HONG KONG- Vietnam’s economy rocketed up 8 percent last year as manufacturers like Samsung Electronics, LG and Hon Hai Precision Industry powered exports. Now overseas demand is slumping amidst a local credit crunch and a corruption crackdown. Weak internal demand leaves the country without much of a hedge.
Vietnam has long served as a cheap alternative to China for companies outsourcing production. A trade agreement and warmer relations with Washington spared its manufacturers from tariffs and sanctions applied to its northern neighbor. A combination of low labor costs and proximity to more sophisticated Chinese supply chains is alluring too.
Foreign investment rose 13.5 percent to $22 billion last year as companies slapped “Made in Vietnam” on electronics, clothing and sneakers.
At $372 billion, gross export earnings now equate to a whopping 90 percent of output last year, government data shows; of its neighbors, only oil-producer Malaysia has ever approached such a level. Now overseas demand is stuttering. The country lacks China’s enormous consumer market; gross national income per capita was around $3,600 in 2021, compared to $12,000 in the People’s Republic. While Vietnamese workers are more youthful than China’s, they are older than peers in Indonesia and India, so the country’s labor-cost competitiveness may not last.
In that context, signs of domestic stress are worrying. A long-running corruption crackdown that felled former president Nguyen Xuan Phuc in January should yield long-term benefits. It is disruptive now, however: paralyzing the bureaucracy, trickling into the real estate sector and rattling the benchmark stock index. The campaigns have targeted business executives and thrown a wrench in supply chains including pharmaceuticals.
Manufacturers have lost some enthusiasm. The world’s largest maker of branded sports shoes, Pou Chen, said last month it would cut some 6,000 jobs in Ho Chi Minh City, just two years after complaining it couldn’t find enough workers. Political turbulence may be discouraging new money too. Registered foreign direct investment capital fell 38 percent in the first seven weeks of the year.
Most of Vietnam’s neighbors, including China, reduced their dependence on exports by developing dynamic private enterprises that moved up the value chain and hiked wages: a virtuous cycle. However, the Party’s predilection for concentrating investment in inefficient state entities will serve it ill, especially if FDI keeps cooling. If Hanoi really wants to compete with Beijing, it might have to change its ways.
Vietnam’s industrial output and exports rose in February from a year earlier, partly helped by higher footwear sales, in a possible sign of recovering global demand for goods produced in the Southeast Asian industrial powerhouse.
But indicating the caution among factory managers amid an uncertain global outlook, production of smartphones and cellphone parts, of which Vietnam is one of the world’s biggest producers, fell despite a rise in exports.
The country’s statistics agency said that Vietnam’s exports rose 11 percent in February from a year earlier and industrial output increased 3.6 percent in the same month.
The rise in output in February follows an 8 percent year-on-year drop in production in January, when activity typically slows for the week-long celebrations for the Lunar New Year.
In the first two months of the year, industrial production was down 6.3 percent compared to the same period last year.
Smartphone output in the country which is home to major Samsung factories was down nearly 10 percent on the year and the output of cellphone parts fell by nearly 15 percent.
Smartphone exports, however, were up 14,7 percent, in a possible sign that companies reduced their inventory in February.
Footwear production rose by nearly 19 percent in February on the year and exports climbed 4.1 percent, after a big fall in January. In the first two months of the year shoe exports were still down by 16 percent compared to the same period last year. – Reuters
Taiwan’s Pou Chen Corp, the world’s largest maker of branded sports footwear and a top supplier to Nike and Adidas, plans to cut around 6,000 jobs in Vietnam due to weak demand, two local officials familiar with the company’s plans said earlier in February.
In total, Vietnam’s exports rose sharply in February to $25.88 billion, after a 21.3 percent fall in January.
With imports dropping in February by 6.7 percent, the country recorded a trade surplus of $2.3 billion in the month. — Reuters
