BUSINESS IN BRIEF 20/4 Japanese firm makes battery-powered bikes in city HCMC export processing zones and industrial parks authority Hepza has licensed Japan’s Terra Motors Corporation to assemble and produce battery-powered motorcycles and bicycles at Cat Lai Industrial Park. In the US$2.3 million project, the investor will lease a ready-built factory at the industrial park in District 2 to manufacture 9,500 motorcycles and 9,900 bicycles a year. According to a source, Terra Motors previously had plans to assemble battery-powered motorcycles and bicycles at an industrial park in the Mekong Delta province of Long An but decided to choose HCMC as the venue for the project. Last year, Terra Motors announced production of A4000i motorcycles and that this battery-powered scooter integrated with iPhone would be made in Vietnam. The scooter featuring smartphone integration will provide riders with information about locations, restaurants and entertainment services as well as speed, travel distance, temperature and battery. As Terra Motors does not sell the A4000i product with iPhone, riders need to connect their own iPhone to the scooter. Terra Motors is looking to become a leading battery-powered motorcycle manufacturer in Asia and sell 100,000 units until 2016. ANZ: Bad debts hinder lending High levels of bad debt are holding back domestic demand for bank loans while businesses, especially small and medium enterprises (SMEs), have great appetite for fresh funds, said ANZ Bank. According to the Vietnam economic update for the first quarter of 2014 released early this week, ANZ said banks remain reluctant to extend credit to a significant portion of the economy as evidenced by flat credit growth in the period. The bank did not give further comments on the bad debt levels. Despite ample liquidity, banks are still hesitant to extend their loan books, making government bonds the prime investment of choice. Local banks have cornered around 80% of bonds issued since the start of the year. Foreign banks snapped up 10%, closely followed by financial institutions with 9.6%, the report said. The Treasury of Vietnam, Vietnam Development Bank and Bank for Social Policies have issued a combined VND74.3 trillion since early this year. The government plans to sell VND300 trillion in 2014, compared to the record high of VND194.8 trillion in 2013. The central bank remains optimistic that its 2014 credit growth target of 12-14% is attainable. The 12% credit growth target last year was achieved. To bolster credit growth, the agency has cut its refinancing rate by 50 basic points to 6.5%, taking the cumulative rate reduction to 850 basic points since early 2012. In addition, commercial banks have been told to cut the short-term deposit rate ceiling to 6% per annum. However, ANZ said any further rate reductions would have a limited effect on credit growth. “We believe the tepid rise in credit is more a reflection of tight credit supply due to banks’ unwillingness to lend with high non-performing loans on their balance sheets.” Further, the lack of clarity in the true level of non-performing loans in the banking system worsens the unevenness in credit distribution. Large and State-owned enterprises continue to get the bulk of available credit, depriving SMEs of funding. In 2013, SMEs received less than 15% of total credit. The central bank recently postponed by nine months to April 2015 the implementation of new loan classification rules that were introduced in Circular 02. ANZ said any delay in debt classification is a step back in policy and will likely prolong banks’ unwillingness to extend credit to SMEs. The bank in the report forecast the nation’s gross domestic product (GDP) growth forecast of 5.6% and 5.8% in 2014 and 2015 respectively. The figure is similar to recent predictions such as of the World Bank at 5.5% this year and National Financial Supervisory Commission at 5.8%. Casino winners may repatriate money abroad Foreigners who win at casinos in the country may be allowed to repatriate foreign currency abroad, according to the draft of a new circular which the central bank is gathering comment on. Under the draft, players winning foreign currency in cash may choose to sell it to designated banks to take Vietnam dong, remit it abroad, or deposit it in a foreign currency account opened at a designated bank. In case prize money is paid in foreign currency via transfer, the amount is transferred from the account of the casino operator to the account of the player opened at an designated bank or to an overseas account. Players can also authorize casino operators to contact the chosen bank to make transactions concerning deposit, transfer, money change and applying for a license on money repatriation. The draft also requires casino operators to open different accounts in different currencies at designated banks to facilitate foreign currency transactions. According to official statistics, Vietnam currently has around 50 casinos for foreigners. Casinos are still off-limits to Vietnamese people. State Audit says to examine road maintenance fund State Audit of Vietnam has announced it will inspect the accounting procedures and records in 2013 of the country’s road maintenance fund to see how money collected from vehicle owners has been used. According to a decision issued by State Audit last week, the inspection will look into the establishment, allocation, management and usage of the fund last year. The audit, which will last 60 days starting from early this week, will also affect the Directorate for Roads of Vietnam and Vietnam Register. State Audit will thoroughly examine the road management bureaus I, II, III and IV and the transport departments in Lang Son, Nghe An, Thai Nguyen, Thanh Hoa, Yen Bai and Haiphong as well. A budget of more than VND7 trillion is projected for road maintenance and repair nationwide this year, with more than VND4.6 trillion paid by vehicle owners and VND2.45 trillion covered by the State budget, the office of the Central Road Maintenance Fund