FDI sector drives export growth, local firms struggle

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Men work on the assembly line at a Piaggio scooter and motorcycle factory in the northern province of Vinh Phuc. Foreign direct investment inflows into Vietnam in the first three months fell 0.8 percent from a year ago. Photo: Reuters

Exports continued to grow in the first quarter on the back of strong performances from the foreign invested sector, but local companies say their shipments have been seriously hurt by the global downturn.

Total exports rose to US$9.15 billion in March from $8.3 billion in February.

For the first three months of the year, shipments climbed 23.6 percent from a year earlier to $24.5 billion. Locally owned companies accounted for just 35 percent and the FDI sector earned the rest, ramping up its export revenues by 43 percent over the same period last year.

Many key staples, including rice, seafood and coffee, saw sharp declines. Rice exports, for instance, fell 42.5 percent in both value and volume, according to the trade ministry.

Exporters say the global slowdown and the debt crisis in Europe have reduced consumption of many Vietnamese products. Businesses have complained that high interest rates have only worsened their plight.

"Prices have fallen sharply but lending rates are high," said Nguyen Thai Hoc, chairman of the Vietnam Cashew Association. "Many cashew companies are unable to repay their debt. Around 40 percent of firms in the industry can't access bank loans."

The Deputy Minister of Industry and Trade, Nguyen Thanh Bien, said the government will ask banks to lower interest rates and extend tax payment deadlines for small and medium companies or firms having many employees.

Trade gap

Imports advanced to $9.3 billion in March from $8.6 billion in February. For the first three months, Vietnamese purchases from abroad totaled $24.8 billion, up 7 percent from the same period a year earlier.

Vietnam's trade deficit narrowed in March. The gap was $150 million, compared with a revised $279 million in February, based on preliminary figures released by the General Statistics Office. For the first three months of the year, the deficit totaled $251 million.

The country's trade deficit narrowed last year, helping improve confidence in a currency that was devalued by 7 percent in February 2011, and allowing the country to begin to rebuild its foreign-exchange reserves.

But China's slowdown and Europe's slump may damp demand for Vietnam's products, slowing export growth.

"It's important that Vietnam not go back to these massive trade deficits which would weigh on the currency," Thomas Harr, the Singapore-based head of Asian foreign-exchange strategy at Standard Chartered Plc, had said before the latest statistics were released.

Recent improvements in the trade gap may have helped build Vietnam's foreign-exchange reserves to about $18 billion from $15 billion at the end of 2011, Ho Chi Minh City-based fund manager Dragon Capital said in a research note in March.

FDI down

FDI inflows into Vietnam in the first three months of 2012 fell 0.8 percent from a year ago to $2.52 billion, a government report said on Monday.

New FDI pledges in the period between January 1 and March 20 totaled $2.26 billion, down 22.8 percent from the same period last year, the Planning and Investment Ministry said in a monthly report. Pledges are measured by the grant of licences for future investments.

Earlier on Monday a state-run newspaper cited the ministry's data as showing FDI inflows rose to $1.52 billion in March, up 52 percent from $1 billion in February, led by a real estate project.

A project to invest $1.2 billion in building Tokyu Binh Duong residential area in the southern province of Binh Duong has brought the real estate sector to the top position for attracting FDI so far this year, the ministry said.

Construction started in early March for the project, run by a venture between Japan's Tokyu Corporation and Vietnam's Becamex IDC Corp.

Vietnam is not projecting a large increase in FDI project inflows in 2012, and is instead aiming to match its 2011 figure of about $11 billion.

FDI, overseas remittances and aid funds are key sources of foreign exchange for Vietnam to offset its trade deficit, which is expected to be more than $10 billion this year.

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