The spinning industry of Punjab, which employs close to 400,000 persons and contributes 15.6% of the total yarn production of India is in a catch-22 situation. The exorbitant cost of power and taxes have, in the past few years, drained out an investment of about Rs 10,000 cr from Punjab and no major expansions in spinning have taken place here. In the last few years, textile giants of Punjab that include, Oswal Group, SEL Manufacturing, Abhishek Industries Limited and Nahar Industrial Enterprise Limited set up their mills in Madhya Pradesh as the state government offered 5%-6% interest subvention. The average per unit power tariff in Madhya Pradesh is close to Rs 5.50 per unit as compared to Rs 8.25 in Punjab.
The Punjab spinning industry had been demanding the rollback of 6.5% VAT on cotton yarn to provide a level playing field. The state government, instead of offering any relief to the languishing industry, revised the Infrastructure Development cess from 5% to 13% w.e.f. 1st July. Power is the major cost component of spinning sector as constitutes one-third of the total manufacturing cost. The landed average cost of power is the highest in Punjab (Rs 8.25 per unit) against Rs 5.50 per unit in Madhya Pradesh and 5.50 per unit in Rajasthan.
In the last five years the big textile players of Punjab have parked over Rs 10,000 cr of investments in the other states. Vardhman Group has invested about Rs 2,500 cr in Madhya Pradesh. Abhishek Industries Limited put up units worth Rs 3,000 cr. Nahar Industrial Enterprise Limited and SEL Manufacturing Limited, each invested Rs 2,000 cr in Madhya Pradesh. Punjab increased its spindlage from 2.3 million in year 2010 to 3.2 million in 2014. Whereas total spindle capacity added pan India was 10 million tonne in the same period. The share of Punjab squeezed due to high cost of land (about Rs 1 cr an acre) as the land is fertile and cultivable. The states of Madhya Pradesh offered interest subvention if 5%to 6% on the loans under TUF (Technology Up gradation Fund).
Two entities that added capacities in Punjab in the last three years Garg Acrylics with 2 lakh spindles and Sportking with 1.25 lakh spindles are now feeling betrayed the state government as they were promised VAT exemption and that has not been implemented, apprised the promoters. Out of 138 spinning mills in the state close to 80 are operational. Others are either sick, closed or under corporate debt restructuring. Increase in cotton yarn export over the past few years (from 589 million kilograms in FY 10-11 to 1,107 million kilograms in FY 13-14) has changed the perceptions and the spinners prefer to be located in regions closer to ports much to the disadvantage of Punjab. The growth of Industry may stagnate further if the government does not plan to revive the existing industry with comparable eco-system provided in other parts of the country. The fall in Chinese demand of cotton yarn has accentuated the challenges of the spinners this year. The excess capacities created by the spinners in anticipation of growth of export demand has resulted in huge inventories. The realisations of smaller mills may be compressed due to limited negotiating strength.
SOURCE: The Business Standard
The recovery in spun yarn exports is here to stay. Continuing with the significant rebound in June, July too posted a higher growth. Export grew sharply by 35 per cent in volume terms while the rise in value term was 16 per cent. The growth again emerged from the retained momentum of imports of yarns by China from India. For the second month in a row, China’s import of Indian spun yarn jumped in July. However, overall unit value realization continued to inch down hovering in the range of US$2.93-2.96 per kg on an average.
In July 2015, spun yarn exports (all kinds) shipments were at 118 million kg worth US$345 mil-lion or INR2,180 crore, implying per unit realisation of US$2.93 per kg. This was US cent 3 down from previous month and down US cents 47 from July 2014. Meanwhile, the Rupee depreciated 6 per cent against the US$ in the comparable months. Eighty nine countries imported spun yarn from India in July, with China at the top accounting for 45 per cent in the total with its imports doubling both in terms of volume and value YoY. Bangladesh, the second largest importer of spun yarns, accounted for close to 11 per cent of all spun yarn exported from India. However, export to Bangladesh increased 2 per cent in volumes and fell 6 per cent in value. Egypt continued to be the third largest importer of spun yarns, with volume and value both down 18 per cent and 25 per cent YoY, respectively. These three top importers together accounted for 60 per cent of all spun yarn exported from India in July.