said. The fund’s collections were estimated at more than VND1 trillion in the first quarter, meeting 23.5% of the year’s plan. The Ministry of Transport has presented to the Government a proposal for solving the issue involving those eligible for exemption and allowing for monthly payments. Occupancy peaks in HCMC office market Ho Chi Minh City’s office sector achieved an average occupancy of 90 per cent in the first quarter of 2014, the highest in five years, reported real estate services company Savills. This was 1 percentage point higher than the last quarter of 2013 and 3 higher than the first quarter last year. Commenting on the increase, Savills Vietnam deputy managing director Troy Griffiths said both average occupancy and rent had trended upward since the second quarter last year. Average rent between January and March this year was VND531,000 ($25.26) per square metre, up 2 per cent on quarter and 3 per cent on year. Savills also reported that in the first quarter Grade A office space performed best, with 92 per cent occupancy. Grade A and B average rents have continuously increased and in the last five quarters Grade has gone up by 1 per cent per quarter and Grade B by 1.5 per cent per quarter. In the first quarter this year, 26,700 square metres of Ho Chi Minh City’s total office space was occupied, up 48 per cent on-quarter. Total occupancy in the central business district was 34 per cent higher than non-CBD. Griffiths said a recent survey conducted by Savills showed that foreign companies accounted for around 60 per cent of Grade A and B leases in the city. This, along with strong FDI growth in the first months of this year indicated strong demand for office space from the foreign sector. In the first three months the southern economic hub attracted a total $752.2 million in FDI, 5.5 times that of the first quarter last year. Savills forecasted that in the next three years, the city’s office market would add another 385,000 square metres from 30 projects. Next quarter two Grade B projects in District 1 are expected to open. They will supply more than 40,000 square metres. As of the end of March the city had 217 projects with more than 1.4 million square metres. Total supply increased 1 per cent on quarter and 5 per cent on year. Dream City megaproject: Still just a dream More than four years after receiving an investment certificate, the $1.5 billion Dream City project, an upscale sports tourism eco urban area in northern Phu Tho province, has seen little progress, reported local newspaper Hai Quan. The project, developed by Viet Han Trading, Advertising, Construction and Real Estate Company Limited, envisages occupying a total 2,050 hectares spanning nine communes in the province’s Tam Nong district. Designed by I.C.U. JSC and international architects, Dream City would include a 36-hole golf course, a horse track and sports complex, five-star hotel and entertainment area for foreigners as well as an eco forest, safari area and luxury villas. In October 2011, to build the project’s prestige, Phu Tho’s People’s Committee and developer Viet Han held a ceremony in Hanoi to announce the plan and show-off a 1/500 scale model. In the early stages, after receiving the investment certificate, Viet Han regularly met with provincial leaders to introduce foreign investors they said were interested in capitalising the project. The developer even said they would source official development assistance (ODA) funding, which is usually provisioned to the government for public projects. Four years on now, little progress has been made. According to an official from the Phu Tho Department of Planning and Investment, the project has finished its scale planning and is in the process of acquiring land for the first components. In fact, since licensing the project, the provincial People’s Committee has done its utmost to facilitate the project’s progress. It even proposed that the developer focus only on priority items for the present, while delaying making an feasibility study for entire project and seeking approval for the overall project. An official from the People’s Committee who is familiar with the project said “The developer is planning to implement the golf course project. It has a lending commitment from Maritime Bank for $19 million.” Land acquisition has only been conducted for specific elements of the project and in general people are continuing to farm and build houses on as well as buy and sell properties that are part of its planned area as if it did not exist. Successful leased offices still rely on basic values Office for lease landlords in Hanoi should find the right balance between their buildings and the tenants that they are trying to target, instead of just finding ways to increase occupancy and rental. According to Nigel Smith, managing director of CBRE Hong Kong at the office leasing seminar in Vietnam last week, the relationship between owners, the buildings and the tenants was a business strategy that needed to be clearly understood. “You only get effective business from an office building when you can balance these elements,” Smith told VIR. Smith’s comments were made in the context where landlords in Hanoi are suffering from tougher competition due to huge oversupply. “Of most importance is cost effectiveness. That means if the landlord wants to successfully maintain their buildings, it is about finding the right rental level but at the same time they also have to create the right environment. Creating this environment sometimes will increase the rental fees, so finding the balance between rental and occupancy is something building owners should be aware of,” he said, adding that landlords should think about branding and how to make the property stand out from the crowd. According to Smith, during the golden period for office leasing in the 1980s and 1990s, investors often emphasised strategic location to raise the value of their buildings. However, in the recent context, they have switched to stressing stability and the working