Improving support industries

Weak links between mechanical engineering businesses, limited bidding mechanisms, and inappropriate policies have hindered the steady development of support industries in Vietnam over the past years.

According to a recent survey of 650 support industry businesses in HCM City, Dong Nai and Binh Duong by the National Centre for Socio-Economic Information and  
Forecasting, most businesses in the support industry are facing a range of difficulties related to market instability and expansion, capital shortages and limited access to financing.

Businesses were asked about their product volume, product lists, revenues and profits over the last three years.

About 600 of the businesses surveyed said they are trading 460 product codes and services, which account for 46.7 percent of support industry-related products including 27 codes for electronic and computer products and 15 for automobile spare parts.

This indicates that the variety of products produced by support industries remains poor and the technological content is still low, which is a long way from meeting the demands of the assembly industry in Vietnam.

Export products, on average, account for 32.6 percent of the surveyed businesses’ total revenue, with foreign direct investment (FDI) businesses recording 42.7 percent, triple that of private businesses.

Electronic and computer businesses said that exports account for 57.7 percent of their total business.

FDI businesses import 51.3 percent of their input materials and spare parts, while private businesses only import 18.9 percent.

The market links between support industry businesses is still very poor, even though more than 74 percent of the businesses surveyed confirm they are interested in using domestic suppliers.

In addition, the supply contracts signed between businesses tend to be short-term; 80.6 percent of input supply contracts and 74 percent of output contracts are on terms of less than one year. Very few contracts are arranged for over one year.

The survey indicated that limitations of current policies have prevented businesses from making development breakthroughs.

Survey Manager Nguyen Viet Se says that very few of the surveyed businesses have benefitted from preferential policies.

Around 45 percent reported they enjoyed benefits from preferential policies for tax relief and land leases, while just 19 percent said they benefited from credit support policies. Only 5.1 percent of businesses mentioned benefiting from training support policies.

Se attributes the low level of beneficiaries to the continually changing policies, and lack of information and necessary consulting services, which has decreased business confidence in the support industry’s prospects for development.

According to the survey, 41.4 percent of businesses say they will continue to invest in the support industry while 50 percent have decided not to invest or have not yet devised clear plans for action.

To stimulate the support industry’s growth in the future, the survey group has asked the Government and relevant agencies to revamp regulations in order to create a legal foundation for businesses, and ensure equality and transparency in business consulting to create favourable conditions for them to access the benefits provided by Government policies.

It is imperative to renew technologies, attract more FDI businesses and trans-national groups, and strengthen links between local businesses to promote the development of a strong Vietnamese support industry, the survey group emphasizes.

State Bank holds second bullion gold auction

The State Bank of Vietnam organises the second auction of bullion gold on April 4.

The same amount of 26,000 taels of gold will be up for bids with the reference price of 43.61 million VND per tael, around 100,000 VND lower than prices on the market. (One tael equals 1.2 ounces).

Since March 28, when the first auction was held, domestic gold prices have been higher than world prices by 3 million VND per tael.

With news of the second auction on April 3, despite declining world prices, the Vietnamese market still saw an increase, which made the gap widen to 3.3-4 million VND.

With these moves, the central bank is aiming at stablising the gold market. 

Invest ASEAN-Vietnam promotes capital market connectivity

The 2013 Invest ASEAN-Vietnam conference was organized for the first time by the Ho Chi Minh City Stock Exchange (HOSE) on March 30.

Tran Dac Sinh, chairman of the HOSE Board of Directors, stressed that Vietnam must follow the common regional and international trends of connectivity and integration.

The ASEAN connectivity, initiated by stock exchanges within the bloc with HOSE being a founding member, is on the right track to show their respective governments’ strong commitment to liberating the regional capital market.

Invest ASEAN is a regional event which is implemented by the first three countries with connected transactions to promote the region’s capital market.

This year’s conference focused on introducing common ASEAN initiatives and experience in connecting transactions, as well as opportunities and challenges when becoming involved in the transactions through ASEAN connectivity.

The conference features a wide range of events to offer regional investors access to the top companies listed on ASEAN Stock exchanges, especially the ASEAN Star group of 30 prominent companies involved in various industries with the largest market capitalization and highest liquidity rates in each member country.

It is an ideal starting point for investors seeking business opportunities in the ASEAN market of more than 3,600 regionally listed companies.

Tra fish exports to US see 10 percent price hike

The export price of Vietnamese tra fish bound for the US has risen by US$0.3-0.4 per kilo, 10 percent higher than in mid-March, when the US Department of Commerce  
(DOC) levied a new range of anti-dumping duties on the staple.

According to deputy chairman of the Vietnamese Association of Seafood Exporters and Producers (VASEP) Duong Ngoc Minh, the new export prices are US$3.75 a kilo for high-quality fish and US$3.56 for the normal breed.

