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Finance Ministry researcher warns that exports don’t always pay

Date: 10/2/2009 11:15:09 AM

When Vietnam increases its exports, it must import more materials to make exports, an expert warns. He says attention needs to be paid to the structure of imports and exports with a view to holding down the bill for imported inputs, according to a report.

Finance Ministry researcher warns that exports don’t always pay.

In the first nine months of 2009, garment exports brought Vietnam USD 6.7 billion in revenue, according to the General Statistics Office (GSO). Meanwhile, Vietnam had to import USD4 billion worth of materials to create those exports.

Dr. Vu Dinh Anh, a deputy director of the Market and Price Research Institute, a Finance Ministry think tank, said that in the garment industry, the cost of materials is 80 percent of the total production cost. Therefore, Anh said, the more Vietnam exports garments, the more it has to pay to import materials.

Anh also reached a surprising conclusion: although exports create several tens of millions of jobs and bring some USD60 billion every year to the national economy, if the cost of imports needed to enable the production of export products is considered, exports actually reduce GDP by two percent.

Among the import items, machinery and material inputs for domestic production account for the biggest proportions. Only ten percent of Vietnam’s imports are consumer goods. Therefore, experts say that even if Vietnam raises the tariff on cars and imposes a luxury tax on mobile phones, this still won’t close the trade gap.

Meanwhile, there are a lot of problems relating to exports. Though export volume has increased sharply (up 11 percent year over year), export revenues did not increase proportionately – in fact they fell by 10 percent!

Although crude oil exports increased eight percent year over year in the first eight months of 2009, revenues from oil exports fell by 41 percent. As for rice and pepper exports, though the export volume was up by 50 percent, total earnings fell by slightly.

Dr Nguyen Thi Nhieu of the Trade Research Institute warns that no breakthrough is likely from now to the end of the year. She said that the demand in the world market has just begun recovering from a low base and a lot of economies have applied measures to protect their local production. The competition among exporters has become stiffer in the world market, and Vietnam’s competitiveness remains weak.

Dr. Anh of the Market and Price Institute believes that it is not imperative to push up exports to fix the current problems in the trade balance and to avoid bad balance of payments impacts. Instead Vietnam should restructure the import-export menu and develop its internal market.

The General Statistics Office (GSO) has urged encouraging domestic consumption and relying on the internal market as the ‘fulcrum’ for development. GSO argues that Vietnam should make strategic choices among the materials it seeks to export and to supply to the domestic market.

Even during the Asian financial crisis of 1997-99, Vietnam was able to maintain positive export growth. However, this year the Ministry of Industry and Trade projects that Vietnam will export only USD59 billion worth of products, a six percent decrease from 2008 and considerably short of the target. If this scenario holds, 2009 will be the first year in two decades of doi moi policy that export values will decrease.

(Source:VietNamNet + VNE)

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