environment. “One way to do this is in the arrival experience, which has become vital for companies when considering real estate options. The way people socialise and work is completely different today and landlords who design their buildings to accommodate this new breed of employee will ultimately attract more tenants,” Smith said. “Containing and reducing costs is still common practice and for many companies they can only achieve this through either a reduction in floor area, a drop in quality or decentralisation,” he added, noting that savvy developers can help tenants achieve savings simply by providing a more efficient working environment, not just on the office floors but also in the common areas and facilities a project has to offer. Developments such as the Lotte Hanoi Centre and Vietcombank Tower and Viettel Centre in Ho Chi Minh City have put Vietnam in the property spotlight this year. Vacant office space in Hanoi reportedly accounts for more than 30 per cent of the total 1.6 million square metres available. Meanwhile, the total office space by 2016 would double Hanoi’s current office supply. Gasoline E5 with ethanol will be available throughout the country Businesses will be selling gasoline E5 with 5 percent ethanol in seven provinces in the next eight months. This was revealed at a conference debating the government’s plan to disburse the E5 gasoline. The Ministry of Industry and Trade, Vietnam National Oil and Gas Group, and the People’s Committee in Quang Ngai Province attended the conference. Eight out of nine Petro Vietnam Oil Corporation stations have sold the gasoline mixture in Quang Ngai Province, said Nguyen Xuan Thuy, director of the provincial Department of Industry and Trade. The remaining stations will be installed by June. Gasoline E5 with ethanol will be available in the remaining six localities beginning July. Quang Ngai Province has issued a regulation requiring motorcycles and cars of state organizations to use the blend in Quang Ngai City, Tu Nghia, Mo Duc and Binh Son. Quang Ngai Province is the pioneer for the distribution of the blend because Dung Quat Bio – Ethanol Plant is located there. The province also planned 16,700 hectares of crops to supply the plant, said Thuy. Businesses should ensure quality and the Government should increase subsidies in order to encourage residents to use the fuel, said Dang Vinh Sang, director of Saigon Petrol One Member Limited Company. The subsidization rate currently is only VND200 per litter, which is too low to ensure profit. The ethanol-gasoline blend consists of 95 percent of the conventional non-lead gasoline and 5 percent ethanol, according to Vnplus. Tests show that it has a higher octane rating than conventional gasoline which allows higher fuel efficiency. The government recognizes the bio-fuel industry to be a pivotal point in ensuring energy security and reducing dependence on fossil fuels. Thai gastronomy month held in city “Thai Cuisine in Vietnam 2014” with Thailand specialties will be organized by the Thai Consulate-General in Ho Chi Minh City in April. The event will take place at Golden Elephant, Mon Soon, Sam Yan Seafood and Thai House from now until April 25. The gastronomy month aims to promote Thai culture as well as traditional cuisine. Supermarkets hit pay dirt with own brands Whenever she shops at a supermarket, Pham Thu Phuong of District 7, HCM City, goes straight to shelves stocking the supermarket's own products. Here, she buys stuff like soaps, shampoos, beverages, and noodles. She has had the habit of buying supermarkets' own brands for nearly a year now after being tipped off by a friend that they are cheap and as good as other brands. These are made by producers for a supermarket and sold under the latter's own labels and are the rising stars on the market at a time of economic gloom since they offer customers alternatives at low prices and good quality. Many supermarkets in HCM City told Viet Nam News that they keep around 10 per cent of their space for such products, which include home appliances, beverages, food, and even cloth. Khuat Quang Hung, head of general affairs and corporate communications for Metro Cash & Carry Viet Nam, said the German wholesaler owns seven brands, including Aro, Fine Food, H Line, and Horeca Select, which account for 10 per cent of its stocks. Customers are increasingly turning to its brands as they tighten their purse strings, he said, adding Metro plans to double their volume to 20 per cent by 2015. A source from Big C said at the French supermarket around 5 per cent, equivalent to 1,000 products, are its own. Other supermarkets like Co-op Mart and Lotte Mart also sell hundreds of such products. Hung said: "The price is often 5-20 per cent lower than normal products because there is no need to pay for distribution and advertisement. "More importantly, the quality is comparable because the supermarket's partners are strong and experienced producers. When they tie up with supermarkets, producers can take their products to many provinces around the nation and even abroad." Huynh Ngoc Diep, marketing director of 584 Nha Trang Fishery JSC, said supermarkets' own-brand products help producers diversify their customer base as well as make use of their redundant capacities. Bac Ninh attracts 32 new investment projects The Bac Ninh Industrial Zones Management Board has granted licences to 32 new projects with a combined investment capital of US$200 million during the first quarter of this year. With the grant of the licences, 64 per cent of the yearly target has been met, head of the board Ngo Sy Bich said. The investment came mainly from foreign-funded projects as the local authorities concentrated on attracting satellite projects from big companies such as Samsung, Canon and Nokia, he said. In order to attract more investment from both domestic and foreign businesses into the province, he stated, the local authorities would continue to revise the investment policies. They would also draw up a list of areas which encourage or limit