Export volume has dropped since mid-March following the DOC decision, but a recent market survey found that most US importers are running out of stock, so they have to bid higher in order to maintain supplies, Minh said.

Exports are expected to grow again next month, with prices forecast to increase up to US$0.15 per kilo due to the US supply shortage and rising prices in other exporting countries.

Hanoi devises solutions to curb inflation

Hanoi has devised solutions to keep inflation in check this year as the national economy still faces challenges in 2013.

The focus will be on controlling interest rates and monitoring the trading of foreign currencies  and gold on the local market to avoid risks in the banking and monetary sectors.

The capital city will also speed up the disbursement of funds for capital investmentconstruction projects and remove obstacles for businesses.

In the second quarter of this year, specific  policies will be developed to support businesses in terms of financing to expand their investment and business activities.

Hanoi has paid attention to developing services to support businesses, distribute electricity properly, stabilize production and generate jobs.

This year, it aims to concentrate on expanding trade promotion, seeking partners, boosting investment and broadening export markets. The city will continue to improve its image during the National Tourism Year of the Red River Delta, as well as tourism fairs in Hai Phong and the Asian Network of Major Cities 21 (ANMC21) to be held in the future.

It will also accelerate planning, control investment from State budget capital sources and government bonds, and implement effective Build-Operate-Transfer (BOT) projects to attract FDI and ODA sources, as well as speeding up the implementation of major transport projects.

Vietnam-UK trade turnover approaches US$4.4 billion

Two-way trade turnover between Vietnam and the UK reached US$4.37 billion in 2012 - up 35.5 percent compared to 2011 - according to statistics from the Vietnamese Embassy’s trade office in the UK and Northern Ireland.

Vietnam’s UK exports totalled US$3.9 billion, up 44.3 percent on 2011’s figure. The country’s key export items include electronic equipment, footwear, mechanical equipment, garments and textiles, interior decoration accessories, coffee, tea, spices, plastics, and leather products.

Vietnam's UK imports fell by 11.3 percent to US$467.47 million in 2012. Primary imported commodities included chemicals, nuclear reactors, boilers, mechanical equipment, pharmaceutical products, electronic equipment, films, cattle feed, plastics, and rubber.

Vietnam is currently 43rd out of the UK’s 235 international trade partners. The bilateral trade exchange makes up 0.34 percent of the UK’s total trade turnover.

Vietnam was 34th among the 229 countries exporting to the UK in 2012 and 73rd among its 230 import customers.

The trade exchange in January 2013 was 67 percent higher than the US$484 million in January 2012. Exports to the UK increased by 81 percent while imports from the country fell by 20 percent.

The UK and Northern Ireland’s Vietnamese Embassy Trade Councilor Nguyen Thi Hong Thuy noted the difficulties confronting the global economy in 2013 and the enduring repercussions of the Eurozone’s debt crisis. Maintaining a high bilateral trade turnover will be a major challenge for businesses of both nations.

Thuy said 2013 is also the 40th anniversary of the two countries’ diplomatic ties. Both nations have planned a diverse range of celebratory activities that will hopefully contribute to the continued growth of the bilateral trade relationship.

According to Thuy, many Vietnamese businesses have yet to develop the level of professionalism demanded by the pressures of the international market. Poor language skills and little knowledge of trade, laws, culture, and international business customs still hinder Vietnamese goods overseas.

Businesses must focus on consolidating this knowledge if they are seeking to expand trade relations in a sustainable manner.

Investigation into FDI tax evasion a non-starter

For some time certain large foreign-invested companies have been suspected of transferring their operational costs to their parent companies overseas in order to appear unprofitable. This has helped giant businesses potentially avoid paying taxes in Vietnam.

Four months ago, there were a number of stories in the mass media accusing Coca-Cola outright of tax-evasion. The company has been reporting annual losses of VND100 billion (USD4.77 million) since their start of operations in Vietnam, about 10 years ago, with certain years' reported losses reaching one third of their revenues.

In response, Nguyen Duy Khuong, Vice Chairman of Danang municipal People’s Committee, attempted to reassure the public by saying that local authorities would not allow companies suspected of price transferring with their overseas parent firms for the purpose of avoiding taxes to expand their business activities in the city.

Consumer advocates were not satisfied with the promise, however, and there were threats of boycotts of products from companies, including not only Coca-Cola, but also Pepsi, Adidas and Metro Cash & Carry.

Last December an official from the General Department of Taxation said they would conduct an inspection of Coca-Cola and Pepsi, but there has been no action since then.

