BUSINESS IN BRIEF 27/6

Agricultural exports decline

Agricultural exports from Vietnam over the past five months have dropped in both volume and value.

Most worthy of note is coffee (by 24.2% and 22.4%, respectively), followed by cassava (19.4% and 15%), rubber (5% and 20%) and rice (7% and 10%).

Nguyen Thi Hong, Head of the Planning Department under the Ministry of Agriculture and Rural Development, said the agro-forestry and fisheries sector has achieved a high growth rate in recent years, mainly due to its abundant supply. But since mid-2012 many agricultural products in the world have dropped in prices.

In addition, the weak purchasing power of domestic consumers and low prices remain a stumbling block to farmers’ production and income levels.

The Minister of Agriculture and Rural Development Cao Duc Phat has urged relevant agencies to coordinate in removing an helping enterprises promote export business to major markets, such as Japan, the EU, the Republic of Korea, Russia and China while intensifying their control of agricultural products imported to Vietnam on account of food safety.

Exports in the first half of this year were estimated at US$13.53 billion, down 1.7 percent over the same period last year. Of the figure, major agricultural products fell by 10.7% to US$7.59 billion and trade surplus by 18.5% to US$3.7 billion.   

Exports to Turkey up 79pct

Vietnam’s exports to Turkey hit US$11.6 million in May, up 79% from a year earlier.

According to the General Department of Vietnam Customs, phones and components topped the list of consumer items, earning a monthly record of US$40.2 million, 4.5 times higher than the previous month and up 7.6 times than the same month of last year.

However, the total earnings from phones and components exported to Turkey in the first five months of this year were still lower than those from coarse textile fibre.

The turnover difference between these two groups of products has been narrowed considerably from US$155 million in 2011 to US$140 million in 2012 and US$14.7 million in the first five months of this year.

SMEs to get support from eco-consulting centre

Eight small- and medium-sized enterprises (SMEs) in Ho Chi Minh City will be chosen to receive eco-business consulting services from the ASEM Eco-Innovation Consulting Project for SMEs.

Sponsored by the ASEM SMEs Eco-Innovation Centre (ASEIC), the project aims to strengthen the green competitiveness of SMEs in ASEM-member countries, especially in developing countries, by disseminating and utilising green management and technology in their business.

In 2011, ASEIC launched its first ASEM SMEs Eco-Innovation Consulting Project for 33 SMEs in Thailand, Indonesia, Malaysia and Vietnam. It offered consulting services for 32 different SMEs in those four countries last year and for 40 SMEs in five countries this year.

Hyun Ae An, manager of ASEIC’s Green Business and Technology Support Department said 16 SMEs in northern Vietnam, which took part in the project in 2011 and 2012, have improved their environmental awareness as well as production efficiency.

“This year is the first time the project is implemented in the south, from June to October,” she said. “As of today, more than 30 SMEs have registered to take part in the project, but we will choose eight firms to provide specific consulting services.”

Under ASEIC’s consulting process, after selecting eligible SMEs for the programme, ASEIC in collaboration with the Small and Medium Enterprises Development Support Centre 2 in HCM City will assess the environmental performance of the participating SMEs.

Based on the assessment, both short- and long-term environmental management and cleaner production strategies will be established.

FDI hits nearly US$10.5 billion in six months

In the first half of this year, Vietnam attracted nearly US$10.5 billion in terms of foreign direct investment (FDI) to 554 new projects and 217 old ones, up 15.9% from a year earlier.

In the same period, around US$5.7 billion was disbursed, up 5.6% compared to last year’s figure and more than US$9.3 billion poured into the processing and manufacturing industries, accounting for 88.9% of total FDI.

Topped the list of 45 countries and territories investing in Vietnam was Japan with nearly US$4 billion accounting for 38.1% of the funding, followed by Singapore with US$3.41 billion, making up 32.6% and Russia with US$1 billion, equal to 9.7%.

Among FDI projects operating in 46 provinces and cities nationwide are the Nghi Son Oil Refinery in Thanh Hoa province with an additional capitalisation of US$2.8 billion from Japan, Samsung Electronics Vietnam in Thai Nguyen province with US$2 billion from Singapore and the Bus Industrial Centre in Binh Dinh province with US$1 billion from Russia.

Export earnings from the FDI sector, including crude oil, in the first six months rose 24% to US$41.1 billion from a year earlier, accounting for 66% of Vietnam’s total export turnover.

