Inter-bank interest rates stay low

Inter-bank interest rates for Vietnam dong have plunged lately and are hovering around 1-1.2% annually for overnight to one-week terms, and local banks expect the low rates to continue for long due to the ample money supply.

The inter-bank market has been most quiet since early this year owing to abundant supply and slackened demand, said an analyst of BIDV.

The trading volume in the market reached an estimated VND12 trillion a session last week, with interest rates staying at 1-1.2% per annum for overnight to one-week terms, 2% annually for one-month term and 4.5% annually for three-month term.

The State Bank of Vietnam (SBV) continued its net capital withdrawal via open market operations (OMO) last week, mainly via gold auctions and foreign currency selling. The monetary authority already made a net withdrawal of VND9 trillion via OMO, Treasury notes, gold auctions and foreign currency purchase last week.

In the meantime, deposit growth of the banking industry continued to rise. Credit growth was recorded at 2.98% in January through April while deposit growth picked up 6.59% versus the end of last year, according to the latest figures of SBV.

Capital flows that are seen stuck in the banking industry have led to huge supply. Coupons of government bonds, meanwhile, have plunged by nearly 1.5 percentage points for over one month.

With strong liquidity, local banks have mainly invested in other assets, especially government bonds. Several banks investing in bonds have benefited from the big gap between bond yields and inter-bank interest rates although the volume they are trading is small.

Monetary market reports of commercial banks show credit activities are still choked off and that credit growth sees no foundation to reach this year’s target of 12% as the VND30-trillion supporting package for the housing market has barely been disbursed.

Overall, there have been no factors that can affect the Vietnam dong supply and demand balance, resulting in dong rates in the inter-bank market forecast to keep revolving around 1% annually for short tenures in the coming time.

Customs formality highly lamentable

Enterprises in the field of technology have to spend much time, effort and money on completing procedures for material imports and exports of high-tech products, and it was reported on Wednesday that in one typical case, an enterprise has to accomplish tons of paperwork.

Tran Tien Phat, managing director of Datalogic Scanning Vietnam Company, showcased figures stunning to all participants in a seminar on supporting high-tech product exports in HCMC on Wednesday.

Phat said that it takes the enterprise 18,000 sheets of A4 paper each month for completing procedures related to clearance, which includes receiving, checking and making tax exemption and tax rebate procedures. These procedures are made for exports of the company’s bar code scanners and peripheral devices.

Phat said his enterprise has met many annoying export procedures although Datalogic is a high-tech company that enjoys many incentives.

Given the Circular 194/2010-TT-BTC, enterprises have to make clearance procedures within 45 days after making export declaration papers. During this time length, Datalogic has yet to get proof of payment because payment contract between the company and its customer usually lasts 180 days.

As a result, Datalogic has to supplement many papers to complete procedures. Besides, as 90% of its import declaration forms require many times of tax rebate, the company has to make tax payment statements for each of these forms.

Phat said that each month his has to make 200 sets of export declaration documents, 2,000 sets of import declaration forms with five papers each, 1,500 tax payment lists and other papers. In total, Datalogic spends an unimaginable 18,300 sheets of A4 paper a month for tax declaration procedures.

Other high-tech firms in the Saigon Hi-tech Park (SHTP) such as Intel, Air Liquide, FPT Software, Nanogen, Kyocera and Jabil also bemoaned complicated import and export procedures.

If Intel Company wants to buy chemical from a domestic firm, this local supplier has to ask for a license to import chemical into a bonded warehouse. Then, Intel has to get a license to buy chemical and carry out import procedures. This process is time-consuming.

Le Bich Loan, deputy head of SHTP management board, said that many enterprises in the hi-tech park are facing difficulties in export and import procedures.

Nguyen Duc Nga, head of management and supervision unit of the General Department of Customs, said that the troublesome procedures will be eliminated in the future but did not tell the exact time for this move.

HPT, Microsoft clinch strategic deal

Local information technology firm HPT on Tuesday cut a deal with Microsoft to become the sole strategic partner of the giant software maker in the country in the areas of software and IT services for enterprises.

As per the deal known as National System Integrators agreement, Microsoft will serve as the consultant and strategic technology partner for HPT in developing software solutions and services for enterprises.

HPT will seek to develop Microsoft technology-based solutions, such as Customer Relationship Management, Unified Communications and Data Warehousing products for corporate users.

Vu Minh Tri, general director of Microsoft Vietnam, said his company would assist HPT in developing products and services for enterprises, as well as in training, technology transfer, and expertise sharing.