With an estimated 14,550  FDI projects in Vietnam over the last 25 years, bringing in around USD211 billion in investment, foreign investment has played a large role in Vietnam's economic development. However, many experts have called for more diligence to be paid to companies suspected of tax fraud to ease public concerns over the issue and increase the state budget.

Vietnam delays the establishment of assets management company

The establishment of an assets management company (AMC) will be delayed due to the limited options in dealing with bad debts.
 
At a banking meeting in Danang City on March 20, Governor of the State Bank of Vietnam Nguyen Van Binh said the AMC might be set up by March 23. However, Vu Duc Dam, chairman of the Government Office said at a regular press meeting on March 29 that the work would be delayed.

This company would work under the State Bank of Vietnam as a help to resolve bad debt. However, the proposed regulations have not gained support from the state officials at the regular government meeting in March.

According to the draft plan, AMC will only deal with bad debts in the inter-banking market while it has been hoped to be able to resolve the bad debt between banks and businesses.

"The establishment will be delayed at least until next regular government meeting next month. Ministries and state agencies must quickly complete the draft plan and prepare more detailed regulations in the mean time," Dam said.

He further said even though the AMC's formation had been delayed, it still tried to gradually deal with bad debts. However bad debts could not disappear immediately.

"The AMC is only one of many measures must take to limit bad debts," he said.

The business community strongly expected the launch of the company despite various controversies. The AMC is supposed to play an important role in controlling bad debts which is the main culprit for weak liquidity in the banking system.

HCM City identifies five key sectors for preferential loans

Ho Chi Minh City has selected five sectors for which preferential loans should be given, including agriculture and rural development, exporters, support industries, small and medium enterprises and high-tech enterprises.
 
The decision was announced in a report concerning the socio-economic development in the city in the first quarter of the year, which also set new goals for the coming quarter.

Thai Van Re, Director of the local Planning and Investment Department, stated that the GDP growth of the city, which reached about VND113 trillion (USD5.4 billion), an increase of 7.6% from last year, shows good signs for economic development.

Although the number of new enterprises did not indicate an increasing trend, the total amount of investment in HCM City during the first quarter is higher than the same period last year. These statistics would seem to indicate that both foreign and local investors are regaining confidence in the service and manufacturing sectors.

On the other hand, a number of local authoritative bodies have expressed concern over the halting of operations among some firms, especially in the real estate and securities sectors. They also complained about the reduction to local public budgets resulting from recent reductions in taxes.

In addition, site clearance remains a problem for many infrastructure and real estate projects.

Le Hoang Quan, Chairman of HCM City People's Committee said they would continue to support enterprise and contribute to social housing programmes.

According to the central bank’s HCM City branch, local banks have given loans worth nearly VND100 trillion to around 22,000 corporate clients in these five preferred sectors.

The agency has cooperated with local authorities to carry out many connection programs between banks and enterprises to help businesses access capital sources.

The Saigon Times Newspaper quoted Nguyen Hoang Minh, deputy director of the central bank’s HCMC branch, as saying that two connection programs have been organized this year, one in District 8 weeks ago and one in District 6 that took place on Wednesday.

Some 34 enterprises and traders of Binh Tay, Phu Lam and Minh Phung markets in District 6 on Wednesday were given loans with the total value of VND671 billion at lending rates under 11% per annum. The credits were given by VietinBank’s branch no. 6, the Saigon Times reported.

Real estate firms adopt sideline businesses amid slump

Many real estate companies in HCM City have been switching to other temporary businesses to overcome the financial difficulties and prepare for a brighter future.

Despite being renowned in the real estate market, Thu Duc Housing Development JSC (Thuduc House) is struggling to overcome their current difficulties by doing several sideline businesses including trading in Thu Duc farm produce wholesale market.

Previously, Thuduc House only built markets for lease, now it is involved in direct trading by collecting farm produce from farmers for delivery at the wholesale market or for export. The firm planned to co-operate with some private companies that specialise in farm produce exports in the Asian region.

Thuduc House’s CEO Le Chi Hieu said, “Since 2012, we’ve made plans to develop in new directions. Apart from real estate, we’ll do some other businesses including farm produce trading and construction projects in order to increase our revenues and ensure staff payment.”

Vinaland, one of leading real estate firms in HCM City, has been compelled to switch to new businesses.

It has had to halt its main operations in the construction of apartment and high-rise building and move to building markets for lease. One of these projects is Phuoc Long Market, which was built in an area of 10,000 square metres in District 7’s Phu My Ward with around 700 stalls.

Tran Minh Hoang, Chairman of Vinaland’s Board of Directors, said the new strategy has brought efficiency and long-term prospects.

Phuc Duc, one of leading real estate firms specialising in project development in HCM City, has temporarily switched to trading in ornamental trees.

Company chairman Lam Van Chuc said that they had invested in ornamental apricot trees in Long An Province and gained big profits.