In July, India did not export any yarn to Cuba, Cote D'Ivoire, Eritrea, Botswana and Mozambi-que. They together imported US$0.90 million worth of spun yarns in the same month last year. Bahrain, Oman, Côte d'Ivoire, Paraguay, Togo, Serbia And Montenegro, Estonia, El Salvador, Benin, Zambia and Kyrgyzstan were the new markets in July with total imports worth US$1.75 million. Nigeria, Mexico, Cambodia and Norway were among the fastest growing markets in June, more than doubling their import from India. However, they together accounted for only 0.5 per cent of total exports. Saudi Arabia, Latvia, Chile, Croatia and Czech Republic almost halved their imports from India compared to their levels a year ago.
SOURCE: Yarns&Fibers
Odisha government on Thursday unveiled its much-awaited industrial policy, announcing innovative employment rating-based incentives for industries. “A key feature of the policy is to support industries with high employment potential. An innovative employment rating-based system is adopted to provide incentives in power tariff and manpower training cost for employment intensive industries,” said Chief Minister Naveen Patnaik launching the policy, ‘Industrial Policy Resolution- 2015’ here on Thursday.
The State government has laid emphasis on employment generation in 11 industrially backward districts. Industries have been classified as per the potential to generate employment vis-à-vis volume of investment. Industries are entitled to get reimbursement per unit of power tariff for a period of five years from the date of commercial production and towards training cost of newly recruited persons, land to be made available at 50 per cent of the prevailing market rates for workers’ hostels and subsidy for investment in plant and machinery in certain sectors. The government is looking at enhancing the share of manufacturing from 9 per cent to 15 per cent of the State’s GDP by attracting new investments to the tune of Rs. 1,73,000 crore and providing direct employment to about 3 lakh people, Mr. Patnaik said. The policy has earmarked information technology, biotechnology, agro, marine and food processing, tourism, textile and automotive industries having high employment generation potential as priority sector.
Laying emphasis on basic industrial infrastructure, the policy provides for an initial corpus of Rs. 100 crore to provide external infrastructure such as power, water, access roads to the industrial clusters. “The State government is in the process of creating a large land bank to meet the industrial requirements of future. As high as 10,000 acres will be added to the pool by the year-end and we propose to have a fairly large land pool readily available for use of industries by next year,” Chief Minister said. Land bank having 75,000 acres of land pool including 40,000 acres for National Investment and Manufacturing Zone at Kalinganagar has been targeted. As far as industrial facilitation is concerned, green category industries will now be approved within 15 days and for other projects, the approvals will be accorded within 30 days. The State has listed 42 services applicable for industrial development under Right to Public Services Act. The government has also launched mobile application which will enable prospective investors to access comprehensive information base on natural resources, infrastructure and industrial facilitation available in the State.
SOURCE: The Hindu
Suiting fabric producer Raymond Ltd said it plans to invest USD 5 million to launch its products in the West Asian and African markets through its subsidiaries. The company has recently sought internal approvals for incorporating new overseas subsidiaries, Raymond informed. The company is planning for a "wholly owned subsidiary of the company in Dubai which will be engaged in trading of textile, apparel and related products in Middle East and Africa", Raymond said. It further informed that its wholly owned subsidiary Silver Spark Apparel Ltd (SSAL) in Sharjah, will invest to set up garmenting facility in Ethiopia, East Africa. "The company will make investment of up to USD 5 million, in one or more tranches," Raymond said.
SOURCE: The Economic Times
Tirupur exporters body has said that outbound shipments of knitwear from the region have grown to Rs 20,730 crore in 2014-15 and is expected to reach the target of Rs 36,000 crore by 2016-17. At the 25th Annual General Meeting of Tirupur Exporters Association, its President A Shaktivel said that input factors were more or less favourable, which helped to clock 15 per cent growth compared with 2013-14 financial year. At present, all-India market share of Tirupur in knitwear exports is 44.29 per cent and this would go up once the industry starts exporting synthetic-based garments, which have a market throughout the year globally, he said. Helped by factors including favourable cotton yarn prices, knitwear exports from Tirupur increased to Rs 20,730 crore from Rs 18,000 crore in 2013-14, a growth of 15.52 per cent in Rupee terms and 15.94 per cent in terms of Foreign currency, he pointed out.