US pursues tra, basa fish investigations

Vietnamese tra and basa fish will continue to face challenges in the US as the Senate recently did not approve stopping the investigation into these imported products.

The Vietnam Association of Seafood Exporters and Producers (VASEP) said that the US Senate adopted its 2013 Farm Bill on June 10. However, the bill did not include some key proposals on food safety by Senator John Mc Cain from Arizona and Senator Jeanne Shaheen from New Hamshire regarding the United States Department of Agriculture (USDA) halting its controversial investigations into Vietnamese tra and basa fish.

Last year, Senators John McCain and John Kerry from Massachusetts presented a draft bill on waiving the USDA’s tra and basa fish investigations and the bill was approved at the Senate in June 2012.

This year, many Senators have voiced strong support for removing the investigations. As a result, a similar draft bill was proposed in the House of Representatives and later adopted by the Agricultural Committee of the House of Representatives at the end of May 2013.

Ten more congressmen have rejected the investigations. In his draft financial budget for 2014, President Barack Obama also recommended waiving the investigation to avoid overlapping management among the Food and Drug Administration (FDA), the National Marine Fisheries Service (NMFS), and the USDA, which would save US$14 million next year.

A number of congressmen warned that the investigation of tra and basa fish may lead to a similar reaction against US beef exports in foreign markets.

VASEP Secretary General Truong Dinh Hoe said the Senate’s latest vote demonstrates inconsistency among US lawmakers.

In the first half of this year, tra export earnings are estimated at US$$800 million, which is lower than the shrimp export value, and local seafood exporters will face more difficulties in the second half of this year,according to the VASEP.

15 businesses certified “Dolphin Safe”

Fifteen Vietnamese tuna fishing businesses have been certified as being “Dolphin Safe” and they can label their tuna exports to the EU, US and Australia accordingly.

The Vietnam Association of Seafood Exporters and Processors (VASEP) said the Earth Island Institute (EII) has asked Vietnamese tuna exporters not to use gillnets to catch tuna, based on a report from the Western and Central Pacific Fisheries Commission (WCPFC) on tuna exploitation in Vietnam’s Binh Dinh, Phu Yen and Khanh Hoa provinces.

The EII warned that Vietnamese tuna exports might not be granted the “Dolphin Safe Tuna” label any longer for fear that the use of gillnets affects dolphins’ living environment and the marine ecosystem.

The 15 Vietnamese tuna exporters confirmed that they do not use gillnets because tuna caught with them does not meet the criteria for exports.

The VASEP said if Vietnamese businesses are not granted the “Dolphin Safe” certification Vietnamese tuna cannot be sold in the major markets.

EII also recommended that Vietnamese tuna exporters label all their tuna products with State certifications.

Mixed reaction to VN trade deficit figures

The nation ran a trade deficit of US$1.4 billion in the first six months of this year, equivalent to 2.3 per cent of the country’s total export turnover.

The country’s total export turnover in the first half of the year reached $62.053 billion, a rise of more than 16.1 per cent over the same period last year. Total import turnover jumped 17.4 per cent, reaching $63.456 billion.

The foreign direct investment (FDI) sector continued to surpass the domestic sector in both exports and imports, said Le Minh Thuy, director of the General Statistics Office (GSO)’s Trade Department.

The FDI sector contributed up to $41.14 billion to the total export turnover, a rise of 24.7 per cent over the same period last year, while the domestic sector saw a slight increase of only 2.2 per cent.

The FDI sector also saw imports increase by 27.8 per cent to $35.726 billion, significantly higher than the domestic sector’s 6.3 per cent increase.

In the first half of the year, the FDI sector recorded a trade surplus of up to $5.414 billion. June alone accounted for $2.55 billion of that surplus.

FDI enterprises mainly exported phones, electronics and garment-textile products and imported mainly raw materials for production.

According to the GSO, imports from China in the first six months of the year hit $17 billion, accounting for 26 per cent of the country’s total import turnover – a rise of 33.2 per cent over the same period last year.

The excess of imports over exports hit nearly $11 billion, increasing up to 64.3 per cent.

Products imported from China were mainly used by domestic enterprises involved in industrial production. They included plastics, chemicals, iron and steel, fertilisers and pesticides.

According to the Ministry of Industry and Trade, the domestic industrial production sector was recovering, estimated to rise 5.3 per cent and see a long-awaited decrease in inventories.

