Companies under the hammer

Production firms are struggling to stay afloat amid rising exchange rate and raw material input costs.

Since imported materials account for a large part in many production sectors in Vietnam, recent State Bank’s decision to devalue the Vietnamese dong by 9.3 per cent against the US dollar are impacting on businesses’ performances.

The Thai Nguyen Iron and Steel Corporation, for example, bemoaned the new exchange rate revision would make it spend additionally VND50 billion ($2.41 million) on operational expenses each year.

In early February steel firms hiked the steel price by VND400,000-VND800,000 ($19.3-$38.6) or even over VND1 million per tonne amid rising input material costs.

However, the surge is forecast to continue in the coming period as the price of electricity which is a key factor in steel pricing structure will be raised starting from March 1 as recently approved by the government.

In respect to seafood processing, the exchange rate changes make materials more expensive since 60-70 per cent of aquafeed is imported.

Besides, current bank lending rates are still high. Agifish An Giang general director Nguyen Van Ky said taking bank loans to expand production was risky given current lending rates of 18-20 per cent, per year.

In parallel to pressures associated with seeking loans and surging exchange rates, prospective power price hikes from March 1 was a big concern to enterprises as concrete price hike levels will be unveiled in the near term.

As estimated, 18 per cent power price hike would bring the power sector an additional VND19 trillion ($917 million) each year, add 0.54-0.72 per cent to the consumer price index (CPI) and 0.02-9.03 per cent to the production cost and make production sectors to spend VND9.6 trillion ($463 million) more on power costs.

Petrol prices will also possibly rise. World oil prices have risen constantly in the past month and currently fetches more than $100 per barrel for shipments due to be delivered in April 2011 amid uncertainties in some north African countries. Hence, upward revision of local petrol prices would be inevitable.

Economist Bui Kien Thanh suggested restructuring the economy to boost investment efficiency. In his mind, state-owned businesses needed to embrace equitisation plans to become more effective, while private firms should focus on producing items made of more local aw materials and efforts must be directed towards spurring the development of the local supporting industry. – VIR

Tags: Vietnam companies, Vietnam enterprises