The total ready-made garment exports from India had for the first time crossed the Rs 1 Lakh crore-mark in 2014-15 to touch Rs 1.03 lakh crore, (USD 16.82 billion). Of this, knitwear exports was Rs 46,801 Crore, with a share of 45.43 per cent, Shaktivel said. As there was volatility in the euro in the first quarter of 2015-16, the share of dollar quoted by exporters increased to 58.51 per cent against 55.41 recorded in 2014-15, he said. The devaluation of the Chinese currency by 4 per cent mainly to boost their exports had a ripple effect on all currencies globally and the rupee had also depreciated to a new two-year low of Rs.66.65 per dollar on August 25, he said. "The China effect also prompted our main competitor Vietnam to devalue their currency Dong by one per cent," he added. "We expect that the Comprehensive Economic Partnership Agreement with Canada and Australia will take place before end of 2015 and help increase our exports to these countries."
Sakthivel voiced concern over the delay in entering into an Free Trade Agreement with the EU, a major market for India, saying that in 2014-15, total knitwear exports to EU was Rs 19,774 crore, with the export share of 42.25 per cent." The association is expecting the announcement of both National Textile Policy and Tamil Nadu Textile policy soon, he said.
SOURCE: The Economic Times
India and the UAE can leverage their mutual economic complimentarily to boost bilateral trade and increase investments, UAE Business Council said. "While there is evident mutual economic complementarity and the goodwill is abundant, there is a scope for better conversion rate of the potential into hard facts on the ground," UBC said. According to UBC President Mahesh Sachdev, the council intends to make a difference by helping stakeholders actually implement the ambitious targets such as USD 75 billion of the UAE investment in Indian infrastructure and 60 per cent increase in bilateral trade. To boost economic ties, UAE has agreed to increase investments in India to USD 75 billion (about Rs 5 lakh crore), including through a dedicated infrastructure fund, while the two nations would raise their bilateral trade to nearly USD 100 billion in five years. India-UAE trade stood at about USD 60 billion in 2014-15. The council plans to be a proactive forum for the stakeholders to network, identify opportunities and partnerships, devise strategies and provide a platform for experience-sharing and problem-solving through dialogue with decision-makers, he said in a statement. "We mean to hold stakeholders' hand all the way to the last mile," he added. "Our two economies have been exceptions to the ongoing global economic turbulence: the UAE now has a well-diversified economy and ranks 22nd in ease of doing business. India is now world's fastest growing major economy."
SOURCE: The Economic Times
The UAE today said it is keen to strengthen ties with India and is looking to invest in programmes like Make in India, Digital India and Smart Cities. "We are determined to attract more investment into India in various sectors. I am extremely keen to hear and listen from you some of the proposals, especially Make in India, Digital India and Smart City initiatives ," UAE's foreign minister Sheikh Abdullah Bin Zayed Al Nahyan said here. She said infrastructure is a key element in this regard as it opens up markets and opportunities for stronger people-to-people ties. The minister said that the UAE was "determined" to take its relationship with India "to a new strategic level". Citing the example of Dubai Ports World, she said: "We want to do more, we have the capacity, the willingness, the drive to do more". "We hope you allow us to be more entrenched and more involved in your community and your business because the appetite is strong and the commitment is real," Nahyan said.
Pointing out that Dubai will host the World Exposition 2020, the minister said: "We would need our Indian partners and friends for support to help us achieve those deliverables. She also highlighted the commitment of the two nations to raise bilateral trade by almost 50 to 60 per cent in the coming years. Pointing out that the UAE was strongly connected through its ports and airports to almost every other city in the world, the minister said Indian industries could use this as an opportunity to reach out to the African continent. "I am very well aware of the robustness of Indian businesses in Africa," she noted.
SOURCE: The Economic Times
Exporters body FIEO today said the decline in outbound shipments has "pulled down" India's GDP growth in the April-June quarter by over 3 per cent. India's economy recorded 7 per cent growth in the first quarter of the current fiscal. According to FIEO President S C Ralhan, "had the exports showed even modest growth, the GDP number for last quarter would have touched 10 per cent." "Decline in merchandise exports by 16.75 per cent (contributing to about 15 per cent of GDP) and service exports by 7.0 per cent (with a share of about 7.5 per cent in GDP) had pulled down the GDP growth by over 3 per cent," Ralhan said in a statement here.
