Industrial production lends stability amid disruption

08:00 | 13/05/2021
Despite massive difficulties due to the health crisis causing disarray in supply chains, local industrial production is bouncing back thanks in part to a rise in trade, promising a brighter picture for economic growth.
1543 p2 industrial production lends stability amid disruption
Industrial production lends stability amid disruption, illustration photo

Operating in Hanoi for 12 years, Japanese-backed auto component producers Elphal Industry Vietnam in 2020 had to halt import of materials from Japan and several other markets for a few months due to partners slowing down production. However, since late last year, imports resumed and gradually swelled for the company to expand production for export to Southeast Asia, Europe, and Japan.

“In the first four months of this year, our gross output is estimated to rise 7 per cent on-year, up from just 1 per cent last year,” said a company representative. “Our import volume has increased 8 per cent since last December. In March, we also imported three new moulds worth $1.2 million to expand production.”

Another Japanese-backed firm, Kain Trade and Industry Co., Ltd., manufactures hand tools, cutlery, and hardware consumed in Vietnam and exported to Japan and Southeast Asia. Since last November, the company’s 500 workers have been working at full capacity to meet export orders. In this year’s first four months, the company has also increased its material imports by about 7 per cent on-year.

“In the first quarter, our company grew 9 per cent, up from only 2 per cent last year. Partners overseas are increasing imports to serve rising demands in their markets,” said Nguyen Van Huynh, head of sales at Kain Trade and Industry. “The business situation is getting better, and it is expected that the company’s total export turnover this year will be 10-12 per cent on-year.”

Under a recent survey by Japan’s Pasona Group Inc., 57 per cent of Japanese firms in Vietnam plan to expand business and production, with 43 per cent saying they had or will have a plan to expand their offices in the country.

According to the General Statistics Office (GSO), Japanese firms have greatly contributed to domestic industrial production, which is gradually improving because more and more materials and components are imported into Vietnam for production, not for direct consumption.

In the first four months, total export-import turnover is estimated to hit $206.5 billion, including $103.9 billion from exports, up 28.3 per cent on-year, and $102.6 billion from imports, up 30.8 per cent.

Notably, the import turnover of production materials is estimated to be $96.3 billion, up 31.4 per cent on-year, and accounting for 93.9 per cent of the country total. The import turnover of consumer goods is about $6.3 billion, up 22.5 per cent on-year and around 6.1 per cent of the total.

In April, Vietnam’s index for industrial production (IIP) increased 24.1 per cent on-year thanks to good control of COVID-19 and the effectiveness of free trade agreements, with the manufacturing and processing sector generating 80 per cent of industrial growth, up 29.1 per cent on-year.

In the first four months of 2021, the IIP climbed 10 per cent on-year, in which the manufacturing and processing sector expanded 12.7 per cent on-year – higher than the 9.7 per cent on-year last year.

Breaking down the situation, rising production has led to growing demand for electricity – a vital input for the economy. The MPI reported that the production and distribution of electricity in April increased 2.6 per cent on-month and 16.4 per cent on-year. In the first four months, the rate increased 6.6 per cent against the same period last year, when it decreased 6.5 per cent.

Electricity of Vietnam (EVN) reported that all of its activities increased in the first quarter against last year. Specifically, EVN’s total gross industrial output is estimated to be VND52.83 trillion ($2.3 billion), up 3.18 per cent on-year. The produced and purchased electricity volume is 55.45 million kilowatt hours, up 1.16 per cent. Commercial electricity totalled 50.79 million kWh, up 3.18 per cent. Osf this, electricity for agro-forestry-fishery accounts for 3.97 per cent of total electricity consumed, while the rate is 56.01 per cent for construction and industrial activities and 31.46 per cent for households – all is up against last year. Notably, EVN’s total revenue from power sales is estimated at over VND94 trillion (over $4 billion), up 4.11 per cent on-year.

Vietnam’s economic prospects

The economy is expected to grow by 6.7 per cent in 2021 and 7.0 per cent in 2022 – strong and steady growth made possible by Vietnam’s success in containing the COVID-19 pandemic.

The drivers of this growth will be industry, especially export-oriented manufacturing, increased investment, and expanding trade. Industry is forecast to expand by 9.5 per cent in 2021, contributing 3.5 percentage points to GDP growth. The sector got off to a strong start in the first quarter of 2021, when it grew by 6.3 per cent from the first three months of 2020.

The purchasing managers’ index rose to 53.6 in March, its highest since January 2019. New foreign and local firms are expected to be established due to COVID-19 vaccines enabling greater mobility at home and, in the case of foreign investors, travel to Vietnam.

Services are expected to rebound by 6.0 per cent in 2021, contributing 2.3 percentage points to GDP growth. The growth in services is coming from the digital transformation, increased spending on COVID-19 vaccines, buoyant business sentiment, and low interest rates.

A stronger agriculture sector is expected this year on continued structural reforms, greater market access for agriculture exports under regional free trade agreements, and higher global food prices due to rising demand.

Increased investment will be a key growth driver this year and next. Vietnam’s success in containing COVID-19 and the Law on Investment, passed in January to reduce business regulations, are expected to further attract foreign investment.

Source: Asian Development Bank

By Nguyen Thanh

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