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Experts raise concerns about imported inflation risk

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Rising oil and food prices are putting pressure on Việt Nam’s inflation this year. — Photo thanhnien.vn

HÀ NỘI — Việt Nam needs to be wary of imported inflation, especially from rising global energy and commodities prices, experts have warned, urging attention to be paid to promoting exports and putting imports under control.

According to Oxford Reference, imported inflation is inflation due to increases in the prices of imports, which increases domestic costs of production and leads to rising prices of domestically produced goods.

Signs of imported inflation arose from the beginning of this year with the prices of imported fuels, materials and components increasing significantly, making imports grow faster than exports.

Updates from the General Statistics Office showed that Việt Nam’s import value rose by 15.9 per cent in the first two months of this year, compared to the growth rate of 10 per cent of export value. The country switched from a trade surplus of $1.4 billion in January to a trade deficit of $2.34 billion in February.

In January-February, Việt Nam posted a trade deficit of $937 million, compared to a trade surplus of $1.6 billion in the same period last year.

The increase in import value was due to the increases in prices of imports rather than in import volume. The import volume of some products even saw drops such as metals, cashew, coal and gas.

Economic expert Vũ Đình Ánh said that the Russia – Ukraine conflict did not have a significant direct impact on Vietnamese trade but was indirectly affecting trade with many foreign partners. Việt Nam’s trade with Russia and Ukraine accounted for just 1.06 per cent and 0.1 per cent, respectively, of the country’s total trade revenue.

However, the tensions together with sanctions from the US and EU on Russia were heavily affecting fuel, material and food prices, creating inflation pressure on Việt Nam.

Crude oil and food prices already increased sharply in 2021 and continued to skyrocket in the first months of this year.

According to the Food and Agriculture Organisation of the United Nations, the benchmark gauge for world food prices FAO Food Price Index which tracks monthly changes in the international prices of commonly-traded food commodities went up in February, reaching an all-time high, led by vegetable oils and dairy products.

Reuters reported that oil prices soared to their highest level since 2008 due to delays in the potential return of Iranian crude to global markets and as the US and European allies consider banning imports of Russian oil. Brent rose $11.67, or 9.9 per cent, to $129.78 a barrel by 6:50pm EST (23:50 GMT), while U.S. West Texas Intermediate (WTI) crude rose $10.83, or 9.4 per cent to $126.51, putting both contracts on track for their highest daily percentage gains since May 2020.

Imported inflation did not happen in 2021 thanks to the Government’s effective macro-economic policies but has arisen as a risk this year. “Controlling imported inflation is a considerable source of pressure for Việt Nam at this moment,” Ánh said.

Ánh said that while the development of the Russia-Ukraine conflict remained uncertain, it was essential to pay attention to promoting exports and putting imports under control.

Former Deputy Director of the Việt Nam Industry and Trade Information Centre Lê Quốc Phương said that the abundant supply of goods coupled with the stable macro foundation would create room for controlling inflation but the loosened monetary and fiscal policies to promote economic recovery and increasing domestic demand might negatively affect inflation.

Phương said that the VNĐ/USD exchange rate might increase by around 1-2 per cent this year, which would contribute to pushing up prices of imports.

Experts said it was essential for Việt Nam to focus on enhancing product competitiveness and increase added value to promote exports while using more domestically-produced products to reduce imports, especially products which saw strong increases in import prices such as fertilisers and rubber.

The State Bank of Việt Nam should maintain a stable exchange rate policy, experts urged, adding that any adjustment in the exchange rate should be carefully considered to encourage exports and limit imports.

Dragon Capital, based on JP Morgan’s three scenarios for oil prices, forecast that Việt Nam’s inflation would increase by 3.58 per cent in case the average oil price was at $88 per barrel, 3.8 per cent if the oil price was at $100 and 4.18 per cent if the oil price was at $105.  

However, Dragon Capital noted that the impact of rising oil prices might not affect inflation as expected. Domestic fuel prices were affected by global prices but they did not always move in the same direction.