Falling demand forces Vinacomin to ease coal production

The Vietnam National Coal and Mineral Industries Group (Vinacomin) plans to reduce coal production and consumption from 43 million to 39 million tonnes this year, says Nguyen Van Bien, Vinacomin’s deputy general director.

Bien said that the cutback, which is roughly the same as last year, was due to a decrease in the demand for coal on both the domestic and overseas markets.

He added that in the first five months of this year, coal consumption was 17.7 million tonnes, approximately 41 percent of the yearly target.

The turnover of 39.6 trillion VND (1.9 billion USD), represented a 5 percent reduction compared to the same period last year.

Several industries have reduced their coal consumption, except for the power sector which has already used 7.08 million tones for generating electricity, an increase of 6.1 percent against the corresponding period last year.

The amount of coal used by the cement sector was 2.14 million tones, a decrease of 16.6 percent over the same period last year.

The group’s current coal stockpiles have risen to 7.1 million tonnes due to the sharp decrease in consumption.

The decrease is due to the worldwide economic downturn as well as the emergence of new energy sources, many of them renewable, being used by Russia and the US , which use 15 percent of the world’s coal, Bien said.

In addition, many countries that have their own coal reserves have increased production for their own domestic markets. He said that coal prices in the global market had dropped sharply, which has had adverse effect on the group’s exports.

In the first six months of this year, the group suffered losses of 1.8 trillion VND (8.6 million USD) as the price of coal sold to the Electricity of Vietnam has only covered 85-87 percent of production costs.

It has also been seeking approval from the Government to apply different levels of tax to coal exports instead of the current 10 percent.-

Fertiliser exports to Myanmar to rocket up

Vietnam’s fertiliser exports to Myanmar are expected to rise sharply in the coming time as Vietnamese exporters can directly conduct international payments.

With a vast acreage of farmland and forest, Myanmar has to import about 1.5 million tonnes of fertiliser each year, said General Director of the Phu My Fertiliser JSC (DPM) Cao Hoai Duong.

The figure is expected to grow when the Myanmar Government is seeking to raise the country’s agricultural output, he said, adding that Myanmar is considered a potential market for Vietnam’s fertiliser exports.

However, he noted, exports to the market have been hindered by a range of problems relating to international payments which have been conducted through Hong Kong or Singapore.

According to Duong, domestic fertiliser output is forecast to reach 2.3 million tonnes per year while the yearly demand is only 300,000 tonnes.

Therefore, since 2012, DPM has carried out an array of activities to seek markets for fertiliser and Myanmar is a target in addition to the existing markets of Cambodia, Indonesia, Malaysia and the Philippines, he said.

He also revealed that the Myanmar Ministry of National Planning and Economic Development’s Business and Investment Management Department granted a licence to DPM to set up its representative office in the country.

The office will promote Vietnam’s image, trademarks and products while assisting export activities and promoting trade between the two countries.

In the first half of this year, DPM produced about 438,000 tonnes of nitrogenous fertiliser, ensuring stable supplies for this year’s winter-spring and summer-autumn crops.-

Export floor prices go against competition law

Setting export floor prices for rice and other items is an anticompetitive practice, said Nguyen Phuong Nam, deputy director general of the Vietnam Competition Authority under the Ministry of Industry and Trade.

Due to not fully comprehending domestic and international competition laws, a number of industries in Vietnam have committed a serious breach of such rules, said Nam at a workshop held by the competition authority in HCMC on Wednesday.

Citing the export floor prices for rice as an example, he deemed this as an anticompetitive practice, leading to possible lawsuits against Vietnam brought by other countries.

Currently, the Vietnam Food Association (VFA) determines and announces rice export floor prices for each period. On this basis, rice traders sign export contracts and register such contracts.

Nam informed foreign competition agencies had sent their representatives to Vietnam to work with local authorities given the information that there had been a written instruction from the Government for fish export to certain buyers only.

A number of State agencies have recently provided enterprises with tax incentives and guidelines. Foreign competition agencies have gathered information on the incentives for local businesses, such as preferential interest rates and natural resource tax exemptions, putting Vietnamese exporters at a disadvantage.

Besides, for limited knowledge of the competition law, the law on consumer protection and trade remedies (anti-dumping, anti-subsidy, self-defense), there are cases in which the plaintiffs eventually become the defendants.

Therefore, Nam stressed the need for disseminating information on Vietnam’s competition law. However, business still has a lukewarm attitude.

The Vietnam Competition Authority recently organized a workshop to publish a report on competitiveness evaluation of ten sectors. Most of the participants in the event were specialists and very few of them were entrepreneurs, he said.

Local food and beverage exports to Russia have potential

Viet Nam has had many opportunities in the past to boost food and beverage exports to Russia but businesses have failed to take this advantage.