While many real estate companies were compelled to file for bankruptcy, several others have opted to trade in clothing or beverages.

World rice price slump hits exporters

The price of rice continued declining during the first quarter of this year, creating problems for rice exporters despite an increase in rice export volume.

Rice prices were down 14 per cent against last year in the first quarter, while rice exports in the first three months grew by 34.3 per cent in volume. The result was a 5.7 per cent drop in export turnover to US$616 million, as prices fell to $450 per tonne.

According to Vietnam Food Association chairman Truong Thanh Phong, the fall in prices due to abundant supplies.

India, for example, now has 35 million tonnes in stock while it only needs 14-15 million tonnes to ensure domestic food security.

Thailand is also capable of supplying 21 million tonnes to the world market in the next crop while its inventory is 14 million tonnes.

"Many enterprises have made heavy investments in an effort to obtain licences to export rice. But I think they should not invest more because demand is too low," Phong said.

Agricultural production is by its nature not stable. Therefore, prices will be adjusted following market movements, said the chairman.

He predicted that farmers' earnings this year may be lower than 2012 given tough competition from Thailand.

India is now also offering rice at US$30 a tonne higher than that of Vietnam, so it is difficult for Vietnamese firms to raise their prices, he added.

Last year, the nation had 144 rice exporters, with the 71 largest exporters accounting for 91 per cent of the country's total rice export turnover, said Phong.

By the end of this month, Vietnam had signed contracts to export 3.5 million tonnes and has already shipped 1.1 million tonnes, up 20 per cent and 12 per cent respectively on last year.

Cooking gas prices see largest fall this year

Saigon Petrol’s gas prices will be cut by VND24,000 per 12-kg cylinder from today (April 1) against early March, the biggest decrease so far this year, said a firm official.

Do Trung Thanh, Deputy Sales Manager of Saigon Petrol, said the price decrease will offer a retail price level of VND381,000 (USD18.14) per 12-kg cylinder canister in April.

“The import price in April was cut to USD812.5 per tonne, which is down USD82.5 from March,” Thanh said.

Earlier, gas wholesalers predicted that gas prices this month would take a sharp fall as much as USD100 per tonne or more compared to early March.

This is the fifth consecutive cut in gas prices this year.

In March, gas prices were also cut by VND4,000 per 12-kg cylinder; meanwhile the fall was VND13,000 in February and VND7,000 in January.

MT Gas Company reduced their retail prices for a 12-kg canister to VND380,000, and Pacific Petro also decreased their prices to VND24,000 per 12-kg canister.

Van Don aims to boost eco-sea tourism

The island district of Van Don in northern province of Quang Ninh has set its sights on attracting 620,000 tourists to the area this year and become a hub for eco-sea tourism in the north.

To prepare for this summer, the local authorities and travel agencies have spared no expense on advertising campaigns in addition to enhancing and developing tourism services to attract tourists.

According to Le Quang Thach, deputy chairman of Van Don District's People's Committee, the roads in the district leading to central beaches, fresh water and electricity supply have been upgraded.
The small islands' docks have been rebuilt while a larger-scale tourism port has been constructed in the southern port of Cai Rong Town.

The district has also invested in training for tourism staff and encouraged local tourism companies to organise domestic and overseas classes for their employees.

There are more than 1,200 rooms for rent in the district, 29 per cent of which reached 2-star standard. The district aims at increase on last year's tourist numbers of 540,000, up 13 per cent against 2011.

HSBC: Vietnamese manufacturing rebounds in March

The manufacturing sector of Vietnam edged back into expansion in March, with the PMI posting a 23-month high of 5.08.

The figure was contained in the Hong Kong and Shanghai Banking Corporation (HSBC)’s report on Vietnam’s purchasing managers’ index (PMI) in March, released on April 1.

March data pointed to modest recoveries in the levels of both manufacturing production and new orders, following contractions in the previous month.

Companies benefited from an improving domestic market, increased promotional activity and a slight expansion in the level of incoming new export orders, the bank said.

New export business increased for the first time in 11 months during March. Manufacturers linked the latest growth in new export sales to improved demand from clients in China, Japan and Thailand.

Growth of new orders and production filtered through to the labour market, with March seeing employment rise for the fifth time in the past six months.

Input cost inflation surged higher during March, amid reports of increased prices on international commodity markets.

Part of the increase in input prices was passed on to clients in the form of higher selling prices. Output rate of contraction charges rose for the second successive month and at the fastest pace since April 2012. However, the rate of increase in selling prices remained well below that of input costs.

Vietnam manufacturers maintained a preference for reduced inventory holdings in March, leading to further depletion of both raw material and finished goods stocks. In contrast, purchasing activity was raised for the second time in the past three months, reflecting increased production.

