Business Beat
A mixed economic performance in the first six months by Viet Nam is cause for more worry than celebration because a drop in both export volumes and foreign direct investment will have a lingering impact on the second half. But an even greater worry for many is the environmental fallout of economic growth. In the name of industrialisation, manufacturers discharge the most polluted substances into rivers, the source of drinking water for millions of people. To cut costs and improve their competitiveness, producers can ignore the most fundamental measures to protect the surrounding environment, even for their own workers. The situation has become so alarming that all recent environment reports by government agencies and international organisations stress that Viet Nam will pay dearly if it did not pay enough attention to environmental issues. A pilot project in Ha Noi to classify 50 food processing and textile businesses according to their effort to protect the environment found 76 per cent not meeting local standards. and this result came after a second survey preceding which the organisers had given a lot of support to help businesses fight pollution. In the first survey, up to 90% of them did come up to scratch in treating effluents. It’s time policy makers took more drastic steps to force manufacturers put the environment before profit. The situation now is that inspectors visit the polluter’s site after neighbours lodge complaints, and things are sorted out for the time being, only to become worse once they leave. Publicising the names of worst violators on the local mass media is a good start. After all, economic growth by itself does not imply development, especially when people suffer from worse living conditions.***
Viet Nam’s exports in the first six months dropped by 5.9% while imports grew by 8.1%. So it was no coincidence that the State Bank agreed last week to widen the daily trading band of the US dollar to 0.25% on both sides. Everyday, the bank announces an official exchange rate for the greenback and previously, commercial banks could buy or sell their dollar holdings at this rate, plus or minus 0.1%. The widening of the trading band last week signalled a willingness to speed up the adjustment of the exchange rate so that Viet Nam’s exports can enjoy some price competitiveness on the world market. But, contrary to expectations, there was no rush to capitalise on the new policy. Banks that had been expecting a wider band of 0.5% said they had been employing an indirect gateway to bypass the narrow trading band. The State Bank pays attention to the US dollar and dong exchange rate while ignoring other currencies like euros, yen or francs. These currencies have been appreciating strongly against the US dollar in the world market. In other words, it is a good timing on the part of the State Bank to announce a widening trading band. Although the greenback is losing its steam elsewhere, it is still considered undervalued in Viet Nam thanks to past intervention in the exchange rate. The adjustment now will cause almost no disturbance to the market but help the exchange rate to reach a reasonable level and make up for the lack of flexibility in the past.
***
Industrial production in HCM City grew by just 10.4 per cent in the first half of 2001, a far cry from the 16.5 per cent in the same period last year. This rate is even lower than the average national rate of 13.9 per cent for the first six months. A meeting between Prime Minister Phan Van Khai and the city leadership came up with several proposals and suggestions to deal with the situation. But observers have said the fundamental issue here is the obsolete technology manufacturers are using and the poor productivity of local workers. A report on the mechanical sector notes that equipment used in the city are several decades older than those in regional countries. So fuel consumption is double the world average, pushing up costs. The cost of assembling a TV set in Viet Nam is US$15 against just $4 in Malaysia. Productivity, on the other hand, is reportedly as low as 20 per cent of the world average. The report says that 18 Vietnamese workers can assemble 150 TV sets in a two-shift working day, but the same group sent to Japan to do apprentice work can assemble 450 sets in the given time. It is all the more amazing, not to mention alarming, to learn that eight Japanese workers can by themselves assemble 1,000 sets. An excessive focus on tax incentives and similar measures might rob local businesses of the drive to improve themselves and become more competitive.
***
HCM City’s efforts to rationalise its land management has seen the real estate market slump. The city requires that housing project owners complete infrastructure facilities, build their houses and only then sell them. This is necessary to stop bogus investors and real estate developers who never get their project off the ground. But at the same time, it foils the business plans of many small investors whose working capital is around VND10-20 billion, just enough for land compensation. Their typical plan is to accept deposits from prospective buyers, use the money to build houses and make a profit on the transaction. This is just one of the many difficulties arising from a shift in the land and housing policy. It is also forcing the merger of many developers, and make houses dearer for the final buyers.
VNS