The failure was partly due to not understanding the Russian market, explained the Viet Nam Trade Promotion Agency (Vietrade).

Vietrade held a conference yesterday in Ha Noi to provide information and more details on Russia and Ukraine so enterprises can seek out business opportunities.

According to La Van Chau, Viet Nam's former commercial attache to Russia, because the climate of Russia is not suitable for growing many crops, the country with a population of around 145 million, has a huge demand for imported fruit and vegetables as well as beverages including coffee and tea.

Although Russia is a traditional export market for Viet Nam, the volume of food and beverage exports to Russia remains limited and some products have recently even seen a drop in sales, says Chau.

He pointed out that seafood exports to Russia hit a record high of US$205 million in 2005 but fell to about $100 million in 2011, fruit from $34 million in 2009 to $28 million in 2012 and rice from $37 million to only $7 million.

However, Viet Nam's total export turnover to Russia has increased nearly four folds since 2009 but the export of agricultural, forestry and seafood products has only seen a rise of 23 per cent, he said, adding that the export of these products has fallen by more than 50 per cent compared to before 2009 and by 20 per cent from 2012.

Chau said that taking part in trade fairs and exhibitions in Moscow, which has accounted for 57.7 per cent of Russia's import volume, was one way for enterprises to penetrate the market together with accessing retailers and supermarket giants such as the X5 Retail Group, Auchan Group, Rollton Group, Metro Cash & Carry Russia Ltd and the Perecrestok chain.

Once products have reached Russia they can also be freely distributed around Belarus and Kazakhstan, he added.

Chu Xuan Kien, director of the Ha Noi Trade Corporation, says that businesses should pay more attention to packaging their agricultural products to preserve product quality when exporting to those markets, due to long transportation times, which can be up to 75 days in wintertime.

According to Duong Hoang Minh, Deputy Director for the European Market at the Ministry of Industry and Trade, the free trade agreement (FTA) between the Customs Union of Belarus, Kazakhstan and Russia and Viet Nam is still being negotiated but expected to be signed in 2014.

Trade with Russia is forecast to boom during 2015-16 after the FTA comes into effect, providing opportunities for many Vietnamese enterprises. Regarding Ukraine, Minh said that the market had similar import demands as Russia, including seafood, fruit, cashew nuts, pepper, footwear and textile products. He said that negotiations on a FTA with Ukraine were expected to get underway soon.

Viet Nam could promote the import of new technologies and machinery as well as attracting investment from Russia and Ukraine in the manufacturing, transport and food processing industries, said experts at the workshop.

The department's figures show that two-way trade between Viet Nam and Russia and Ukraine reached $2.4 billion and $313 million, respectively, in 2012.

Port project all at sea: Vinalines to pull out

The unfinished Van Phong International Port has suffered a major blow after the Van Phong Economic Zone Management Board decided to block investment in the project from Viet Nam National Shipping Lines (Vinalines).

Within the next six to 12 months, Vinalines must end its involvement in the sluggish project, Hoang Dinh Phi, deputy chief of the EZ management board has announced. He added that the board was actively seeking other domestic and foreign investors to step in and take over the project.

Work on the US$3.6 billion port began in late 2009 in Khanh Hoa Province's Van Ninh District.

Vinalines hoped that the port, which was slated for completion in 2020, would one day become a trade hub of Viet Nam.

However, with only five months to go before the deadline for the first phase of construction, which would enable the port to handle container ships of up to 9,000TEU, the building site remains deserted.

Construction had been suspended due to geological concerns, according to a representative from Vinalines.

Other obstacles include a difficulty for the State giant, which had to be bailed out in 2011 following years of financial mismanagement, to mobilise enough capital for the huge project.

The Ministry of Transport proposed that the company end its association with the port as far back as September 2012, and although the Government approved this, it is only now that their licence has been officially revoked.

Other projects to lose their investment licences include an oil and gas services complex developed by the Sao Mai – Ben Dinh Petroleum Investment Joint Stock Company, Phi said.

Licenced in May 2011, the complex had a total registered capital of $1.35 billion and was expected to be finished in 2017.

However, the investor – a subsidiary of PetroVietnam – was yet to start any work on the project due to its failure to mobilise the necessary capital.

Firms get right to defer tax payments

Enterprises would be allowed to pay their tax debts by installments from the beginning of next month, under a new proviso intended to assist firms in weathering the economic storm.

The concession is set to be added to the amended law of tax management, due to come into force on July 1.

Under the caveat, deferred tax debts must be paid off within 12 months. Enterprises would then have to pay late payment fines at 0.05 per cent of the debt per day.

