Processing economy and trade deficit likely to reoccur

VCN- Talking to reporters from Customs Newspaper, economist Le Quoc Phuong said that, despite having four consecutive trade surpluses, but with a processing economy like Vietnam, the worries about the trade deficit situation going back in 2020 is completely normal.  
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Mr. Lê QuốcPhương.

Throughout 2018 and 2019, the export growth of domestic enterprises was always higher than that of FDI enterprises. This is continuously evaluated by the Ministry of Industry and Trade as a bright spot in Vietnam's "export" picture of goods. What is your opinion?

With FDI into Vietnam, they have formed a huge economic bloc, especially in the industrial sector. We have witnessed the strong development of FDI enterprises in the Vietnamese economy, in industry and export of goods. The proportion of total export turnover of FDI enterprises continued to increase for many years until 2017. In 2017, this proportion reached a peak of more than 72 percent. For many years, the export growth of FDI enterprises has always been higher than that ofdomestic enterprises. In recent years, when Vietnam had a trade surplus, it was mainly due to a large trade surplus fromFDI enterprises.

In 2018, a trend is that domestic enterprises began to rise, achieving higher export growth rates than FDI enterprises. In 2019, the export growth rate of domestic enterprises reached double digits – nearly 14 percent in the first 11 months of 2019 – while FDI enterprises grew 3 percent. Regarding the proportion of domestic enterprises, although the growth rate was not fast, it began to gradually increase again. In 2018, the proportion of domestic enterprises was about 29-30 percent, and in 2019 it increased to 31 percent, while FDI enterprises decreased to 69 percent. However, while the above signs have happened for two years, it cannot be confirmed whether they are sustainable or not.

It must be saidthat, domestic enterprises are still in the current trade deficit. The export growth is high but the import is still large because Vietnam's economy is a processing economy. In particular, domestic enterprises have not produced many value-added products. So, exports increased, but a huge trade deficitoccurred. In 2019, the trade surplus of the country was still high, because FDI enterprises had a trade surplus of about US$30 billion, while domestic enterprises had a trade deficit of over US$20 billion. This is a worrying aspect. Previously, FDI enterprises overwhelmed the growth rate, density and trade surplus. Currently, the growth rate of FDI enterprises is inferior compared to domestic enterprises, the proportion decreases, but FDI enterprises have a large trade surplus and domestic enterprises still have a trade deficit. This is something to keep in mind, focusing on creating more favorable conditions for domestic businesses.

Export growth in 2019 didnot come from agricultural products and seafood, but from industrial goods. Does this show the restructuring of Vietnam's export goods or a temporary manifestation when the export of agriculture, forestry and fishery products faced difficulties overthe past year?

In 2019, exports of agriculture, forestry and fishery products decreased sharply, because Vietnam exported a lot to the Chinese market. Agricultural products such as rice, rubber and vegetables are exported to China. When China tightened its importquota policy, Vietnamese agricultural products immediately faced difficulties. In addition, it is important that exported agricultural products do not meet quality, food hygiene and safety standards, so results in 2019 will drop sharply.

However, in reality, the trend of reducing the proportion of agricultural, forestry and fishery products in export has been going on for a long time. Previously when Vietnam started to open exports, most agriculture, forestry and fishery products accounted for the absolute proportion, mainly exporting rice and coffee. Gradually, as the economy developed, manufacturing and processing industrial products increased, while the proportion of agricultural, forestry and fishery products for export decreased.

About 10 years ago, the proportion of export of agriculture, forestry and fishery products in the export picture has decreased. In 2019, the proportion of agriculture, forestry and fishery accounted for only about 10%, while the proportion of crude oil and mining products also decreased. Currently, these two fields account for less than 20 percent of Vietnam's total export turnover. Processing industry products account for over 80 percent. This transition is inevitable. The manufacturing industry has gradually shifted to industry, but the disadvantage is that Vietnamese industry mainly relies on FDI enterprises.

Vietnam has had 4 consecutive trade surpluses. However, in the goal of 2020, the Ministry of Industry and Trade still sets a trade deficit figure below 3% of total export turnover. In your opinion, is this too cautious?

Before 2011, Vietnam had a complete trade deficit. Peaking in 2008, Vietnam had a trade deficit of nearly US$20 billion. Since 2012, Vietnam has continuously had a trade surplus (except for 2015). However, every year the Ministry of Industry and Trade cautiously set a trade deficit target of below 3 percent. This is because Vietnam's economy is a processing economy. Vietnam imports all input materials for industries such as footwear and textiles.Although experiencing an agricultural trade surplus, Vietnam also has a trade deficit of seeds, fertilizer and machinery.If calculating all, it is unlikely that Vietnamese agriculture had a trade surplus. Another point is that domestic enterprises have always had a big trade deficit.

Could you say more about solutions to help Vietnam's export grow sustainably and trade surplus in the future?

The key solution is to improve competitiveness and added value of exports, as well asimprove the capacity of Vietnamese enterprises. In order to restructure production and continue to improve the business investment environment, develop strong supporting industries. In addition, Vietnam needs to make better use of the advantages of FTAs to promote exports.

By Thanh Nguyen/Bui Diep

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