Home » Business » BUSINESS IN BRIEF 11/12

Government urges stable economic growth

The Government on December 7 issued a document on the socio-economic development in the country, asking all ministries, agencies and local authorities to carry out comprehensive measures in a determined manner to push growth and keep macro-economy at a steady pace.

The State Bank of Vietnam has been asked to make efforts to develop supporting industries and economies, reduce interest rates on deposits and loans and help control high inflation.

The central bank should have measures to deal with bad debts and submit a proposal to the Prime Minister before December 10.

Banks must re-arrange their structure to speed up operations and credit loans for agriculture, aquatic breeding and agro-aqua exports must be given top priority.

The Ministry of Agriculture and Rural Development should work with other ministries to strengthen countermeasures to push agriculture and aquatic growth.

The Ministry of Construction has been asked to concentrate on removing obstacles in the real estate sector to help lower inventories and resolve issues of social housing for low-income people. Chairpersons of people’s committee in cities and provinces must issue construction certificates to residents who want to repair or build their houses.

The Ministry of Labor, Invalids and Social Affairs must coordinate with local governments to make policies that benefit top welfare groups and those who have contributed in the war for freedom of the country as well as pay special attention to the very poor and impoverished during the coming Tet festive season.

Surge in retail price of chicken

Within the last month, retail price of processed industrial chicken has risen by VND15,000-17,000 per kilogram at markets in Ho Chi Minh City.

Price of industrial chicken increased by VND10,000 a kilo to sell at VND32,000-35,000 per kilo. Chicken drumsticks also surged to VND75,000 a kilo from VND60,000 a kilo; chicken wings climbed from VND68,000 to VND85,000 a kilo; and chicken breasts rose to VND60,000 from VND50,000 a kilo.

Retail price of homebred chicken also increased by VND10,000 a kilo. On December 9, the price of processed homebred chicken swung between VND150,000 and VND170,000 a kilo, depending on gender.

According to traders, the price started to inch up at the beginning of November, adding VND3,000-5,000 a kilo each week. Due to a low marginal increase, consumers remained unaffected by the price rise, but now with an increase of VND10,000 to 17,000 per kilo, consumers have begun to complain.

An increase in prices has helped ease debt burden among chicken breeders, as wholesale prices had been lower than cost price by VND3,000-5,000 a kilo for the last several months. However, consumers might prefer buying other meats as chicken is no longer very affordable.

Vietnamese investment workshop held in Indonesia

A workshop on investment and business opportunities in Vietnam was organised by the Vietnamese Embassy and Commercial Affair Office in Indonesia on December 7.

The workshop, held at the Vietnamese Embassy in Jakarta, attracted the participation of delegates from 60 Indonesian businesses and foreign investors in Indonesia.

Addressing the workshop, Nguyen Xuan Thuy, Vietnamese Ambassador to Indonesia, highlighted the development of traditional and friendly cooperation between the two Governments and peoples.

He affirmed that during PM Nguyen Tan Dung’s official visit to Jakarta last year, the two countries’ leaders agreed to raise bilateral cooperation to a strategic partnership with the target of reaching two-way trade turnover of 5 billion USD by 2015.

The diplomat presented Vietnam’s achievements in the past years. Vietnam’s policies and efforts that encourage investment and improve the business environment help the country become one of the most attractive, effective and reliable destinations, he said.

Vietnam’s economic growth rate is high, and it has become the top exporter of rice, pepper and aquatic products. These achievements carry a number of opportunities for both domestic and foreign investors.

Two-way trade turnover between Vietnam and Indonesia reached 3.7 billion USD in 2011 and is estimated to hit 4.5 billion USD this year, and is likely to reach the target of 5 billion USD before 2015.

However, Indonesian business investment in Vietnam is modest; at 243 million USD it is considerably less than some other ASEAN members – including Singapore, Thailand and Malaysia.

At the workshop, Juan Gondokusumo, Chairman of the Committee of Economic Coordination between Vienam-Indonesia (Indonesian Chamber of Commerce), expressed his admiration at Vietnam’s economic achievements, in particular the country’s business activities, rapid market transformation, success in alleviating hunger and poverty, ensuring food security, and surpassing Thailand as the world’s top rice exporter.

He affirmed that Indonesian businesses highly value the Vietnamese Government’s policies on facilitating investment, administrative reform and its business environment. Their firms are willing to increase direct information exchanges between the two countries’ businesses, he added.

Bad debts stunting Vietnam’s economic growth

Bad debts and high lending interest rates have stunted Vietnam’s economic growth and development plans.