Enterprises must obtain a guarantee from credit institutions to qualify for the deferred payment. Under the guarantee, credit institutions must confer with tax agencies about the ability of firms to pay the taxes and fines for late payment in case enterprises do not fulfil their obligations.

If enterprises failed to pay tax debts according to the registered schedule, after five days of the deadline passing, guarantee institutions would be responsible for paying enterprises' tax debts and fines for late payment.

However, at a conference held last week by the General Department of Taxation, enterprises said the rate of 0.05 per cent per day for late payment, equivalent to 18 per cent per year, was high in comparison with the current loan interest rate of 12-13 per cent per year.

Enterprises also said that it would be difficult for them to gain such guarantees from credit institutions for deferred payment.

HCM City to host international seafood fair

The 15th Vietnam Fisheries International Exhibition (Vietfish) will be held at the Saigon Exhibition and Convention Centre (SECC) in HCM City from June 25-27.

It is expected to attract 163 domestic businesses and foreign partners, including those from the Canadian Trade Office, the Swedish Trade Office, the Thai Frozen Food Association (TFFA), Shanghai Seafood Show, Singaporean Food Industry Magazine, Asian Aquaculture Network Magazine, Global GAP, the Global Aquaculture Alliance (GAA) and CENTEC.

Vietfish is an annual event, aimed at promoting Vietnam’s seafood trademarks to the international market.

It will provide a good chance for participants to share business experience and evaluate consumer market trends.

During the event, there will be exchanges between Vietnamese managers and businesspeople and Japanese seafood importers, in addition to seminars and conferences on hot issues related to development of the fisheries sectors in Vietnam and the world.

Vietfish is considered one of the leading fisheries fairs in the region and the world.

Local beverage businesses gaining ground

The beverage industry in Vietnam is growing with its annual output of more than 2 billion litres.

Major businesses like Tan Hiep Phat, Pepsi and Coca-Cola claim to be expanding their market share in spite of fierce competition.

The Vietnam Beer-Alcohol-Beverage Association (VBA) estimates that each Vietnamese consumes 23 litres per year, less than half compared to its neighbour the Philippines. This means that businesses can still have the lion's share of the market.

Not many Vietnamese consumers can understand Vedan’s decision to join the beverage market by introducing its Thien Tra Vedan lemonade soft drink.

Although there are similar products on sale, Vedan’s move indicates that the market segment for soft drinks is still developing well.

The VBA says that over the past decade, the soft drinks market in Vietnam has grown impressively by 20 percent per year, in comparison with elsewhere in the world.

As consumers are interested in natural drinks, like green tea and herbal tea, Tan Hiep Phat and other local investors have quickly gained the upper hand.

Tan Hiep Phat began in 2001 as a small firm producing an energy drink called Number One, but is able to compete fiercely against foreign producers.

The company has recently built two new factories, one in the central province of Quang Nam to produce 600 million litres per year and another in the northern province of Ha Nam capable of producing up to 950 million litres at full capacity.

Tan Hiep Phat CEO and Chairman, Tran Qui Thanh, said by opening these factories the group could save transport costs from Binh Duong to the central and northern regions, reduce its retail prices and better serve its customers better.

Chairman of the Hanoi Supermarket Association Vu Vinh Phu is optimistic about the successful building of local product brands to compete with those of foreign producers.

Phu says Tan Hiep Phat is a rare group in Vietnam, with a wide range of high-quality, healthful products, including Dr. Thanh herbal tea, Tra Xanh Khong Do green tea and Number One energy drink which are being sought after by consumers.

He insists that businesses should apply cutting-edge technology in their production as more than 52 percent of their machines and equipment are outdated.

As a paradoxical fact, only 2 percent of beverage producers utilise high-tech methods, much lower than those in Thailand (31 percent), Malaysia (51 percent) and Singapore (73 percent), he noted.

Tan Hiep Phat is most credited as being in the vanguard of applying the most modern European technology known as “aseptic technique’ to meet food safety standards and maintain all vitamins and original taste of the products.

The company’s newest health drink, Number One Vitamin, which provides vitamins B and C, taurin and inositol, has proved an instant hit in the beverage market.

Foreign companies join manufacturing trade show

More than 300 exhibitors from 21 countries and territories will showcase their latest products and services at Viet Nam's leading manufacturing solutions trade show early next month.

The expo, held from July 2 – 5 at the Sai Gon Exhibition&Convention Center, is organised by Singapore Exhibition Services Pte Ltd and VCCI Exhibition Service Co Ltd.

Eleven countries including Japan, France, Germany, Italy, South Korea, Singapore, Thailand and Taiwan will have multiple pavilions at the MTA (Metrology, Tools and Automation) Viet Nam 2013 show.

