Nation’s trade deficit continues to head north

The local garment sector has low added value as most materials are imported

Vietnam’s Customs last week reported that the country’s export value during January-mid December totaled $67.7 billion, while imports stood at $79.7 billion.

The Vietnamese business circle spent up to $45.3 billion on imports, while foreign direct invested (FDI) firms coughed up $34.4 billion.

According to the Ministry of Industry and Trade (MoIT), while the Vietnamese enterprises’ imports were in line with its early year projection, the FDI sector’s expansion in imports surpassed the forecasted $26 billion.

The recovery of the Vietnamese and world economies was a decisive factor promoting FDI firms’ manufacturing activities in Vietnam, which accelerated imports of raw materials, machinery and equipment for their local production.

MoIT Minister Vu Huy Hoang said although the country’s trade deficit rate against exports value kept declining in the past three years, it had remained an aching problem threatening Vietnam’s macro-economic stability.

The trade deficit is projected to equal 17 per cent of Vietnam’s exports  this year, much lower than the 22.5 per cent in 2009 and 30 per cent in 2008.

“We have still been importing a lot due to the expansion of local production, which demands a great deal of raw materials, machinery and equipment which are insufficient in Vietnam,” he said.

Hoang noted the garment sector was importing up to 60 per cent of raw materials from abroad. This sector earned $10.55 billion from exports as of mid December and is expected to earn $11 billion in 2010.

Vietnam Customs’ data showed that the garment sector imported more than $9 billion worth of cotton, fibre and fabric in 2010.

“The import of crucial raw materials, machinery and equipment makes up about 93 per cent of Vietnam’s total imports so far,” Hoang said.

Tran Du Lich, head of the Ho Chi Minh City Institute of Economics, said the root of Vietnam’s trade deficit was businesses’ heavy focus on assembling and operating as sub-contract producers, neglecting the development of domestic raw material and part supplies.

“I have not seen any policy or strategy for supporting industry development in Vietnam, which must involve the participation of small- and medium-sized enterprises, not big state-run players,” Lich said.

He said the government and related ministries must focus on that critical issue, building up clear assistant policies and strategy to encourage supporting industry, hence raising the added value of local production while solving the deficit problem in the future.