After a steady rise of 20-30 percent in the last few years, credit growth rate has fallen drastically in 2012. According to the State Bank of Vietnam, credit growth rate has been only 2.77 percent since the beginning of this year.

Low credit growth is not only a sign of a stagnating economy but also the basic reason for a boom of bad debts.

Answering queries at the National Assembly, the State Bank Governor said that since 2008, bad debts have been on the increase. In 2009 they were 27 percent; in 2010 they were 41 percent; 64 percent in 2011; and 47 percent in the first six months of 2012.

Bad debts and high lending interest rates have together stunted the economy and ground all development plans. At present, outstanding bank loans are around US$135 billion at lending interest rate of 15 percent a year, which amounts to $20 billion in interest alone annually.

Bad debts may reach $12.33-14 billion by October this year.

Increase of bad debts is the fault of credit institutions. However the basic reason is loose credit policy, which aims to promote growth but has led to widespread public investments regardless of actual demand.

Sheer lack of supervision and lax management has created conditions for waste, red tape and corruption to flourish. The State invests large amounts but cannot recover capital which then leads to increase of bad debts.

Vietnam’s economic policy is also to blame for increase of bad debts, as also does poor coordination between banks and businesses.

State businesses play a decisive role in Vietnam’s economic policy and the budget deficit policy is used for promoting growth.

The budget deficit policy, whose offspring is public investment and the State business sector, played an important role in industrialization and economic growth at the beginning of the renovation era.

However, these businesses have operated as monopolies and ineffectively, which paved the way for State owned enterprises.

State businesses can easily get credit from commercial banks, have right to access unsecured loans or borrow as per directions of the Government; while private owned businesses have a tough time in accessing loans.

State businesses also have excessive investments in other fields and hence maintain little focus on businesses. Easy credit policy together with lax management in enterprises has led to catastrophic increase of liabilities.

According to a report that Minister of Finance Vuong Dinh Hue presented to the National Assembly, liabilities in 30 State groups and corporations have tripled. Of these 12 saw liabilities go up 3-5 times, ten saw them rise 5-10 times and eight saw them go up tenfold.

At a 15 percent interest rate, businesses must earn a profit of more than 10 percent to break even. If profits are less then 10 percent, they are unable to circulate income and lose payment ability.

The above businesses and several other State businesses have operated unprofitably for a very long time and now are unable to pay debts.

The Finance and Budget Committee of the National Assembly’s Standing Committee said that the bad debt rate in the State business sector has reached 70 percent, 53 percent of which is from groups and corporations.

Bad debt in Vietnam works in tandem with real estate. Taking advantage of the State’s loose credit policy, businesses especially large ones have rushed to borrow for urban and industrial zone projects. The high profit rate in the real estate sector has also caused residents to get bank loans.

This has led to supply exceeding demand. Real estate prices have been exaggerated much higher than actual value. Investors could not sell their properties by raising the real estate stock and bad debts combined.

Besides, 60 percent of mortgages at banks are real estate but the banks could not liquidate these properties when they needed, putting more bad debt burden on the economy.

Latest statistics from the State Bank show that bad debt rate accounts for 8.8 percent of public debts or $11.3 billion. The gross income of the State budget in 2011 was $33.8 billion.

Experts believe the only feasible measure to resolve the bad debt issue is to sell debt packages to foreign partners. To lure foreign investors, first the basic reasons causing bad debts must be resolved by restructuring the economy, including State businesses and the banking system, minimize public investments and develop the private sector.

Vietnam should also perfect legal frameworks to create fair, stable and a transparent business environment.

Enterprises start to stop depending on banks: Standard Chartered

Analysis of the credit market by the Standard Chartered Bank in Vietnam said that low credit growth rates could be a positive sign for Vietnam economy.

In the report, Standard Chartered said enterprises are trying to limit their dependency on the loans and this could help to improve overall financial health.

According to the Government Office, as of November 20 customer deposits increased 15.98% and the loans increased by 4.15%.

Though the current official bad debt ratio, according to the State Bank, is at 8-10%, the rẹport said the actual ratio of bad debt is closer 15-20%.

In March, the Prime Minister approved a plan to restructure the banking system in the period from 2012-2015. The State Bank of Vietnam also promised to reduce the bad debt ratio by 3%.

However, Standard Chartered urged the Government make a detailed plan as to how to rescue the domestic economy.

While many others think Government should further slash interest rates, Standard Chartered said the interest rates should be kept stable in 2013 to prevent an unexpected surge of inflation.

Continuing to cut interest rates may affect customers’ confidence in the banks, they stated, adding that the VND is weak because of bad debt and low confidence in Government policies.

