Manage to gain export competitive foothold for Vietnamese enterprises

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Dr. Le Quoc Phuong, former Deputy Director of the Center for Industry and Trade Information (Ministry of Industry and Trade),

In the context of difficulties of the Covid-19 pandemic, can you list favorable factors that helped Vietnam achieve strong export growth in the first 5 months of this year?

- Vietnam achieved high export growth due to a combination of many factors. The first factor is the quite effective pandemic control of the Vietnamese government especially in this very serious 4th wave which enables Vietnam to develop its economy in general and exports in particular.

Secondly, the pandemic in some key export markets of Vietnam has also begun to be under control. In particular, three main export markets including the US, EU, and China have so far achieved herd immunity through vaccination. In the past five months, Vietnam has boosted exports to these markets with export growth rates of nearly 50%, nearly 21% and 26% year on year, respectively.

The third factor is that the global economy begins to show signs of recovery after experiencing a rather severe recession in 2020. Global trade markets begin to be more active with higher demand. Vietnam is not only taking advantage of promoting export growth to three key markets but also to other markets. Therefore, exports to markets such as ASEAN, Japan, Korea all recorded significant growth.

The fourth factor is price. Exports increased sharply due to a sharp increase in world prices. From the beginning of 2021, Vietnam has benefited from both quantity and price, especially in terms of export price. For example, the price of oil reached the highest level since 2018, surpassing US$70/barrel and Vietnam has crude oil exports. Since the beginning of the year, iron and steel prices have also skyrocketed. At the same time, the export price of many agricultural, forestry and fishery products also increased, typically rice export increase sharply.

The fifth factor is that the implementation of new-generation Free Trade Agreements (FTAs) plays an important role in promoting exports, especially the two FTAs ​​with a large scale and intensity to exports, namely the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Vietnam-EU FTA (EVFTA).

Enterprises began to take more advantages brought by market incentives. Notably, exports to many markets without FTAs ​​are still low, but after FTAs exports ​​have increased sharply, typically to markets in the CPTPP bloc including Canada, Peru, Mexico.

Last but not least, the growth rate in the first five months of this year is higher compared to the same period last year. In the first five months of 2020, Vietnam's exports decreased by 2.8% over the same period in 2019. Compared with negative growth, the first five months of this year export growth is easy to reach a high level.

From around 2018, domestic enterprises began to gain a spectacular breakthrough, especially the increase of export share in total export turnover. The export growth rate sometimes even surpassed the growth rate of FDI enterprises. However, in 2020 as well as the first five months of 2021, this trend has reversed. What do you think about these results?

This is a rather unexpected result because in early stages of attracting FDI investment, from 1998 to 2000, Vietnamese enterprises still dominated, accounting for more than 50% of the proportion of exports, FDI enterprises accounted for less than 50% because they did not enter much.

However, from 2001 onwards, FDI enterprises invested and exceeded 50% in the proportion of exports. Since then, FDI enterprises have continuously played a dominant role in exporting goods and FDI enterprises have peaked for the first time in 2017 when they accounted for over 72% of the export proportion while export proportion of Vietnamese enterprises decreased.

Along with that, the export growth rate of FDI enterprises is always higher than that of domestic enterprises, so they increasingly dominate in exports. Since 2012, Vietnam's trade surplus is due to the trade surplus from FDI enterprises’ exports, while domestic enterprises always have a trade deficit.

Although there were some positive signs of about 30% increase of the export proportion of Vietnamese enterprises which means that the export proportion of FDI enterprises decreased to more than 70%. However, it’s too early to be optimistic because this has only occurred within a period of 2 years.

The fact is that from 2020 to now, when the Covid-19 pandemic occurred, the export proportion of Vietnamese enterprises has decreased. In the first five months of this year, the export proportion of domestic enterprises decreased to more than 25% and FDI enterprises accounted for nearly 75%, higher than the peak reached in 2017. This reflects the weaker resistance of Vietnamese enterprises to the challenges, typically "shocks" of Covid-19 in comparison with the capacity of FDI enterprises.

In May 2021, the export of processed and manufactured industrial goods which always accounts for a large proportion of the total export turnover, decreased by 1.4% compared to the same period in 2020. Due to negative impact of the Covid-19 pandemic on industrial production, is it forecast that the export of processed industrial goods in particular and the export of goods in general in the near future will be seriously affected, sir?

In recent years, industrial goods accounted for over 80% of export value, while agricultural, forestry and fishery products accounted for about 10%, minerals accounted for less than 10%.

Particularly, processed and manufactured industrial products account for about 80% of industrial goods, playing a very important role. The fourth wave of Covid-19 is considered the most serious wave because it has seriously affected major industrial zones of Vietnam for the first time, especially in Bac Giang and Bac Ninh.

Many large FDI enterprises in the field of processing and manufacturing were affected. Besides, Ho Chi Minh City's social distancing measures also affected industrial production in which the group of industrial goods in general and the processing and manufacturing industry were severely affected in May 2021 and is expected to be for the whole of June.

At the end of May 2021, the Government asked to both fight the pandemic and restore production, in which many workers in industrial parks in Bac Ninh and Bac Giang went back to work with strict preventive measures. Hopefully, thanks to such drastic measures from the Vietnamese government, industrial production in general and the manufacturing and processing industry in particular will not be affected much in the near future.

Recently, under the negative impact of the Covid-19 pandemic, import and export activities, have showed a lot of passivity in Vietnam's production and export, especially when the supply chain was broken. Could you please tell me the basic solutions both in the immediate future and in the long term to help Vietnam gradually export more sustainably, less dependent on the FDI sector?

- There are two main solutions, if implemented quickly and drastically, will help Vietnam export more sustainably.

Concentrating on developing supporting industries enables Vietnam to increase the added value in exports and the domestic content, thereby reduce the import of raw materials, components and accessories, and lessen the dependence on foreign countries. Vietnam will gradually shift from export processing and assembly economy to a higher production level. Recently, there have been many calls for development, many policies and solutions to this problem, but it has not been completed as expected.

Secondly, it is important to improve the competitiveness of Vietnamese enterprises. As a matter of fact the competitiveness of Vietnamese enterprises is still very weak. Besides the support of the Government, enterprises themselves have to make a lot of effort otherwise they will lose to FDI enterprises on their own "home ground".

On this issue, Vietnam still lacks a drastic and breakthrough solution. Although many measures have been proposed by the government but still not enough, the policies have not been made effective. In addition, many businesses still do business mentally and have not invested to improve labor productivity and technology.

Thank you Sir!