According to the National Finance Supervision Committee, the deficit is likely to be 3.5% of exports. The trade deficit with China rose from US$3.7 billion in 2013 to US$28 billion last year. The US Federal Reserve (FED) is expected to increase the interest rate in June and continue to do so through 2019 to take the rate to 3 per cent.
Analysts said this is causing downward pressure on the value of the đồng against the dollar.
In mid-May, the US Dollar Index (DXY) rose significantly to 99.60.
The State Bank of Vietnam (SBV) recently increased the đồng reference rate by VND9 after the greenback appreciated strongly to avoid possible shocks.
SBV Governor Le Minh Hung said the international markets remain volatile due to the UK vote to leave the EU, US President Donald Trump’s policies and the US rate hikes.
The volatility has had an impact on the đồng exchange rate and made it harder for the Government to keep things smooth on the forex front. Since the beginning of the year, the central bank has been very cautious. As a result, the đồng has only lost 1.1% against the dollar.
The National Financial Supervisory Committee (NFSC) officials said the central bank is flexible and keeps a close eye on the exchange rate, regulating it on a daily basis.
Analysts said Vietnam should not pay too much attention to the US interest rate hikes since they do not always affect the đồng.
They pointed to the rate hike in March when the dollar actually declined against the đồng.
One of the reasons for this is that foreign direct investment has been pouring into the country.
In the first four months of the year, US$10.95 billion flowed in, representing a year-on-year increase of 40.5%.
Though the big trade deficit with China is a factor in the đồng’s value, the Chinese Government is unlikely to depreciate the renminbi.
This is because its policy is to develop the economy based on the domestic market in future instead of exports as the case used to be.
Hung said since the Government would continue to pursue its de-dollarisation policy, the central bank would remain flexible with its exchange rate regulations to ensure exporters, importers, the Government and enterprises borrowing overseas and repaying foreign loans all benefit.
Many analysts estimate the greenback will rise 2-3% against the đồng this year, saying the economy can easily absorb this.
Foreign retailers crowd VN market
Koji Takayanagi, president of Japan’s second largest convenience store chain FamilyMart, said the company is reviewing its loss-making operations in Indonesia, Thailand and Vietnam.
“If we can get them to rally we will, but we cannot continue to pour in resources,” he told Reuters.
The Japanese franchise has forecast operating profit to more than double to 1 trillion yen (US$8.79 billion) in four years from 412 billion yen in the current fiscal year.
But while the business is profitable in China and Taiwan, it is not doing well elsewhere.
FamilyMart came to Vietnam in 2010 and expected to open 300 stores in collaboration with local distributor Phu Thai Group, according to online newspaper VnExpress.
But the partnership ended in 2013, with the distributor taking over 42 stores and turning them into B’s Mart in collaboration with Thailand’s Beri Jucker Plc.
The brand made a comeback in July 2013 and now has 130 stores in HCM City, the nearby resort town of Vung Tau and Binh Duong Province, and aims to expand to 150 by the end of this year.
Last December, Parkson, owned by Malaysian conglomerate Lion Group, closed its second store in Hanoi after eight years of operations, citing unsatisfactory results.
The move marks the closure of the last store in Hanoi and third in Vietnam. In May 2016, Parkson Paragon in HCM City’s upscale Phu My Hung urban area closed after five years of operations, and in January 2015, Parkson Landmark 72 in Hanoi closed.
The management had stuck a notice on the door of the latter store that it would only close for a few days “to take inventory”, but never opened again.
Parkson’s recent results in the third quarter of 2016-17 showed its business in Vietnam remained mired in difficulties because the retail market was getting “more and more cramped”.
Market observers offered explanations for the failure of some foreign retailers in Vietnam, with the decisive factor being the growing presence of giant global retailers, which is making competition in the sector fiercer.
According to a report from the Ministry of Industry and Trade earlier this year, foreign enterprises now hold a 17% market share in the shopping centre and supermarket segment, 70% in convenience stores, 15% in minimarts and around 50% in online, TV and phone shopping.
The percentages may not be too high but the looming presence of foreign retailers can be seen in many major cities.
For instance, Thailand’s Central Group has bought the entire stake of France’s Casino Group in Big C Vietnam, while another Thai conglomerate, TCC Holding, has acquired Metro Cash and Carry Vietnam.
Other foreign groups such as the Republic of Korea’s Lotte and Japan’s Aeon have been steadily expanding, and have plans to double or triple the number of stores in Vietnam in the coming years.
In terms of growth, Vietnam’s retail market is among the top five in Southeast Asia and 11th globally, according to A.T. Kearney’s 2016 Global Retail Development Index.
The trade ministry said retail sales of goods and services rose 10.2% to VND3,530 trillion (US$156.7 billion) last year.
It has projected the market to hit US$179 billion by 2020.
There is indeed a lot room for the retail sector to grow in Vietnam, where more than half the population of nearly 92 million is young and incomes are rising very fast, it said.
Business-to-customer transactions are expected to double in value from the US$2.2 billion recorded in 2013.
The ministry also expects the country to have 1,200-1,300 supermarket outlets by 2020, up 650 from 2011. The number of trade centres and malls are projected to increase to 180 and 175, respectively.
Thời Báo Kinh Doanh newspaper (Business Times newspaper) quoted Akiihiko Maeda, CEO of Japan’s Ministop 24-hour convenience store chain in Vietnam as saying competition is now the biggest challenge for his company.
Ministop would need five to six years to break even, he said.
But to achieve that, it would have to increase the number of stores by 80-100 a year and reach around 300.
Analysts pointed out that this means Ministop — and other foreign retailers – would have to bring in lots of money.
Where do domestic retailers stand?
The swift expansion of foreign firms has also piled pressure on local retailers. Domestic goods suppliers are feeling the pinch as foreign retailers are developing their own brands for selling through their stores.
Local retailers, at least many of them, cannot take on their foreign rivals, analysts fear.
To compete, they need good management in all areas from brand building, ensuring product quality and marketing to human resources, training and establishing distribution networks, they said.
But most are too weak and need to be immediately restructured, they said.
Technology is also a problem for many Vietnamese retailers in a sector that is highly technology-intensive, they said.