It will focus on precision engineering, machine tools and metalworking, organisers said.

They said the international component of MTA Viet Nam 2013 is very high at 81 per cent. Major brand names in many areas will be present, they added.

For instance, the world's top five machine tool exporting countries and regions – Japan, Germany, Italy, Taiwan and Switzerland – are joining this year's show.

William Lim, Project Director for MTA Viet Nam 2013, said the increasing number of international corporations that have set up manufacturing facilities in Viet Nam is also a major pull factor for major international machine tool brands.

As a reflection of the growing presence of Japanese manufacturers in Viet Nam, this year's show will feature 38 exhibitors from the East Asian giant, an increase of 58 per cent over the number present at the inaugural edition of MTA Viet Nam in 2005.

The Japanese pavilion this year comprises 22 companies that are mainly small to medium-sized enterprises producing equipment like hand tools, electronic components, gears, measuring instruments, and machine tools.

Kazuhiko Osato, Director of JETRO (Japan External Trade Organization) HCM City office, said, "This is the 7th time we are exhibiting at the MTA series in Viet Nam, and it is our biggest group of exhibitors to date. The increase of Japanese manufacturers in Viet Nam bodes very well for smaller Japanese manufacturing solution companies as it provides the link to break into the Vietnamese market."

MTA Viet Nam 2013 will also feature a series of exciting competitions and seminars, including Viet Nam Welding Skills, Viet Nam's Welding Technology seminar – Today And The Future Vision; Using Management Tools to Improve Quality in Manufacturing Industries and New Approaches to Design, Machining&Manufacturing.

Banks must do more to fight money laundering

Banks show little interest in training their staff to deal with money laundering and should pay more attention to combating the flow of dirty money, experts warn.

IT plays a significant role in the task, but banks' technology staff are not properly briefed on anti-money laundering and are thus confused about choosing the right software for this, Nguyen Van Ngoc, head of the State Bank of Viet Nam's Anti Money Laundering (AML) Department, said.

Speaking at a seminar on money laundering held by the Viet Nam Banking Association and IT consulting firm Komtek in HCM City yesterday, he admitted that the economic situation meant the budgets for AML IT systems are limited.

Fewer than 10 banks in Viet Nam use specialized, established solutions for AML, he said, but even they are mainly concerned with transaction safety.

Credit institutions should not get mixed up about the purpose of their IT solutions, whether for AML or credit ratings, he said.

Only IT solutions can help screen, identify, and filter their numerous customers, recognizing those with potential risk of AML and featured on black lists, including large-value and suspicious transactions.

Saito Masaru of Japanese IT solution provider TIS, spoke about the duties of financial institutions in his country.

"They have to verify customers' identity at the time of transaction, purpose of the transaction, details of customers' occupation/business, beneficial owners, assets/income," he said.

They then preserve verification/transaction records and take measures to ensure the accuracy of the verification at the time of transaction, he said.

Banks in Japan tend to incorporate watch list filtering, transaction monitoring, and finally risk scoring functions in their existing systems, he added.

Shon Heung Woo of South Korean IT solutions provider GTOne, said all banks and medium and large insurance, securities, and credit card companies in S.Korea deploy AML systems.

Identification and AML systems are advertised aggressively to the public in banks.

In case of large deposits or withdrawals, customers are required to explain the purpose of the funds, he said.

Any refusal is reported in suspicious transaction reports, he added.

Thaco to produce truck engines

Truong Hai Automobile company (Thaco) planned to produce 20,000 diesel engines for trucks and buses from next year, the company's deputy general director Pham Van Tai confirmed yesterday.

The engine manufacturing plant, which began construction last year with an investment of US$185.5 million, would provide engines meeting Euro 2, Euro 3 Emission Standard.

Operation of the plant and the use of 55 per cent of components from local sources would reduce the sale price of trucks and buses in future, he added.

"We have sped up the localisation ratio to produce good quality and competitive price vehicles. Bus production comprises 55 per cent of locally made components including windscreens, chassis, seats and wire wares," Tai said.

"The coach is our best seller with 600 vehicles being bought last year, 95 per cent in the domestic market."

The Quang Nam-based automobile maker acquired a 51 per cent share in Korean Soosung Motor Technology company with a $3.5 million deal last year.

The company had previously exported components and spare parts for special purpose vehicle production in Soosung company.

"We exported locally made components worth only $500,000 last year. The share deal helps us produce cranes, dumps, concrete mixer trucks and tankers," said Thaco's mechanical engineering director Doan Dat Ninh.

