Industries make up nearly 40 percent of the GDP and their recovery in the last months of 2009 greatly helped Vietnam’s national economy obtain its growth rate of 5-5.2 percent.

High growth, but high inventories

Processing industries contributed the most to the recovery in the second half of the year, including animal feed production, garment and footwear, household electric goods and construction materials.

The growth rate of mining industries decreased mostly because of lower prices in the world market. This has not caused problems for the national economy, since raw material exports do not benefit the national economy in the long term.

The recovery was mostly created in the private economic sector and foreign invested enterprises (FIEs). State-owned enterprises, although holding a large volume of national assets and having many advantages, only obtained a growth rate equal to half that of FIEs and only 38 percent of the private sector.

The high industrial growth rate loses its significance, however, when noting that many products cannot be sold.

According to the General Statistics Office, by November 2009 the inventory volume of many industries was higher than the same period of the previous year. For example, leatherette footwear stock increased by 149 percent, wooden chairs by 132 percent, and other important goods such as fertilizer, construction materials, fabric, animal feed and wooden furniture, had higher inventories.

Purchasing power uncertain

The high purchasing power of the domestic market clearly helped Vietnam successfully stop the economic downturn.

However, purchasing power in the second half of the year increased more slowly. In the first 11 months of 2009, the total retail turnover of goods and services increased by 18.5 percent, a considerable growth rate, but still lower than the 31 percent increase in 2008 and previous years.

Economic experts do not think that domestic consumption will be much higher in 2010, because the short-term interest rate subsidy program has ended. The Government itself will also have to tighten spending in order to prevent high inflation and reduce the budget deficit.

Export markets narrow

Vietnamese exporters say they are not optimistic about export markets in 2010. The facts that Vietnam now cannot enjoy GSP any more, while it is bearing the 10 percent anti-dumping tariff on leather-capped shows to the EU, led to a sharp 15 percent fall in footwear exports.

Vietnam’s PE bags are also likely to lose the US market, if the country imposes an anti-dumping tariff calculated to be 52 percent at the lowest.

Seafood producers are concerned that their export turnover may drop by $400 million if problems on certifying the origins of aquatic products cannot be settled.

Garment producers prove to be more optimistic. Chairman of the Vietnam Textile and Apparel Association (Vitas) Le Quoc An predicted that the industry may obtain a 10 percent export turnover growth rate in 2010.

Electronics manufacturers prove to be the most confident. With Samsung mobile phone factory operations, industry export turnover is expected to double in 2010.

Seeking sustainable growth

According to the Ministry of Planning and Investment, Vietnam’s economic growth has relied mainly on the increase of investment. Meanwhile, the capability of mobilizing more capital for investment and labor has nearly hit the critical point.

The ministry has warned that it will be difficult to maintain a high growth rate in the future if Vietnam continues to rely on investment.

Vietnam will not obtain sustainable growth if it does not both shift to business fields that can bring high added value and try to obtain growth based on productivity, quality and the use of strength.