Asia Economist at HSBC Trinh Nguyen said March’s expansion of manufacturing output is consistent with the bank’s view of a gradual recovery in Vietnam.

The process is likely to be bumpy, however, she said, adding that what's most positive moving forward is a rebound of external demand, which should help counterbalance weak internal demand in the coming months.

Cat Ba Tourism Year 2013 launched

The Cat Ba Tourism 2013 opened on March 31 with an art performance in Cat Hai island district of northern Hai Phong port city.

The event marked the 54th anniversary of Uncle Ho’s visit to a fishing village there and was part of major activities to welcome the National Tourism Year of the Red River Delta - Hai Phong 2013.

At the opening ceremony, Vice Chairman of the Hai Phong city People’s Committee Le Khac Nam said Cat Ba island has become an attractive destination for many visitors and is one of the world’s biosphere reserves. It is also a place to protect a rare species named white-headed langur.

Last year, the number of tourists to this national beautiful landscape reached more than 1.3 million.  

Haiphong city is striving to turn Cat Ba island into the nation’s tourism and culture centre and an important port region in the northern region.

It expects to welcome one million visitors to Cat Ba this year.

Drop in number of foreign visitors in first quarter

Data from Vietnam National Administration of Tourism shows a 6.2 percent year-on-year fall in the number of foreign visitors to Vietnam in the first quarter of the year.

Air travellers showed the sharpest drop of 7.2 percent; land travellers dropped by 0.3 percent; and sea travellers by 6.4 percent.

Compared to the same period last year, visitors from most major tourism markets posted only a slight increase or dropped in the first quarter of the year. For instance, China rose 0.7 percent; South Korea surged 8.7 percent; Japan declined 1.8 percent; the US fell 5.3 percent; and Taiwan (China) plunged 18.5 percent.

Visitors to Vietnam for tourism accounted for 61.3 percent of total number of visitors, a fall of 4.7 percent while visitors for business purposes accounted for 16.9 percent, dropping 4.8 percent year-on-year.

Mekong Delta undecided on rice seed variety for next crop

Farmers in the Mekong Delta are undecided about the rice variety to grow this summer-autumn crop as each season rice traders seem to change their pattern of purchasing according to market demand.

Farmers have so far harvested 75 percent of the winter-spring crop and begun to seed for the summer-autumn season. However, they are undecided on which rice variety to cultivate next.

According to agricultural experts in An Giang and Kien Giang Provinces and Can Tho City--areas for high quality rice cultivation in the Mekong Delta--farmers produce fragrant and high quality rice which requires much more time, effort and cost. However, traders still pay low prices.

Last year, they paid VND7,000 a kilogram for fragrant Jasmine rice, which has fallen to VND6,100-6,200 now, said Doan Ngoc Pha, Deputy Director of the Department of Agriculture and Rural Development in An Giang Province.

Pha said that the Ministry of Agriculture and Rural Development has encouraged residents to produce fragrant rice. However, businesses preferred purchasing low quality IR 50404 variety from the winter-spring crop.

Tu Nghiem, a rice grower in Thot Not District in Can Tho City, said that cultivation of fragrant rice is risky because of lower resistance to disease, compared to low quality rice.

However, businesses are unpredictable and farmers are unable to plan rice variety to grow for next season, he said.

Consumption and price of fragrant rice is the lowest in Can Tho City, which cultivates upto 40-60 percent of this variety in the winter-spring crop.

The Mekong Delta plans to seed about 1.68 million hectares of summer-autumn rice this year with output expected to reach 9.3 million tons. However farmers are uncertain on choice of seed.

The Department of Cultivation under the Ministry of Agriculture and Rural Development has recently provided rice seed for the summer-autumn crop with most being high quality and fragrant rice but not the low quality variety.

The Ministry of Agriculture and Rural Development has advised farmers to grow only around 15-20 percent low quality rice. However, this ratio is higher in some localities.  In a recent inspection in Tra Vinh Province, the Cultivation Department found that farmers cultivated upto 40 percent of IR 50504.

Professor and Dr. Bui Chi Buu, head of the Institute of Agricultural Sciences for Southern Vietnam, said that the Mekong Delta should not focus on cultivation of fragrant rice because the world demand is only VND2-3 million tons a year, whereas Thailand produces 1.6-1.8 million tons, and India 300,000 tons.

Production of low quality rice should also be reduced due to strong competition from Myanmar and India. He advised the Mekong Delta to concentrate on production of long grain white rice. Already, several Vietnamese businesses are heading towards this market segment.

Rice prices in the Mekong Delta remained stable even as several businesses completed purchase of quota of one million tons of rice for the government stockpile program on March 28.

