2005 saw abnormal fluctuations in the price of major commodities. Global oil prices rose to nearly US$70 per barrel in the middle of the year and are currently standing at around US$60 per barrel. In late November and early December, gold prices jumped to a 30-year record high of US$520/ounce and are likely to further increase. The interest rate of the US dollar also rose significantly from one percent in 2004 to 4.25 percent in December 2005.
In 2005, natural calamities and epidemics caused great human and material losses. Since its first outbreak, the bird flu epidemic has cost Vietnam more than VND1,500 billion. Despite these difficulties, Vietnam fulfilled or surpassed major targets set for 2005, with a GDP growth rate of 8.4 percent and exports increasing by 22 percent.
The increase in the interest rate of the US dollar made the exchange rate war fiercer among major powerful currencies. In relation to the US dollar, the Japanese Yen devalued by 18 percent against 2004, while the Euro rose by 14 percent.
More progress was seen in mobilising domestic and foreign investment; the consumer price index was put under control and there was no price “fever”.
Exports surpassed target, import surplus fell
By late November, 12 out of 20 key commodities fulfilled their export targets, namely rice, coffee, fruit and vegetables, rubber, cashewnuts, crude oil, anthracite, handicrafts, electronics and computer accessories, plastics, and electrical wire and cables. For the first time, Vietnam exported nearly five million tonnes of rice in 11 months – nearly a million tonnes above target - and bagged US$1.3 billion. Rice export volume this year is expected to amount to between 5.1-5.2 million tonnes and export value will be around US$1.5 billion.
Commodities which attained export growth rates of between 31-38 percent in the reviewed period included woodwork products, plastics, electronics, and electrical cables. These commodities continued to maintain high growth rates in December, helping to bring the country’s total export value to US$32 billion.
Regrettably, due to dumping lawsuits, several key export items such as garments and footwear posted growth rates of between 8-10 percent, while bikes and bike spare parts fulfilled only 50 percent of their yearly plan.
Notably, August’s export value surpassed the US$3 billion mark and reached US$3 billion in December, raising hopes of earning an average monthly export value of US$3 billion in 2006.
2005 saw a significant fall in import surplus, with imports rising by 16.5 percent compared to 22 percent of exports. Last year, import surplus made up 18 percent of total exports and this year, the figure was 15 percent. However, the import surplus for the State economic sector still surged, making up more than 70 percent of its exports, due to the garment and footwear sectors’ importing of materials.
Foreign investment hit US$5.5 billion
This was the third year Vietnam’s foreign investment capital has reached a record high since 1988. The 2005 figure brought the total registered foreign investment capital so far to US$50 billion.
In 2005, the foreign investment sector, including crude oil, made up nearly 60 percent of the country’s total export value, up 28 percent against 2004. Its export surplus grossed nearly US$4.4 billion, thereby helping to reduce import surplus.
For the first time in 2005, the foreign-invested sector contributed more than US$1 billion to the State budget.
To perfect the investment environment, Vietnam continued to revise several related laws, including the Investment Law, the Land Law and the Securities Law. Notably, the year-end session of the National Assembly passed the Investment Law, which will come into effect in July 2006.
The Government amended equitisation policies to encourage the participation of foreign businesses. This is a great source of indirect investment and if this source is fully tapped, it is forecast to be on par with direct investment source, according to economists.
In the next five years, Vietnam aims to achieve an annual GDP growth rate of eight percent, capital mobilisation making up 38-40 percent of GDP, and total foreign investment fetching between US$30-35 billion.
State budget collection surpassed yearly target
Domestic tax collection netted VND175,000 billion, an increase of 19 percent more than expected. For the first time, all 64 cities and provinces fulfilled and surpassed State budget collection targets by the end of October. Notably, 22 localities contributed more than VND1,000 billion each to the State budget (four localities more than last year), while 39 other localities handed in VND500 billion each. Da Nang, Binh Thuan, Lai Chau, Thai Binh and Quang Ngai provinces surpassed their targets by 50 percent. Crude oil revenues fetched more than VND55,000 billion, up 46 percent against estimates.
Businesses contributed more than VND75,000 billion to the State budget, including more than VND20 billion from foreign businesses, up 39 percent against 2004.
Although real estate transactions came to a standstill in 2005, their revenue still grossed more than VND16,000 in 2005, up 34 percent against estimates. Income tax from high income earners chalked up more than VND4,000 billion, up 25 percent against estimates.
No price hikes in 2005
The consumer price index this year fell to 8.2-8.3 percent compared to 9.6 percent last year, showing the great efforts made by the Government and relevant agencies to control market prices.
The Government has adjusted the price of petrol three times in 2005 to keep up with the soaring price of oil on the world market. The adjustments helped reduce the possibility of price hikes in other commodities, particularly materials for production. Accordingly, the prices of these materials reflected the common global trend and no price “fever” was reported as in 2004.
It is worth mentioning that petrol is a strategic commodity and every year the State imports approximately US$5 billion worth of this product and spends tens of billions of Vietnam Dong subsidising it.
Meanwhile, the price of daily life commodities such as food and foodstuffs increased regularly, which helped farmers compensate for losses due to natural calamities and epidemics.
During the last months of this year, the price of gold surpassed the VND10 million/tael mark after global gold prices climbed to US$520/ounce. However, the increase did not affect major commodities.
Notably, commodity prices tended to increase independently. At times, the price of oil rocketed, while that of gold plummeted and vice-versa. It was similar to relations between the US dollar and gold. Economists forecast that the price of gold and crude oil and the foreign exchange rate of major hard currencies will continue to fluctuate in 2006, causing numerous difficulties for Vietnam.
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