VietNam Business

Monday, December 6, 2010

Interest rates, power cuts top enterprise concerns

Interest rates, power cuts top enterprise concerns High credit costs and power cuts are factors that most worry enterprises in the country, according to survey results released last week by the Vietnam Chamber of Commerce and Industry (VCCI).

The high interest rate on loans as well as power cuts in the second quarter had pushed up production costs, respondents said in the Vietnam Business Insight Survey that was supported by the Lee Kuan Yew School of Public Policy’s Asian Competitiveness Institute and the Asia Foundation, as well as the General Statistics Office.

The survey, which covered 380 firms across the nation, found 64 percent of the respondents paying interest rates of between 12 and 16 percent on short-term loans. They said the rate was high and unreasonable at a time when global economic crisis-related difficulties still remained.

Head of the VCCI’s Business Development Institute, Phan Thi Thu Hang, said the rates were at the peak of what firms could suffer at 16 percent.

About 94 percent of the respondents wanted reasonable rates of less than 12 percent, the quarterly survey found.

Prime Minister Nguyen Tan Dung in May told the State Bank of Vietnam to order lenders to bring down borrowing costs to 12 percent and cut the deposit rate to 10 percent.

Hang said local firms were optimistic that recent efforts by the government in reducing interest rates would succeed, but they also felt more efforts were needed.

Power supply

More than half the survey respondents said regular power cuts in the second quarter – two to three times a week in some areas – significantly impacted production.

The survey did not report any loss suffered by local firms from the power cuts, but said 40 percent said the impacts were “serious” and 16 percent said they were “very serious.”

Hang said the power cuts had raised awareness among the firms of the importance of power-saving measures.

The survey showed 60 percent of the respondents setting the goal of effecting 10-20 percent power savings over the next three years.

Another institute official who did not want to be named said local firms in the Mekong Delta were facing the challenge of finding skilled workers as they expected increases in production and sales in coming quarters.

The survey showed that a shortage of skilled workers was a big concern for the firms in the delta, a region that lacks professional training centers, he said.

Sales and inventory

A report issued last week by the General Statistics Office said production and sales posted growth rates of 13.7 and 12 percent respectively in the first seven months while inventory climbed 37.5 percent.

Vu Van De, head of the office’s Industry Statistics Department in HCMC, said the crisis has passed and local firms had reported recovery that was reflected in production and sales growth, but cautioned inventory had also increased at the same time.

“There is an unbalance in production and sales,” said De, suggesting that firms need to take steps to address this.

He said the biggest growth rates of over 20 percent in sales were achieved by ceramics, alcohol beverages and dairy products in the first seven months of the year.

However, non-alcohol beverages had the highest inventory that was up six times over the same period last year, De said, adding this industry was followed by cement, with more than two times higher than last year’s January-July inventory.

The tobacco industry had the lowest inventory, dropping 39.2 percent year-on-year, while seafood, foodstuff, and vegetables posted similar inventories to last year, De said.

Vietnam gains most from S.Korea free trade pact: officials

Vietnam gains most from S.Korea free trade pact: officials Vietnam has benefited more than other Southeast Asian countries who have signed free trade agreements with South Korea, say Korean trade officials.

Dug Gyou Bok, deputy director of Korea Trade-Investment Promotion Agency (Kotra)’s Asia and Oceania Team, said Vietnam has used the agreement to boost exports and lure more foreign direct investment from Korea.

Bok said Vietnam’s exports increased 32.5 percent in the first seven months of 2010 while average export growth in ASEAN members was about 24 percent during the same period. The country’s exports to South Korea grew 16.3 percent in 2009, he added.

The agreement between Korea and ASEAN members took effect for goods in 2007 and services and investment last year. ASEAN, as the Association of Southeast Asian Nations is often known, comprises ten countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Korea eliminated 70 percent tariffs in 2007 and completed its committed tariff reductions early this year for the ten members, while Vietnam aims to complete its commitments by reducing tariffs from the current 7 to 20 percent to between 5 and zero percent by 2018. This reduction will be effected on half of tariff lines by 2015.

Bok said the multilateral agreement has brought opportunities for Vietnam to export more telephone set parts and wood chips, products that have also brought in investments from Korea.

Kotra said Vietnam’s export to Korea in the sectors grew respectively by 98.6 and 600 percent from January to July this year while that of traditional goods like seafood, shoes and agricultural products increased stably.

Korean electronic giant Samsung has exported US$1 billion worth of products so far from its $670 million mobile phone factory that it opened last September in the northern province of Bac Ninh.

