Businesses fear exchange rate fluctuations will gobble up their profit

A lot of businesses have incurred big losses due to the dong/dollar exchange rate fluctuations. They have called on the Government to intervene in the foreign currency market and take necessary measures to stabilize the exchange rate in 2011.

Exchange rate fluctuations turn profit into loss

In mid-December 2010, Bao Gia Khanh Company signed a contract on providing interior decoration to a client whose factory is located in Nhon Trach Industrial Zone in Dong Nai. In order to fulfill the contract, Bao Gia Khanh needs 500 plywood panels. The price of a panel imported from Malaysia at the time when the contract was signed was 360,000 dong.

However, just several days later, due to the exchange rate increase, the price of every panel has risen by 20,000 dong. “The price increases have upset our calculations,” said Ngo Chi Hieu, Director of the company. “If the Government does not take actions to stop the exchange rate fluctuations, small and medium enterprises will certainly incur heavy losses”.

“Businesses are distressed with the current lending interest rate of 17 percent per annum, and the exchange rate fluctuations,” he added. “Even the enterprises which can manage their business well earn only enough money to pay the interest rates and the tax to the state”.

The Saigon Paper Joint Stock Company anticipates that it will still have to face the difficulties caused by the exchange rate fluctuations in the first half of 2011. The company plans to put into operation a new project with the total investment capital of two trillion dong. More than 80 percent of the equipments have been imported from foreign countries, and 70 percent of the capital used to buy equipments comes from the foreign currency loans from banks. Therefore, since the exchange rate fluctuated, the company has incurred the loss of 20 billion dong on the investment project.

Businesses now incur “double” loss, because banks do not accept payments in dollars which businesses purchased on the black market. In order to “legalise” the dollars, businesses have to pay additional expenses, thus making the businesses’ losses higher. In general, businesses have to pay an additional sum of 1.2 billion dong for every one million dollar they pay.

Director of a baverage company said that the possible maximum net profit of enterprises in the industry is no more than 20 percent per annum. Meanwhile, enterprises incur the loss of 15 percent due to the exchange rate fluctuations, and they have to pay the loan interest rate of 17 percent per annum. He said that if enterprises sat idle with their money deposited at banks , they would get the bigger profit than from production.

Saving themselves before God saves them

Businesses, while calling for the Government to take necessary measures to stabilize the exchange rate, have been trying a lot of measures to “save themselves before the Government does”.

Nguyen Thi Hoang Anh, Managing Director of Au A Trade Company, specializing in importing consumer goods from Europe and the US, said that in order to deal with the exchange rate fluctuations, the company asked the import partner for a more flexible payment mechanism. At the time when Au A imports products, if there is a significant gap between the dong and the dollar value, the company will have the right to make payment in another currency in order to avoid losses.

“The partner has agreed to our proposal. One time, we imported a consignment of goods from Australia. If we had paid in US dollar, we would have incurred a big loss. However, the partner accepted the payment in Australian dollar,” she said.

Anh said that her company has been keeping a close watch over the prices of currencies, so that it can choose the most suitable currency for making payment. According to her, thanks to the flexible payment method, the company can save 50-100 million dong.

Le Tan Phuoc, General Director of Sarefico, said that his company negotiated with suppliers to fix exchange rates for three months. Besides, the company has been trying to seek domestic suppliers. When purchasing equipments, the company can use Vietnam dong in making payment and share risks with the partners. “In order to do that, Sarefico has to pay more money in advance to suppliers. Meanwhile, the company also asks investors to share risks by paying 20-50 percent of the contract values in advance,” he said.- Thoi bao Kinh te Saigon

Tags: exchange rates