Boosting exports, reducing import surplus

In the first quarter of this year, Vietnam’s exports generated US$8.57 billion, a year-on-year increase of 20 percent. Notably, exports in January and March fetched more than US$3 billion each. This means despite legal complications, exports have maintained high growth, and the export target of earning US$36 billion in 2006 is likely to be achieved.

Meanwhile, Vietnam imported US$8.513 billion worth of goods in the reviewed period, creating an export surplus of more than US$50 million. That was good news for the national economy as since 1993 Vietnam has posted increasing import surplus, totalling US$5 billion in the past three years.  

The export surplus in the first quarter of 2006 was attributed to measures to boost exports alongside control of imports, particularly in the State business sector. Statistics show that the State business sector generated an import surplus of US$870 million in the first quarter of 2003, US$1.6 billion in the corresponding period of 2004 and US$2.36 billion in the same period of 2005. However, this figure fell to US$1.75 billion in the first quarter of 2006.

Market forces also played a very important role in import surplus fall. In the first three months of 2006, the import of complete knocked-down (CKD) motorcycle and car units, fertilisers, steel and steel ingots, and petrol dropped dramatically. The import of CKD motorcycles and cars and their accessories alone fell by 50 percent. This means that the domestic market is playing the greater role in regulating quantity and prices of import products, as well as reducing speculation and monopolies. 

Higher capital flows

In the reviewed period, foreign direct investment (FDI) grossed US$2.052 billion, fulfilling 32 percent of the whole year’s target. If the pace is maintained over the next three quarters, the target for US$8 billion FDI capital could be achieved. Notably, several large-scale projects capitalised at more than US$100 million were licensed in the period. US group Intel decided to invest US$605 million in Saigon Hi-tech Park in Ho Chi Minh City for manufacture of e-chips and other electronic products. A new period of foreign investment attraction has arrived and large-scale projects in hi-tech areas will help the national economy to blossom.

Alongside the high inflows of FDI capital, the stock market also made a big leap in the first three months of 2006. Vietnam Milk Joint Stock Company (Vinamilk) blew fresh air into the country’s fledging stock market after it decided to list shares on the bourse, with its total value equal to the total value of all shares listed so far. Before Vinamilk joined the market, by the end of 2005, total listed shares were valued at VND9,400 billion, representing 1.2 percent of the country’s GDP. But by the end of February 2006, total share value had reached VND21,200 billion, or 2.7 percent of the GDP.

Currently, 36 companies have listed shares on the bourse, including one wholly-foreign owned company.

According to the plan, by the end of 2006, at least 10 more equitised companies will have joined the market. Equitising State-owned enterprises and the listing of their shares on the bourse are considered solid solutions for the State business sector to overcome present weaknesses. It will also help the sector make use of the huge amount of investment capital allocated by the State. In addition, when joining the stock market, through the listing and trading of shares, the national economy will receive new sources of investment capital from the population and foreign investors.

Under the 2006-10 national socio-economic development strategy, Vietnam needs at least US$140 billion for development investment, of which 70 percent will be mobilised from internal resources. The robust growth of the stock market in the first quarter raised new hopes for the national economy and total listed share value is expected to be higher than the target of 3 percent of GDP as set by the State Securities Commission.

Stable market, no price hikes

The consumer price index (CPI) in the first quarter of this year stood at 2.8 percent or 0.9 percent lower than last year’s corresponding period. It was good news for the national economy given that global gold and oil prices remained high and agricultural produce prices tended to increase sharply. Gold prices alone rose by 12 percent compared to late 2005. More importantly, it was the first quarter of a second year in which no price hikes have been reported. In March 2006 alone, the CPI fell by 0.5 percent compared to the corresponding period of recent years.

However, there are two issues which should be taken into account.

First, several commodities such as construction materials and services are prone to price hikes. A possible increase in the price of electricity and other consumer goods such as medicines and sugar in coming months could drive the CPI to a higher level than in the first quarter.

Second, the US Federal Reserve’s (FED) recent increase of the basic interest rate of the US dollar to 4.75 percent will consequently drive the interest rate of the domestic currency (VND) up. This will reduce the efficiency of economic operations, particularly in the State business sector, which relies greatly on bank loans.

Since early last year, gold prices have soared by nearly 30 percent. Although this did not cause any major fluctuations in the price of consumer goods, trade in the real estate market has frozen. This means a large amount of money invested in the real estate sector is not in circulation, thereby making no contribution to national economic growth. 

To stabilise market prices and create favourable conditions for economic operations, alongside the Government’s solutions, it is essential for financial agencies to control fluctuations within domestic markets and regulate import-export activities.