By Ben Bland, FT.com
Annual inflation has hit 11 per cent, confidence in the currency is being eroded day by day and the government is gripped by policy paralysis before a Communist party congress in January. This does not seem like the best time to launch a new business in Vietnam.
But the instability is not deterring Tran Hai Nam, an entrepreneur who is proceeding with a plan to sell cheap Chinese cars to the rapidly growing Vietnamese middle class.
“The best way to earn money now is to put your cash in the bank and enjoy the interest,” he said. “But we have to prepare for the future and if we don’t start now, it will be too late.”
A widening trade deficit, accelerating inflation and the financial troubles at Vinashin, a state-owned shipbuilder, have spooked Vietnamese citizens and foreign investors alike. Vietnam’s currency, the dong, has come under pressure as individuals and companies have hoarded gold and dollars, the two favoured stores of value.
On Tuesday, the dong traded in the black market at 21,500 to the US dollar, more than 10 per cent below the official exchange rate. Yet, in spite of this macroeconomic instability, Vietnam is continuing to see strong growth. Vietnam’s economy grew at an average of more than 7 per cent a year over the past decade and, after a blip caused by the global financial crisis, it is expected to continue growing at about this rate.
This growth story gives businessmen such as Mr Nam the confidence to invest in turbulent times. His company, F Auto, plans to import cars produced by BYD, the Chinese group that counts Warren Buffett among its backers.
At a starting price of $12,000-$13,000 for the cheapest models, Mr Nam is targeting three groups: professionals who have had their first child and want to upgrade from a motorbike for safety reasons, Mercedes-driving businessmen who want a cheap second car, and “country playboys” with a desire to show off. “The future is bright and we need to develop our sales, service centres and personnel now,” he said.
VKX, which manufactures telephones, is another business striving to profit in difficult circumstances. It is benefiting from the weakness in the dong as it buys most components locally and exports its products in exchange for dollars.
The company’s position is stable, helped by a good relationship with its lenders, said Nguyen Viet Trung, a manager at VKX’s factory in Hanoi. From this base, VKX is planning to expand into new markets such as Cuba.
But not everyone is confident. “It’s difficult dealing with high interest rates, a weak currency, inflation and an uncertain macroeconomic policy,” said one electronics factory owner. “We have ambitious plans but it’s hard to plan ahead.”
There is a consensus among economists, businessmen and some government officials that Vietnam needs to revamp its economic model if it is to continue its impressive growth.
“The probability of something catastrophic happening increases when your foreign currency reserves are not substantial, you run a large trade deficit, inflation is accelerating and your currency is weak,” said Jonathan Pincus, head of the Fulbright economics teaching programme in Ho Chi Minh City.BYD, inflation, macroeconomic instability, Vietnam, VKX