investment to improve the quality of the investment flow. The top priority would be given to environmentally friendly projects which utilise modern technology and facilitate the strengthening of links between domestic businesses. Other service sectors such as banking and insurance, tourism, research and development as well as consultation would also receive special attention. Last year, Bac Ninh was ranked fifth, behind Thai Nguyen, Thanh Hoa and Binh Thuan provinces, and Hai Phong City, after it attracted over $1.6 billion in investment capital, the board said, adding that more than $1.4 billion of that amount came from foreign-funded projects. In term of the number of projects, the province was placed third with 100 newly registered projects, after HCM City and the central province of Thanh Hoa. The Samsung Electronics Viet Nam Company in the Yen Phong Industrial Zone, in particular, added an extra $1 billion to raise the total investment capital to $2.5 billion, making it the world's largest Samsung IT complex. As of last year, the province was home to 459 foreign-funded projects with a total registered capital of over $6 billion, and 719 projects funded by domestic investors with a total worth of VND78.9 billion, or $3.7 million. Mekong Delta to expand mollusc farming area Seven Mekong Delta coastal provinces, namely Tien Giang, Ben Tre, Tra Vinh, Soc Trang, Bac Lieu, Ca Mau and Kien Giang, have made plans to expand their mollusc growing area to 28,000 ha in 2015, up 5,600 ha from 2013, said the Steering Committee for the South-Western region. The provinces have also set a combined target of reaching an output of over 206,000 tonnes of produce and 188 million USD from exports. Nguyen Phong Quang, deputy head of the committee, said all provinces will apply advanced technologies to their production, towards reaching a minimum average yield of 7.3 tonnes per hectare. The localities will also further promote a sustainable oyster farming model in several areas that have advantageous natural conditions, he added. Apart from areas for farming oysters, Bac Lieu, Soc Trang and Ca Mau provinces also pay attention to protecting natural oyster habitats by banning local people from harvesting them in breeding seasons. The Ministry of Agriculture and Rural Development has also invested in building facilities for producing breeding blood oysters in Tien Giang, Ben Tre, Tra Vinh, Soc Trang and Kien Giang, with a hope of producing 15 billion young oysters per year. Electricity demand in Q2 forecast to climb Electricity of Vietnam (EVN) is expediting the construction of major power projects to meet the demand for electricity during the second quarter, which is expected to rise a maximum of 10.4 percent against the same period last year. The key projects are 500kV transmission lines such as Quang Ninh-Mong Duong, Quang Ninh-Hiep Hoa, Phu Lam-O Mon, and Pleiku-My Phuoc-Cau Bong, the 500kV Cau Bong transmission station and other 200kV power plants. According to the group, the national grid is able to generate an additional 400 million kWh per day in April. It requires local power companies to ensure the supply of safe electricity, especially in the country’s key economic hubs, as well as continue to maintain power-saving solutions. National power consumption reached over 32 billion kWh in the first three months of this year, a year-on-year rise of 6.85 percent. Despite the severe drought in the central region and the Central Highlands province of Thai Nguyen, EVN still makes use of hydropower plants there to ensure water demands for agricultural production. The target of the national grid this month is to continue to make full use of coal-fired thermal electricity and gas-run turbine sources, as well as purchase power from China at a reasonable price, altogether catering for the daily needs of local residents.- Banks need to relax mortgage requirements Since the 30-trillion-VND (1.41 billion USD) loan package for home-buyers and property developers was announced nine months ago, only 4.5% has been disbursed. Although the disbursement rate has picked up in recent months, it is still below expectations, said the Nhan Dan (People) online newspaper. According to latest figures, as of March 15, banks have lent nearly 1.322 trillion VND (62.1 million USD) to over 3,000 home-buyers and pledged to provide nearly 2.9 trillion VND (136.3 million USD) for another 3,000 individual clients. Not long ago the Ministry of Construction (MOC) proposed that the Prime Minister should relax some regulations to make the loans more accessible, thereby quickening the pace of disbursement. One of the barriers blocking home-buyers from borrowing is collateral. Nguyen Ngoc Lan, a health worker in Hanoi’s Dong Da district, said “We don’t have enough money to buy homes so we have to think about borrowing from banks. But they want us to put up something valuable as collateral for loans. How can we get valuable properties to be used as collateral when we don’t have much money?” Meanwhile, banks do not accept homes that will be bought in the future with their loans as collateral, which is effectively preventing many from enjoying the benefit of this programme. Deputy Minister of Construction Nguyen Tran Nam said the circular signed between the MOC, the State Bank of Vietnam (SBV), the Ministry of Justice and the Ministry of Natural Resources and Environment, effective from April 21, will remove one of the biggest bottlenecks when permitting home buyers to put up their future homes as collateral for bank loans. The circular will be issued along with a number of other regulations to prevent the, already high, ratio of bad debt from rising. The new circular lays the foundation for banks to speed up their lending as contracts to buy social housing and commercial housing will have similar terms and conditions with the only difference being that the interest rates are lower for social housing. Both types of housing have to comply with relevant procedures and regulations. Luong Van Cuong, a resident in Ho