Traders are paying VND5,000-5,100 a kilogram for IR 50404 rice variety, VND5,200-5,300 for long grain rice and VND5,600-5,700 for fragrant Jasmine rice.

Drop in retail sales in March

According to the General Statistics Office, retail sales and services merely touched VND211.3 trillion in March, down 0.6 percent compared to the previous month, and up 11.8 percent year-on-year, with consumers continuing to tighten spending due to the economic slump.

In the first three months of this year, retail sales and services brought in an estimated VND636.2 trillion, up 11.7 percent year-on-year. If factor price is excluded, rate of rise was just 4.5 percent, lower than 4.7 percent in the same period last year.

In the first three months of the year, trade accounted for the largest proportion of 77.3 percent with VND491.8 trillion, up 10.8 percent year-on-year.

Revenue from restaurants and hotels reached VND75.4 trillion, up 15.4 percent; services touched VND63.3 trillion, up 15.3 percent; and tourism hit VND5.7 trillion, up 4 percent.

Market remains sluggish in spite of stimulus

Poor purchasing power and high inventory has left several firms in turmoil and although many stimulus measures were launched, the market has not shown signs of recovery.

Directly affected by a long-lasting frozen property market, several companies dealing in construction material were agonizing over poor sale of merchandise. Many companies in steel, cement, and terracotta had to halt operations or cut production to avert losses.

According to the Vietnam Steel Association, steel production reached 260,000 tons in February, down 83,000 tons compared to the same period last year. Last month, consumption of steel was at 250,000 tons, a decrease of 153,000 tons compared to previous month and 139,000 tons year-on-year, raising steel inventory to above 320,000 tons, up 40,000 tons year-on-year.

Notably, although consumption was poor, the price of materials for steel manufacturing tended to rise in international market, whereas retail steel price was not able to climb, remaining at around VND16-18 million per ton. With the current production and consumption, most steel producers were running at a loss. Meanwhile, competition in this sector was expected to become more severe.

According to forecasts, there will be five more steel factories being put into operations this year with a capacity of 1.5 million tons annually, increasing the country’s total steel production to 11 million tons per year, while real consumption was at around 5 million tons per year. A surplus supply will boost competition in the market.

Despite a surplus of steel in the local market, last year the country imported about 5 million tons of steel at a cost of US$5 billion, mainly from China, whereas steel exports merely touched 2 million tons, worth nearly $2 billion.

Nguyen Tien Nghi, deputy chairman of Vietnam Steel Association, said if consumption remains sluggish, many companies will halt operations as most of their working capital depended on loans. Just in February, four members of the association shut down while some others reduced capacity and operated perfunctorily.

Similarly, the Ministry of Construction said that consumption of cement was estimated at 3.7 million tons in February, accounting for 7.4 percent of this year’s plan, and cement exports touched 0.52 million tons.

Cement market remained subdued though producers continued to offer 3-5 bags of cement for free on 100 bags of cement. According to plan, demand for cement will be around 56-57 million tons, of which cement for domestic consumption will be around 48.5-49 million tons and cement for export at 7.5-8 million tons.

However, in reality, most cement producers were running at 70 percent of capacity with factory delivery price swinging between VND1.4 million and VND1.7 million a ton. The Saigon Construction and Building Material Association said that besides steel and cement producers, ceramic, brick, and glass producers also cut production by 50-70 percent due to high inventory.

Although the first quarter of this year is almost over, purchasing power in the market remains weak as the economy is still in slump, urging consumers to become more cautious in spending.

At supermarkets and retail markets, only essential goods and fast moving consumer goods still saw strong purchasing power. Meanwhile, as for other sectors, though the promotional campaign for International Women’s Day was not over, distributors still launched other promotional campaigns on thousands of products with a discount of upto 49 percent. In other words, at this time, most supermarkets had to do what it takes to clear inventory and reclaim their capital.

Director of a supermarket in Ho Chi Minh City said that purchasing power was never as weak as this year. This situation would likely persist to the end of the second quarter. The sole solution to stimulate consumption was to run promotional campaigns though many products had to be sold at breakeven price.

Bui Hanh Thu, deputy CEO of Saigon Co-op, said that as for slow moving consumer goods such as electronic appliances, refrigeration appliances, household appliances, clothes, and footwear, producers had to coordinate with distributors to seek effective solutions to boost consumption.

According to the Ministry of Industry and Trade, processed products were highly consumed in February but inventory index of processing and manufacturing sector marginally dropped compared to the previous month and the same period last year. The inventory index by February 1 of industrial processing and manufacturing industry climbed 19.9 percent year-on-year.

Among industries with high inventory index, sugar rose 28 percent; beer soared 49.9 percent; cigarette surged 49 percent; ready-to-wear clothing mounted 25.2 percent; clothes hiked 27 percent; footwear edged up 31.9 percent; and crumpled paper and packing paper increased 33.7 percent.