They agreed with the Government’s plan to restructure the state-owned enterprises (SOEs) since most of the bad debt come from to this sector.

If the Government can successfully reduce the number of SOEs and establish an agency to monitor all those enterprises, it could boost the confidence in the Government. But if it fails, the confidence will suffer greatly.

In the report, Standard Chartered downgraded Vietnam’s economic growth rate to 5%, the lowest since 2000, after the Government carried out new monetary policies and faced difficulties in monitoring the SOEs.

Vietnam’s GDP growth rate next year is also forecast to be 5.5%.

 Hanoi, HCM City to announce property price index

Hanoi and HCM City will announce Real Estate Market Index (REMI).in the first quarter of next year.

The move follows the Ministry of Construction’s Circular 20 to keep watch on the property market and would help State management agencies, property investors and traders plan reasonable development policies and strategies for the property market.

The index consists of two key components: the price index and the deal index. Index calculation will be based on notarised transfer deals and property exchanges as well as market surveys.

Dong Da, Thanh Xuan, Ha Dong, Cau Giay, Tu Liem and Hoai Duc districts were chosen to test the index based on the both apartment building and detached houses.

The HCM City People’s Committee has asked the municipal Department of Natural Resources and Environment, the Department of Justice, the Taxation Department and the Real Estate Association to provide information on the city’s property transaction situation for the index calculation.

Earlier, the Ministry of Construction also proposed applying the index in Danang and Can Tho city.

Consumer goods obtain strong sales growth

Fast moving consumer goods (FMCG) such as packaged food products, cosmetics, dairy products and beverages have still achieved high growth in the Vietnamese market despite economic difficulties, according to a survey.

Kantar Worldpanel in its latest survey on shopping behaviors said the growth of FMCG in Vietnam was higher than in regional countries.

The survey revealed that the total volume of FMCG in 12 months to September this year increased by 15.6% in Vietnam from the same period last year and by a couple of percentage points from this year’s two previous quarters.

Meanwhile, many ASEAN countries surveyed posted FMCG growth of less than 10%, with 9% recorded in Thailand, 5.1% in Malaysia and 4.2% in the Philippines. Besides, in the Philippines and Malaysia, FMCG in the third quarter failed to maintain its growth obtained in the two previous quarters.

In Vietnam, the growth of some product groups was quite high, with a year-on-year growth of 14.3% achieved by the beverage group. This figure was much higher than the growth of 10.9% and 11.5% recorded in the first and second quarters respectively.

Products such as energy drinks, nutritional drinks and soymilk increased strongly by 41%, 37% and 37% respectively, showing that consumers have now cared more about their health.

In addition, consumers have bought more products for personal care and home care as well as basic products such as dishwashing liquid and shampoo.

Similarly, basic package products like sauces and instant noodles also rose by over 15% in value.

According to the survey, 60% of FMCG are purchased at grocery stores and markets, and this traditional channel is the main shopping venues of FMCG.

However, Vietnamese consumers are shifting their shopping from this traditional channel to modern channels like shopping centers and supermarkets where they can buy products having a lower price and enjoy many promotions.

This tendency has narrowed down the traditional channel. While the annual growth of traditional trade was 16%, modern trade had a growth of up to 19%.

The group of hypermarkets, supermarkets and convenience stores has maintained its growth of 24% per year thanks to the development of new stores, especially convenience ones in recent times.

Laos-Vietnam Bank on firm footing in Laos

Party Politburo member Pham Quang Nghi has commended the Laos-Vietnam Joint-Venture Bank for its efficient business performance and active engagement in social welfare activities in Laos .

Nghi, who is also Secretary of Hanoi city’s Party Committee, called at the LVB on December 9 during his 5-day visit to Laos .

He also expressed his hope that the bank will maintain its position and prestige by strengthening competitiveness and complying with the Party and Government’s policies as well as local law, thus contributing to the special friendship ties between the two countries.

The LVB was established in June, 1999 by the Bank for Investment and Development of Vietnam (BIDV) and the Lao Bank for Foreign Trade (BCEL).

At present, the bank’s total assets hit over 540 million USD, 35 times as much as the time it was founded, with an annual growth rate of more than 30 percent and nearly 375 million USD in mobilised capital.

Ariston boils up new water heater factory

Ariston Thermo Group last week kicked-off construction of what will become Asia’s second largest water heater factory.

Plans for the 5 hectare Bac Ninh province factory, located in Tien Son Industrial Zone, include a capability of one million products per year with operations starting in early 2014.

Mainly intended to supply for Vietnam and Southeast Asian markets, the plant employs an Italian-designed water heater production line and on-site waste water treatment system. The construction of new plant in Bac Ninh will lay a solid foundation for the company to achieve its vision and mission in Vietnam market, according to Ariston Thermo commercial director Stefano Cartoni.

“Our continuous effort over the past 24 years has made Ariston the favorite water heater brand with Vietnam consumers. The new plant does not only demonstrate the group’s commitment to long-term investment in Vietnam market but also creates an advantage for Ariston Thermo Vietnam to continue bringing high quality products to consumers,” said Cartoni.

Ariston’s investment into the new plant amid turbulent economy, he added, was testimony to the company’s determination to maintain its leadership and persevere with partners through the crisis in anticipation of stable and sustainable growth ahead.

Trade value with Turkey to reach nearly US $1bln in 2012

The two-way trade value between Viet Nam and Turkey is likely to reach US$925 million in 2012, up 8.6% against 2011.

Of the figure, Viet Nam’s export and import turnover is estimated at US$825 million and US$100 million, respectively.

The bilateral trade turnover in the recent 10 months was US$764 million, of which Viet Nam pocketed US$688.5 million in exporting to Turkey, up 8.6% while the import value stood at US$75.5 million.

Viet Nam mainly exports fiber, telephones and spare parts, rubber, garments, equipment and footwear and imports iron and steel and fabric from Turkey.

Mongolia, VN recognizes market economy

Deputy Minister of Foreign Affairs Bui Thanh Son on December 7 received Mongolian Ambassador Dorj Enkhbat and took Mongolia’s diplomatic note about the recognition of Viet Nam and Mongolia as market economies.

Mr. Son expressed his satisfaction with the development of the Viet Nam-Mongolia friendly and cooperative ties over nearly 60 years.

He stressed that Viet Nam and Mongolia’s recognition of each other as market economies was a great step in the implementation of the Viet Nam-Mongolia Friendship and Cooperation Agreement.

Mr. Son proposed Viet Nam and Mongolia continue to strengthen cooperation in all fields, contributing to peace, security, stability, cooperation and development in the region and the world.

Ambassador Enkhbat stressed that Mongolia always treasures the friendly and multifaceted cooperative relations with Viet Nam. The recognition is a practical measure to help deepen the bilateral ties, especially in economy and trade.

Banks find it difficult to achieve annual profit targets

A number of commercial banks risk falling short of their annual profit targets after being disadvantaged by strict lending controls, low credit growth rates, and rising bad debts.

According to the Joint Stock Commercial Bank for Foreign Trade of Vietnam‘s (Vietcombank) third quarter report, most banks’ margins were disappointingly lower than in the two previous quarters and even compared to the same quarter last year.

Experts predict bank profits will see little or no improvement over the last two months of 2012 and the banking system’s 2012 credit growth is estimated at only 5 percent.

The State Bank of Vietnam (SBV)’s attempts to increase credit quotas for 10 banks have had a negligible impact on the credit growth of the banking system as a whole.

Still worse, the banking sector’s difficulties are unlikely to ease next year.

By late September, the pre-tax profit of the Vietnam Export Import Commercial Joint Stock Bank (Eximbank) had fallen by 9.4 percent from a year earlier and represented only 53 percent of the 2012 annual target. Eximbank’s third quarter credit growth rate stood at negative 14.7 percent.

The Eastern Asia Commercial Joint Stock Bank (Dong A Bank- EAB) had fulfilled only 64 percent of its yearly plan so far.

Without releasing any specific figures, leaders of the Saigon Thuong Tin Commercial Joint Stock Bank (STB) claimed that the bank had achieved 66 percent of its yearly profit target.

The Asia Commercial Joint-Stock Bank (ACB) was badly hit, heaving reached only 22 percent of its yearly profit target due to its huge loss of VND1,114 billion.

Small joint stock banks saw their profit margins falling sharply and some have remained negative.

Commercial banks reported that bad debt rates have surged dramatically over the past nine months.

Major commercial banks could not escape unscathed: Vietcombank’s bad debt rate rose risen from 2 percent to 3.21 percent; ACB’s from 0.9 percent to 2.1 percent; Sacombank‘s from 0.57 percent to 1.4 percent; BaoVietBank’s from 4.56 percent to 6.13 percent; and Navibank’s from 2.92 percent to 3.97 percent.

There is no denying that bank performance in the remaining months of this year will rely on flexile business policies and effective measures to control risks.

In fact, most banks are in a difficult position to meet their yearly targets. This means any improvements to margins during the last quarter of 2012 will be minor at best and the odds will be again them if they fail to settle effectively next year.

