Written by Mohamed P.Hassan
Since September, the monthly prestigious HSBC Manufacturing PMI™ index for Vietnam has been recording more than 50 marks (where 50 marks mean no change on previous month). Thus creating the highest continuous PMI record for the ASEAN country, since pre-2011 April’s hike.
Manufacturing in Vietnam has been affected by multiple civil and international wars with the United States, China and Cambodia during 1950 to 1980s. The unrest only ended on 23rd of October 1991 when the Vietnamese government signed the “Paris Peace Agreement”. Factories and workshops in the country recovered later, when the government started to care to relocate facilities, which were hidden and scattered during the war. The industry should have benefited from the reforms that started in the 1970s, but the government inflexibility and wartime-like-policies led to economic problems, which in turn slowed down the growth.
According to Index Mundi and ExxUN, since 2004, Vietnamese industry have been contributing an average of 41% to gross domestic product (GDP). Moreover, the industry that have been employing only 10%, until 2004, is now employing more than 20%, based on World Bank Indicators.
The rate of inflation being stable within past few months have helped the country record above 50 PMI for the sixth month in a row. Although, for past February and according to the HSBC PMI™’s press release, a supply shortage led to cost increase; the high record was based on indications and feedback showing increase in output, new orders and employment.
The HSBC report cited workloads increasing and leading to an increase in employment. It adds; “Despite the rise in input costs, manufacturers left their output prices unchanged as part of attempts to maintain growth in sales.” The report sums up key points in slower increase in output and new orders, although adding that employment increase continues.
Trinh Nguyen, an Asia focused economist at HSBC said that although manufacturing is a “bright spot” for Vietnam, current weaker external demand raises concerns.
Fuelled by the rise in the industry sectors companies like “Vietnam Manufacturing Expo” based in the capital Hồ Chí Minh are finding it easier to attract thousands of delegates annually. The company, which identifies itself as a “comprehensive show for manufacturing and supporting industries”, run international exhibitions covering machinery and technologies for manufacturing automotive, plastics and rubber, mold and die and automation technologies. It was founded in 2008 and is being managed now by the Thai “Reed Tradex” exhibition oriented company.
Vietnam have also developed its supply chain capability and is now home to relatively old companies that provide these kind of services. “Sourcing in Vietnam” is one of those companies and having these now focused to benefit foreign investors and not only locals benefit Vietnam’s position and its increasing manufacturing base.
Foreign investors could easily take advantage of the lower waged yet skilled workforce in Vietnam. The ASEAN country current stable political arena is also helping the industry grow. Vietnam also have managed to provide considerable advantages for investors in certain products and markets, in terms of tariff, import tax and quota.