Checking on exports

Vietnam has become heavily dependent on exports, and the big worry with COVID-19 is that these are going to take a dive. Well, we got some export data for April last week, and it doesn’t look great. Remember, Vietnam was mostly closed down for April, and we have only seen it pick back up in the later half of the month.

Exports were down 27%, while imports were down just 16% for April. This resulted in a negative net export figure (which hurts GDP). To give you an idea of how bad it is, computers & parts fell 18%, while telephones fell 53%. Just these two categories make up almost a third of all exports in April. Only plastics (+19%), precious stones (37%), fertilizers (17%) and tea (+25%) grew - combined these made up only 1% of exports in the month.

Source: General Dept of Customs, chart by Vietecon.com

Source: General Dept of Customs, chart by Vietecon.com

Source: General Dept of Customs, chart by Vietecon.com

For the year-to-date, imports were mostly flat (-0.3%), while exports grew 2%. Computers are still growing looking at the year-to-date figures (+26%), but that might be hard to keep up, given the decline in April. And the April figures drove telephones (mostly Samsung) down 4% ytd.

Out of the top 10 categories, only 3 grew ytd. Those three were computers, machines/equipment (+27%) and wood (+5%). Textiles, the third largest category, fell 9%. Food products weren’t immune, with fishery products down 8% and fruits/veg falling 12.5%. There were some bright spots within food (coffee +5%, rice +11%, cashew nut +6%). Exports of coal also grew more than 700% ytd, but that was from a low base.

The big fear here is that if exports don’t pick up, then we are going to see the following:

• The worst and more immediate impact is layoffs - we have started to see already

• Net imports will start to drain Vietnam’s hard currency reserves (as hard currency is used to fund imports. This could make it hard to protect the currency. Worst case, this leads to devaluation and higher costs for both imports and debt. Ultimately, bankruptcy of companies that have large amounts of foreign currency debt.

The second impact is one that is a bit more long term. Remember that the government went into the beginning of the year with high reserves (more than $80bn), plus the country had net exports through April. So they can handle a few months where exports don’t look good. Plus, some of the imports are for inventory build-up by export-oriented companies (for example: a company getting parts that are used to make a computer or mobile phone, and then that computer or phone is exported). As exports fall, imports should fall as well.

But not all imports will fall, because some are for domestic consumers. And these consumers will still buy them unless they are not able to, either due to higher prices (through devaluation or tariffs) or closed borders (which aren’t difficult giving all of the trade agreements). Vietnam needs to hope that exports start to pick up again.

One mitigating factor is that some companies are moving out of China to Vietnam, such as Apple moving part of its Airpod manufacturing. This could take the place of exports that have fallen off.