However, Thuy cautioned that it was still not certain domestic enterprises would be able to recover production, as their imports saw low growth of only 6.3 per cent in the year’s first half.

Modern gantry cranes gives Hai Phong port a lift

A system of four rubber-tyred gantry (RTG) cranes and a new container station have recently been put into operation at the Tan Cang Dinh Vu Port in the northern city of Hai Phong.

This upgrade is part of the port’s modernisation scheme to increase its capacity so it can meet the growing demand for cargo transport and reach international standards in the near future.

With a total investment of VND100 billion (US$4.76 million), the four RTG cranes manufactured by Japan’s TCM Corporation were completed and put into service along with a new 196,250-square metre container station.

The new system will enable the port to manage container goods more effectively and increase its capacity.

PVFC announces merger plan with Western Bank

The PetroVietnam Finance Joint Stock Corp (PVFC) have announced a merger plan with Western Bank which is facing financial difficulties and need urgent restructuring.

The plan will be discussed in detail in a shareholders meeting on July 26. The outlines for the merger have already been approved by the shareholders.

Currently, PVFC has VND6 trillion (USD288 million) in charter capital and Western Bank has VND3 trillion.

The PVFC’s shareholders meeting in May, saw a majority agree to a plan that will turn PVFC from a finance corporation into a joint stock commercial bank.

After the merger, PVF shares on HCM City Stock Exchange (HSX) will be de-listed. In addition the National Oil and Gas Group’s (PVN) stake in PVFC will be reduced from 78% to 52%.

PVFC has recently divested from many companies. For example, they sold 5 million shares of PetroVietnam Construction JSC or tried to sell 5 million shares of Pha Lai Thermal Power JSC.

In the first quarter, PVFC’s revenue was 43% lower than the same period last year. Meanwhile the cost to prevent credit risks increased by VND132 billion because the loans to Vinashin and Vinalines turned into over VND2 trillion of bad debt.

Western Bank is also facing problems from VND1,118 billion overdue interbank deposits in First Commercial Bank, Saigon Bank, Vietnam Tin Nghia Bank and Trust Bank.

Their equity decreased to VND2.31 trillion, less VND690 billion than the required charter capital.

Hanoi high-tech park takes two-decades for site clearance

Despite being established in 1998, Hoa Lac High-tech park’s site clearance has not yet been finished.

Chairman of the Hanoi People’s Committee, Nguyen The Thao, has decided to set up a steering board for the site clearance of the park, as well as the National University, Hanoi, located in the park.

At a meeting to review the progress on the site clearance of these two projects, Thao said that it was a very large job and involved a number of complications, which was the reason that the pace was slower than that set by the government.

Chairman Nguyen The Thao attributed to the stagnant site clearance to the limited capacity of commune-level cadres and weak cooperation between agencies.

He requested that the steering board send a report on the allocated site clearance capital source for 2013 to the People’s Committees of districts where land was revoked and the municipal People’s Committee as well as estimate the supplementary capital needed to speed up the work no later than June 29.

Hoa Lac High-tech park is expected to become a “national scientific city” which would hopefully attract around 100,000 scientists, students, engineers and skilled workers.

The 1,586-ha project has various functions, including a 76-ha area devoted to software development area, a 229-ha RD area and a 549.5-ha high-tech industrial area.

The Deputy Minister of Sciences and Technology, Nguyen Van Lang, admitted that the global economic downturn has slowed down the process, as investment has slackened. The other main problem, he said, was slow site clearance. The entire capital invested for the project is only VND2.6 trillion (USD123.8 million).

CPI growth lowest in decade

Vietnam’s consumer price index (CPI) in June increased slightly by 0.05 percent from the previous month, driving CPI in the first half of 2013 up 2.4 percent against last December, the lowest rate of growth since 2004.

The General Statistics Office (GSO) announced on June 24 that the figure in June and in the first six months of this year saw year-on-year rises of 6.69 percent and 6.73 percent respectively.

Prices in June increased by 0.02-0.42 percent in eight out of 11 commodity categories used to calculate the CPI. The highest rise during the month was recorded in the group apparel-headwear-footwear, while the housing and building materials category experienced the lowest price increase.

A decrease was seen in restaurant services, transport, postal services and telecommunications. The rapid fall in the price of rice resulted in a 0.62 percent decrease in food prices.

