Exports Up, Deficit Down in Vietnam

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By Joe Drury

May 28 – Vietnam recorded this year’s smallest trade deficit in May, beating government forecasts by 35 percent from US$1.16 billion to US$750 billion.

Vietnam’s trade gap, which still stands at US$5.38 billion, is closing thanks to two currency devaluations in late 2009 and resurgent consumer demand for garments and shoes in the United States. Due to these favorable policies, Vietnam’s exports grew 12.6 percent in the first four months of 2010 to US$25.8 billion.

According to a May 25 article in Bloomberg, the trade deficit has remained dormant at around US$1 billion despite high interest rates. A steady flow of foreign direct investment seems to have kept the deficit stagnant while driving up imports, as Vietnam must import raw goods for many of its exported products.

Not surprisingly, Vietnam’s Foreign Investment Agency released figures on May 25 estimating total new and raised FDI was up 77 percent year-on-year to US$7.5 billion in the first five months of 2010, with processing and manufacturing accounting for US$2.25 billion of the total.

In the case of footwear, Vietnam’s third largest export after garments and crude oil, foreign companies are making the biggest investments and reaping the biggest rewards.

“Most of the growth in footwear exports now is from foreign-invested companies,” said Diep Thanh Kiet, vice chairman of the Vietnam Leather and Footwear Association in an interview with Bloomberg.

“Local companies are generally smaller with not much capital, and the volumes required by U.S. buyers are too big for them.”