Vietnam’s export prowess turns to excess
13/03/2023 01:10
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Katrina Hamlin
HONG KONG, March 13 (Reuters Breakingviews) - Vietnam’s
economy rocketed up 8% last year as manufacturers like Samsung
Electronics 005930.KS , LG and Hon Hai Precision Industry
2317.TW powered exports. Now overseas demand is slumping
amidst a local credit crunch and a corruption crackdown. Weak
internal demand leaves the country without much of a hedge.
Vietnam has long served as a cheap alternative to China for
companies outsourcing production. A trade agreement and warmer
relations with Washington spared its manufacturers from tariffs
and sanctions applied to its northern neighbour. A combination
of low labour costs and proximity to more sophisticated Chinese
supply chains is alluring too. Foreign investment rose 13.5% to
$22 billion last year as companies slapped “Made in Vietnam” on
electronics, clothing and sneakers.
At $372 billion, gross export earnings now equate to a
whopping 90% of output last year, government data shows; of its
neighbours, only oil-producer Malaysia has ever approached such
a level. Now overseas demand is stuttering. The country lacks
China’s enormous consumer market; gross national income per
capita was around $3,600 in 2021, compared to $12,000 in the
People’s Republic. While Vietnamese workers are more youthful
than China’s, they are older than peers in Indonesia and India,
so the country’s labour-cost competitiveness may not last.
In that context, signs of domestic stress are worrying. A
long-running corruption crackdown that felled former president
Nguyen Xuan Phuc in January should yield long-term benefits. It
is disruptive now, however: paralysing the bureaucracy,
trickling into the real estate sector and rattling the benchmark
stock index. The campaigns have targeted business executives
and thrown a wrench in supply chains including pharmaceuticals.
Manufacturers have lost some enthusiasm. The world’s largest
maker of branded sports shoes, Pou Chen 9904.TW , said last
month it would cut some 6,000 jobs in Ho Chi Minh City, just two
years after complaining it couldn’t find enough workers.
Political turbulence may be discouraging new money too.
Registered foreign direct investment capital fell 38% in the
first seven weeks of the year.
Most of Vietnam’s neighbours, including China, reduced their
dependence on exports by developing dynamic private enterprises
that moved up the value chain and hiked wages: a virtuous cycle.
However, the Party’s predilection for concentrating investment
in inefficient state entities will serve it ill, especially if
FDI keeps cooling. If Hanoi really wants to compete with
Beijing, it might have to change its ways.
Follow @KatrinaHamlin on Twitter
CONTEXT NEWS
Vietnam's economy grew 8.02% in 2022, the fastest annual
pace since 1997, according to data released by the country’s
General Statistics Office on Dec. 29.
Vietnamese exports were flat in February and fell 23.4% in
January compared to a year earlier, according to Refinitiv data
released on March 9.
(Editing by Pete Sweeney and Thomas Shum)
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