First five-star resort opens in Ben Tre Province

The first five-star resort has just opened in Ben Tre Province across 21 hectares of land in Phu Tuc Commune of Chau Thanh District, providing such facilities like restaurants, spas, luxury villas, a golf course and conference facilities.

Forever Green Resort has been built by Lo Hoi Company at a cost of US$50 million, and considered the largest investment in tourism in Ben Tre Province.

The resort provides 60 modern villas, restaurants, an ecological park, a spa, karaoke bar, fitness and recuperation centre.

The facility also has 120 rooms, a swimming pool and conference facilities for 1,000-1,500 guests.

Still to be built are 120 bungalows, a golf course and a seafood restaurant by 2018.

DragonAir kicks off Danang-Hong Kong route

DragonAir on Thursday opened direct flights between Danang and Hong Kong - the 14th direct international air service to the central city.

Using Airbus A320, the Danang-Hong Kong service will operate with weekly flights on Tuesday, Thursday and Sunday.

With the launch, Danang is now the second destination in Vietnam, after Hanoi, of this carrier after five years of operation in this country.

According to Chief Executive Officer Patrick Yeung, DragonAir plans to expand its flight network to many other destinations in Asia and that Danang, with the advantage of being a young dynamic city, is the perfect choice for its plan.

Japan-invested agriculture institute opens

Japan’s Yanmar Co., Ltd. on Thursday opened Yanmar Agricultural Research Institute at Can Tho University.

The institute will conduct agricultural and environmental studies and forecasting work on agricultural development of Vietnam in general and of the Mekong Delta in particular. Through studies, the institute will propose solutions for agricultural production in a safe way.

Besides, in association with the university, the institute will learn about the use of machines in agricultural production and preservation of farm produce, machines in aquaculture farming and processing to know the demand of farmers and then develop suitable products.

Takeo Matsubara, chief of the representative office of Yanmar in Can Tho, said that the establishment of Yanmar Agricultural Research Institute aimed to serve the technological development and a vision towards 2024, helping Vietnam become a developed country and have a modernized agricultural sector.

FDI steel projects spell trouble

Several shortcomings have emerged from foreign-invested steel projects such as careless evaluation and product overlap, leading to oversupply and fierce competition.

Pham Chi Cuong, chairman of the Vietnam Steel Association (VSA), said that although FDI steel projects had greatly contributed to the development of the local steel industry, they had posed many problems.

Vietnam did not make thorough considerations when selecting investors in the domestic steel industry. As a result, many investors with poor financial capacity and even some with no experience have gone into steel production, he stressed.

He cited Guang Lian steel project in Quang Ngai as an example. He found it difficult to understand why the authorities allowed the project owner to increase investment capital from US$3 billion to US$4.5 billion, although this project is moving at a snail’s pace and has changed hands five times.

A foreign-invested steel plant costs much more than a plant of the same type developed by a local investor. After many years of operation, FDI steel plants still report losses and do not pay corporate income tax, bringing losses to the State budget, said Cuong.

In addition, rampant investment in steel production has seen the supply of several steel items far exceed the demand at home. Still, Vietnam has to import hot-rolled steel, steel for fabrication and alloy steel, leading to an annual trade deficit of over US$5 billion for the local steel industry.

Therefore, Cuong proposed the country should encourage investment in production of high-quality steel products and select the investors who apply advanced technology and have financial potential.

Investors should be lured into production of the steel items that have not been produced at home or have not been sufficiently supplied. The number of projects and project locations should be considered carefully to avoid massive investment, causing a waste of land and money and leading to overcapacity, he said.

Commodity exchanges suffer poor liquidity

Many commodity exchanges are struggling with low liquidity and their management thought it would take time to attract participants.

Phan Vu Hung, director of Son Tin Commodity Exchange Joint Stock Company, said his company was operating perfunctorily. At present, the main item for trading is steel but matching volume is modest and liquidity poor.

The number of transactions through Son Tin hit a record low a few weeks ago, he said.

At the request of the Ministry of Industry and Trade, Buon Ma Thuot Coffee Exchange Center (BCEC) last year piloted forward trading of coffee, alongside with spot trading. The pilot ended in December.

Vo Thanh Chau, director of BCEC, said forward trading would become an inevitable trend for every trading floor.

However, investors remain uncertain so they have kept the pilot program at arm’s length. Therefore, the results of this program have not been positive.

Chau said BCEC would perfect infrastructure for forward trading in the coming time. “Goods trading is still new, so I think it will take time and need an appropriate mechanism to lure participants,” he said.