Chi Minh City’s District 9, said this move is worth celebrating but was still in doubt, “Even when banks use future homes as collateral, we can’t borrow. With an income of just 5 million VND (235 USD) each month, how can we convince banks that we can pay back.” Deputy Minister Nguyen Tran Nam said that problems arising during the disbursement of this loan package are being gradually removed. Although the pace of disbursement is slow, the MOC still does not want to rush because it wants the loans to be brought to those who really need. Nevertheless, after discussions with the SBV, the MOC has proposed the Prime Minister make amendments to some regulations, including extending the payment term from 10 years to 15 years for home buyers, relaxing restrictions on who can borrow and including more commercial banks in the programme. The limited supply of social housing is one of the primary reasons behind slow disbursement. The solution, therefore, is increasing the supply of affordable housing. In addition to social housing projects under construction, Vietnam has about another 57 projects that are in the process of converting from commercial to social housing with around 35,000 apartments. There are also another 62 projects which are being modified, with the number of apartment expected to rise from 32,000 to 40,000. Most of these projects are located in Hanoi and Ho Chi Minh City. The Hanoi municipal People's Committee has issued 13 decisions approving the conversion of three commercial housing projects to social housing and ten others for structural modification. Ho Chi Minh City authorities have also agreed to convert five commercial housing projects into social housing, adjust four projects, and turn one project into a hospital. According to the SBV, the Ministry of Transport has announced a list of 81 projects eligible to access the 30 trillion VND credit package but many projects have yet completed legal procedures, making it impossible for commercial banks to give loans and make disbursement. Chairman of the Ho Chi Minh City Real Estate Association Le Hoang Chau said that the stagnancy is due to the lack of drastic measures and close co-ordination between ministries, sectors and localities. Many property enterprises have submitted files for the conversion of their housing projects for over a year but have not received reply. Chairman Chau suggested the Ho Chi Minh City's People Committee define clearly the criteria necessary to be met to allow the conversion of commercial projects into social housing and for the restructure of apartments, so that property enterprises could actively seek solutions to solve their hindrances. Director of Phuc Khang Construction and Investment Corporation, Luu Thi Thanh Mau said that property companies need the elimination of bottlenecks in administrative procedures. Intricate and prolonged administrative procedures often push real estate prices up and put property enterprises in difficult positions, thus causing financial difficulties for home-buyers. In previous years, a housing project only took about seven months to complete administrative procedures but now it takes three to five years or even seven years to finish. Thus, if 50-70% of administrative procedures are cut, each project will take one year to complete procedures and housing prices will certainly be reduced significantly. Facing lots of obstacles, real estate enterprises are waiting and hope for more preferential policies from the Government but Deputy Minister Nguyen Tran Nam affirmed that the 30 trillion VND credit package aims to assist low-income earners with housing difficulties to have access to preferential loans to buy homes but it is not a rescue package for the real estate market. The conversion of commercial housing projects into social housing, which are in high demand, is too sluggish because of cautiousness from the banking sector, the low disbursement of loans and the stagnancy of authorised agencies. Currently, the SBV and the MOC are asking localities to simplify administrative formalities, shorten the approval time of housing projects and speed up project progress to increase the supply of social housing and commercial apartments below 70 sq.m and priced under 15 million VND per sq.m. In the coming time, the MOC will continue co-ordinating with the SBV, ministries and sectors to accelerate the progress of lending to meet the expectations of the public. At the same time, the MOC suggests the Government do not grant investment licenses to new commercial housing projects and new urban areas projects in 2014 to reduce the pressure on the real estate market. It is hoped that the implementation of adopted policies as well as policies to be issued in the future will create impetus to disburse the loan package and facilitate the access to this package. Investment certificates to be ditched While the Ministry of Planning and Investment is keen to end the issuing of investment certificates for foreign-invested enterprises in order to further simplify business procedures, several investors have opposed the move. The Ministry of Planning and Investment has signalled its intention to end the widespread use of investment certificates. The abolition of investment certificates represents another step in streamlining the administration of foreign direct investment (FDI). Minister for Planning and Investment Bui Quang Vinh told the first Vietnam Business Forum (VBF) dialogue held in Ho Chi Minh City last week that the ministry was committed to cutting paperwork to the minimum needed to manage the FDI sector effectively. He added that during earlier exchanges with foreign businesses held throughout the country, many foreign-invested enterprises (FIEs) supported the idea of abolishing the certificate, but surprisingly others were keen to maintain the practice as they believed the paper could help them receive investment incentives, access bank loans and rent land. The abolition of the investment certificate is currently included in the draft Investment Law set