VIETNAM'S EXPORTERS BEATING THE SUMMER CRUNCH

UNCLAS SECTION 01 OF 02 HANOI 000564 SIPDIS STATE FOR EAP/MLS MBROWN SINGAPORE FOR TREASURY TREASURY FOR SCHUN USTR FOR DBISBEE USDA/FAS/OCRA/DLUCHOK E.O. 12958: N/A TAGS: ETRD EAGR EFIS ELAB ECON KTDB KTEX PGOV VM SUBJECT: VIETNAM'S EXPORTERS BEATING THE SUMMER CRUNCH REF: A) Hanoi 205 ("Summer Is Sink-Or-Swim Time for Vietnam"); B) Hanoi 339 ("Vietnam's 1st Quarter Numbers"); C) 08 Hanoi 871 ("Vietnam Not Rushing Trade Deals") HANOI 00000564 001.2 OF 002 ¶1. (SBU) Summary: Vietnam's most important export sectors are bouncing back after a tough, but much shorter than expected, period. None are expecting big drops in export numbers compared to 2008, and some are holding on for the possibility that 2009 may even surpass the last year's record-setting levels. Many exporters are producing more goods, though at diminishing returns as their prices have had to come down to be competitive. Many of the industries are now turning their attention to other issues, like new U.S. import regulations on catfish and wood products, free trade deals, and improving their ability to counter dumping allegations. End summary. WHAT A DIFFERENCE THREE MONTHS MAKE -------------- ¶2. (U) Just last March, Vietnam's leading export sectors were dreading the coming summer. The second half of 2008 had already seen a slowdown and, with the global economic crisis in full swing, massive layoffs and plant closures were not out of the question. Three months later, many are hiring additional workers and output in some sectors is even outpacing the booming first half of 2008. VITAS, the largest association of garment manufacturers says some of its members are even refusing orders because they cannot keep up. The wood association, whose situation last March looked the most precarious of Vietnam's exporters, says many of its members have enough orders to keep them busy for the rest of the year. ¶3. (U) Although the reasons vary by sector, demand for Vietnamese exports in the United States and Europe remains strong. In addition, Vietnam's competitiveness in Japan is growing as a result of trade deals that have eliminated tariffs. A key factor in the exporters' ability to weather the tough times has been their ability to cut profit margins to match and beat those of their competitors. Total exports for the first five months of the year were down by 6.8% from 2008, but these numbers were affected by substantial changes in exports of precious metals and gold (up 3,310%) (Ref B) and oil (down 44%). Not counting oil or precious metals, exports were down 10.94% in the first five months of the year. Many agricultural exports have increased, even though many commodity prices have come down from last year's peaks (Septel). GARMENT/TEXTILE SECTOR DOING MUCH BETTER -------------- ¶4. (U) Garments, Vietnam's top export after oil with $9.11 billion in 2008 revenues, were down by 1.8% over the first five months of 2009, even though export volumes were above the previous year's. But every month is coming in a little better than the one before -- May alone brought in more revenues than the first four months of the year combined. VITAS expects that exports will increase from .5 to 2% during the year's peak May to August season from the year before. Vietnamese garments are doing particularly well in the United States (up 6.6% in value and 20.6% in volume over the first quarter of 2009),where even dominant market leader China has seen reductions this year. "There are big orders coming in now and we expect an increase," VITAS's number two told us. "Some factories have refused more orders already. FISHERIES LOOKING TO MATCH RECORD 2008 NUMBERS -------------- ¶5. (U) The fisheries sector, Vietnam's fourth largest export with $4.56 billion in 2008 revenues, is also looking forward to a brighter second half of 2009. The first four months of the year have been tough, with export revenues down by almost 10%. From January to April 2008, all of Vietnam's fisheries exports were down: pangasius (-1.2%),shrimp (-7.3%),tuna (-25%),dried seafood (-14%),and other fish (-6.3%). Despite this, the industry saw better numbers in April and May. The industry's main trade association, VASEP, said that they expect final 2009 numbers to be, at worst, down by 4.5% and, more likely, equal to the record 2008 numbers. BUT DEEPLY CONCERNED ABOUT U.S. MARKET ACCESS -------------- HANOI 00000564 002.2 OF 002 ¶6. (U) Ironically for the fisheries industry, the U.S. market provides some of the brightest and darkest spots for 2009. Like the garment industry, U.S. demand for Vietnamese fisheries products has increased over the first part of 2009, by 38% -- the biggest increase among all of Vietnam's markets. But VASEP is increasingly concerned about proposed regulations on pangasius fish that they believe will reverse U.S. market gains. Their tone is becoming increasingly bitter. "Our agricultural imports from the U.S. are going up and up, and we're ready to import U.S. beef," the Vice Chair of VASEP told us, "why should it be any different for our fish? I hate it that the United States is going for the easiest way to block our exports." FOOTWEAR AND WOOD BULLISH ABOUT SECOND HALF OF 2009 -------------- ¶7. (U) The footwear industry, whose products are Vietnam's third most valuable export with $4.7 billion in 2008 revenues, is also predicting solid numbers in 2009. Although exports were down by 10% in the first five months of the year, the industry is confident that the third and fourth quarters of the year, when exports tend to peak, will see significant improvements. Final 2009 numbers should end up down by about 4%, but still well above 2007 levels, according to the Vice Chairwoman of LEFASO, Vietnam's leading footwear association. She added that the industry is actively hiring new workers, since through 2008 the shortage of labor was such that many factories were unable to adequately staff their operations. ¶8. (U) The wood sector, which looked bleak last March, is seeing a "more promising" end of the year, according to the Chairman of VIFORES, the industry association. "Some of our exporters already have orders to keep them busy until the end of the year," he added. In order to compete, pricing is 10-15% below last year. The industry expects their exports to be down by 15% in the first half of the year, but exports usually peak in the latter half, and VIFORES expects 2009 to repeat the strong numbers of 2008 ($2.8 billion). The Chairman told us that the industry is now turning its attention on how to comply with new U.S. requirements on wood origin declarations. ELECTRONICS AT EASE WITH CURRENT SITUATION -------------- ¶9. (U) The electronics industry is also improving from the beginning of the year, although it is still down 8% from the first five months of 2008. "We had ten years of continuous growth, so this is not so bad," the Vice Chairman of VEIA, the electronics industry association, told us. Although they have no clear forecast for the rest of the year ("because we have never been in this position before"),he added that the industry will need to hire new workers in the second half. COMMENT: PASSING THE COMPETITIVENESS TEST -------------- ¶10. (U) The speed at which Vietnamese exporters are seeming to recover is surprising, and underscores their ability to compete in the toughest of situations. Although exporters are not resting on their laurels, many are now focusing on overcoming potential barriers down the road. Almost all sectors are benefitting from last year's trade deals (Ref B),we were told, shoring up supporters of freer trade and market opening in the government and the private sector. Despite their bright outlook, many exporters fear that the U.S. may turn more protectionist this year and renew textile monitoring, increase anti-dumping allegations and erect non-tariff barriers. PALMER