Despite a sharp increase in capital demand, credit growth still remain low, at just 5 percent.

VCB’s credit growth may hit 13 percent courtesy of consumer lending packages with preferential interest rates. But VCB’s shrinking export activities have badly affected service fee revenue. As a result, the bank’s pre-tax profit has dropped to VND 5,900 billion.

The Vietnam Joint Stock Commercial Bank for Industry and Trade Bank’s (VietinBank- CTG) 2012 pre-tax profit is estimated at VND7,659 billion, down 8.7 percent on last year.

According to economic experts, one reason for shrinking profit margins in commercial banks is that they have focussed more on resolving bad debts than accelerating credit growth.

Even those with a good credit growth record decline to offer loans for fear of exacerbating the rate of bad debts. Some institutions have managed to meet profit targets, despite their credit growth of 2-3 percent.

Nguyen Hoang Minh, a representative from the State Bank of Vietnam (SBV), has called for coordinated efforts to address bad debts and lower interest rates in the hope of widening bank profit margins in 2012 which are estimated at just 27–30 percent of last year’s total figure.

Securities firms reduce margin rates

A number of securities companies have reduced the interest rates they charge on margin trading in a bid to draw capital back to the stock market.

Interest rates for money lent to purchase shares at most brokerages have fallen to 16-17 per cent per year. They were 20 per cent just a few months ago.

The deposit interest rate has dropped to 9 per cent per year from last June, but because most companies had earlier borrowed capital at high costs they can now afford a further cut on margin interest rates, according to market observers.

During the first half of this year, when the State Bank of Viet Nam reduced the deposit interest rate cap from 11 per cent to 9 per cent per year, most securities companies cut down margin interest rates from 21-22 per cent to 19-20 per cent.

Bao Viet Securities Company and MB Securities Co, and the securities arms of Bao Viet Bank and Military Bank, offered new margin interest rates of 15.5-16 per cent per year, which came into effect last month.

Vietinbank Securities Co and BIDV Securities Co, also backed by capital from Vietinbank and the Bank for Investment Development of Viet Nam (BIDV), have reduced their interest rates on margin loans to 17 per cent per year, or 0.0472 per cent per day.

Notably, Mirae Asset Securities Co offered a “shocking” interest rate of just 9.99 per cent per year, applied to the first 500 customers who have registered to borrow money to invest from this Monday.

However, margin interest rates at some brokerage houses who do not receive financial support from banks remain at 18 per cent per year, such as FPT Securities, Viet Capital Securities, VNDirect Securities. Sai Gon Securities Inc still charge a particularly high rate of 19.8 per cent per annum.

According to most analysts, a key issue is that many speculative shares such as VNDirect Securities (VND), Bao Viet Securities (BVS), Kim Long Securities (KLS), PetroVietnam Construction (PVX) or real estate company Sacomreal (SCR) are not allowed for margin trading (due to the risk of incurring losses), which has failed to attract investors back to the stock market.

Viet Nam anticipates record-high rice exports

Viet Nam hopes to export at least 550,000 tonnes of rice this month, which would bring full-year exports to a record-high of 7.65 million tonnes, according to the Viet Nam Food Association (VFA).

Speaking at a meeting in HCM City on Tuesday, Truong Thanh Phong, VFA chairman, said businesses had exported 7.1 million tonnes of rice for a free-on-board (FOB) value of US$3.16 billion in the first 11 months of the year.

This represented an increase of 5.57 per cent in volume but a fall of 3.73 per cent in value year-on-year because average export prices for the period were $43.03 per tonne lower than those in the same period last year.

“Exports of high-grade rice, including fragrant rice, sticky rice and broken rice, accounted for more than 59 per cent of the shipments made in the first 11 months, up 78 per cent against the same time last year.”

“This was a big change in the country’s rice-export sector,” he said.

Countries in Asia and Africa were the main buyers of Vietnamese rice, accounting for 70 per cent and 23 per cent of total export volume, respectively.

Huynh Minh Hue, VFA’s general secretary, said that, as of November 30, local enterprises had signed contracts to export 8.05 million tonnes of rice, up 10.62 per cent year-on-year. This meant that about 0.95 million tonnes would be delivered this month and early next year.

Hue as well as other meeting participants said that world rice prices were not likely to increase in the coming months because supply was abundant.

Hue said the Food and Agriculture Organisation (FAO) forecasted that global rice production would once again outpace consumption for 2012-13 to reach 486 million tonnes, up about one per cent from the previous year. This means rice stocks would increase for eight consecutive years.

FAO also predicts that international rice trade would have a record-high 37.5 million tonnes in 2013, up around two per cent over 2012.