Thaco has invested VND9 trillion ($428.5 million) in manufacturing plants producing cars, trucks and buses, as well as a sea port and a vocational college since 2003.

Last year, Thaco produced 24,500 vehicles with a total revenue of VND12 trillion ($571.4 million), contributing VND2.8 trillion ($133.3 million) to the State budget.

The company expects to provide 29,500 vehicles this year with a revenue of VND13 trillion ($619 million). Thaco, in partnership with French automaker Peugeot, will begin manufacturing the Peugeot 408 model this year.

The largest automobile maker in Viet Nam has produced and distributed three brand names including Kia of South Korea, Mazda of Japan and Peugeot.

Truong Hai Corporation has asked the Government to extend the deadline for paying its import tax bill of more than VND1.2 trillion (US$57 million) from July 1, 2013 to June 30, 2014.

The corporation, which imports completely knocked down parts (CKDs), is being supported by authorities in central Quang Nam Province, where four companies owned by Truong Hai (Chu Lai Truong Hai Auto, Truong Hai Bus, Truong Hai – Kia Coach and Vina-Mazda).

According to VnEconomy online newspaper, Quang Nam authorities and Truong Hai Corporation explained that the economic situation in Viet Nam and the declining world markets have led to sales dropping strongly for automobile manufacturers.

It has been reported that the corporation has an inventory worth more than VND3.3 trillion, while it owes about VND5.6 trillion to credit institutions.

Quang Nam called for the Government to support Truong Hai as it is a young domestic manufacturer trying its hardest to become competitive, especially before 2018 when the country is planning to fully join ASEAN Trade Freedom Agreement that will lead to import tax cuts encouraging regional manufacturers to enter the Vietnamese market.

Without investment, the company may collapse, resulting in the loss of thousands of jobs, they warned.

A Finance Ministry leader said the ministry has approved the corporation's proposal and asked the Government for permission to implement the postponement. The corporation will now have to wait for the Prime Minister's approval.

Even with this approval, the extension will only be granted if the corporation can provide a guarantee of support from commercial banks and promises that it will continue investing in automobile manufacturing.

The Quang Nam People's Committee would be responsible for managing and ensuring the money is used for the right purpose.

FTAs offer business opportunities

Small- and medium-sized enterprises should learn how to take advantage of new Free Trade Agreements (FTAs) that will take effect within the near future, ministry officials have urged.

Vuong Duc Anh, a high-ranking official with the Ministry of Industry and Trade's Import-Export Department, said that SMEs were often not aware of the benefits of trade agreements with other countries.

Anh, along with other leading officials, spoke at a seminar on Monday with representatives of Japanese companies based in Viet Nam.

Viet Nam is currently negotiating FTAs with the EU and Hong Kong as well as the Trans-Pacific Partnership (TPP) agreement with Canada and the US.

The FTAs, once signed, will lower tariffs on both sides, thus increasing both import and export activities.

Although this will result in an even more competitive trade environment, local companies taking part in FTAs will have the opportunity to increase exports while enjoying lower or zero tariffs.

Also speaking at the seminar, Kurihara Yoshitaka, of the Japan External Trade Organization (JETRO), urged Viet Nam to make further efforts in trade liberalisation.

According to Kurihara, Japan's use of FTAs or Economic Partnership Agreements (EPAs) in Viet Nam, remains low, at 33.5 per cent, while the figure in Indonesia is 58.5 per cent.

Cao Thanh Diep, head of the multi-trade policy department at the Ministry of Industry and Trade, said that all companies, including SMEs, should take advantage of such trade agreements.

She said that trade agreements over the last two decades had attracted greater foreign investment flows to Viet Nam and had encouraged bilateral trade.

They also had the effect of improving the country's economic restructuring and the competitiveness of local enterprises, Diep added.

"At least, in the short and medium term, we see benefits from signing free trade agreements," she said.

As a result of such agreements, Viet Nam's policies had become more transparent, and had helped create a favourable environment for foreign investment in high technology, Diep added.

The manufacturing sector's competitiveness had also improved, more jobs were created and the poverty rate was lowered, she said.

However, she pointed out that the country, although it had eliminated its trade deficit last year, could face further economic challenges.

"There is not much time for Viet Nam before the formation of the ASEAN Economic Community in 2015, so we should prepare for this now and consider it a top priority," Diep said.

With new trade agreements on the horizon, Viet Nam's garment and textile industry is expected to see faster growth.

The industry's export turnover in 2012 reached US$17.2 billion, and in the first quarter of this year, turnover was US$4.2 billion, a 19 per cent increase over the same period last year.

However, export growth in textiles and garments to the EU has been lower than growth in the US, Japan and South Korea.

