The economic crystal ball looks mostly cloudy for the year 2011.
Many members of the foreign business community in Vietnam gathered at an annual business luncheon event organized by the Canadian Chamber of Commerce in Ho Chi Minh City last week to discuss prospects for the year ahead. They agreed that overall, they are optimistic, but also wary of several uncertainties.
The managing director of TNS Vietnam, Ralf Matthaes, one of the key speakers at the event, said Vietnam's market will continue to grow in 2011, but at a slower pace than pre-global recession times.
Matthaes said his market research firm expects both exports and foreign investment to show stronger growth in the face of improved economic conditions. The new year will be "slightly better" than 2010, he said.
Forecasting "mostly sunny skies, with scattered clouds," he added the expected caution. "But if inflation winds continue to blow and global recession front does not clear up, heavy storms are expected."
Inflation has been a persistent problem for Vietnam. The government has said high inflation, which hit 11.75 last year, was a weakness of the economy.
Thomas Tobin, CEO of HSBC Bank Vietnam, said at last week's business luncheon that controlling inflation is a key task for the country in 2011 and it would help take a lot of pressure off the local currency.
As for the banking sector, he expected it would "move forward" this year.
Rapid growth in personal incomes will increase demand for savings products, consumer credit and other retail financial services, he said. Besides, as Vietnam is projected to be one of the fastest growing economies in the world, banks can expect a surge in demand for project finance and corporate lending as well.
But Tobin also warned that high interest rates may remain, which means companies should review their debt positions.
According to a central bank report released Tuesday, interest rates on dong loans ranged from 12.5 to up to 20 percent a year.
Even though Vietnam has continued to export more products, there is now serious concern over the country's ability to retain its position in the global market.
Vietnam has been doing well so far because it was able to keep prices low, but that competitive edge is threatened by its heavy dependence on imported materials and increasing labor costs, said Jocelyn Tran, country manager at MAST Industries.
Vietnam is now a major apparel supplier to the US, just behind China in terms of market share, she said. However, unlike other garment producers, Vietnam is "too far downstream in the supply chain" because 80 percent of its products use imported materials, mainly from China.
She said such dependence has made the sector easily affected by flux in world prices.
Vietnam's textile and garment exports totaled US$11.2 billion in 2010, compared to total exports of $71.6 billion. The Ministry of Industry and Trade estimates that garment and textiles will continue to be among the biggest export items, earning $12.5 billion in 2011.
But Tran said it was time to change. She pointed out that with labor cost increasing by 20-25 percent yearly, Vietnam is no longer the cheapest labor supplier in the world.
The country needs to add value to its products, she said, warning that Bangladesh and Indonesia are coming up quickly.
Tran, whose company is a subsidiary of The Limited Brands, which owns several top names including Victoria's Secret, Express and The Limited, said: "Vietnam's growth depends on its speed of reform. The clock is ticking."