The FIEO President said that achieving 8 per cent growth in 2015-16 would be possible only if exports show an overall growth of at least 10 per cent during the current fiscal, which at the moment looks challenging as first four months have produced negative results. He said interest subvention for exports should be introduced immediately and transition problems relating to schemes under new Foreign Trade Policy must be addressed expeditiously. "While the base effect will help address exports decline in coming months, the volatility in Rupee will keep exporters on their toes, though order booking position has improved marginally," Ralhan said.
SOURCE: The Economic Times
India will raise the recent currency devaluations by the Chinese central bank and its ramifications to the global economy in the upcoming in G-20 meet in Turkey. "The recent devaluation of major currencies followed by currency depreciations in a large number of Asian emerging markets raise the risk of competitive devaluations. Competitive currency devaluations, at a time when global demand is sluggish, is a major threat to stability in the global economy," an official statement from the finance ministry said. The statement comes on the eve of Finance Minister Arun Jaitley leaving for a two-day conference of G-20 finance ministers and central bank governors, who will take stock of the global economic situation and review the member nations' growth strategies. The meeting will be held in Ankara, Turkey, on September 4 and 5. Reserve Bank of India Governor Raghuram Rajan will also participate in the meet. "The attempt in Ankara would be to analyse the situation and consider collaborative measures like developing the global safety nets to protect countries from negative spill-overs arising from domestic actions," the release said. The finance minister will also hold meetings with his counterparts from G-20 countries on the sidelines of the meet. Other members of the grouping include Argentina, Brazil, China, France, Germany, Italy, Japan, Russia, South Africa, Turkey, the UK, the US and the European Union. "The main purpose of these meetings is to review ongoing global economic developments, growth prospects, investment and infrastructure, international financial architecture and international tax issues among others," the release said.
The recent devaluation of Chinese currency yuan has triggered a global financial turmoil hurting stock and currency markets worldwide. Jaitley will also participate in the joint meeting of G-20 finance and labour ministers as well as in the first meeting of the governing council of BRICS Contingent Reserve Arrangement (CRA). Ahead of the ministerial meeting, G-20 labour ministers are meeting in Ankara on Friday to discuss growth and employment issues. India is represented at that meeting by Labour Minister Bandaru Dattatreya. The meet will discuss strategies to deliver more and better jobs and policies to reduce inequalities to support inclusive growth. "The joint meeting of G-20 finance and labour ministers will address issues of employment and growth, inequalities, declining ratio of labour income in GDP, youth unemployment and skilled labour mobility," the release said.
Finance ministers of G-20 countries will also review the progress on the G-20/OECD high level principles on SME financing and the establishment of the private sector-led World SME Forum, a new initiative to serve as a global body to drive the contributions of SMEs to growth and employment, it said. The BRICS Contingent Reserve Arrangement (CRA) has been conceived as an additional safety net by the BRICS nations to meet the short-term liquidity needs that might arise in the face of volatile capital flows. The total corpus of CRA is $100 billion.
SOURCE: The Business Standard
In an effort to build on the attractive growth prospects in Tamil Nadu and the Government’s commitment in maintaining the state’s position as one of India’s most preferred investment destinations, a Global Investors’ Meet has been organized that is likely to turn into a bonanza in terms of new projects in all the right places and sectors especially textile sector. Tamil Nadu is one of the leading states in India in Textile Industries. It houses the country’s largest spinning industry accounting for almost 40% of the total installed capacity in India. It has a complete ecosystem of textile industry. Tamil Nadu is home to the knitting industry and has the biggest knitting cluster in India – Tirupur.
Tamil Nadu ranks 1st in the Apparels Industry and 2nd in the Textile Industry in terms of percentage contribution by state in the total industrial output of respective industries in India. According to sources in the know, the sector alone is likely to get a cumulative investment of Rs 4,500 crore come September 9 and these investments will primarily be higher up the value chain. The investments are set to give a substantial fillip in terms of employment generation and stimulus to ancillary industries. Highly placed sources told the Express last week that MoUs worth Rs 4,500 crore are set to be signed in the Textiles and Apparels sector when the Global Investment Meet kicks off.
According to Manickam Ramaswami of Loyal Textiles, one of the largest textile companies in India, the bulk of this investment is likely to come in the garment and the apparels sector, because that is where the opportunity is. They themselves are signing MoUs for investment worth Rs 150-220 crore in the GIM and they are in the dyeing and finishing sector and in the garmenting sector.