With the TPP agreement with Canada and the US also being currently negotiated, Viet Nam is expected to increase its share of the global garment and textile market to 12 to 13 per cent.

The TPP is also expected to attract more foreign investment and add value to Vietnamese products.

Shrimp exports fall due to shortage of material, skilled labor

Shrimp and pangasius are two key exports from the country which are currently facing many difficulties and challenges in meeting export targets.

Since 2012, export of these two items has not reached targets, resulting in low turnover of US$6.1 billion instead of $6.5 billion.

One of the main reasons for this shortfall has been shortage of material for production.

Nguyen Hai Trieu, director of Gio Moi Company, said before the company earned regular turnover but in recent years shrimp material for export has been short and diseases too have wretched crops.

These losses have been huge for enterprises. Shrimp breeding areas have shrunk to 570 hectares, only 2.4 percent against the same period last year.

Exporters also lack personnel with high skills that can meet the present fierce competition coming from the US, Japan and EU markets.

Vietnamese consumer turns back on Chinese produce

Vietnamese consumers have of late turned their backs on Chinese commodities, especially fresh foods, due to substandard quality.

Nguyen Thanh Ha, deputy head of a management company in Thu Duc wholesale market, remembers how in May around 1,300 tons of vegetables and fruits were brought into the market. In Hoc Mon wholesale market, around 100 tons of vegetables and fruits such as carrots, garlic and potatoes were brought in every night. All these commodities were from China.

But the situation has changed now. In Thu Duc market these days, some 1,600 tons of vegetables and fruits enter the market but only around 150 tons are of Chinese origin.

Nguyen Dang Phu, deputy director of the Management Company of Binh Dien wholesale market in District 8, said very few items are now from China.

A trader couple Binh-Thoa in Van Thanh Market said that for five years they have refused to sell Chinese commodities because of high insecticides, even though they earned lower income.

Traders also help consumers distinguish between Vietnamese produce and Chinese commodities; for instance, Chinese fruit looks bigger or ginger has bigger bulbs and shinier skin than the Vietnamese produce. Nevertheless, its taste after cooking is worse than Vietnamese produce.

Saigon Co.opMart said its chain does not sell potatoes brought in from China any more. Nguyen Thi Hanh, Director of Saigon Co.opMart, said for years they did not announce sale of Chinese fruits and Korean waste chicken for fear of contamination.

All vegetables and fruits in the market are from cooperatives in Da Lat such as Anh Dao, Phong Phu and Thao Nguyen and all commodities meet VietGap standards. After the supermarket announced a tie-up with cooperatives and farms in the country, consumption increased drastically.

Black cloud sits over property ambitions

The property market in Hanoi’s suburbs, long mired in the economic slump, is still struggling while faint glimmers of a revival appear elsewhere.

Before 2011, land plots in Hanoi’s suburbs saw skyrocketing price. When the property market fell in difficulties the property price in many areas, particularly areas outside Hanoi’s ring road 3, which runs across seven inner city and suburban districts, took a plunge.

Although the inner-city housing segment has shown initial signs of rebound in transactions, land plots outside ring road 3, still reported low liquidity.

According to a recent study by Savills Vietnam- a leading property service provider, the villa and terraced house market in Hanoi remains in downward trend, and there were almost no transactions at scores of property projects in Hanoi suburbs

Accordingly, the price of many land plots in areas outside ring road 3 was halved compared to 2011. At some projects, the price was slashed by some 60-70 per cent but still reported no transactions.

For instance, at Nguyen Trong Tan road block A under Geleximco project (Ha Dong town, outskirts of Hanoi), terraced houses lying along the main road currently fetch VND50-55 million ($2,400-$2,650) per square metre, falling over 50 per cent compared to in peak time. For the houses not facing the main road, the price also slid by a half to around VND22-25 million ($1,060-$1,200) per square metre.

At this block, the developer is scaling up efforts to complete the outer face and is in the hand-over process.

At block C and D, though the price is around VND20 million ($960) per square metre, there are almost no transactions since only internal roads were completed.

At Kim Chung Di Trach project in Hanoi’s suburban Hoai Duc district which used to be a hotspot to property speculators, terraced houses facing project’s main road fetch around VND20 million ($960) per square metre while houses facing internal roads range from VND13-15 million ($625-$720) per square metre.

At Van Canh new urban area (also in Hoai Duc district), the price ranges from VND32-34 million ($1,540-$1,635) per square metre though the housing blocks were completed and handed over to customers for around two years.

The price of villas in diverse urban areas nearing completion in the outskirts of Hanoi also fell sharply from 30-50 per cent.