The increase in international rice trade reflects the expectation that rice-export countries would want to reduce their stocks to make room for storage of newly harvested rice.

Because of higher purchase prices, Thailand has accumulated a large inventory. If Thailand slashes prices to clear its stock, rice prices are expected to fall further.

Hue said that the asking prices of Vietnamese rice were equivalent to rice from India and Pakistan.

At such prices, and with better logistics conditions, Viet Nam could compete with Pakistan and India in exporting rice to China and Africa when their demand resumes.

In general, Viet Nam’s rice trade is expected to face last year’s situation, when the trade was stagnant in the first quarter due to low demand, according to delegates.

Despite anticipating many disadvantages in the rice export market, local exporters believe that flexible management of prices by the association and the Government’s policy on rice stockpiles will help the local rice-export sector amid difficult times.

State takes the lead in organic food farming

To cash in on the demand for organic vegetables, the Government has set up a company to grow 6,000 tonnes of organic vegetables and fruits in Ha Noi’s rural Dan Phuong District.

The plan is to grow enough organic vegetables and fruits in the district’s three communes to supply northern and national markets – and create jobs and incomes for local people.

Project owner, Ha Noi Investment and Rural Development Co Ltd, will build rural roads, water pumping stations and drainage systems, preparation sheds and other facilities.

Meanwhile, a programme to give the vegetables an organic label that makes them recognisable in the marketplace is underway in Ha Noi.

To pilot the scheme, Nguyen Hong Anh, deputy head of Ha Noi’s Plant Protection Department, said the department was using 250ha in Van Duc Commune in Gia Lam District beside the Red River opposite Ha Noi City.

Hong Anh said about 1,000 families in the commune were taking part in the programme.

He added that the commune already produced about 40-45 tonnes of organic vegetables a day, of which 70-75 per cent were labelled.

The labelled organic products have been widely sold in Ha Noi and other places including northern Hung Yen, Nam Dinh and Quang Ninh provinces as well as central Da Nang City.

Hong Anh said labelled organic vegetables were sold more quickly as consumers were more convinced of their quality.

The price of vegetables produced in Van Duc Commune was higher than other products of the same types in the market by VND500-1,000 per kilogramme, he added.

The programme has also been expanded to 50ha in each of two other communes, namely Thanh Tri District’s Duyen Ha Commune and Phuc Tho District’s Thanh Da Commune.

Hong Anh said the sales of organic vegetables would be promoted with the help of an online sales floor.

The website will update the price list of green products and take orders from consumers.

This way, consumers may order products via the website and will bear only a delivery charge rather than paying money to retailers.

Hong Anh added that by 2014, labelling for organic vegetables would be made compulsory.

Tran Cong Thang, head of the Strategic Policy Section under the Institute of Policy and Strategy for Agriculture, said the current supply met only 14 per cent of Hanoian’s demand for organic vegetables.

The popularity of organic foods has grown because of public concerns about the unsafe quality of green products, especially unquarantined imports.

Vietnam inching towards number one pepper exporter

The Department of Import and Export under the Ministry of Industry and Trade forecasts that Vietnam will export around 108,000 tons of pepper this year, a decrease of 10 percent, earning revenue up to $800 million.

In 2011, Vietnam exported more than 124,000 tons of pepper but only earned $730 million. This shows that export price of coffee and pepper increased, despite the economic downturn.

Seven of Vietnam’s agricultural products such as seafood, rice, coffee, rubber, wood, cashew nut, and manioc entered the US billion dollar club, which includes commodities that bring in revenues worth $1 billion for the country.

This year, the ministry plans to export more pepper to earn from $850-900 million. However, due to diseases destroying the core of the tree, export volumes have fallen.  Although Vietnam has just entered the  pepper market, it has quickly turned to be one of the world’s number one pepper exporters, making up for almost half of the world’s pepper exports.

In the countryside, farm area for pepper cultivation is only 2.5 percent of the two million hectares meant for fast-growing industrial trees. Nevertheless, the plant achieves more than 8 percent in export value or $56.8 per hectare.

Because price of pepper is three or four times more than that of coffee,  with one hectare of pepper generating VND250 million ($12,000) per year, pepper farmers make more money and their living standards are far better.

This has also increased farm land for growing pepper much more rapidly since 2011–currently 55,400 hectares, eight times more than in 1995.

Vietnam is already among the world’s biggest producers of robusta coffee, cashew, rice and pangasius fish. However, only pepper can control the market and prices.

In the agro-products business, there is a rule that prices decrease on bumper crops and pepper prices face this as well. The Vietnam Pepper Association (VPA) said price fluctuation in the world occur every 3-5 years but Vietnamese pepper prices have increased in recent years.

