Trade strategy on right track but hard to achieve, say analysts

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Laborers work at a yarn weaving plant of a textile company south of Hanoi. Vietnam's export of textiles and garments last year jumped 25 percent from 2010 to US$14.03 billion, making it the biggest export item of the country, government statistics show.

Prime Minister Nguyen Tan Dung recently approved a trade strategy for this decade focusing on switching exports from raw materials to value-added products and balancing trade, but analysts are skeptical about achieving the objectives.

The strategy envisages gradually reducing exports of raw materials and increasing those of manufactured goods, especially high-tech and environmentally friendly ones.

More specifically, it aims at reducing the shipments of fuels and minerals to 4.4 percent of total exports from 11.2 percent in 2010.

The proportion of processed and manufactured goods is sought to be raised to almost 63 percent from 40 percent.

Export revenues are targeted to triple from $71.6 billion in 2010, or an annual rise of 10-12 percent.

But economist Le Dang Doanh is not sure if any of this can be achieved: "It is a good idea, it 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 is difficult to achieve the targets."

Five years after joining the World Trade Organization, Vietnam may have seen an increase in exports but not a change in their structure, he says.

The exports of footwear, garments and electronic products have risen sharply, but their value addition remains modest, he explains.

Since garment and footwear exports are mainly in the form of subcontracting, value addition is only 25-35 percent of export value. In the case of electronic appliances, the percentage is much lower at around 15 percent he says.

To boost export of high-tech and value-added products, Vietnam needs better logistics, skilled workers and companies with greater capacity and famous brands, he says. "We have not had any of the things. Our logistics services are too expensive. Vietnamese exporters are not competitive."

Nguyen Van Nam, former head of the Institute for Trade Research, agrees, saying though Vietnam's export structure has been shifting in the past 20 years from raw materials to value-added products, the change has been very slow.

He says this is because most local firms are small and do not apply technology in production. The speed of change may increase, but it is still unlikely to be as fast as hoped for, he says.

The shortcomings he lists in the strategy include failure to identify specific items whose exports need to be boosted and vague export promotion measures.

For instance, he says, the government has for many years sought the development of support industries for garment production, but has not spelled out which materials it needs, who will develop the industries, and which technologies should be used.

Thus, the garment industry continues to depend on expensive imports, he says. "The situation is mainly due to the irresponsible management."

Vietnam has advantages in sectors such as garments, footwear, woodwork, technology-based items like mobile phones, software, and electronics, Nam says.

"We have to deal with capital and human resource issues too. But the most important thing is to have suitable policies."

The funds allotted for trade promotion are too low and the activity is thus ineffective, he says. "We often export products only when customers order them. Our firms seldom find foreign buyers."

The export market is huge, but Vietnam is unable to take advantage of it, he says. "Though the EU, the US, and Japan are our biggest markets, our exports to them are too small compared to their imports."

Balancing trade

The strategy also envisages gradually reducing the trade deficit to below 10 percent by 2015, eliminating it by 2020, and achieving a trade surplus from 2021.

Nam says the target is achievable since the trade deficit has been falling since 2009, but it should first be ensured that the reduction is stable.

The deficit was $9.5 billion last year.

"To narrow the trade gap in a stable manner, we have to increase exports, but we have not done it," Nam says.

Some agricultural products like coffee, rice, and seafood have seen export growth, but mainly in volume terms and not in value addition, he says.

Deputy Minister of Industry and Trade Nguyen Thanh Bien says production of feedstock and equipment will be stepped up to reduce the reliance on imports.

The country will also put up more technical barriers in line with international commitments to limit the imports of low-quality products that could destroy the environment and affect people's health, he said.

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