to be passed this year. Despite these views, the Ministry of Planning and Investment (MPI) has confirmed it was committed to the abolition of the certificate except in four cases – sensitive areas of the economy such as banking, projects likely to use huge amounts of land, potentially polluting investments and those that need the paper to receive investment incentives. “But in the future, even these four exceptions would be governed by other laws, so the certificate will no longer be necessary,” Vinh told the dialogue, attended by central government authorities and provincial officials in southern Vietnam. VBF co-chairman Vu Tien Loc said the representatives of the authorities attending the forum were responsible for driving through reforms to further improve the business environment. Co-chairing the VBF dialogue with Minister Vinh, Ho Chi Minh City People’s Committee Deputy Chairman Le Manh Ha said the southern economic hub was vigorously pushing reforms in granting investment certificates but difficulties still hindered the efforts. Ha said the first problem arose from the consultation process with ministries, during which the city administration had either been ignored or had received contrary advice. Other difficulties included additional procedures, lack of regulations, inconsistencies between different laws, and investors delaying the providing of supplementary documents. The average time spent processing FIEs’ applications for investment certificates in Ho Chi Minh City reached 58 days last year. Ha said the longest period it had taken to issue an investment certificate last year was 257 days, and the shortest just a day. He added the city received 2,218 applications last year, and admitted the number of delayed applications was very high. “From this dialogue onward, Ho Chi Minh City People’s Committee will ask for consultation from ministries only in cases stipulated in legal documents. We won’t bother when the law doesn’t specify any need,” Ha said, adding the city would administer FIEs through an ID code using a database. Minister Vinh said other city’s and provincial governments should follow Ho Chi Minh City’s example. Cement and steel sales rebound in March The peak season of construction activities in Vietnam has supported sales of cement and steel products though the property market has not showed clear signs of recovery. According to the Building Materials Department under the Ministry of Construction, cement sales stagnated in the first two months this year but bounced back in March, with nearly 4.7 million tons consumed domestically and 1.7 million tons exported. Vietnam Cement Industry Corp., the country’s leading market player, sold 1.65 million tons last month, an increase of 20.6% compared to the same period of last year. Overall, the first quarter of this year saw 10.2 million tons of cement consumed on the domestic market, up 7% year-on-year. By the end of March, inventories of both cement and clinker fell by 24% year-on-year to 600,000 tons and two million tons respectively. Cement prices remained stable in February and March after decreases of VND30,000-VND40,000 a ton in January, except for Tam Diep’s cement whose prices tumbled by VND140,000 a ton in the first month of the year. The Ministry of Construction has estimated this year’s cement consumption at 62-63 million tons, up a mere 3% year-on-year. Up to 49 million tons of it will be for domestic sale and the rest for export. Last month, construction steel sales registered a slight year-on-year rise of 8% to 487,000 tons, according to the Vietnam Steel Association (VSA). However, total domestic consumption of this building material in the first quarter slid by 1.8% year-on-year to 1.1 million tons. In this period, steel inventory amounted to 324,000 tons, up 13.8% over a year ago. The VSA ascribed the steel inventory rise to imports in the first three months when total volume reached 2.2 million tons, a rise of 1.6% over the same period of last year. However, imported steel ingots contracted by 24% to 84,000 tons. Nguyen Van Sua, vice chairman of the VSA, said the association forecast that steel sales would perform better in the second quarter because construction of more half-completed projects had been resumed. The VSA said five million tons of construction steel was sold last year, a drop of 500,000 compared to the year before. The major steel consuming sectors, including shipbuilding, automobile, engineering and construction, have not been in good shape this year. Therefore, the VSA has put this year’s steel demand at 12.2-12.5 million tons, up only 3-5% as against last year. Experts assumed fiercer competition and low domestic demand could make more steel producers go bust this year. Viet Steel Corporation (Pomina) has plans to export 35,000 tons of steel products every month in the second quarter of this year, or 15,000 tons lower than the monthly volume the company sells domestically. Do Duy Thai, general director of Pomina, said that the company exported 35,000 tons of steel products to the Philippines, Laos, Cambodia and Indonesia among others. The increase in exports is credited to Pomina’s penetration into new markets, including Saudi Arabia and Kuwait. Previously, the company exported about 15,000 to 20,000 tons per month. Thai said increasing steel exports had helped Pomina and other steel manufacturers in Vietnam to stabilize their production and ensure jobs for their employees. The Vietnam Steel Association estimated companies shipped nearly 2.5 million tons of steel products to Thailand, Laos, Cambodia and Indonesia. U.S., EU top Vietnam’s export markets in Q1 The United States and the European Union shared the highest position in Vietnam’s list of export markets in the first quarter of this year, with growth of Vietnam’s shipments to the U.S. far stronger than those to the EU, according to a preliminary report of the General Statistics Office (GSO). In the January-March period, the U.S. imported US$5.9 billion worth of goods from Vietnam, growing 22.9% against