With inflation soaring, Vietnam’s factories are feeling
the pinch. Are a raft of government reforms too little too late to prevent an
economic crisis?
With the streetlights warming
to a low glow outside as dusk turns to dark, Trang Hoang Yen is still running
t-shirts through a sewing machine as most of her staff leave for home.
“Normally we have a lot more
workers, but the past year has been very hard for our sector,” she says,
stopping work for a few minutes to talk.
Trang Hoang Yen's small
factory, on a side street in Ho Chi Minh City, has seen better days. Down from
30 to 14 staff year-on-year, she says the company’s input costs “have gone up,
and production costs have doubled.”
Inflation in Vietnam hit 23
percent in August, although it has since dropped off a little to just under 20
percent. The Vietnamese government has responded with a number of
countermeasures in an attempt to cool an economy in danger of overheating,
although some analysts say the lid is already bubbling off the pot. Vietnam's
foreign exchange reserves are on the slide, and the country faces a trade
deficit of $10 billion in 2012, according to the government.
So, will the reforms, including
credit restrictions and interest rate hikes, be enough to cool things? Some
analysts think not.
In comments delivered at a
donor conference in Hanoi on December 6, International Monetary Fund resident
representative Sanjay Kalra was clear on the issue, saying, “The authorities
need to move rapidly and decisively to ensure financial sector soundness while
re-establishing macroeconomic stability.”
Other remarks delivered at the
forum focused on the need for reform of the banking sector, privatization of
state-owned enterprises and the curbing of corruption. Vietnam was ranked 112
out of 182 countries surveyed in the latest Transparency International global
graft index, published last month.
Some donors spoke about
Vietnam’s poor record on human rights and freedom of expression, with lawyers,
writers, bloggers, activists, journalists and protesting civilians regularly
being arrested and jailed. Norwegian Ambassador Stale Torstein Risa told
Vietnamese Prime Minister Nguyen Tan Dung that loosening political restrictions
in the one-party state could contribute to a sounder economy.
Vietnam now seems to be at an
economic watershed, perhaps reminiscent of the 1980s, when it introduced its
much remarked upon doi moi ‘opening-up' of the country's economy to foreign
investment, following China down the authoritarian-liberalization political
economy path. Normalization of relations with the United States in 1995
brightened Vietnam’s “rising star” status, culminating in Hanoi joining the World
Trade Organization in 2007.
Speaking at a November 28 Hanoi
business lunch for Irish investors in Vietnam, Deputy Minister for Planning and
Investment Cao Viet Sinh said there are 13,450 investment projects in Vietnam,
adding that the government hoped to attract more in the coming years.
Brands such as Intel, Honda and
Nike have all opened large plants in Vietnam, whose attractiveness for
investing companies is partly rooted in its cheap labor force, estimated to be
the second-lowest in Asia after Cambodia by the European Chamber of Commerce in
Vietnam, and thus a major pull for investors in labor intensive sectors such as
clothing and footwear.
These are low-cost, low
value-added sectors, however, and it remains to be seen whether an economy
possibly approaching a crisis can continue to pull in investment and transition
to more sophisticated products.
Tourism is another potential
growth sector for Vietnam, given that visitor numbers for 2010 show just over
five million arrivals, compared with 14.15 million and 23.65 million for
neighboring Thailand and Malaysia respectively. Tourism accounts for about 4
percent of Vietnam's economy. However, Thailand and Malaysia allow tourists to
remain for a month without a visa, unlike Vietnam, which requires a visa in
advance or queuing for a visa on arrival.
Duong Sinh Son runs a
“homestay” in Hin Village on the edge of a national park in Thanh Hoa Province,
about a three hour drive from Hanoi. Impressive vistas of green hillsides and
rice paddy valleys make for a spectacular and affordable hiking location away
from the well-worn Halong Bay and Sapi tracks.
Sitting cross-legged on his
bamboo floor-on-stilts, Duoung Dinh Son says he gets between 200 and 300 guests
each year since he opened. Charging $7 per night, he says he hopes to attract
more visitors, but that is contingent on Vietnam attracting more tourists amid
intense and increasing regional competition, with reform inclined Burma likely
to emerge a growing destination in coming years.
Recent problems and looming
challenges aside, Vietnam’s economy is still growing, by 6.5 percent in 2010;
the World Bank forecasts only a percentage point drop for 2012. Still, growth
figures are an abstraction for small business owners and ordinary Vietnamese
trying to make ends meet, especially with inflation pushing people beneath the
poverty line. For Trang Hoang Yen, the tough times look set to continue. But as
she nods toward a Sacred Heart hanging above her shop door, she adds: “Thank
God, sometimes good things can come.”
A recent order from Norway for
5,000 plain t-shirts for the Christmas market has kept her busy – and kept
business ticking over despite inflation-related difficulties. “I want to expand
this business,” she says. “But that will have to wait until things pick up.”
Simon Roughneen is a Southeast
Asia-based journalist.
The Diplomat
Business & Investment Opportunities
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