Weaker dong shakes up markets

Most traders and producers are keeping a watchful eye for any new developments on the forex market before deciding whether to increase prices of commodities following last week's 2 per cent depreciation of the Vietnamese dong.

The State Bank of Viet Nam on August 17 decided to increase the inter-bank exchange rate between the Vietnamese dong and the US dollar to VND18,932 from the VND18,544 that had been kept unchanged since February. This means a depreciation of the local currency by almost 2.1 per cent, a move expected to contribute to reducing the trade deficit.

Giving the trading band of 3 per cent on either side of the official exchange rate, commercial banks have vied with each other to raise their US dollar prices.

Three days after the dong depreciation decision took effect, many commercial banks had the cost of the US dollar against the dong at VND19,500.

Major commercial banks such as Vietcombank, Sacombank, Eximbank, Asia Commercial Joint Stock Bank (ACB) on August 20 quoted prices of VND19,425-VND19,460 per dollar from VND19,100 on August 17.

The unofficial market reacted swiftest with rates ranging from VND19,400 – 19,500.

The depreciation has had immediate impacts on the prices of some essential goods. On August 20, gold prices jumped sharply to VND28.78-28.82 million per tael (equivalent to 38 grams), up by about VND240,000 compared with the previous day. The hike sparked a rush to sell gold.

Gas traders including Sai Gon Petro, Vina Gas, Gia Dinh Gas and Petrolimex also decided to raise the prices of a 12-kg cylinder by between VND4,000 and 6,000. Petroleum importers were also considering a plan to adjust domestic retail prices.

Some steel companies also began raising steel prices by VND300-400 per kilo for all products over rates recorded in late June.

While traders in essential goods have already increased their prices, most small merchants and enterprises were still cautiously watching the market.

Vu Van Minh, CEO of the Giay Viet Company, a shoemaker, said any sharp movement, upwards or downwards, always had ripple effects, and they would have to keep a close eye on the market.

Manufacturers that rely on imported materials are said to be feeling the pinch most.

Trang Van Tot of Glomed Pharmaceutical Company in the Viet Nam-Singapore Industrial Park 2 (VSIP2), said that their input costs would increase, but medicine prices would not be raised due to the price control policy of the State.

The bigger concern is that the company may find it difficult to borrow dollar for imports due to forex uncertainties, he said.

Nguyen Van Hung, chairman of the Tan Phu Plastics Company, said the increase in the forex rate had distressed many plastic producers.

The cost of credit needed to import raw materials would increase dramatically with the new forex rate. This means that the companies cannot think of profits any longer, he said.

Experts said that the increase in the forex rate would increase costs for importers, and this would affect commodity prices as well as the consumer price index.

Now they would have to carefully consider their imports, even for raw materials. The habit of borrowing the greenback to import materials and maintain reserves cannot be persisted with anymore.

These changes would help the country better control its trade deficit as well as inflation in the coming months, they said.

At present, chain store operators have still kept prices unchanged due to good inventories. However, many of them, mainly retailers involved in importing goods, have said they have plans to raise prices in the coming weeks.

Local investors set pace

Domestic investment in HCM City's industrial parks has for the first time outpaced foreign direct investment (FDI) in the year to date, with respective figures of US$235 million and $49.2 million.

The HCM City Export Processing and Industrial Zones Authority (Hepza) said that 35 local investors have so far this year been granted investment certificates with a combined capital of more than US$235 million. If additional funds for operational projects are included, local investment will amount to $297 million.

Meanwhile, FDI inflow into IPs and EPZs over the past seven months was just $49.2 million pledged in 13 projects. Additional capital for operational projects would push total FDI in the January-July period to slightly over $136 million.

Hepza attributed the FDI drop to the global economic recession, the lack of infrastructure and land in the zones as well as less attractive incentives for new investment projects. Besides, Hepza's move to confine foreign investment to eco-friendly and hi-tech sectors while limiting projects in polluting and labour-intensive industries also has an impact on the FDI inflow.

Meanwhile, domestic enterprises are aware that technologies are cheaper due to the global crisis so they have managed to upgrade and expand operations to become more competitive.

Hepza expects to attract more than $680 million in domestic and foreign investment this year.

Online advertising heats up

With increasingiInternet use alongside consistent IT development, online advertising is on rise in Viet Nam.

By June this year the number of Internet users in Viet Nam had reached 24.6 million, up 12.7 per cent compared to the same period last year. Meanwhile, the number of people using the broadband internet also grew by 24 per cent to over 3.34 million subscribers.

These figures are really attractive conditions for the domestic online advertising industry to develop.

However, its development is still at the primary stage in Viet Nam, experts say, adding it has great potential to go much further.

The market would not be well developed until 2012, and it would achieve stable development in 2015, they predict.

At present, the country's spending on online advertising accounts for only 0.4 per cent of the total ad expenditure. Per capita expenditure on online advertising in Viet Nam is estimated at just $0.5 oer year, much lower than $10 in China and $14.5 in Russia.

Consequently, the online advertising industry earned revenues of just $15.5 million in 2009, according to the Cimgio Market Research Company.

The main reason for slow development of the online advertising industry is a lack of tools that can be used to effectively measure the impact of online advertising campaigns.

This means enterprises lack information on benefits that online advertising can bring.

Local consumer habits and the opening of many websites are other inhibiting factors.

At present, most enterprises prefer putting their banners and logos on popular websites to using text advertising while the latter can create more benefits for advertisers.

According to AC Nielsen – the US-based global marketing research firm, banner advertising accounts for up to 80 per cent of online advertising market now.

The opening of many websites at present has also left enterprises confused about the right online site to advertise their products and services. Experts however believe that text advertising in Viet Nam will catch up with banner advertising in four or five years. — VNS