Explaining this, Do Ha Nam, director of Intimex Company said pepper farmers are rich these days as they keep their product in warehouses and sell at the right time.

Farmers even register to buy information from foreign news agencies to be abreast with world prices. VPA also helps farmers in pricing and in deciding when to sell. Good coordination between the association and farmers has yielded benefits for both.

Vietnamese-made confectionary more popular with consumers

In the last three years, supermarkets have been successfully selling domestic-made confectionary during the Tet Festive Season, with customers preferring Vietnamese-made sweetmeats because of their improved quality and reasonable pricing.

Vietnamese-made confectionary is now rapidly competing with foreign brands at local supermarkets. Increase in sales of Vietnamese candy products shows that customers are buying more domestic-made products, thanks to better quality, flashier advertising, and a wider range of available products.

Despite fears of slow purchasing power during the coming Tet Lunar New Year, confectionaries are still planning to increase their volume by 10-20 percent.

For instance, Kinh Do Company plans to launch more than 3,800 tons of various kinds of candies in the market, an increase of 20 percent in quantity compared to the same period last year. Bibica Corporation also intends to retail 1,200 tons, a year-on-year increase of 15 percent. Whereas, the Vinamit Company will make 100 tons of sesame, lotus seed and peanut candies in addition to traditional sweets.

Manufacturers are making efforts to improve quality, in order to beat competition by foreign brands, which once flooded the market.

Domestic businesses have recently begun to pay more attention to promoting their own brand, as well as upgrading technology, improving quality and diversifying products.

Accordingly, domestic-made products have been warmly welcomed because they have proven to be of good quality and competitive in price, compared to foreign brands. Customers are choosing more products of local confectioneries like KFC, Cosy Marie, Goodies biscuits and Hura sponge cakes.

Candy from Kinh Do, Bibica, Snfood, Pham Nguyen, Hai Ha, and Co.opMart has replaced candy from neighboring countries. Bibica’s two premium product lines are Goody and Palomino, launched this year with attractive packaging for Tet. Kinh Do Corporation has launched Korento made with ingredients imported from Europe.

Along with improving quality and design of packaging, there is also a growing price competition among domestic enterprises and foreign brands. To focus on this target, enterprises cut down all unnecessary expenditure and accept reduced profits, though this year they want to hike by 5-7 percent. To stimulate purchasing power, enterprises have stopped spending on design so as to reduce prices.

Better research and state-of-the-art technology, as well as improved quality by sweet manufacturers has been highly appreciated by distributors and supermarkets. Supermarkets have arranged shelves in strategic locations so as to gain the attention of consumers.

Among 50,000 items available at supermarkets like Co.opMart and Big C, domestic products make up for 90 percent. Nguyen Phuong Thao, managing director of Maximark on Cong Hoa Street said they are planning to reduce 30-40 percent of imported goods and replace them with domestic-made confectionary, as these are cheaper by 25 percent compared to foreign brands.

Mrs. Loi, a confectionary shop owner in Ben Thanh Market in District 1, said her shop only sells domestic-made confectionary as these are cheaper and hence sell well. Mrs. Oanh, a confectionary shop owner in Binh Tay Market in District 6, said local enterprises are in a position to offer higher discounts and quick delivery, while sellers of foreign brands face losses once the product becomes stale.

Software outsourcers need HR improvement

If Vietnamese software outsourcers did not improve the quality of their human resources, they would likely lose orders from Japanese information technology (IT) firms despite the fact that Japanese enterprises are shifting their orders to Vietnam.

As per the 2012 IT White Book of Japan compiled by the Japan Information Technology Promotion Agency (IPA) based on a survey of 1,100 IT companies in Japan, Vietnam remains the top partner for Japanese businesses. In particular, 31.5% of the respondents chose Vietnam as their partner, versus 20.6% for India and 16.7% for China.

In fact, 23.3% of the surveyed firms are placing orders in Vietnam, while the percentage is 17.8% in 2010.

Japanese companies prefer Vietnam for its low-cost, abundant and skilled labor force. In addition, Japan is looking to increase the proportion of outsourcing after the country was badly hit by earthquake and tsunami.

However, the value of orders for Vietnam is only one-thirtieth of the total value of orders for China. This indicates that the opportunity for Vietnamese enterprises is still great.

Vietnamese software companies have a chance to receive bulk outsourcing orders from Japan, but the biggest challenge for local firms is human resource, said Nguyen Doan Hung, chairman of the Vietnam IT business club.