the same period in 2013. Despite contributing the same export revenue, the EU only recorded a spike of 7.5% year-on-year in imports from Vietnam. Vietnam shipped goods worth US$4.7 billion and US$3.8 billion to the ASEAN and Chinese markets in the period, marking respective rises of 6.4% and 30.2% year-on-year. The American Market Department under the Ministry of Industry and Trade noted the whopping increase in Vietnam’s exports to the U.S. in the first quarter did not guarantee a strong rise from that selective market throughout the year. The rising export value in the first months of the year resulted from many factors, including transfer of the orders from China to Vietnam and a high season for U.S. companies to increase goods for sale stateside. Therefore, the department still keeps its estimate for the U.S. market’s export growth at 18-20% for 2014, the same to that of previous years. Statistics of the General Department of Customs indicate that Vietnam’s exports to the U.S. picked up 25.8% over the year-ago period to more than US$3.9 billion from January to February. Of the amount, despite representing only 7% of the nation’s export turnover to the U.S., mobile phones achieved the highest growth rate of nearly 14 times compared to the same period of last year to US$284 million. Meanwhile, the exportation of Vietnam to the EU in the January-March period was much lower than the average 20-30% increases over the past few years. However, the European Market Department insists on positive prospects for the country’s exports to the EU in general this year. The department’s prediction is based on significant improvements of the European economy in recent times. Moreover, the fact that Vietnamese footwear exported to the EU as normal items are levied with export tariffs of 0% from 2014 under the new generalized system of preferences (GSP) is also attributed to such a positive forecast. Last year, Europe continued maintaining the top position in importing Vietnam’s products with spending of over US$24.3 billion, jumping 29.8% year-on-year. The U.S. came second with total imports of close to US$24 billion, a year-on-year surge of 23%. Notably, China remained Vietnam’s largest import market in this year’s first quarter with total revenue of US$8.3 billion, up 11.8% year-on-year, the GSO reported. South Korea surpassed the ASEAN to become the second largest exporter to Vietnam, posting an estimated US$5.7 billion, rising 21.5%, and the ASEAN registered US$5.1 billion or a year-on-year rise of 2.1%. Vietnam to strike FTA with EU, TPP this year or next Vietnam has made significant progress in negotiations on the Free Trade Agreement (FTA) with the European Union (EU) and the Trans-Pacific Partnership (TPP). Truong Dinh Tuyen, senior advisor to the Government, said these agreements could be signed at the end of this year or early next year. Tuyen told representatives of 32 State-owned enterprises (SOEs) in Hanoi on April 2 that some difficulties remained in the negotiation process, of which trade unions were considered as one of the toughest issues. During a meeting with TPP negotiation partners, Tuyen said Vietnam has only one trade union, which is the Vietnam General Federation of Labor. So, the request for trade union establishment is unacceptable. However, Vietnam should develop trade union rights as a compromise, he said. As for the TPP negotiations with the U.S., both sides have settled seven out of 10 differences. For the FTA talks with the EU, a bottleneck involving government procurement remains unsolved. The partner has requested Vietnam to eliminate all incentives in terms of law and reality between SOEs and private enterprises. SOEs are now having advantages in land and credit access. To sign the FTA with the EU, the Government would have to take the incentives back, he said. The nation expects to finish the TPP at the end of this year and the FTA with the EU early next year. Concerning opportunities from the two agreements, Tuyen said that the nations involving the TPP negotiations and the EU accounted for 50% of export value of Vietnam, or over US$50 billion each year. The nations are also the biggest investors in the local market. Once signed, the agreements will create a huge export market for Vietnamese goods with a tax rate of 0%. With the TPP, 90% of export tariffs with be slashed to 0% immediately and 10% will be reduced to 0% gradually within less than 10 years. The move will strongly speed up trade exchanges among TPP nations. However, strict material origin rules will be a big challenge for Vietnamese enterprises as they mainly rely on material imports. For instance, the “yarn forward” ROO (Rule of Origin) requires a TPP nation to use a TPP member-produced yarn in textiles in order to receive duty-free access. Meanwhile, Vietnam had mainly imported cloth and fiber from China, Tuyen said. HSBC puts Vietnam’s inflation at 5.5% this year HSBC Bank in a macro economic report released on April 2 predicted Vietnam’s inflation at around 5.5% this year as price pressures have subsided. In the first quarter of 2014, inflation decelerated to 4.8% from 5.9% in the fourth quarter of 2013. March’s inflation slowed to 4.4% year-on-year from 4.6% in February. “Capital and labor are underutilized, with the output gap likely to stay negative this year and next year. Although social costs are expected to rise at the end of the second quarter, we expect inflation to average only 5.5% in 2014 from 6.6% in 2013,” the bank said in the report. According to the report, with consumer confidence low and credit growth negative, prices have decelerated in Vietnam. Housing prices contracted in the past two months, and garments and drinking demand have also decelerated. While Vietnam’s average month-on-month increase of the consumer price index (CPI) is 0.9% in the past eight years, it has slowed to 0.5% in the past two years. With the current trend of sluggish global commodity prices, ample global rice supply, and low appetite for consumption, the path of inflation