However, the two-way trade was in favor of Korea, according to Kotra. South Korean exports to Vietnam increased 35.2 percent to $5.12 billion in the first seven months of this year, more than three times higher than its imports from the country during the same period.

Yon-Jip Jung, deputy general director for Free Trade Agreement Policy under the South Korean Ministry of Foreign Affairs and Trade, said Vietnam was one of the Korea’s best partners in the Southeast Asian bloc, and it wanted to further boost bilateral trade and investment ties.

Jung said the ministry planned to promote the agreement to boost trade and investment in both countries and would explore respective advantages as the countries completed negotiations on a bilateral free trade agreement.

Both sides will focus on goods that bring more benefits in bilateral than multilateral pact of which many members have different interests and goals.

Vietnam gains most from S.Korea free trade pact: officials

Bok said the multilateral agreement has brought opportunities for Vietnam to export more telephone set parts and wood chips, products that have also brought in investments from Korea.

Korean electronic giant Samsung has exported US$1 billion worth of products so far from its $670 million mobile phone factory that it opened last September in the northern province of Bac Ninh.

Both sides will focus on goods that bring more benefits in bilateral than multilateral pact of which many members have different interests and goals.

Second-home buyers have more choices now: report

Second-home buyers have more choices now: report Vietnam’s second home market is still in its infancy, but it is attracting significant interest from savvy investors, consulting firm CB Richard Ellis said in a report released on Tuesday.

“The past number of years have seen significant activity in the second home market in terms of construction and interest coming from international resort operators looking to enter the market,” Marc Townsend, managing director of CB Richard Ellis Vietnam, said in the report.

“The perception of owning a second home or city retreat is still a new phenomenon here in Vietnam, but it is slowly starting to take off,” Townsend said.

He said there is a “bigger mix of project offerings to buyers” with a greater choice in terms of location. The second home market seems to be expanding from traditional locations in and around Da Nang to new spots including resort towns like Nha Trang, Vung Tau and Phan Thiet.

“There is no doubt that Vietnam’s second home market has infinite possibilities,” said Townsend, “however developers must learn from their neighbors in Thailand to ensure success.”

According to CBRE, Thailand’s second home market is “well established and in its adolescent stages.” The price of Thai villas and condos can be up to double that of Vietnamese ones. In terms of buyers, only 18 percent of second home sales come from local buyers in Thailand compared to Vietnam’s 85 percent, the company said.

Vietnam ranked prime global destination for third year running

Vietnam ranked prime global destination for third year running Vietnam has once again been selected as the number one investment destination, outside of Brazil, Russia, India and China (BRIC), according to a report published by the UK Trade & Investment and Economist Intelligence Unit.

This is the third consecutive year that Vietnam has enjoyed the designation from the British agency.

The ‘Great Expectations: Doing business in emerging markets’ report offers new insights from international investors about which markets they see as being the global growth engines of the future.

The report is based on a survey of more than 520 global executives from every sector. All respondents are already doing business in emerging markets or plan to do so in the next two years.

The UK Business Secretary Vince Cable said: “The balance of global economic power is shifting toward emerging markets and this is recognized in UK Trade & Investment’s report. UK firms are using their expertise to help promote growth and prosperity in these markets.”

The report’s authors found that the top three markets for investment, in the next two years, are China, Vietnam, and India.

Emerging markets are viewed as sources of new consumer demand. Seventy-six percent of investors see emerging markets as a source of new business growth.

By 2030, 93 percent of the world’s middle class will live in what we now consider “emerging markets,” the report said.

Companies are now shifting their priorities toward a range of other developing countries outside their well-established operations in the BRIC countries.

For many firms, emerging markets are increasingly familiar places. Nearly half of the respondents reported having operations in one or more emerging markets over the course of the last decade and two thirds said they had been working in the areas for six or more years.

Institutional knowledge of these countries is far higher than it was at the turn of the century, the report found.

More executives than ever believe that the potential rewards far outstrip the risks within both the BRIC countries and other emerging markets. Fifty-two percent expect growth prospects in their once-risky emerging market businesses to be "significantly better" over the next two years.

Local companies in emerging markets are sought after for partnerships and alliances. Despite a greater ease with the risks of new places, the need to tap into local knowledge and contacts quickly remains strong, the report found.

Emerging markets are not just for big business. One in three small- and medium-sized enterprises polled by the authors planned to expand into a new emerging market in the next two years through joint ventures or partnerships with local companies.