A bulk of this investment is also set to be around the new Cuddalore Textile Park, Ramaswami pointed out. If investment really is concentrated in these sectors and those higher up the value chain, industry experts say it would be of immense benefit to the state and its workforce. There had been a lot of investment in the spinning sector between 2005-2010 driven by the Technology Upgradation Fund. But it slackened off in the meantime. But if they get investments in garments and apparel, that can make use of the large capacity they have for spinning it would be very beneficial, said R Rajkumar, Managing Director of Best Corporation. The inclusion of more new projects higher up the value chain will strengthen a sector that already has elements of the whole textile value chain - from cotton to garment making. The projects could also help soak up the slack in demand for yarn caused by China’s burning out. But new projects in garmenting for example will create a lot of employment. It is going to be very beneficial for farm workers who are losing their jobs - they could find easy employment in these areas. The Global Investors’ Meet to take place on 9th and 10th September, 2015, at Chennai Trade Centre, Chennai, Tamil Nadu.
SOURCE: Yarns&Fibers
The international crude oil price of Indian Basket as computed/published today by Petroleum Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas was US$ 48.70 per barrel (bbl) on 03.09.2015. This was higher than the price of US$ 46.65 per bbl on previous publishing day of 02.09.2015.
In rupee terms, the price of Indian Basket increased to Rs 3225.40 per bbl on 03.09.2015 as compared to Rs 3086.36 per bbl on 02.09.2015. Rupee closed weaker at Rs 66.23 per US$ on 03.09.2015 as against Rs 66.16 per US$ on 02.09.2015. The table below gives details in this regard:
|
Particulars |
Unit |
Price on September 03, 2015 (Previous trading day i.e. 02.09.2015) |
Pricing Fortnight for 01.09.2015 (Aug 13 to Aug 27, 2015) |
|
Crude Oil (Indian Basket) |
($/bbl) |
48.70 (46.65) |
46.03 |
|
(Rs/bbl |
3225.40 (3086.36) |
3024.17 |
|
|
Exchange Rate |
(Rs/$) |
66.23 (66.16) |
65.70 |
SOURCE: PIB
There have been claims that Korea’s textile industry need to reorganize its industrial structure with the direction of promoting the high value added market, such as high performance textiles and fabrics for high-tech industry. According to a report called “Comparative Analysis of International Competitiveness in Textile Industry of Korea, China and Japan and Its Policy Proposals” released by Korea Economic Research Institute (KERI), the technological level in the textile industry of Japan in 2020 will stand at 100 percent, while the figures of Korea and Japan will be at 85 percent and 75 percent, respectively. Korea’s fabric technological level has increased from 75 percent in 2010 to 79 percent in 2015. Also, the figure will slightly improve to 85 percent in 2020, according to the report. Also, China has steadily seen the technological growth in the fabric industry from 55 percent in 2010, 65 percent in 2015 and to 75 percent in 2020. Accordingly, the technical gap between Korea and China will be halved in a decade from 20 percent in 2010 to 10 percent in 2020. The figure between Japan and Korea will also decrease from 25 percent in 2010 to 15 percent in 2020.
On the other hand, China’s share in the global textile market as of 2013 was 37.9 percent, while the figures of Korea and Japan stood at 2.2 percent and 1.2 percent, respectively. Korea saw the decrease in the global market share from 2.7 percent in 2007 to 2.2 percent in 2013, while Japan was also on the decrease from 1.7 percent in 2007 to 1.2 percent in 2013. The KERI said, “As China has expanded exports of low-end products, the market share of Korea, which has competitiveness in exporting low priced products, is going down.” This is why more and more industry sources say that Korea should reorganize its fabric industry structure focusing on high performance and differentiated products.
Japan is expanding investment in the development of higher value-added industrial textiles, which are in high demand like high performance and functional textiles and nano fibers. Also, China is reorganizing the industrial structure, focusing on higher value-added products, and is industrializing textiles for high-tech industry. In contrast, Korea has low competitiveness since it has a high percentage of clothing in production and most of them are being supplied to the domestic market with middle and high prices, while those for export are low and middle priced products.