For instance, villas under North National Highway 32 urban area project of developer Tu Liem Housing JSC currently fetch VND40 million ($1,920) per square metre or those at Duong Noi project’s block A of Nam Cuong Company Limited cost a bit more than VND40 million per square metre.

One CBRE recent survey shows that over 60 per cent out of 9,000 completed housing units under survey could not find buyers.

CBRE is the world's leading commercial property and real estate services adviser

FX waves cause ripples

Experts are getting their heads around recent exchange rate volatility.

Economic experts assumed the fluctuating dong-US dollar exchange rate in the recent weeks was just momentary and was not driven by the gold import move.

The buying price of US dollars at commercial banks surged to VND21,035 per dollar later last week, closing a week when the greenbacks hiked constantly in price. In the ‘black’ market, the dollars peaked at VND21,300. This was the third time the exchange rate surpassed the VND21,000 per dollar benchmark in 2013.

In reality, slow pace of economic rebound means the demand for dollars to import production materials would not be big.

Some market players attributed the move to the State Bank’s recent efforts to put a round sum of dollars into gold import to help local banks close their gold position before regulated deadline June 30, 2013.

A National Financial and Monetary Policy Council member Dr. Cao Sy Kiem did not buy into this idea.

He said recent volatile exchange rate was due to ‘psychology’ factor since there was a rumour about the likelihood for exchange rate revision after the State Bank reportedly spent over $1 billion on importing gold.

Kiem said exchange rate fluctuation only came when the dollar supply and demand underwent changes. Currently, the demand is forecast not to go up sharply thanks to economic rebound whereas the supply remains fruitful.

“In other words, there is no need for exchange rate concerns at current point of time,” Kiem added.

Senior financial export Nguyen Tri Hieu agreed current ‘fever’ was only short-lived and would be brought down when banks completed closing their gold position.

From the part of industry players, deputy general director at Vietnam International Bank (VIB) Le Quang Trung said dong-denominated loans’ lower rate has prompted firms to buy dollars for repayment then convert into taking dong-denominated loans to abate exchange rate associated risks.

The leader of another Hanoi bank said strong exchange rate volatility in the coming months would be unlikely since the banking system’s dollar volume liquidity was generally good in parallel to fairly plentiful national foreign reserves.

“Some factors which recently fueled the exchange rate were people converted into hoarding dollars in the face of constantly falling dong deposit rates, falling export led to banks’ lesser dollar buy-in amounts and some banks scaled up buying dollars to enhance their dollar position,” the executive noted.

Equity firm shuffles deck

Vietnam-focused private equity firm Mekong Capital is planning to divest from five companies this year and next year as part of its restructuring plan to prepare for future growth.

Chris Freund, managing partner of Mekong Capital, said the equity firm would reduce investment from current 15 investees to about 10. “We are focusing on doing exit and selling investments,” he said. Freund declines to reveal which companies Mekong Capital will divest from.

Freund said that was natural thing of a private equity firm because an investment fund usually has ten-year life and specific investments are typically held for five to seven years. “We need to sell investments and launch new fund to ensure further growth of the company. That is good for us,” said Freund.

Mekong Capital has three funds at present, including the $18-million The Mekong Enterprise Fund, the $50-million The Mekong Enterprise Fund II and the $64-million Vietnam Azalea Fund.

The Mekong Enterprise Fund was established in 2002 and invested in 10 companies by the end of 2005. At this time, the fund has fully divested from 8 companies in its portfolio and will continue to exit investment from the remaining companies, as it has already complete ten year life.

The Mekong Enterprise Fund II was launched in 2006 and was mainly focused on consumer driven industries like retailing, distribution and consumer products. This fund also invests in 10 companies and Freund said the firm was working to sell few of them.

The Vietnam Azalea Fund was launched in 2007 and targets Vietnamese blue-chip companies, both privately and formerly state-owned.

Freund said a new fund would be launched shortly to replace funds that will be closed, and to continue make new investment. Each fund will just invest in around 10 companies, that he thought an ideal level for the fund.

Unlike other fund management firms such as VinaCapital, Dragon Capital or Indochina Capital which launch different funds for different asset classes, Mekong Capital just focuses on investments in private equity.

Among sectors, Freund said Mekong Capital would mainly focus on consumer driven business as a strategy of the firm. Its most successful investments to date have been consumer-oriented companies such as Mobile World, Traphaco, Golden Gate, Masan Consumer and ICP.

“Consumer product business is growing very fast right now. If you look at other companies like Vinamilk and Masan Consumer, they are still growing very well,” said Freund.

“Some people believe as an investor, we need to be diversified. But we commit to bring added values, we can only do that when we really understand the industry and investees,” he said.

Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR