Imports key to Vietnam story

Imports key to Vietnam story Exports are rising, but raw material imports are growing faster still as the country lacks an industrial base.

      By Eric Johnson

      There are two facts that quickly make clear how reliant Vietnam is on imports.
      Despite the fact that the country is going through a decade-long explosion of exports to the West, it still has a major trade deficit – more than $17 billion in 2008.
      And despite the fact that Vietnam has quite decent oil reserves, there wasn't a single oil refinery in the country until the end of November, when the Dung Quat Oil Refinery in central Vietnam opened.
      Those two facts highlight just how far Vietnam has to go in order to become a true competitor to the Indias and Chinas of the world. Simply put, as much as Vietnam exports, it imports far more.
      While Vietnam has come so far so fast, it still lacks an industrial base, and so is overly reliant on the import of raw materials from its Asian neighbors, Africa, and even the United States, to stoke its export industry.
      That can be said for many of Southeast Asia's growing manufacturing nations. Many are small and lack the diverse resource bases that characterize the geographically imposing China and India.
      But Vietnam, with its low wage and comparatively high education levels, has jumped to the head of the queue in most shippers' minds. It's proven to be a hub of manufacturing for major apparel, textile and footwear companies, like Nike.
      However, the rise in manufacturing has masked the fact that Vietnam must import most of the raw materials it needs to create finished goods.
      Over the past two years, there was only one month when Vietnam's imports and exports were in balance, according to statistics from the Asian Development Bank. And in the late spring of 2008, when severe commodity inflation took hold, Vietnam was importing nearly $4 billion per month more than it was exporting.
      For all its prowess as an exporter of apparel and textiles, Vietnam is largely dependent on imported cotton to sustain those industries. It imports primarily from West Africa, the United States, India and Mexico. In the first half of 2008, cotton imports rose 26 percent, according to the General Statistics Office of Vietnam.
      By the end of July, Vietnam's trade deficit had ballooned to more than $15 billion, surpassing the total trade deficit of $14.1 billion for all of 2007. But things stabilized over the next few months, with the deficit ending up at $17.5 billion for the year ($80.4 billion in imports versus $62.9 billion in exports).
   In 2007, raw material and fuel imports reached $40.2 billion, a 33 percent rise over 2006 (2008 statistics are not yet available). The biggest sources of Vietnamese imports are its Asian neighbors: China, Singapore, Taiwan, Japan, Korea and Thailand.
      Vietnam is also reliant on items like plastics and refined petroleum. That Vietnam's largest export is crude oil merely magnified the fact that the country itself couldn't produce a drop of gasoline or diesel fuel until a few months ago.
   The newly opened refinery will have initial capacity for 48 million barrels of oil a year and the first Vietnamese-made petroleum products were due to hit the market after the Tet Festival in early February.
      While Vietnam's industrial sector is under development, the country's port capacity is growing fast. A new deepwater port complex in southern Vietnam (see related story) as well as new port projects in central and northern Vietnam will bring much-needed ocean cargo capacity to the country.
      The ports might have the effect of exacerbating the trade deficit by making it much easier for manufacturers in Vietnam to import raw materials.
      But in a meeting with liner carrier and logistics giant APL, officials from the company's Vietnam office said the trade deficit is not necessarily a bad thing for the country because it means Vietnam is importing raw materials, which translates into more production in coming years.
      One final factor to consider is that when Vietnam's currency grows in strength, its power to import goods rises and its ability to export goods diminishes, exacerbating the trade deficit. As the currency weakens, exports become more attractive and the deficit shrinks.
      The Vietnamese dong is closely tied to the U.S. dollar, which has enjoyed a renaissance in the last quarter of 2008 and early 2009. That strength could very well mean Vietnam's import dependence lasts through much of this year.