SOURCE: The Business Korea
The forum, with its theme: "Buhari Administration: Revival of Textile Industry and Creation of Decent Jobs", was organised by the National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN) and Nigeria Textile, Garment and Tailoring Employers' Association which brought together various stakeholders to deliberate on the state of the textile sector with a view to addressing some of the constraints that have held it down from realizing its potential in employment generation and capital flow. A statistics released at the event showed that while over 121,100 jobs have been lost as a result of inactivity in the textile sector, while only 39 out of the 143 textile mills across the country, still subsists. The Managing Director, Bank of Industry (BoI), Rasheed Olaoluwa has hinged nation's textile producers' competitiveness on adoption of emerging technology in the sub-Sector. Olaoluwa said that the adoption of new technology would not only help textile producers in cutting cost of production, but would also make their products competitive in the global market. However, beyond the issue of finance and smuggling, the BoI boss stated that it was imperative for the operators in the sector to be innovative, adding that textile business had gone digital.
The President, Mohammadu Buhari has been quite emphatic on the need for Nigeria to revive the textile sector. Some of the issues that have come out today have to do with how to deal with the issue of smuggling. It is an issue government needs to deal with firmly, especially with the Nigeria Customs Service. What also came out clear is the need for the textile industry to also be up and doing in term of embracing new technology.
Textile industry globally has gone digital and for them to be competitive, investment in new technology is needed and ensure that textile industry is able to do cost effective short-run. New technology will enable textile producers to come up with product sample very quickly, come out with new designs just by operating the computer. There is a lot of computer aided designs that have gone into textile printing today. That is the challenge to the industry.
SOURCE: Yarns&Fibers
The Vietnam National Wage Council has arrived at a consensus that the regional minimum wages in 2016 should be 12.4 percent higher than the current rates. At 12:30 pm on Thursday, after nearly five hours of debate, the council conducted a poll on the increase rate and 92 percent of the members voted for a 12.4 percent rise, Chairman Pham Minh Huan said. This is the third meeting to have been held in Hanoi by the council to work out solutions to the issue.
In the two previous meetings, the council failed to seek a common voice between the Vietnam Chamber of Commerce and Industry (VCCI), which represents employers and asked for an expansion of no more than 10 percent, and the Vietnam General Confederation of Labor (VGCL), which supports employees and requested that the increase rate be 16.8 percent. However, during the third meeting, the VCCI demanded an 11 percent increase while the VGCL agreed to lower its rate to 14.3 percent. After further discussions, both sides agreed for a poll to take place and an increase rate of 12.4 percent was then passed. Before the meeting, many experts advised the two sides to make concessions in order to reach a common ground. With the agreed rise, the regional minimum wages for 2016 will increase by VND250,000-400,000 (US$11.1-17.8) per month, depending on each zone.
Accordingly, the monthly minimum wage for Zone 1 will increase from the current VND3.1 million ($137.9) to VND3.5 million ($162.2), and that of Zone 2 will rise from VND2.75 million ($122.3) to VND3.1 million. For Zones 3 and 4, the monthly minimum wages will go up from VND2.4 million ($106.8) and VND2.15 million ($95.7) to VND2.7 ($120.1) million and VND2.4 million, respectively. Zone 1 covers the urban parts of Hanoi and Ho Chi Minh City; Zone 2 is applicable to the rural areas of Hanoi and Ho Chi Minh City, along with the urban regions of Can Tho City, Da Nang City and Hai Phong City; Zone 3 comprises provincial cities and the districts of Bac Ninh Province, Bac Giang Province, Hai Duong Province, and Vinh Phuc Province; and Zone 4 consists of the remaining localities. The council will submit a plan on hiking the regional minimum wages to the central government for approval before announcing it in October this year. If ratified, the new regional minimum wages for 2016 will be applied from January 1. According to the VGCL, the 2015 minimum wage rates, which are 14.3 percent higher than those in 2014, can only cover 78-85 percent of the minimal living costs of employees.
SOURCE: The Tuoitre News
After more than two years of negotiations, the European Union (EU) and Vietnam reached an agreement in principle for a new free trade deal.1 Our team believes this deal marks an important milestone not only for Vietnam, but sets an important precedent for other countries in Southeast Asia, a region of particular interest to us. Vietnam has experienced a drop in exports this year—which some have said may have contributed to a devaluation of its currency, the dong, for the third time this year in August. With that backdrop, this trade deal with the EU could prove even more important for Vietnam. The new trade agreement means Vietnam’s exports could see a boost amid broader access to the EU—whose member-countries collectively represent one of the largest economies in the world.2 Vietnam’s key exports to the EU include telephones and parts, electronic products, footwear, textiles and clothing, coffee, rice, seafood and furniture, while the EU exports primarily high-tech products including electrical machinery and equipment, aircraft, vehicles and pharmaceutical products to Vietnam. Other important aspects of the trade deal may be of interest to international investors. Besides eliminating tariffs, Vietnam will also remove almost all of its export duties. Vietnam is not only focused on traditional export drivers such as commodities; it has been opening up new market access opportunities in services and investments.
In general, political progress—or the lack thereof—can be a key factor in unlocking economic potential in Asia. While Vietnam remains a Communist-ruled country, its leaders seem to be embracing capitalism, at least in some respects. Vietnam’s recent removal of limits on foreign investment in many areas (which had been capped at 49% of a listed company) looks encouraging to us. Its government has also been focused on developing a strong technology sector in particular, offering financial incentives and tax breaks.
Vietnam is clearly attracting investor interest. While its market is still relatively small, it may come as a surprise that Vietnam was second only to China as the most-popular investment destination in the Asia-Pacific region, as of 2014.4 Bordering China, the country has strategic importance in the region, and offers a number of positives that have attracted this interest, including low-cost labor, strong domestic growth potential and a youthful demographic. Chinese firms are already active investors in Vietnam, taking advantage of significantly lower wage rates in comparison with Southern China. As investors in Vietnamese stocks, the primary constraints we face are liquidity and limited choices in which to invest. But we are hopeful that soon will change. Vietnam has had a fast-growing economy, and we have found good companies there, including some that are state-owned. More importantly, we have also found companies with attractive valuations in Vietnam. Currently, state-owned enterprises account for 40% of Vietnam’s gross domestic product (GDP),5 but authorities have affirmed a commitment to a more modern and open economy, which we hope will lead to more privatization.
Changes and Challenges
The middle class has been growing in Vietnam and people have also been trading in bicycles for motorcycles, scooters and automobiles. To help alleviate the traffic on busy city streets, Vietnam’s first-ever subway system has been under construction in Ho Chi Minh City with the help of foreign investment from Japan, France and China. Consumers have also been embracing new technologies the EU can sell to them; Vietnam ranks 10th globally in terms of the number of mobile phone subscriptions, ahead of Germany, Thailand and the United Kingdom, among others. While it is clear there has been progress, Vietnam’s transformation has been slower than we’d like. In 2012, Vietnam unveiled a broad, “three pillar” economic reform program, proposing to restructure public investment, state-owned enterprises and the banking sector, but progress in many areas has been slow. Additionally, Vietnam’s banking sector is undercapitalized, while non-performing loans weigh heavily on banks and businesses.
Impact on Southeast Asia
In my view, this new trade agreement between Vietnam and the EU is also quite significant for the ASEAN Group (Association of Southeast Asian Nations) because it seems likely to us that other countries in that grouping will also join in this trade liberalization movement, which could benefit the entire region. Singapore already has a free trade agreement with the EU and other ASEAN members including Thailand, Myanmar, Cambodia, Laos, Indonesia, Brunei, and the Philippines would also likely benefit. So, this agreement is quite positive, and a good move by the Vietnamese. Vietnam offers many of the key characteristics that make Southeast Asia generally such an attractive destination to global investors like us. In addition to natural resources, the region contains pockets of advanced technology, notably in Singapore and parts of Thailand and Malaysia, as well as some world-class banking and telecommunications businesses. Per-capita income across much of the region is low, especially in countries such as Laos, Cambodia and Myanmar, which have only recently begun to transition to market economic structures, providing opportunities for low-cost manufacturing businesses.
Many Southeast Asian countries also have very favorable demographic profiles, with large working-age populations, while economic restructuring in a number of countries, most notably Indonesia, has the potential to raise productivity and corporate profitability. In addition, lying between China and India on one of the world’s busiest trade routes, Southeast Asia is likely to benefit significantly should various other free trade initiatives come to fruition. Within Southeast Asia itself, the planned ASEAN Economic Community could create a market of 600 million people, combining the diverse resources of the region, which we believe should be to the benefit of all.
SOURCE: The Value Walk