Việt Nam’s fuel price also included many different taxes and was considered a factor to stabilise the market. To control inflation, the Government could make some policy adjustments, such as reducing the environmental tax on petrol. Taxes and fees currently accounted for 42 per cent of petrol and oil prices.

Dragon Capital was also concerned about increases in prices of pork, rice and poultry. —

Source: https://vietnamnews.vn/economy/1162391/experts-raise-concerns-about-imported-inflation-risk.html

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Samsung workers in Vietnam bear brunt of slowdown in global demand for electronics

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Samsung Electronics Co Ltd has scaled back production at its massive smartphone plant in Vietnam, employees say, as retailers and warehouses grapple with rising inventory amid a global fall in consumer spending.

America’s largest warehouse market is full and major U.S. retailers such as Best Buy and Target Corp warn of slowing sales as shoppers tighten their belts after early COVID-era spending binges.

The effect is acutely felt in Vietnam’s northern province of Thai Nguyen, one of Samsung’s two mobile manufacturing bases in the country where the world’s largest smartphone vendor churns out half of its phone output, according to the Vietnam government.

Samsung, which shipped around 270 million smartphones in 2021, says the campus has the capacity to make around 100 million devices a year, according to its website.

“We are going to work just three days per week, some lines are adjusting to a four-day workweek instead of six before, and of course no overtime is needed,” Pham Thi Thuong, a 28-year-old worker at the plant told Reuters.

“Business activities were even more robust during this time last year when the COVID-19 outbreak was at its peak. It’s so tepid now.”

Reuters could not immediately establish whether Samsung is shifting production to other manufacturing bases to make up for reduced output from the Vietnamese factory. The company also makes phones in South Korea and India.

Samsung told Reuters it has not discussed reducing its annual production target in Vietnam.

The South Korean tech giant is relatively optimistic about smartphone demand in the second half, saying on its earnings call last week that supply disruptions had mostly been resolved and that demand would either stay flat or even see single-digit growth.

It is aiming for foldable phone sales to surpass that of its past flagship smartphone, the Galaxy Note, in the second half. It is expected to unveil its latest foldables on Aug. 10.

But a dozen workers interviewed by Reuters outside the factory almost all said business is not good.

Thuong and her friends who have been working for Samsung for around five years said they had never seen deeper production cuts.

“Of course there is a low season every year, often around June-July, but low means no OT (overtime), not workday cuts like this,” Thuong said.

She said managers had told workers inventories were high and there were not many new orders.

Research firm Gartner expects global smartphone shipments to decline by 6% this year due to consumer spending cuts and a sharp sales drop in China.

Samsung town

Samsung is Vietnam’s biggest foreign investor and exporter, with six factories across the country, from northern industrial hubs Thai Nguyen and Bac Ninh where most phones and parts are manufactured, to Ho Chi Minh City’s plant making fridges and washing machines.

The South Korean company has poured $18 billion into Vietnam, powering the country’s economic growth. Samsung alone contributes one fifth of Vietnam’s total exports.

Its arrival nearly a decade ago in Thai Nguyen, about 65 km (40 miles) from the capital Hanoi, transformed the area from a sleepy farming district into a sprawling industrial hub that now also manufactures phones for Chinese brands including Xiaomi Corp.

Generous benefits including subsidised or free meals and accommodation have lured tens of thousands of young workers to the region, but reduced workhours have now left many feeling the pinch.

“My salary was cut by half last month because I just worked four days and spent the remaining week doing nothing,” said worker Nguyen Thi Tuoi.

Job cuts are on some workers’ minds but so far none have been announced.

“I don’t think there will be job cuts, just some working hour cuts to suit the current global situation,” said one worker, declining to be named because she did not want to risk her team leader role.

“I do hope that the current cut will not last long and we will soon be back to normal pace.”

Source: https://tuoitrenews.vn/news/business/20220804/samsung-workers-in-vietnam-bear-brunt-of-slowdown-in-global-demand-for-electronics/68444.html

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Government debt drops by VND57 trillion when exchange rate fluctuates

Public debt is not much affected by the increase in the USD. The evolution of outstanding loans and debt repayment obligations is still under control.