may even go lower, it said. However, the bank noted that inflationary pressures were very seasonal in Vietnam. The summer months, especially in August and September, tend to have high inflationary pressures stemming from higher tuition, health costs, and electricity prices. Additionally, as economic activity picks up to meet the yearly target, demand also gradually rises as the year-end approaches. The bank’s inflation projection for Vietnam this year is much lower than that of the Asian Development Bank. The ADB forecast Vietnam’s inflation can be kept at the average of 6.2% this year and 6.6% next year in its latest Asian Development Outlook 2014 report announced in Hanoi on Tuesday. HSBC said credit growth contracted by 1% in the first quarter, a sign of low confidence in the future and a financial system burden by high levels of debt. Despite the seasonal festivity, which has historically driven up demand for goods, inflationary pressures have been subdued. The country’s economic growth decelerated to 5% year-on-year in the first quarter from 6% in the fourth quarter of 2013, with the agriculture sector performing the worst. But Vietnam’s gross domestic product has a seasonal effect, in which the first quarter tends to be the worst and economic activity accelerates as the year progresses to meet targets. The central bank reduced the open market operations (OMO) rate by 50 basic points to 5% to spur demand on March 17. But only VND1 trillion was pumped through the OMO on Monday, as there were no bidders in the past several weeks. The HSBC’s report says liquidity is not the issue as the overnight rate has been low at about 1.5% thanks to modest demand and steady foreign direct investment (FDI) inflows. With high levels of bad debts, domestic firms do not have the appetite to make further investment, the bank explained. Besides, retail sales decelerated sharply in March to 6.3% year-on-year from 12.7% in February. Disbursed FDI inflows rose 5.6% in the period but pledged FDI fell sharply by 50%. “While disbursed FDI growth in 2014 should stay intact, we believe Vietnam’s current model of foreign led investment is not sustainable, especially as reforms to its financial market continue to stall,” the report said. “Domestic activity should stay subdued, unless officials unveil reforms to offload the bad debts and improve management. We do not expect any substantial reform to be implemented in the next year, as Vietnam is still slowly trying to grow out of its problem rather than tackling it head-on.” Higher coal prices pile pressure on thermal power plants Electricity generation costs have climbed as the coal price increases last year and early this year have put more pressure on the thermal power plants. Earlier this year, Vietnam National Coal and Mineral Industries Group (Vinacomin) revised up its coal prices by 4-10% for the coal-fueled power plants in operation. Vinacomin’s deputy general director Nguyen Van Bien said the higher coal prices for electricity generation could offset rising production costs for the group. The group has not regained lost revenues after the price adjustment on January 1 this year. Bien noted that the production cost of coal would go up if Vincomin had to exploit the fossilized fuel at greater depths in the future. However, representatives of many coal-fired power plants bemoan the current selling price of coal as it has impacted their electricity production costs, especially in the dry season when those plants are running at full steam. Ha Quang Gioi, deputy general director of Haiphong Thermal Power Joint Stock Co., told the Daily that coal made up 50% of the plant’s operating costs. At present, four generators of this 1,200-MW plant are operating at full capacity as hydropower plants currently lack water for electricity generation. Gioi calculated that the plant needed nearly 10,000 tons of coal to turn out some 22 million kWh every day. “As coal accounts for a great part of electricity generation costs, it will affect the power price when it is sold at higher rates. Currently, electricity prices are controlled by the Government but increases are inevitable,” Gioi said. In the same boat is Quang Ninh Thermal Power Plant, which consumes around three million tons of coal a year and is now also operating at its maximum capacity of 1,200 MW. Do Huu Hai, deputy general director of Quang Ninh Thermal Power Joint Stock Co., said higher coal prices would cut into the company’s profits. Hai estimated the company would probably break even this year. Dang Hoang An, deputy general director of Vietnam Electricity Group (EVN), said this group had had to buy electricity generated by the coal-fueled power plans at higher prices this year than last year. Dinh The Phuc, deputy head of the Electricity Regulatory Authority of Vietnam under the Ministry of Industry and Trade, told a seminar in Hanoi last week that coal price increases in the past two years had given rise to higher production costs at the coal-fueled power plants. Phuc gave an example that the highest selling price of electricity on the country’s competitive power market stood at VND864.3 per kWh early last year but soared to VND1,168 per kWh early this year. Duong Quang Thanh, deputy general director of EVN, told the seminar that this group had spent more than VND54 trillion (around US$2.5 billion) buying electricity only one year after the competitive power market was launched, up over VND827 billion compared to the group’s payments under the contracts it signed directly with power generation companies based on their negotiations before. In an interview with the Daily in January this year, EVN general director Pham Le Thanh acknowledged that the electricity price depended on the coal price. Last year, EVN had to spend an additional VND6 trillion on coal. On August 1 last year, the electricity price increased by VND71.85 per kWh, or around 5%, pushing up the average electricity price from VND1,437 to VND1,508.85 per kWh. Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR