Those at the high end may seem scarcely aware of it, but Vietnam's economic miracle has taken a hit in the last year, with a 70% rise in food prices causing some serious belt-tightening in the lower income brackets
ERIKA FRY
Workers at Ho Chi Minh City's port. Vietnam has an enormous trade deficit, largely because of the inflow of capital and goods for production needed in the country's new factories. |
On a shady lane, just down the road from Ho Chi Minh City's Stock Exchange Centre, the neighbourhood coffee shop serves up free-wifi and $3 fruit shakes.
Its menu is done up in a day-trader theme, with dollar signs and randomly-placed and punctuated phrases like "foreign investment" and "VN index!"
Its book shelves bear a small collection for the aspiring and upwardly mobile, with titles like Race you to the Top, Secrets of Stock Insurance and The Stock Market Dictionary.
Yet, aside from one customer who sits in a corner, manning a laptop and double fisting fancy mobile phones (he is using four in total), the shop is quiet and low on the irrational exuberance of its decor.
But a lot has changed here in the last few months.
Most notably, the VN index (!), which this year has taken a precipitous 60% drop, finally bottoming out after falling every day in May to its lowest point since 2006 late last month.
Workers on strike at a Hong Kong-owned toy factory in the Vietnamese city of Danang. The factory's 10,000 workers walked off the job in January, demanding higher pay and longer holidays. |
As devastating as that development may sound, Jonathan Pincus, the United Nations Development Programme's senior country economist in Vietnam, says the stock market's woes, because of the smallness of the market and the nature of its investors, are among the economy's most mild.
"Shares were not widely held, particularly by regular people," he says. "The event may have been different in a place like Thailand where it's a larger market and middle class Bangkokians are a part of things. Vietnam hasn't gotten to this place."
But it was believed that Vietnam, the latest-coming, but fast catching up, Asian tiger, was well on its way there. The rapid growth and interest in its stock market, which opened in 2006 and currently lists 153 companies, was just one more sign of the country's indisputable rise.
And though Vietnam's economy still ranks among the fastest growing in the world, it is also among the world's most stressed (and it's a bad year for economies).
Year-on-year inflation measured at 26% in June, while food prices were up nearly 70% from last year.
In recent months, the country has also faced a homegrown credit crisis, a housing bubble, a growing trade deficit (despite rice and crude oil being among the country's major exports), and people who, spooked over the stability of the national currency, the dong, have started hoarding gold.
While governments and people around the world have been trying to cope with the rising cost of food and oil, these conditions have only exacerbated a pre-existing situation in Vietnam, where rapid growth and various economic imbalances had sent prices rising months earlier.
"It's a serious problem," says Martin Rama, the World Bank's chief economist in Vietnam. "Food prices dominate budgets and are a cause of much concern."
Yet he notes that because of the number of food producers in Vietnam, the hardship has been distributed in various ways and inflation has posed a more serious problem for some than others.
"It's actually been good for farmers," he says, "but while rising food prices have reduced poverty in some places, it has aggravated it elsewhere."
Those living and working in Vietnam's urban centres, as well as the country's poorest living in the highlands, have suffered the brunt of it, he says.
Vi, a hotel and restaurant worker, whose establishment has raised the price of rooms by $2 and re-stickered its menu prices three times in recent months, says grief about the economy is as widespread as the expectation for the government to fix it.
"People are complaining all the time," she says. "I am very worried about rising prices. I try to save and buy more cheaply. I worry I will have to eat less soon."
She and her co-workers, who have not seen a pay increase and don't expect one soon, say they walk more and have cut out their discretionary spending habits. "I definitely don't buy jewelery anymore," she says.
Wa, a market worker in Ho Chi Minh City is also stressed. While she has raised the prices of the shirts she sells in the market and has her sales buoyed somewhat by tourist traffic, she recently took on a second job, cleaning homes at night, to cope with the rising costs.
Though everyone is being squeezed, the hardest hit, and most vocally so, have been factory workers. "Wage adjustment has come on a company by company basis," remarks Pincus. Anecdotal evidence would suggest there hasn't been much of it.
Labour strikes, some of which have turned destructive, have been on the rise since the beginning of the year- particularly at the plants of international companies like Nike and Yamaha.
330 strikes had taken place through June, and with 6 more months to go before the government can adjust minimum wage (it went up, to many a foreign-investor's angst, by 17% this February), Martin Rama, the World Bank's chief economist in Vietnam, expects the country will only "see more social unrest" in the form of strikes for the rest of the year.
He says of last year's government wage hike: "At the time, it had seemed like a big adjustment, but by now it's all been eaten by inflation."
Luxury Habit Remains
Still, others - mostly the beneficiaries of the Vietnam's recent boom - seem to have only started to recognise the changes.
Minh, an employee with an international electronics and appliance company, has noticed slowing turnover of the company's once popular high-end merchandise. With the store's showroom filling up with unsold plasma flat screens and LCD TVs, he says they now have days when, unlike in the past, there is no new inventory.
Yet while he has noticed the slowing of business and the rise of prices over the past few months, Minh says social reaction to them has been harder to discern.
"Some people who have less to spend are eating less now. Richer people will have no change. Those with lower salaries will change habits, but I can't see it clearly."
He adds that, even though things have been slowing down in his company's showroom, there is still appetite in the country for expensive items.
"I see the rise in food prices. Soon it will be petrol. But still, the habit of buying luxury items remains. People are still importing Rolls Royce and prefer the automatic bikes which use more petrol. People don't want manual ones anymore."
And while he seems to marvel at the appetite of others, he hasn't really tightened up his own consumption either.
"I still spend my salary. The government will fix it."
They've been trying to at least. Vietnam's governments recently unleashed a raft of measures that have included tightening monetary policy and cutting nearly 1,000 public spending projects.
The government, which restricted rice exports earlier this year, also recently capped the price of petrol in an effort to check inflation.
Rama says that while these measures help, "they can not go on forever."
While he expects the global volatility in prices will make things difficult for the public for while, he sees conditions in Vietnam moving in a positive direction. An indicator of stabilisation will be when non-food inflation falls below 10%, he says (in June, the rate was around 12%).
Even with the recent strikes and stock market crash, foreign investors have been sitting tight (though one financial analyst explained investment regulations made it hard for them to do anything else). Exports are strong and the monthly rate of inflation has been slowing, Rama points out.
And growth - initially projected at 9% for the year - will certainly continue, if at a slightly more moderate (now projected at 7%) pace.
"Vietnam's economy is still a solid performer. We're just seeing that with greater exposure to global capital markets, economic growth has shifted from steady to more stop-and-go," says Rama.
Back at Ho Chi Minh City's stock exchange, it looks as if a few investors are willing to give it a go again.
In recent days and after three weeks of slow improvement in the market, the statements of cautious optimism - collapse averted, prices stabilising - are starting to come out.
Prev
1
2
3
4
5
6
7
8
9
10
Next