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According to the Ministry of Finance, based on the selling rate of the State Bank, from the beginning of the year until August 1, 2022, one USD equals VND23,400  an increase of 1.1% compared to the beginning of 2022 estimated to increase the Government debt balance in USD in VND by about VND 5 trillion (compared to the end of 2021).

One EUR equals 24,385 VND, down 9.5% compared to the beginning of 2022. It is estimated to reduce the outstanding government debt in EUR in VND by about VND17 trillion ($727 million) compared to the end of 2021.

JPY is equal to 180 VND, down 13% compared to the beginning of 2022. It is estimated that the government debt balance in JPY in VND is about VND45 trillion ($1.9 billion) compared to the end of 2021.

According to the Ministry of Finance, only taking into account the exchange rate fluctuations of 3 main currencies USD, JPY, and EUR, the government debt balance by the end of 2022 is estimated to decrease by about VND57 trillion ($2.4 billion) down 2% compared to the last outstanding balance 2021.

Currently, the volume of domestic loans from the Government accounts for 90% and foreign debts only account for about 10% of the total annual value.

As reported by the Ministry of Finance, from the beginning of the year to July 31, 2022, repayment of government debt is about VND192,122 billion ($8.2 billion) (57.2% of the plan), of which domestic debt repayment is VND148,717 billion ($6.3 billion), foreign debt payment VND43,406 billion ($1.8 billion); direct government debt repayment is about VND 175,835 billion ($7.5 billion)  (58.6% of the plan), on-lending is about VND16,287 billion ($696 million) (45.3% of the plan). The Government’s direct loan repayment obligation compared with state budget revenue in the first 7 months is about 16.1%.

Source: VGP

Source: https://e.nhipcaudautu.vn/economy/government-debt-drops-by-vnd57-trillion-when-exchange-rate-fluctuates-3347118/

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Vietnam’s THACO and philosophy of no surrender

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Truong Hai Auto Corporation (THACO), a typical successful firm in Vietnam’s automobile sector, has been investing heavily in mechanics and the manufacturing of accessories.

THACO leaders shared the firm’s journey to resolve the issue: increasing the localization rate or surrendering to auto imports flooding the local market.

They also shared the one-stop model to help other Vietnamese enterprises cooperate to develop, thereby improving the internal power of Vietnam’s industry.

THACO chairman Tran Ba Duong said at a meeting with mechanical enterprises that “you have technology and machinery. We will build factories and lease them at low prices.”

“If we fail to demonstrate our commitment, you can take your machinery away.

“We will not go back on our words. Only actual acts and thoughts will create values.”

Refreshing itself by enhancing investment

Returning to Chu Lai Industrial Park in central Quang Nam Province nearly three years after Tuoi Tre (Youth) newspaper held the forum ‘Last chance for Vietnam’s automobile industry,’ a series of factories mushroomed, and container trucks have been nose to tail.

The industrial park is home to not only THACO automobile assembly factories measuring thousands of hectares in area but also newly-built factories manufacturing accessories and mechanical products.

Enthusiastically sharing a project to develop THACO Chu Lai into a hub manufacturing mechanical products, accessories, and devices for industries in the central region, Do Minh Tam, general director of Truong Hai Supporting Industries and Mechanics Limited Liability Company (THACO Industries), an arm of THACO, expected the project to boost the development of Vietnam’s industry.

“At first, everyone seemed dubious. They only thought of automobiles whenever mentioning THACO. However, we separated mechanics from the automobile segment in November 2021,” Tam said.

From 17 factories producing automobile parts, THACO Industries has developed a complex of 19 factories whose strategy is to concurrently increase the localization rate and supply accessories and mechanical products to the domestic and foreign markets.

It is a must to develop the factories on a large scale and in a methodical manner as in 2019, THACO and many other automobile manufacturing and assembly enterprises faced a selection: increasing the localization rate or letting car imports flood the local market due to their competitive advantage given import tariff cuts.

Fruitful results and development ambitions

Nevertheless, it is not easy to develop an empire.

