Packing line for export goods at Phuc Sinh Group. Photo: DNCC

More opportunities for agricultural products and food

Vietnam's economy recorded an impressive recovery in the first half of 2022 with an increase of 6.42% in GDP and a growth of 17.3% in exports over the same period last year. All signs show that Vietnam is on a steady recovery.

Many international organizations have raised their growth forecasts for the whole year of 2022. For example, HSBC raised its forecast to 6.9% (from 6.2% and 6.6%) and said that Vietnam's growth rate is likely to lead the region; UOB also adjusted Vietnam's GDP growth in 2022 to 7% from 6.5%.

Although the overall situation looks optimistic, according to Ngo Dang Khoa, national director of foreign exchange, capital markets and securities services, HSBC Vietnam, the factors hindering growth are still there.

Specifically, Vietnam is facing a series of challenges in the context of high world fuel prices. That will cause fuel costs to increase, adversely affecting Vietnam's trade balance. “This trend is expected to continue, putting downward pressure on inflation. The positive point is that despite high energy costs, moderate food inflation, and relatively stable domestic production, it helps to keep inflation under control," said Khoa.

Although domestic inflation is still under control, in major export markets of Vietnam such as the US, EU, etc., the situation is much more difficult. The inflation rate in the US in June increased to 9.1%, the highest level in the past 40 years; in the Eurozone it is 8.6%.

High inflation raises commodity prices, thereby adversely affecting Vietnamese exporters, especially for non-essential goods. Some Vietnamese textile and garment enterprises said that the number of export orders to Europe has decreased by nearly 20% in recent months. This shows that the demand of this market is weakening before the effects of inflation. In that situation, Vu Duc Giang, Chairman of the Vietnam Textile and Apparel Association, recommended that enterprises should closely follow market developments to adjust production plans accordingly.

Meanwhile, agricultural products and foodstuffs are facing the opportunity to increase export turnover when food prices in the US and Europe are increasing sharply due to supply shortages.

Specifically, many EU countries and the US are "punishing" Russian pollock - which is a strong competitor to pangasius, causing a significant reduction in the supply of white fish in this region. The rising price of white fish creates opportunities for Vietnamese pangasius to grow in these markets thanks to its price advantage. Even Vietnamese pangasius enterprises have the opportunity to expand their market share not only in the EU but also in Korea and Japan due to the US sanctions and the domino effect taking place in many related markets.

Tran Van Cong, Agricultural Counselor of Vietnam in Europe, also assessed that the group of Vietnamese fruit and vegetable products still has a great deal of room in the EU. Each year, the European market imports about US$120 billion of fruits and vegetables, accounting for 40% of the total global import and export turnover of fruits and vegetables. However, Vietnam's fruit and vegetable export turnover to Europe only reached about US$190 million, accounting for a very small proportion compared to the European market share being imported. In particular, fruit juice and frozen juice products are popular in Europe, because people in this region tend to consume green and have a high demand for nutritious and healthy foods, and plant products to replace animal products.

According to Cong, recently, large-scale enterprises with modern production technology have done well in processing products to penetrate the European market. Therefore, Vietnam can completely access the European market with frozen and canned vegetables and fruits.

Dealing with exchange rates

Besides the concern about inflation, the exchange rate is also a challenge for businesses. In particular, the strengthening of the USD against other foreign currencies is causing mixed impacts on Vietnamese enterprises. Talking to Customs News, most of the exporting enterprises said that they were not affected by the depreciation of foreign currencies such as EUR and Japanese Yen, because most of the enterprises signed payment contracts in USD. Even when converting into VND, businesses also benefit from the appreciation of the USD.

As an enterprise with a large export turnover to Europe, Phan Minh Thong, Chairman of Phuc Sinh Group said, although not adversely affected by the depreciation of the EUR, in the long run, the company may also be affected when the "health" of importers here weakens.

Nguyen Van Sang, Director of Vietnam Goods Import-Export Joint Stock Company (Viet Products), is even concerned that the difficult business situation will cause importers to ask for a discount. On the other hand, many argue that the decline of the EUR will make Vietnamese goods exported to Europe more expensive and more difficult to compete with goods of other countries in this market.

In the opposite direction, importing enterprises with payment in USD must incur additional costs when the exchange rate increases. Therefore, Vu Duc Giang recommends businesses actively transform and diversify the supply of domestic raw materials to take the initiative in delivery time and save transportation costs.

On the other hand, this context also opens up some opportunities. Than Duc Viet, General Director of Garment 10 Corporation, said that businesses should take advantage of the weakening EUR to import goods, machinery and equipment from Europe at good prices.