercial banks and state-owned enterprises.

Alain Cany, chairman of the European Chamber of Commerce (EuroCham) in Vietnam, shared this view, saying macro-economic stability is a priority. Vietnam’s ability to maintain the competitiveness and sustainable economic growth in the long term is dependent on whether the Government takes immediate action with the key sectors or not, he said.

Cany added that EuroCham also supported Resolution 11 and the persistence in this strategy to ensure the restoration of price and local currency stability.

According to a survey on perception of the business environment with 240 local and foreign enterprises, macro-economy management for the first time was placed on the top three concerns of the business environment this year.

Many enterprises deem it necessary to keep the monetary tightening policy in place as inflation has yet to be put under control. Inflation has lessened in the past few months but is still high and likely to surge again at the year-end.

Along with the macro-economic stabilization, other factors that should be improved include administrative procedures, market entry barriers, transport infrastructure and energy, said respondents in the survey.

As a representative of the Government in the forum, Minister of Planning and Investment Bui Quang Vinh stated the Government was fully aware that the macro-economic uncertainties were mostly due to weaknesses of the economy, coupled with the global economic woes.

He informed the draft on economic restructuring would be completed in January and submitted to the National Assembly by the middle of next year.

Minister Vinh said the Government sympathized with the difficulties the business community are enduring due to macro-economic instability, cumbersome administrative procedures and other barriers.

According to EuroCham, the underlying reason for the decline in business confidence was the high inflation, the difficulties in accessing credit, the lack of synchronous infrastructure and the administrative burden.- Source: Saigon Times, 05/12/2011,3

[FDI] Vietnam’s pledged foreign direct investment (FDI) capital dropped 28 percent year on year to $9.89 billion, while disbursed FDI capital increased 2 percent year on year to $8.2 billion in the first 9 months of this year.

So, it is unlikely that Vietnam would not reach this year"s target of $20 billion FDI capital attraction this year, according to newswire Vneconomy.

However, disbursed FDI capital in the same period increased slightly, showing that the improvement of FDI inflow quality is on the right track.

The disbursed FDI capital this year may reach $11-11.5 billion as targeted, said Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.

The country’s FDI capital disbursement was estimated to reach $900 million in September, bringing the total figure in the first 9 months of this year to $8.2 billion.

Vietnam granted investment licenses for 675 new FDI projects with a total pledged capital of $8.23 billion and allowed 178 existing projects to increase the investment by $1.66 billion in January-September.

Statistics also showed foreign investors have been more interested in processing and manufacturing industry, production and distribution of electricity, and construction. The FDI inflow into industry and manufacturing sectors increased 50 percent year on year, while that into real estate and service sector saw a significant reduction.

Licensed FDI projects in Vietnam in January-September were also certified to be capable in potential and performance, said Do Nhat Hoang, head of FIA.

Vietnam targets to draw about $17 billion pledged FDI and $9-11 billion disbursed FDI capitals next year.

38 corporations and 9 largest investment funds from the US headed by JP Morgan have expressed little interests in the Vietnam economy given the current health of its stock market.

If the market’s shortcomings are not addressed in the short- and medium-term, the opportunity for foreign indirect investment (FII) capital may slip away, Le Xuan Nghia, Deputy Chairman of The National Financial Supervisory Committee, told Dau Tu Chung Khoan newspaper.

It is the small scale stock market and its poor quality products that has deterred the US largest corporations from coming up with a specific disbursement plan, Nghia said.

With the impossibility in purchasing listed shares totaling $50 billion and withdraw capitals in a single trading session, the opportunities for big investors were dimmed.

But these investors were not taken by surprise by fact given by Nghia since their initial survey had showed that it was hard to uncover any opportunities in the Vietnam’s stock market. As a result, since assuming that the improvement in the market scale, liquidity and commodity quality could not be realized in the short-run, they would almost give up plan to purchase listed shares and turn to potentially capitalized large corporations in aviation, telecoms and mining.

However, this opportunity could hardly be realized if only a modest stake proportion of 5-10 percent was allowed to be offered. It would mean insignificant improvement in post-equitization stage with lower-than-expected business efficiency as well as higher risks due to state-controlling ownership at those joint stock companies, Nghia said.

The proper ratio of stake can be offered to foreign investors would differ, but it should range from 30-40 percent. Prospective investors would also expect equitization to be carried out via listing on the stock market for transparency reason.

Also, the abolition of price management and monopoly should strongly be required during the state-owned enterprises reform process with the application of international standards in corporate management coupled with the orientation of readiness for international competition. Vietnam would lose a golden opportunity to attract substantial FII particularly given the promising forecast for the US and Europe strong economic recovery starting in 2014 if moving on this way, Nghia said.

Earlier, Truong Dinh Tuyen, former Minister of Industry and Commerce, member of the National Monetary and Financial Advisory Council, has proposed to the Prime Minister that the recent provision on initial public offerings (IPO) with 5-10 percent proportion of stake can be sold out would hardly bolster the reform process of state-owned enterprises due to the failure in supplementation of high quality commodities to the stock market.

As a result, business management improvement along with operational efficiency enhancement would probably beyond the reach.

Unless timely remedies to speed up the capitalization process as well as to increase the stock market scale and liquidity are available, FII capital could hardly be fully absorbed.- Source: Good Morning Vietnam, 08/10/2011,2

[FDI] Vietnam wants Japanese businesses to increase their investment in the country through the form of public-private partnership (PPP). Vietnam would need a major source of investment to develop the country’s infrastructure, estimated at 16-17 billion USD per year, while the capital investment from traditional channels only would meet 50-60 percent of demand. As a result, the pilot scheme for investment under the PPP form was approved. This was one of the key policies of the Vietnamese Government aiming to create a legal corridor for attracting more sources of investment from the private sector for developing infrastructure and public services in Vietnam . - Source: VNPlus, 24/07/2011,7

[Trade] E-Mart, a leading retailer in the Republic of Korea (RoK), has officially set foot in the Vietnamese market with a joint venture contract with the Binh Duong-based U&I Group to set up a supermarket chain with a total investment of over 1 billion USD.

The event shows that the Vietnamese retail market is still attractive to foreign investors although the country’s ranking in the attraction of the retail market by A.T. Kearney Consultancy Group dropped nine places compared to last year.

According to Mai Huu Tin, Chairman of the U&I Group, the E-Mart Vietnam supermarket chain has an initial investment of 80 million USD with 80 percent coming from E-Mart.

The joint venture will kick off its first project in 2012 and its chain of 52 supermarkets and shops in big urban areas is expected to be completed in 2020, providing fresh food and agro-seafood products for the Vietnamese market.

Earlier, the Phu Thai Group and Japanese retailer Family Mart joined hands to open a Family Mart Vietnam chain. Meanwhile, the UK ’s largest retail group - Tesco is considering the possibility of investment in Vietnam in an effort to expand its presence to 15 countries worldwide.

Many foreign retailers operating in Vietnam also announced their expansion plans.

France ’s Casino Group - the owner of the Big C supermarket system set a target of opening 15 more supermarkets between now and 2013, raising the number of Big C supermarkets in Vietnam to 29. Big C expects to recruit 1,300 managers to serve this plan.

According to Dinh Thi My Loan, Vice President and General Secretary of the Vietnam Retailers’ Association, foreign retailers have seen good developments in Vietnam and this trend will continue in the coming time, especially for EU retailers when the Free Trade Agreement between Vietnam and the EU is signed.- Source: Vietnam Plus Update, 18/07/2011,1

[General] Vietnam·s inflation will reach almost 20 percent year-on-year in May, official estimates said Tuesday, adding to the pressure on consumers facing some of the steepest price rises in the world.The consumer price index is expected to rise 19.78 percent this month compared with May last year, the General Statistics Office said.

Inflation has increased every month since August of last year, but is still below the 28.3 percent recorded in August 2008.

The country has one of the top five inflation rates in the world, and poverty will increase as a result, the United Nations in Vietnam said earlier this month.

Food prices are a key driver of the price rises.

The government, long focused on economic growth, now says fighting inflation is its top priority.

It has tightened monetary policy and set a series of targets to help stabilize an economy facing challenges including a struggling currency and a trade deficit. Among its goals, the government wants commercial banks to keep growth in credit, or loans, to below 20 percent this year. It also said public investment should be reduced. - Source: FPTS, 24/05/2011,4

[General] The PM has recently approved a project to strengthen macro forecasting capacity, which will focus on enhancing capacity of those working in the field along with increasing investment and creating a financial mechanism, bettering the mechanism of assignment, coordination, and implementation, and expanding international cooperation, in the area.
The project is viewed as paving the way for relevant ministries and agencies to set up units specializing in forecasting and collaborate in the field. The PM has also decided to establish a steering board, to be headed by a Deputy PM and assisted by senior officials from relevant ministries, to oversee the execution of the project. Regarding socio-economic forecasting, the five-year project will see how domestic and foreign elements would affect the country’s key policies and strategies, needs and use of national natural resources, domestic demands for essential commodities, as well as exports and imports.
In addition, it is required to make forecast on consumption demand, investment, pricing, inflation, and real estate, finance, currency and securities markets to aid the Government and ministries in managing and stabilizing the macro-economy- Source: VGP, 12/05/2011,6

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