Trade gap down, but should we cheer?

When the Financial Times reported that Switzerland enjoyed a $3.9 billion trade surplus in May due to less gold jewelry export from Vietnam, it caught the eyes of many Vietnamese economists.

The disappearance of the gold ornaments imported from Vietnam shaved Switzerland 918 million francs ($1.1 billion) off imports, said AFP, citing Swiss customs.

So, when the General Statistics Office of Vietnam (GSO) released its June monthly reports, stating that the country’s trade gap has narrowed down sharply, mostly due to gold re-export. This, again, stirred up concerns.

June export revenue is estimated to reach $7.8 billion while the import gains $8.2 billion, representing a trade gap of $400 million, the lowest since September 2010. The trade gap of H1/2011 is around $6.65 billion, said GSO.

It rose 7.8% against May, while import revenue fell 5.2% compared with the previous month.

The development is said to be a positive factor for macro-economic stabilization after 4 months of trade deficit worth over $1 billion each.

But, statistics from General Department of Customs indicated that since the 2nd half of May, the export of precious stones, gemstone and jewelry suddenly surpassed $1 billion including 12 tons of gold, more than that in five months combined.

According to GSO, the re-export of gold created a sudden change in the export of this group of commodities, about $630 million in June alone. The sum is equivalent to 10 tons of gold.

If this trend keeps moving on, those who are worried about the rising trade gap may sigh in relief.

But, hang on, GSO has also warned that the status of gold re-export might change rapidly. Its service trade statistic department estimated the gold export in the second half of June at almost $100 million only.

Another question is: why Vietnam has recently boosted gold export while countries worldwide is stepping up in enriching their gold reserves to deal with the global spread of inflation by encouraging their people to buy gold and increase the import of gold.

Bucking The World’s Trend

It is not too difficult to recognize that the increase in gold exports is partially due to previous leakage of a central bank’s regulation banning the precious metal to be traded. This has been turned out to be wrong, and gold can still be traded freely at central bank’s appointed dealers and banks.

Along with the stabilized forex rate recently, the domestic gold price was at some time lower than the world price.

As a result, gold trading companies would not miss the chance to boost export profits.

Though many people blame gold trading company for the lack of foresight to focus on immediate interests, in a business perspective, taking advantage of every opportunity to maximize profits is comprehensible and sympathetic.

The root of the problem is a misleading message issued by the central bank when managing the domestic gold market in recent years, according to Thanh Nien.

The sudden announcement of the possible gold trading ban without issuing specific policies or guidance or clear explanation has driven the market into a state of bleak, which resulted in recent rising gold re-exporting by gold traders as mentioned above.

But Vietnam may pay a dearer price in importing gold since the country is not a gold producing country, and at the same time, itmay face surging trade gap and have to tackle other related uncertainties including forex rate, speculation and psychological effects.

Import More Favorable Than Production

Trade deficit caused by foreign-invested (FDI) sector is on the rise, warned the Ministry of Industry and Trade.

According to Ho Chi Minh City’s Department of Planning and Investment, the number of FDI firms licensed for importing has tripled from 73 ones in 2008.

The list now includes Japanese-owned electronics firms like Sony, Toshiba, Sanyo, Sharp, Pioner, Hitachi. Nike and Adidas, the two brands having large quantities of domestically-made goods in Vietnam, have also been approved to import their goods from other countries. South Korea and French tire makers, Kumho Tire and Michelin, have also started to import.

Representatives of the Japan External Trade Promotion Organization (JETRO) in HCMC told Tuoi Tre that Japanese companies are turning to trade instead of production in Vietnam as before.

Statistics of the Foreign Investment Agency that shows that imports of FDI companies are on a constant rise from the beginning of the year, except in May.

Excluding crude oil exports, the sector caused a $200-650 million monthly deficit.

Dinh Anh Huan, director of the Electronic World chain specializing in merchandising electronic items and electrical appliances, told Tuoi Tre that currently, a majority of the businesses in the field imports electrical and electronic products.

Depending on the brand, those products are imported from Malaysia, Singapore, Thailand, Indonesia or the manufacturers import components for domestic assembly.

But Vu Duong Ngoc Duy, deputy director of JVC Vietnam, said with current import tariffs of 3-20% for electronic components, and 5% for completely-built electronic goods, electronics firms will choose to become importers.

An expert said that a domestic electronics manufacturer having switched to import has enjoyed sales jumped up twice as before.

“With less employees and reduced costs of production and land leasing, it is clear that importing is more profitable than manufacturing, he added – Tuoitre

Tags: Vietnam Trade Gap, Vietnam trade gap 2011