As for spot trading, he said many coffee traders last year encountered difficulties and had to scale down their operations. One of them was Thai Hoa Corporation, a partner of BCEC, which has greatly contributed to the liquidity of the exchange center.

“During the coffee crop last year, our center almost could not serve coffee growers, one of the customers of forward trading,” he said.

Pham Dinh Thuong, deputy head of the Department of Legislation under the trade ministry, remarked commodity exchanges had not been able to keep their business afloat or had become inactive. “Several such exchanges have suspended operations for restructuring,” he said.

Vietnam, Customs Union launch FTA talks

Prime Minister Nguyen Tan Dung and Chairman of the Eurasian Economic Commission (EEC) Viktor Khristenko on Thursday announced the formal launch of negotiations over a free trade agreement (FTA) between Vietnam and the Customs Union that groups Russia, Belarus and Kazakhstan.

Prime Minister Dung had a meeting with Khristenko, who is in Vietnam for a visit, at the Government Office on Thursday, according to the Government web portal.

Vietnam always wants to deepen relations with Russia, Belarus and Kazakhstan, Dung said.

He expressed his pleasure at the launch of the first round of negotiations over the Vietnam-Customs Union FTA, saying Vietnam would endeavor to work with Russia, Belarus and Kazakhstan for successful FTA talks in the spirit of equality and mutual benefit.

Dung and Khristenko shared the view that successful FTA negotiations between Vietnam and the Customs Union would open up great opportunities for promoting bilateral economic, trade and investment cooperation.

With Prime Minister Dung and EEC Chairman Khristenko witnessing, the two chief negotiators, Minister of Industry and Trade Vu Huy Hoang of Vietnam and EEC Trade Minister Andrey Slepnev, signed a joint communiqué on the first round of FTA negotiations.

The FTA between Vietnam and the Customs Union will observe the rules of the World Trade Organization, taking into account the sensitive areas of each country and the different development levels among the parties involved. The FTA will cover trade in goods, trade in services, investment, principles of economic cooperation and other issues of mutual interest.

In the first round of negotiations, the parties will discuss in detail the scope and the fields of adjustment of the agreement, along with negotiation structure and modality.

In September last year, Minister Hoang and EEC Trade Minister A.A. Slepnev signed a document to conclude a study into the viability and impacts of the FTA between Vietnam and the Customs Union.

The study results show great potential for developing trade and economic relations between Vietnam and the member states of the Customs Union once a free trade area is established.

The Europe Market Department under the Ministry of Industry and Trade forecast negotiations may last two years and come into force in 2015.

Apart from tax cuts, the agreement is expected to create favorable conditions for banking and transport cooperation between Vietnam and Russia.

Two-way trade between Vietnam and Customs Union member states Russia, Belarus, Kazakhstan reached US$2.7 billion last year.

Trade and investment liberalization through FTA will play an important role in achieving the goal of taking the bilateral trade to over US$10 billion by 2020 and further promote political, economic, trade, investment and cultural relations between Vietnam and the Customs Union, according to the Government web portal.

Dairy products renamed to dodge price controls

Many items previously registered as dairy products have been renamed as infant formula, micronutrient supplements or nutritional products to effectively ward them off price controls.

Nguyen Anh Tuan, deputy director of the Department of Price Management under the Ministry of Finance, explained infant formula, micronutrient supplements and nutritional products were not subject to price stabilization. Therefore, authorities cannot intervene in price adjustments of enterprises.

Since the beginning of this year, some companies specializing in producing, distributing and trading dairy products for children under six have submitted their price quotations to the price management department in each and every bout of price hikes. However, none of the items mentioned in these quotations were dairy products.

For example, Mead Johnson Nutrition Vietnam Co. Ltd. has sent a price quotation sheet comprising 15 products, including three whose prices were raised on January 2. FrieslandCampina Vietnam declared prices of 40 items, with several of them subject to a price increase of up to 9% on February 15.

The reason for price hikes, according to these companies, is higher production, management, financial and labor costs, Tuan told the media on Thursday.

Several dairy companies told the Daily that they fully complied with legal regulations when renaming their products. The legal basis is the national technical regulations on powdered milk issued on February 5, 2010 by the Ministry of Health.

Under the regulations, powdered milk must have a protein content of not less than 34% and a fat content of 26-42% by weight. As such, most powdered milk products on sale in the local market are not qualified to be called powdered milk.

Dairy companies have renamed such products under the national technical regulations on nutritional products issued by the health ministry in October 2012.

Under Circular 122 that came into force on October 1, 2010, enterprises do not need to register prices of dairy-related products with the finance ministry, even though they still do so. Similarly, at present, when several products have been renamed as infant formula, micronutrient supplements or nutritional products, they are not responsible for price registration.

The item subject to price registration under Circular 122 is powdered milk for children under six.

Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR