Display mode (Doesn't show in master page preview)

26 Feb 2008

International Economy

Vietnam’s Dependence on Imported Raw Materials a Good Opportunity for Thai Investments (Current Issue No.2043)

The steady growth of their exports at more than 20 percent per annum over the last 5 years (2003-2007) is a key factor that helps Vietnam's economy to maintain their GDP growth at 8 percent. In 2008, despite a trend of decelerating growth in Vietnam's exports because of slowdowns in the economies of their key export markets such as the US and the EU, as well as NTBs (Non-Tariff Barriers) imposed by some foreign markets, it is projected that Vietnam's aggregate exports will continue growth. However, key Vietnamese exports that create substantial income for them face problems due to inadequate domestic support industries and a shortage of domestic raw materials, forcing the country to depend on some imported raw materials. Important exports from Vietnam include garments and textiles, which entail high imported raw material content, e.g., cotton, cotton yarn and polyester fiber, as well as imported dying machines. For footwear, imported machinery and equipment for shoe and leather product production is needed, as well as imported wood to produce wooden furniture.
Vietnam's reliance on imported raw materials forces their export pricing to fluctuate with the prices of raw materials in the global market and constrains the value they can add to these export goods, thus affecting the competitiveness of Vietnamese goods in the global market. Therefore, it is a key policy of the Vietnamese authorities to support investment in primary and intermediate industries to reduce their dependence on imported raw materials, wherein they are focusing on drawing foreign direct investment.
KResearch is of view that potential Thai investors who have a chance to invest in upstream or midstream industries in Vietnam include manufacturers of upstream and midstream textiles (such as fabric weaving plants and dye factories), plus accessory producers and leather tanning and finishing – as this is a basic material for shoe factories. Also needed there are primary, secondary and tertiary plastic product producers because a plastics industry can support the continuously high growth of their industrial sector and exports. Moreover, they have the advantage of lower wages in Vietnam, as well.
Thais interested in investing in Vietnam should consider establishing their businesses within the Vietnamese special economic zones that were set up to capture foreign direct investment (FDI), the important ones being industrial zones (IZ) and export processing zones (EPZ). When setting up in these zones, investors can gain numerous privileges, such as VAT and import tariff exemptions. The Vietnamese authorities do not limit the forms of businesses or investment projects in their special economic zones, and foreign investors can wholly own their business there.
However, Thai investors who do business in Vietnam are challenged by infrastructure and logistic systems that are relatively underdeveloped. Transportation and operational costs are somewhat higher, and there is a shortage of skilled workers in Vietnam that that is forcing the pay scales for them higher, at present. The Thai government should play an important role to support and provide essential information to Thai businesses about operations in Vietnam. Then, interested investors will be ready to invest in Vietnam and must be prepared to cope with problems and obstacles while doing business in Vietnam. Important information includes matters related to marketing, competitors, financial and business laws, especially their labor laws and financial statutes.

View full article


Enter the code from the poll

International Economy