[Vnbiz] EIU Vietnam Consumer Goods Competition and Investment

[Craig Stevenson]

Vietnam consumer goods: Competition and investment
   Printer version<http://www.viewswire.com.ezproxy.umuc.edu/index.asp?layout=IwPrintVW3&article_id=1611135146&printer=printer>
 September 4th 2006

   FROM THE ECONOMIST INTELLIGENCE UNIT

The manufacturing sector records strong growth

Manufacturing accounted for around 21% of current-price GDP in 2005, up
slightly from 19.8% in 2001. The sector has continued to record strong
growth in recent years, with annual average growth standing at around 11% in
2000-04. However, the state's dominance of manufacturing has continued to
decline. In 2005 the state accounted for around 34% of the total value of
manufacturing output, down from 43% in 2000. The non-state sector
(collectives, private enterprises and households) saw its share of
manufacturing output rise to 32% in 2005 from 27% in 2000, while
foreign-invested enterprises (FIEs) accounted for 37% in 2005, up from 30%
in 2000.

Vietnam's manufacturing base is fairly broad. Food products and beverages
accounted for around 25% of the total value of manufacturing output in
recent years, and other important subsectors include manufacturing of
textiles and apparel, assembly and repair of motor vehicles and other
transport equipment, chemicals and chemical products, fabricated metal
products, leather products, furniture, and electrical machinery and
apparatus.

Garment exports continue to rise

Vietnam's textile and garment manufacturers are enjoying healthy growth and
in 2005 total output of readymade garments surpassed 1bn pieces, up by
nearly 15% year on year. Most of this output is exported. Easier access to
US markets following the implementation of the US-Vietnam bilateral trade
agreement in late 2001 led to a rapid increase in Vietnam's textile and
garment exports, to US$4.8bn in 2005, from US$2bn in 2001. The impact of the
expiration of the World Trade Organisation (WTO)'s global system of quotas
at the end of 2004 (and the expected intensification of competition from
China) has not been severe, with exports rising by 9.6% year on year in 2005
and expanding by 31% year on year in January-May 2006. However, this is
mainly because the US and the EU have imposed restrictions on imports from
China. Until Vietnam becomes a member of the WTO (which is likely at the end
of 2006), its exports of textiles and garments to the US will remain subject
to quotas, thereby hampering export growth. (The EU and Canada agreed to
eliminate quotas on Vietnamese exports of textiles and garments from January
1st 2005.)

Footwear exporters face restrictions

Footwear manufacturers have struggled in the increasingly competitive
trading environment in recent years, particularly vis-à-vis Chinese
competition. Production levels and exports, however, continue to rise. In
2004 Vietnam produced 141m pairs of shoes and other footwear, up from around
108m in 2000, and the value of footwear exports reached US$3bn in 2005, up
from US$2.7bn in 2004 and only US$1.5bn in 2001. Exports of footwear
continued to expand in early 2006, rising by 21% year on year in
January-May. However, footwear manufacturers have fallen foul of an EU
anti-dumping ruling. The EU, claiming to have found "compelling evidence of
state intervention, dumping and injury", imposed a levy at a rate of 4% in
April, and this will reach 16.8% by the end of 2006 (19.4% for China). The
tariffs, which are somewhat below the 20% level that had originally been
recommended, were based on an investigation of eight Vietnamese shoemakers.
The Vietnamese government claims that it neither interferes in businesses'
operations nor subsidises them, but does admit to providing some incentives,
including waivers on land-lease payments. Vietnamese firms exported 265m
pairs of shoes to the EU in 2005, almost double the level of 2001,
accounting for an estimated 70% of all shoe exports. The shoe industry is
said to employ 500,000 workers, four-fifths of whom are women.

The woodworking industry thrives

The woodworking industry continues to thrive, with exports reaching US$1.5bn
in 2005, compared with only around US$295,000 in 2000. Furniture makers have
rapidly expanded their output in recent years; annual output value growth
(in constant prices) in 2000-04 averaged 25%. The industry is strong in the
Central Highlands provinces of Daklak and Gia Lai and in the southern
industrial province of Binh Duong; there are an estimated 2,000 wood
processors, 300 of which export some of their output. Allegations in the US
of dumping by Chinese producers has led buyers to turn to other sources,
including Vietnam. As a result, Vietnam's shipments of furniture to the US
have grown sharply. Vietnamese furniture makers have been urged to cater for
niche markets in the US in order to avoid anti-dumping suits.

The electronics sector enjoys strong growth

Local electronic goods manufacturers and assemblers are enjoying success in
building up overseas markets. Annual output growth has been impressive, at
an average of 25% in recent years. In 2005 electronic goods exports jumped
to US$1.4bn, up from US$1.1bn in 2004, US$855m in 2003 and US$605m in 2002.
According to the vice-chairman of the Vietnam Electronics Industry
Association (VEIA), the main factor contributing to this impressive growth
in recent years has been intensive promotional campaigns. VEIA has been
active in organising promotional tours to a number of countries, including
Taiwan, and it has also facilitated the establishment of ties with
electronics associations in other countries.

Efforts to expand the high-technology sector were rewarded in early 2006
with the announcement by the world's leading producer of microchips,
US-based Intel, that it would build a US$605m semiconductor assembly and
test facility in the Saigon High-Tech Park in Ho Chi Minh City. The project
represents the largest investment by any US company in Vietnam. The first
phase will cost US$300m, to build facilities and train 1,200 employees, and
will be complete by the second half of 2007.
The Economist Intelligence Unit
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