Having Vietnam's export-oriented growth strategy bring added value to the country seems like a target that cannot be reached any time soon
A female worker is pictured at a shirts' production line of a local garment company in Hanoi. Many other garment-exporting countries have reduced their prices by 5-7 percent to increase their products' competitiveness, according to the Vietnam Textile and Apparel Association (Vitas).
Vietnamese shipments to overseas markets are expected to increase this year, but the export sector will still struggle to achieve added value and the country will remain a mere workshop that produces goods for developed countries, experts say.
Nguyen Van Nam, former head of the Institute for Trade Research, said, “Our exports would still be farm products, seafood, woodwork and labor-intensive outsourced items like garments and footwear whose added value remain low. And there are no signs a global economic recovery that would increase international demand for the products.
“Thus, Vietnam’s export revenues this year are forecast to rise by just 5-10 percent compared to the average growth of 20 percent in previous years.”
Many woodwork and garment firms have seen a decrease in orders from foreign customers. The General Secretary of the Vietnam Timber and Forest Product Association, Nguyen Ton Quyen, said the number of orders the association’s members have received for delivery this year has plummeted by 40 percent.
Most Vietnamese woodwork products are shipped to China, but many local firms have not received orders from their Chinese partners since late last year, he said.
Vietnam exported woodwork products worth $4.5 billion in 2012, increasing 12.5 percent over 2011. China accounted for more than $1 billion of this turnover, Quyen said.
“Local woodwork producers, in the 4th quarter, typically received orders from Chinese partners for delivery until the end of the second quarter of the coming year. However, Chinese traders have announced a stop to importing all kinds of woodwork products from Vietnam,” he said. The products are mainly fragmented wood materials used for paper production and furniture.
Quyen said Chinese traders had significantly increased imports of the products from Vietnam last year, encouraging local firms to make large investments in technology and machines to meet their orders. The stopping of imports just a year later has inflicted huge losses on local firms, he added.
“Many woodwork producers are in trouble because the Chinese buyers have not only stopped making new orders, but also cancelled those already signed,” he said. “We are trying to contact the importers to find out why they are doing this.”
At the same time, orders from other major markets of EU, the United States and Japan have also reduced as the economic slowdown continues and people cut back on spending, he said.
The forecast for garment exports is not very bright either. Luong Van Thu, director of a garment firm in Hung Yen province, said orders for 2013 have shown no signs of increasing. “Importers are still cautious about booking orders as the economic situation in their countries remains difficult. This signals a tough year for the garment sector.”
Many other garment-exporting countries have reduced their prices by 5-7 percent to increase their products’ competitiveness, according to the Vietnam Textile and Apparel Association (Vitas).
Moreover, Vietnam’s garment industry still depends a lot on imported materials, so the added value of its exports will not increase, said Vitas vice chairman Pham Xuan Hong.
Over two-thirds of 4,000 local garment firms produce export products under outsourcing contracts for foreign partners, so their real export value is not high, he said.
Since garment exports are mainly in the form of subcontract work, value addition (localization ratio/value) is only 25-35 percent of export value. In the case of electronic appliances, the percentage is much lower – at around 15 percent, experts say.
Vietnam is a top ranked exporter in the world for many agricultural products, but even in this instance, the value addition remains modest, since most exports are of raw material.
Duong Phuong Thao, deputy head of the Ministry of Industry and Trade’s Import-Export Department, said the quality of farm products has not improved much over the years.
Farm produce exports will also face difficulties this year in getting good prices and expanding markets, she said. Rice exporters have not yet signed any big contracts for delivery in 2013.
“Firms now are mainly getting contracts with small export volumes and high risks,” Thao said.
Seafood and rubber producers have also faced difficulties in boosting exports this year due to reduced demand among importers as well as the imposition of technical barrier, she added.
Nam said a long-standing dearth of suitable policies to encourage development of supporting industries and facilitate exports are also factors that will make it difficult for the export sector to make much headway this year.
Foreign firms dominate
This year, foreign-invested firms, with their huge advantages in terms of financial and technological strengths as well as their market reach, will continue to dominate Vietnam’s export revenues, Nam said.
Vietnam’s export revenues reached $115.5 billion last year, up 18 percent over the previous year, of which foreign firms contributed 63 percent, according to the General Statistics Office.
However, the foreign firms’ exports are not greatly beneficial for the country since value-addition is low, Nam said.
Samsung has been in Vietnam for more than a year, exporting products worth around $1 billion each month, and Canon Vietnam’s export revenues topped $1.5 billion last year. However, actual value-addition done in the country before they export is low. The large export by foreign firms should be generating a lot of jobs, but that is not happening, Nam said.
“All the production stages that bring the highest value-addition to a product such as designing or making the most important parts are not done in Vietnam, but abroad.
“Foreign firms in Vietnam only assemble or make packaging for the products. Thus, their added value remains low.”
Vietnam will, therefore, make much greater efforts to shift from export of raw materials to value-added products, he said.
The government has approved a trade strategy for this decade that focuses on doing this, but analysts are skeptical that the objectives will be achieved.
Economist Le Dang Doanh said: “[The government] is on the right track. But to implement it, we need to have detailed action plans and appropriate policies. I have not yet seen them. So it will be difficult to achieve the targets.”
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By Ngan Anh, Thanh Nien News (The story can be found in the February 22nd issue of our print edition, Vietweek)