He said Japanese people set strict requirements on working style of engineers. Therefore, the Vietnamese side has to demonstrate the characteristics of Vietnamese laborers like faithful, loyal and systematic.

The major weakness of IT human resource is not technical skills, but it is soft skills, including foreign languages, teamwork and being disciplinary, said Hung. Therefore, Vietnamese IT companies have to spend time on additional training.

Sharing this view, Naoki Ookubo, representative of IPA, said IT human resource quality is the top concern of Japanese enterprises. Therefore, if local firms did not remedy this issue, they would likely lose orders from Japanese partners.

Sugar import quota not yet granted

Since sugar output in the 2012-2013 crop is enough for domestic consumption, sugar import quota is not granted yet despite the country’s WTO commitment to import 74,000 tons in 2013.

Doan Xuan Hoa, deputy head of the Agro-Forestry-Aquatic Product Trading, Processing and Salt Industry Department under the Ministry of Industry and Trade, said his ministry and the Ministry of Industry and Trade would consider supply-demand at home to decide when to import sugar as committed. The earliest time possible may be August 2013.

Apart from the amount to be imported under the commitment to WTO, it is unsure if local traders can import sugar in 2013, said Hoa.

In 2010, a quota of 300,000 tons was granted, but only 252,000 tons was imported. In 2011, the import quota was 250,000 tons, but local businesses only bought 207,000 tons.

As of April 2012, 26 enterprises had sent their petitions to the trade ministry, seeking permission to import a total volume of 389,000 tons of sugar, versus 70,000 tons under WTO commitment.

Back then, local sugar mills had more than 479,000 tons of refined sugar, enough to meet the demand of those 26 firms, according to the Vietnam Sugar Association.

At a conference on sugar production and consumption in the 2012-2013 crop in October, representatives of sugar-consuming firms said local sugar prices were higher than the world’s prices and often changed every month. Therefore, they wanted to import sugar.

Worried that local enterprises will continue to ask for sugar import, the Vietnam Sugar Association informs that of the estimated output of 1.5 million tons in the 2012-2013 sugar crop, nearly 490,000 tons will be refined sugar. This volume is sufficient for local consumption, so the association proposes the authorities should limit sugar import.

As of November 15, 19 sugar mills nationwide had produced 98,700 tons, up 23,600 tons year-on-year. The unsold volume of these facilities was 87,300 tons, or 55,200 tons higher than the same period last year, according to the Agro-Forestry-Aquatic Product Trading, Processing and Salt Industry Department.

SOEs potential to be unleashed

Carving up state ownership and management functions will be a golden key to unlock state-owned enterprises’ potential.

Currently, state administrative organs own and manage about 1,300 state-owned enterprises (SOEs) in Vietnam – a practice which often leads to ineffective management decisions which are out of touch with market developments.

“To implement these two functions is like a person to be the judge in his own case which will badly affect business climate and create discrimination,” said Le Xuan Ba, director of the Central Institute of Economic Management (CIEM). Ba said the practice was responsible for many SOEs’ poor corporate governance, highlighted by the Vinashin and Vinalines scandals.

“SOE owners don’t have enough capacity to undertake the role of an investor. Therefore, it is necessary to transfer the ownership function from state administration to more neutral others,” he added.

Former CIEM director Le Dang Doanh agreed with the necessity to separate these functions, adding that apart from administrative management, state management agencies were too busy with SOEs’ operation, while enterprises were not allowed to implement their ownership rights.

However, experts said untangling these two separate functions was not easy. “Vietnam’s process to restructure SOEs started from 1965, but until now it has not been successful,” said Doanh.

Habeco and Sabeco, two giant state brewers, underscore the challenges in untangling these two functions. Despite being equitised for many years, the Ministry of Industry and Trade (MoIT) retained its ownership rights in these enterprises with the rationale that the firms play such a dominate role in the market.

The MoIT proposed the prime minister allow it to transfer state capital to some small enterprises and then larger ones later, while under the current regulations, state capital would need to be transferred to State Capital Investment Corporation (SCIC) following equitisation.

Doanh said group interest was the reason why these two functions had not been separated. Dr Dinh Quang Ty, member of Central Theoretical Council, said it was necessary to change the perception of SOEs’ roles in national economy.

“We cannot force SOEs to have the same rate of return as private enterprises. Therefore, SOEs should only focus on sectors and areas necessary for the common development of the national economy where private enterprises do not have enough capacity,” said Ty.

To address group interests, Vietcombank board member Le Thi Hoa said the state needed to release legal documents to create a adequate and clear legal mechanisms for state capital ownership and management to be a premise for checking and inspecting SOEs.

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

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