Economic profile and inventories

After several years of industrialisation, Vietnam has effectively grown into a global subcontracting base whose real earnings often trail far behind the export turnover reported. Rosy export figures are therefore misleading and unfortunately mask the downside of mushrooming industrial parks. What has the demise of vast areas of farm land really brought about, then?

While the virtues of Vietnam’s subcontracting industry must be acknowledged, the fact remains that the sector is increasingly inefficacious, with the ratio of intermediate costs to production value jumping by nearly 10 percentage points over the past decade and the efficacy of capital use dwindling drastically. According to estimates based on statistics on investment and gross domestic product (GDP), adjusted for price parity, the incremental capital output ratio hovered around 8.36 in 2003-2008 and reached 8.59, 11.44 and 14.22 in 2007, 2008 and 2009 respectively. Such dismal inefficiency is all the more worrisome given that industry and construction absorb staggering amounts of investment every year.

In some cases, inventories even outpaced production in the first half of 2010. The ratios of inventories to production for powder coffee, nutrition powder, synthetic fibre, fabric made of synthetic fibre, vaccine, shampoo, soap, toothpaste and dining tables were 107 percent, 349 percent, 143 percent, 150 percent, 474 percent, 171 percent, 202 percent, 207 percent and 166 percent respectively.

This problem is ascribable to piling inventories from last year and shrinking consumption in the first half of this year. Besides, there are many products whose inventories equalled at least production in the first six months. This trend indicates the difficulty in stoking demand for locally processed products. Worse still, the surge in retail sales (26.7 percent, as reported by the general Statistical Office) and in imports (14.5 percent, adjusted for inflation) over the same period shows that consumption patterns are shifting in favour of foreign goods. If this problem persists, local production will plunge into trouble soon.

Notably, this trend may lead to a misleading analysis of GDP, which, under the final use approach, comprizes inventories, final household and government consumption, and fixed asset accumulation. In other words, soaring inventories will probably push up GDP. It is worth stressing that savings are shrinking (from 36.29 percent of GDP in 2006 to 29.23 percent in 2009) while investment as a share of GDP is on the rise. In other words, Vietnam will be increasingly reliant on external capital sources to make up for the shortfall in internal financial capabilities. – Saigon Times

Tags: Vietnam industries, Vietnam industry

Posted by VBN on Aug 26 2010. Filed under Industry. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry