On Vietnam factory floor, worries grow about global downturn

VAN LAM, Vietnam (AFP) — The whirr of 200 sewing machines fills a Vietnamese factory hall, where workers and bosses hope desperately that the wheels will keep spinning once the global downturn hits home.

Row upon row of workers, most of them women, are busy making handbags, backpacks and briefcases for customers as far away as Germany, Hungary and Mexico in this plant, set amid rice fields on the outskirts of Hanoi.

They are the backbone of Vietnam’s post-war success story, part of an army of low-wage labourers who have transformed a poverty stricken command economy since Vietnam in the 1980s embraced the Asian model of export-led growth.

For more than a decade, textile and apparel exports have helped drive national economic growth rates above 7.5 percent — lifting the fortunes of businesses such as the Ladoda Company, whose staff grew to 400 from 15 in 16 years.

But now — with the dark clouds of recession gathering over the United States, Europe and many of Vietnam’s other export markets — many of the workers here have started to worry that tougher times may lie ahead.

“I heard on TV and the radio that the world economy is in bad shape,” said 33-year-old Nguyen Thi Thuy, who supports two children with her performance based wage of around 1.7 million dong (100 dollars) a month.

“I am sure it will affect Vietnam and our company in some way.”

It is a concern shared by the management of the company, although both Thuy and her boss said that through hard work and innovation this family-run business hoped to dodge the bullet of a global downturn.

“We are worried,” admitted deputy director Dinh Tuan Anh, the owner’s son. “The crisis has really affected our business plans.”

Orders from some overseas clients had started falling months before the Wall Street meltdown, Anh told AFP, while domestic woes, including double-digit inflation and expensive bank loans, had piled pressure on the company.

“In June our Czech client placed an order for only 2,000 to 3,000 backpacks,” he said. “They used to order 5,000.

“A US client used to place orders for up to 300,000 dong (18 dollars) per backpack. Now they want backpacks for 60,000 dong. They have told us to reduce the detailing on the products to make them cheaper.”

Adam Sitkoff, executive chairman of the American Chamber of Commerce in Hanoi, expects things could get worse before they get better.

“There’s no question you’re seeing a slowing in worldwide growth,” he said.

“Economies aren’t expanding, businesses aren’t expanding, the value of assets is going down. People are going to be more fearful and have less money to spend. That affects exports from emerging markets.”

Vietnam — which weathered the 1997-98 Asian crisis better than many neighbours because of its relative isolation — has since become far more globally integrated and last year joined the World Trade Organisation.

“Vietnam’s single largest export market is the United States,” said Sitkoff. “Almost 45 percent of Vietnamese exports to the US are clothing and shoes.

“It’s difficult to believe that Vietnam won’t be impacted negatively by what’s going on in the credit crisis everywhere. Vietnam is not immune to what’s going on around the world.”

It is a threat Prime Minister Nguyen Tan Dung acknowledged Thursday when he warned legislators that a “global economic recession… would negatively influence our economy, making it difficult to stabilise the macro-economy and maintain growth”.

The International Monetary Fund (IMF) in Hanoi is now studying just how the global shockwaves might be felt in the country of 86 million.

“In looking at the impact of the global turmoil here, you have to look at what exporters and investors feel and take the pulse of the people involved in remittances,” said IMF country representative Benedict Bingham.

“The channels are reasonably clear. The question is what is going to be the magnitude, taking into account that Vietnam has built up this very positive profile of an attractive long-term investment destination.”

Bingham said manufacturing exports were likely to be affected, but Vietnam may also be hit by a downturn in global commodity markets.

“Fifty percent of Vietnam’s exports are commodity exports — crude oil, coal, seafood, rice, coffee and so on — and there may well be a price effect as well as a volume effect,” he said.

“This is going to be quite a big change for Vietnam. In the past few years Vietnam had a double-positive: export volume growth and price growth were strong. In 2009 those two factors could go the other way.”

Bingham said robust export growth and foreign direct investment (FDI) inflows to Vietnam had “kept the ship steaming along” so far this year”.

“The question is,” Bingham said, “if we go through this financial turmoil affecting business plans, will that affect FDI, or is Vietnam’s inherent long-term attractiveness as an investment destination, and the fact that it’s still relatively small as a global client, going to see it through?”
AFP: On Vietnam factory floor, worries grow about global downturn

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