Trade surplus: An impressive turnaround

Overcoming difficulties

The latest General Department of Vietnam Customs data show that from the beginning of the year to November 15, total value of foreign trade reached approximately US$365.5 billion (export value: US$183.863; import value: US$181.62 billion). These results generated a trade surplus of more than US$2.34 billion.

Data from the Ministry of Industry and Trade (MoIT) show that in the first 10 months of this year, total value of foreign trade reached US$346.54 billion, up 21.5 percent compared with the same period in 2016. Specifically, export value reached US$174.55 billion, up 21.3 percent, and import value US$171.99 billion, up 21.6 percent, generating a trade surplus of US$2.56 billion.

This was an impressive turnaround. In the first four months, the deficit equaled more than four percent of total export value, higher than the limit allowed by the National Assembly (3.5 percent). This high trade deficit was attributed to increases in the import of machinery, equipment, spare parts and metals to serve foreign direct investment (FDI) projects, such as Samsung Display, and domestic investment projects, such as those of the Electricity of Vietnam Group and the military-run telecom group, Viettel.

The trade deficit has decreased gradually since early May and a surplus of US$233 million was back in mid-July and keeps growing. In the first half of October, the trade balance officially moved from deficit to surplus.

The turnaround occurred in many sectors. The fishery sector, for example, encountered numerous export difficulties in recent times due to technical barriers and trade defense measures taken by the US as a means of trade protection, and the smearing of Vietnamese tra fish in the EU. Meanwhile, seafood exports to China via unofficial cross-border trade channels have been unstable. Increases in domestic production costs require Vietnamese businesses to export shrimp and tra fish at higher prices, reducing the competitiveness of these products. Moreover, Vietnam still faces warnings about the quality of export seafood products, including the EU’s yellow card against illegal, unreported and unregulated (IUU) fishing.

Despite a decline in the first quarter, seafood export value in the first 10 months reached an estimated US$6.79 billion, up 18.7 percent compared with the same period last year, thanks to strong measures to diversify export markets and ensure product transparency.

According to the MoIT, the 20.7 percent export growth achieved in the first 10 months of this year compared with the same period in 2016 was much higher compared with the 6-7 percent annual growth target set for 2017, as well as the seven percent growth achieved in the first 10 months of 2016 compared with the same period in 2015. By the end of October 2017, Vietnam realized 92.4 percent of the US$188 billion annual export value target set for the year. The trade surplus achieved in the first 10 months also exceeded expectations because earlier this year the MoIT forecast an annual trade deficit equivalent to 0.5-3.5 percent of total export value.

Global economy impact

The annual export value in 2017 is expected to grow about 18.9 percent compared with 2016, the highest rate since 2011, to reach US$210 billion. This growth is believed to be achievable in the context of global trade improvements having a positive impact on domestic production and exports.

Vietnam’s export growth in 2017 can largely be attributed to the recovery of trade flows in the Asian region and importer demand increases in North America following stagnation in 2016. Moreover, the growth of gross domestic product (GDP) in most major economies, especially China, the US and the EU, has brought about increases in import demand and promoted regional trade. Economic recovery and increased consumer demand in these large markets have created favorable conditions for domestic manufacturers to boost exports to existing markets and seek new ones. The competitiveness of Vietnamese goods is growing. In the Global Competitiveness Report 2017-2018 published by the World Economic Forum (WEF), Vietnam ranks 55th among economies worldwide, moving up five places compared with 2016 and 20 places compared with five years ago. WEF acknowledged Vietnam’s improvements in terms of technology and labor market efficiency. Vietnam’s participation in free trade agreements and partners’ commitments to cut tariffs for goods of Vietnamese origin have also helped enhance the competitiveness of Vietnamese goods and increase their share in foreign markets. Vietnam’s export value is forecast to continue growing in the last two months of 2017.

Meanwhile, Vietnamese imports are not expected to increase towards year’s end because the disbursement of investment capital for most major projects has been completed. Some new projects, such as the Cat Linh-Ha Dong Urban Railway, require the disbursement of capital for equipment imports but are not expected to generate a significant increase in total import value. Therefore, this year’s trade balance is expected to lean towards a surplus, contributing to the realization of the 6.7 percent GDP growth target set for 2017 and creating impetus for economic growth in ensuing years.