The GSO also announced that the country’s two largest cities, Hanoi and Ho Chi Minh City, saw a CPI increase of 0.08 percent and 0.12 percent respectively.

According to Nguyen Duc Thang, head of the GSO’s Price Department, the 2.4 percent increase in the first half of 2013 is a positive sign that the country can keep inflation below 8 percent as set by the National Assembly.

More importantly, if the CPI remains stable, the State Bank of Vietnam will cut lending interest rates, which helps businesses reduce production costs and lower their prices, encouraging consumption, Thang said.

Veka charts a course to help Vinashin get on its feet again

Netherlands’ shipbuilder Veka  Group is looking to sail into Vietnam’s shipbuilding industry though joining hands with the struggling state-run Vinashin.

Vinashin has just asked the Vietnamese government for approval to sign a memorandum of understanding with Veka Group to invest in shipbuilding projects in Vietnam, according to an announcement released by the Government Office.

“The Ministry of Transport (MoT) directs and guides Vinashin, which nearly was bankrupted in 2009 due to financial mismanagement, to cooperate with Veka Group based on market demand and the actual financial situation of the group [Vinashin],” Deputy Prime Minister Hoang Trung Hai said in the announcement.

Veka Group last year studied investment potential in Vietnam and the group also sent delegations to study central Khanh Hoa province, home of Vietnam’s largest shipyard Hyundai-Vinashin and also where Japan’s Oshima Group is building a $180 million ship-building yard. It also studied investment potential in northern Quang Ninh province where several Vinashin-run shipyards like Halong and Pha Rung are located.

The cooperation of Veka Group with Vinashin, if it is implemented, maybe significant for the Vietnamese shipbuilder to recover from financial troubles as Veka Group, established in 1988, is a global experienced shipbuilder.

Vinashin was supposed to be the tip of the spear in helping the local shipping industry penetrate the global market. However, the state-run shipbuilder almost collapsed in 2009 and required drastic restructuring.

The National Assembly’s Standing Committee reported the amount of money that Vinashin owed commercial banks or other financial institutes were 10.9 times higher than its ownership capital.

Siemens marks anniversary with hybrid bus unveiling

Siemens yesterday launched the first hybrid bus in Viet Nam that uses fuel efficient techniques. It marks the 20th anniversary of Siemens’ presence in the country.

Siemens’ ELFA technology has helped urban buses reduce their fuel consumption by as much as half, easing the impacts on the environment. The hybrid bus was the result of the nine months’ joint work between Siemens and Vinamotor.

Roland Busch, member of Siemens AG Executive Board said that Siemens hoped to further co-operate with Viet Nam in the future.

Siemens, which entered Viet Nam in 1993, has a strong presence in key areas of the national economy, including energy, technology, healthcare, transportation and infrastructure development.-

Forbes releases first edition for Vietnamese market

Forbes Viet Nam, a monthly magazine published in Vietnamese for CEOs and entrepreneurs, celebrated its inaugural launch yesterday in HCM City.

The magazine is published under a licensing agreement between Forbes Media LLC and Interactive Media, an IDG Ventures Viet Nam portfolio company.

Forbes Viet Nam will have access to Forbes stories from around the world, and will also feature local content from the Forbes Viet Nam editorial team.

Data on fuel stabilisation fund to be publicised

The Ministry of Finance will publicise the usage of fuel stabilisation fund and be more effective in budget spending.

The new minister of Finance Dinh Tien Dung has said during questions from the public on June 23. “The fuel stabilisation fund is set up from taxpayers’ money so people have the right to ask for a transparent system.” he said.

Dung said they will publish the management and usage of the fund on the Ministry of Finance’s web portal during the first month of each quarter. Dung said, “People can supervise the fund and the fuel prices.”

The stabilisation fund is set up to help enterprises to minimise losses without raising fuel prices too much when domestic prices are lower than global prices. However, in the past, even when the world price fell, firms were still being compensated from the fund.

On June 14, the Ministry of Finance allowed firms to increase fuel prices by over VND400 per litre and were compensated from the fund as world prices had been on the rise.

This has raised doubt and concerns from public. Many experts said consumers are only protected when the calculation on fuel prices and commission rates for retailers are controlled and publicised in detail.

Dung also mentioned about measures should be taken to ensure a healthy state budget while firms are in difficulties.

He said in the first five months of 2013, the budget only reached VND299 trillion (USD14 billion), about 36.6% of the expected goal. To deal with the problem, Dung suggested to lower tax duties for VAT, corporate income tax and personal income tax.