In 2021, a meeting on the restructuring of the firm was held by key leaders to choose a new business model, restructure a board responsible for the company’s products because of its more diversified product portfolio, develop a research and development (R&D) center, and boost digitalization, Tam remembered.

However, the results surprised many people. With revenue from mechanics amounting to VND5.7 trillion (US$244.2 million) in 2021, THACO Industries set a target to generate revenue of $1 billion by 2025 and invest in 15 more factories, operating in the mechanics, automobile, agricultural mechanics, construction, household appliance, and product design sectors.

“Mechanical accessories, electric wires, car seats, specialty chemicals, and bodywork will be localized first,” Tam said.

“Once our staff are experienced and we can research and develop as well as design products, we will expand to industrial equipment.”

Multifunctional model

According to Tam, together with changes in supply chains, purchasers have had a higher demand for the one-stop model, which is like a food market with multiple dishes.

With THACO Industries’ advantages in a closed manufacturing chain with lower logistics costs, THACO has repeatedly secured orders of foreign direct investment enterprises, including those ordering a combo of molds, plastic injection equipment, paint and packaging services, instead of sourcing them from four to five separate suppliers.

THACO has a plan to develop industrial parks in the north and the south of the country, thus establishing new-generation specialized industrial parks to suspend the transport of huge volumes of products from Chu Lai to other provinces.

“The close connection and support in the three regions will contribute to optimizing the effectiveness of our value chain, reducing logistics costs, improving the competitiveness, and opening up new business opportunities,” Tam noted.

He added that THACO had also sought to develop a mechanical engineering outsourcing center in association with R&D to support small and medium enterprises in southern Binh Duong Province. The center will be developed under the one-stop model.

This will not be a normal mechanic engineering outsourcing center. R&D services and core technology will be invested in heavily.

Employees monitor a spring production system at the THACO Chu Lai Industrial Park in Quang Nam Province. Photo: Huu Hanh / Tuoi Tre

Employees monitor a spring production system at THACO Chu Lai Industrial Park in Quang Nam Province, Vietnam. Photo: Huu Hanh / Tuoi Tre

The center is expected to attract enterprises with the same sense of purpose of getting involved in global production chains and forming a sustainable mechanical engineering ecosystem.

No rivals, only partners

In the past, THACO manufactured and assembled automobile models for KIA and Mazda and it could be considered a rival of Hyundai and Ford. 

However, with the policy of making friends with partners, THACO is currently manufacturing plastic bumpers for Hyundai Vietnam and Toyota at a lower price than those offered by Thai manufacturers. 

It is also a supplier of springs for Isuzu Vietnam, and will be a partner of Ford Ranger in the near future. 

THACO has launched four cooperation models: partners manufacturing and outsourcing products for THACO; THACO manufacturing and outsourcing the entire or part of products for R&D enterprises; THACO offering R&D services and manufacturing, outsourcing and providing products for enterprises having their own markets; and THACO and partners joining hands to manufacture products. 

These models are expected to enhance the cooperation and competitiveness of enterprises, creating a strong industrial ecosystem and manufacturing society to pave the way for the breakthrough of the mechanical engineering sector and supporting industries.

Methodical support needed

Tam said state agencies’ support should be more methodical and specific.

Amid the shift of foreign investment to Vietnam, if institutes and state agencies conduct macro-scale and specialized research, or assess the advantages and competitiveness of Vietnam’s mechanical engineering sector, enterprises will have more information to grasp opportunities.

It will be too late to make investments after securing orders. 

In addition, the mechanical engineering sector requires large capital while the rate of return is low. Therefore, to secure orders, the state should issue appropriate preferential interest policies for each sector. 

Moreover, it is advised to focus on labor training on the basis of support packages for schools and students in engineering majors to help them approach advanced technology and techniques. 

Incentives in taxes, land, and site clearance are also needed for companies to scale up their investment.

Notably, the development of industrial parks should involve plans to connect them with value chains, associated with expanding markets and seeking new customers.

 

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Source: https://tuoitrenews.vn/news/business/20220804/vietnam-s-thaco-and-philosophy-of-no-surrender/68420.html

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