As of June 19, the National Assembly agreed to lower the corporate income tax from 25% to 22% start on January 1, 2014. This is said to be the lowest rate in the region. “The budget will have a deficit of VND7 trillion this year and VND36 trillion next year. However, this money will become government capital given to firms so that they’ll contribute more to the budget after the tough times.” he said.

Tighter control over tax evasion activities such as smuggling or transfer pricing was mentioned along with government’s request for authorities to prevent wastefulness.

Wood firms safeguard sustainable growth

The Handicraft and Wood Industry Association of HCM City (HAWA) plans to take several steps to improve the sustainability of the industry and help its members increase exports.

The association held its sixth congress last Sunday to review the 2010-13 period and set plans for the next three years.

Speaking at the event, HAWA Chairman Nguyen Chien Thang, said the wood and handicraft industry continued to have significant growth, despite the recession of the last three years.

During that period, the association held professional training courses, trade promotions and seminars for its members.

As a result, companies had improved their designs as well as management competence, he said, adding that they had also learned about importing requirements of other countries.

In addition, to help its members improve competitiveness and enter global markets, HAWA has signed a number of cooperation agreements with international organisations.

Tran Quoc Manh, deputy chairman of HAWA, said that the association’s website had also become a key source of information for businesses.

Manh noted that businesses in the next few years would face a fall in demand in local and global markets as well as higher input costs and more trade barriers imposed by importing countries.

In order to ensure the industry’s sustainability, he said that HAWA would continue to hold more seminars, fairs and training courses in collaboration with local and foreign partners.

It also plans to organise more trade promotions and work with local agencies to improve those programmes.

Moreover, better communications between the Government and businesses, as well as between HAWA and its members, will also be a major goal.

Wooden-product exports in the first half of the year are estimated to reach US$2.2 billion, up 10 per cent over the same period last year, according to Nguyen Ton Quyen, vice chairman-cum-general secretary of the Viet Nam Timber and Forest Products Association (Vifores).

Speaking to Viet Nam News on the sidelines of the conference, Quyen said that export growth this year had slowed considerably, especially compared to the first half of 2012, when it rose by 17 per cent over 2011.

He attributed the slower growth in exports this year to a drop in demand from the EU market, one of the major import markets for Vietnamese wooden products.

“Exports are expected to go up in the remaining months of the year, especially starting from September,” he said.

However, some companies have been forced to cancel year-long export contracts because of financial difficulties and a labour shortage.

He said Vifores would petition the Government to take measures to help struggling companies.

This year, wooden-product exports are expected to top $5.2 billion, up 10 per cent over last year.

Last year, the country earned $4.7 billion from wood and wooden-product exports, a year-on-year increase of 17 per cent.

GSO releases encouraging first six month figures

The total revenue from retail trading and the service sector during the first six months of this year is estimated at VND1.27 trillion (US$60.6 million), a surge of 11.94 per cent year-on-year.

Figures released by the General Statistics Office (GSO) show that retail sales this month were VND212.2 billion ($10.1 million), a slight fall of 0.25 per cent over the previous months.

The industrial sector accounted for the largest amount of the increase in this period, recording 77 per cent, followed by hotels, restaurants and services.

Co-operatives posted the highest decrease of 0.46 per cent, following by foreign invested and private firms with 0.38 and 0.35 per cent respectively.

Tourist sector saw the biggest decrease of 1.02 per cent.

The department also estimated that Ha Noi had 6,192 firms register to cease operating during January-May this year, down 20 per cent from the same period last year.

Of the total, 222 firms have finished operating, a 27 per cent increase over the same period last year, while 1,266 firms are preparing the necessary documentation for closing.

More than 2,800 establishments have left their business registration addresses, a drop of 2 per cent and 1,900 firms have registered to cease their temporary operations, representing a 49 per cent year-on-year decrease, the GSO added.

In the first quarter of this year, over 7,000 new firms have been set up with a total registered capital of VND52.3 trillion ($2.48 billion), a drop of 9.5 per cent in quantity but a rise of 13.2 per cent in capital when compared with the corresponding period last year.

Enterprise Law violators closed down

The northern province of Hoa Binh’s Department of Planning and Investment has withdrawn business licences of 178 enterprises for failing to report on their operations for three consecutive years.

Head of the department’s business register chamber Pham Dinh Huong said the enterprises had breached the Law on Enterprise.

Most were working in construction, mining, trade and tourism, including 55 in Hoa Binh City and 50 in Luong Son District.

The enterprises would have to complete dissolution procedures and return official stamps to their local authority within six months.

Samsung increases investment in Bac Ninh Province

The Industrial Parks Authority in the northern province of Bac Ninh recently granted a modified investment license to Samsung Electronics Vietnam to add additional investment of US$1 billion.

By adding $1 billion, the company’s registered capital in Bac Ninh Province will rise to $2.5 billion. This also makes the Samsung Complex in Bac Ninh the company’s largest factory base in the world.

The $1 billion project mainly focuses on researching and developing high-tech products, such as mobile phones, telecom devices, spare parts and other electronic products.

Hanoi Stock Exchange allows HBD to cancel listing

Hanoi Stock Exchange (HNX) has approved Binh Duong PP Pack Making Joint Stock Company’s (HBD) request to cancel listing of its VND1.53 million shares on the northern bourse from June 28 this year.

According to business results in the second quarter of this year, HBD’s revenue was estimated at VND3.85 billion and post-tax profits were at VND200 million.

Earlier, in the first quarter of the year, the company revenues reached VND6.18 billion, and post-tax profits were at VND360 million.

Farmers in Mekong Delta under distress with high labor costs

Thunderstorms in the Mekong Delta Region this year have flattened vast areas of standing rice crops and farmers now must use manual labor to harvest as combine harvesters will no longer work.

The Region, however, has seen a bumper harvest this year, resulting in shortage of labor and high wages. A hectare costs VND4 million (US$190) if farmers use combines to harvest, while manual labor costs VND5 million a hectare.

All together, costs can go upto VND8 million a hectare which is too high while paddy prices are too low, ranging from VND3,800 a kilogram for fresh unhusked rice and VND4,200 per kilogram for fresh long unhusked grain.

Farmers are therefore distressed despite having a bumper harvest this year.

Le Minh Duc, director of the Department of Agriculture and Rural Development in the Mekong delta province of Long An said around 20,000 hectares of summer-autumn crops are being harvested. He urged enterprises to purchase 91,000 tons of rice as directed by the Vietnam Food Association (VFA).

According to VFA, since the beginning of the year, enterprises have exported nearly three million tons of rice, earning revenue upto $1.28 billion.

Farmers in Mekong Delta facing mounting challenges

Many farmers in the Mekong Delta are facing amounting challenges and losses from growing rice as they are not properly protected and supported by the government’s policies.

Even though rice plays an important role in Vietnam’s economy, farmers have continued to incur loss whether they have good or bad harvests for recent years.

Over the past three years, Vietnam’s rice export prices have continued to fall by around VND1,000 per kilo, causing losses to both rice exporters and farmers.

The World Bank’s research in 2011 and Oxfarm’s research in 2012 showed that incomes of rice growers in Vietnam were rather low.

Farmer households in the Mekong Delta region earn an average of only VND535,000 (USD25.43) per person per month, the reports said.

“Farmers’ incomes heavily depend on rice export prices. Export price falls mean further losses for rice growers,” said Dr. Dang Kim Son, Director of the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD).

Nguyen Dinh Bich, a rice expert said, “Statistics on rice exports showed a paradox that Vietnam rushes to sell rice amid export price falls but keeps rice in store upon price hikes. This is a result of improper rice export policies, which have caused losses for both farmers and rice exporters. The country’s economy obviously benefit nothing either.”

Bich emphasised the necessity to reconsider rice export policies and strategies.

“Several rice policies are inadequate as they have just ensured food security and market stability instead of paying proper attention to improving rice export efficiency. Several policies still have yet to concentrate on farmers as farmers don’t benefit from 30% of rice revenues as required by the government,” Dr. Nguyen Cong Thang, from IPSARD said.

The current rice price mechanism is inadequate as well because farmers can’t directly sell their rice to rice exporters but through traders as mediators.

“Areas specialised for rice production should be linked together to call for investment and ensure rice quality. However, such model has yet to receive proper attention and support from the government,” Thang noted.

As the result, many families are discouraging their children from doing farm work.

Huynh Kim Hai, from Dong Thap Province, has cultivated in eight hectares of rice since 1990.

His six-member family earned a combined VND52.8 million (USD2,509) from two harvests of this year. This means a per capital income of VND733,000 (USD34.84) per month.

“Since 2008, farmers’ incomes have continued to fall due to falling rice prices and rising prices of fertilizer and pesticides. Almost all farmers have to get bank loans for their rice cultivation. My family borrowed VND100 million (USD4,753) at an interest rate of 1% for this crop.” Hai said.

Currently, the Vietnam Food Association (VFA) has the monopoly to define rice buying prices for farmers. This policy has helped ensure stability in the market but has brought much of profits for VFA instead of farmers, he said.

“VFA benefited from the disparity of rice prices applied for farmers and rice export prices, so they have tried to buy rice from farmers at as low prices as possible. They don’t pay proper attention to store investment and rice trademark development either,” he commented.

He proposed that in order to ensure profits for farmers it’s necessary to increase rice export prices and lower fertilizer and pesticides prices.

“If my children need capital to set up their own business I’ll sell my rice field. As I have no other choice I won’t lease my field until I can’t do farm work anymore,” he added.

Credit institutions suffer losses

Though business for the banking sector improved during the first five months of this year, 24 out of 124 credit institutions reported losses during the period, according to the State Bank of Viet Nam.

The remaining 100 credit institutions posted profits in the January-May period, however, 57 of them reported lower earnings than the same period in previous years.

Cumulative differences in income over spending in the entire banking sector during the period reached VND18.2 trillion (US$866.6 million), up 9 per cent over the same period last year but down 12 per cent and 39 per cent against the same period in 2010 and 2011.

This figure would have fallen even further with outstanding income reduced to only VND3.8 trillion ($180.95 million) if debts of credit institutions had not been restructured in accordance with Decision 780/QD-NHNN on classification of rescheduled loans. The decision helped institutions avoid having to make an additional provision of VND14.4 trillion ($685.71 million).

According to the central bank, non-performing loans of banks accounted for 4.65 per cent of total loans by the end of May this year. Thirty out of 124 credit institutions reported their bad loans to exceed 3 per cent of their total lending.

The 30 lenders will have to sell their toxic loans to the Viet Nam Asset Management Company, which will be operational by July 9, or else they will be inspected by the central bank.

The decline in business performance results of credit institutions during the first five months was also partly due to a relatively low interest rate spread, which currently stays at roughly 3.03 per cent. The spread after provisioning drops to 1.93 per cent against 2.33 per cent in late 2012.

Besides warning of a possible interest rate race, the central bank also cautioned credit institutions on risks related to their investments in corporate bonds, explaining that the investment may increase risks to banks as the capital primarily flows in real estate and construction firms (more than 50 per cent), or for the purpose of increasing scale and restructuring debts (30 per cent).

During the first five months, outstanding loans grew by only 2.87 per cent, while investments in corporate bonds rose 4.14 per cent.

Parts producers told to improve performance

Viet Nam’s support industry enterprises need to improve their management and technical innovation to be more competitive in the world market.

There remained a large gap in production capacity and technology between Vietnamese parts producers and those from regional countries, says Ha Noi Department of Industry and Trade deputy director Dao Thu Vinh.

Few local firms had won contracts to supply their products to foreign-invested enterprises in Viet Nam while those that did only supplied the most basic parts, she said.

Ha Noi Trade Promotion Centre director Nguyen Thi Mai Anh said the priority was to help firms become parts suppliers to foreign companies and then participate in the global production chain.

The city planned to establish a data system of local parts firms and then introduce them to foreign companies.

Training courses and financial assistance to join domestic and overseas exhibitions would be included, she said.

Already, 15 Ha Noi support industry companies had received help to show their products at Thailand’s Manufacturing Expo 2013 in Bangkok from June 20-23.

Reed Tradex Co managing director Chainarong Limpkittisin, the event’s organiser, said there were four main areas at the expo: plastics and rubber manufacturing, mold and die manufacturing, auto parts manufacturing and industrial automation and assembly technologies.

Two other events, Nepcon Thailand 2013 – showcasing new technology for electronics parts – and Furnitech 2013 – offering exhibitors and networking opportunities for furniture manufactures – were held at the same time, Chainarong Limpkittisin said.

Vietnamese companies displayed support industry products, including auto and electronic parts, at the Viet Nam Pavilion.

These events provided a chance for Vietnamese parts producers to update their technologies and access advanced production methods to sharpen their competitiveness.

Domestic businesses could introduce their products to foreign clients and foreign buyers could discover reliable parts producers, Vinh said.

Opportunities open to buy distressed assets

The time is ripe for developers and other buyers to find ways to take over distressed assets in Viet Nam’s real estate market, according to experts.

As the market has been stumbling, the lack of capital resources has pushed many developers to restructure their portfolios to focus on core and important projects.

Moreover, the market is under pressure to get rid of its nonperforming loans.

The actual ratio of nonperforming loans is believed to be greater than the reported 6 percent, 70 per cent of which are attributed to the real estate sector, according to some experts.

However, bad debts and their assets have not been available for investors to acquire openly from banks or investors.

Unless both banks and investors move quickly to deleverage, then the recovery will be a lot slower and more painful, experts have warned.

“There are clear signs of distressed property assets all over Viet Nam. It is just a matter of time before they come to the market,” said Chris Brown, general director of real-estate consultant Cushman Wakefield Viet Nam.

Only a limited number of investors and developers survived more than one property cycle, and Viet Nam’s property cycle is experiencing its first major downturn.

Casualties are unavoidable, but other organisations will come out of it in much better shape to take on the next upward swing, he noted.

There is a perception among some Vietnamese owners and investors that “the vultures are circling” and all of their assets will be picked off by foreign investors over the next two to three years.

Many foreign investors, however, still see Viet Nam as a much too immature market for them to invest.

During the recent market downturn, many of them were hurt and will not return to the Viet Nam market soon, Brown said.

Until there is a downward shift in land prices or a release of distressed assets, foreign investment will still overshadow that of local property investment.

The presence of more experienced and diligent investors in the market with a lot of fly-by-night operators taken out of the equation by the downturn should bring about a healthier and more professional market for the future.

Regional Asian countries that have a track record of investing in Viet Nam are most interested in distressed assets in the country, since they understand the investment landscape. Those include the Japanese, Taiwanese, Singaporeans and Koreans.

There is an increasing amount of interest as well from Middle Eastern and Russian groups, but they generally focus on prime properties or prime development opportunities in Ha Noi and HCM City. These are picked off first in a “flight to quality”.

Operating assets and development sites at strategic locations are the most favoured.

Distressed assets most hunted by developers are the ones that are clean, have a good location, reasonable ownership structure and attractive and competitively priced assets.

Those properties in poor locations, with little market demand and with complicated ownership structures in place, will see the least amount of attention.

Vietnamese firms invest in Airbus planes

The national flag carrier Vietnam Airlines and the Vietnam Aircraft Leasing Company (VALC) signed a contract in Ha Noi on Friday to buy 30 Airbus planes.

Vietnam Airlines will buy 10 A350s and 10 A321s, while VALC will take another 10 A321s.

A memorandum of understanding had been reached in early October under the witness of Prime Minister Nguyen Tan Dung during his official visit to France .

Airbus plans to hand over the first A321 to Viet Nam in 2012 and an A350 in 2016.

The purchase was a step by Vietnam Airlines and VALC to develop their fleets.

“With the strong development of the domestic and regional aviation markets, the demand for air travel in Viet Nam’s big cities and between the country and overseas destinations will also increase,” said Vietnam Airlines General Director Pham Ngoc Minh.

VALC General Director Tran Long shared the view, saying that the purchase would help boost the development of the local aviation industry and its integration into the region and the world.

He also said VALC will lease all these planes to Vietnam Airlines for 12 years.

At present, Vietnam Airlines operates 47 planes, including 25 Airbus planes.

The corporation plans to increase its fleet to 86 in 2015 and 110 in 2020.

Gardening expo to sow seeds for trade

HCM City is set to host its first exhibition of seeds this month.

Seeds for flowering and ornamental trees and vegetables, plus brood stock for aquaculture and livestock brood will be on show, which has been organised by the Department of Agriculture and Rural Development, the Suoi Tien Cultural Tourism Joint Stock Company, and the Sai Gon Agriculture Corporation.

Pham Thiet Hoa, director of the city’s Centre for Agricultural Consultancy and Support, said the exhibition would also feature an ornamental-fish competition and exhibition, with around 25 fish farms taking part.

Experts would also advise visitors on new technologies in seed and livestock production.

On Friday this week, a conference will be held on the status of seed production and supply in HCM City, application of technology in sex selection of dairy cattle, and other topics.

Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR

BUSINESS IN BRIEF 27/6