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Why Is Vietnam Performing Better Than Indonesia In Manufacturing Sector? – OpEd
Which country was the biggest exporter to the United States from Southeast Asia last year? Many people immediately think Singapore or regional manufacturing powerhouses like Malaysia and Thailand. But the answer is Vietnam, the former foe of the US.
In 2014, Vietnam exported US$28.64 billion (based on US Census Bureau data it was in fact $30.58 billion) worth of goods to the US, the world’s largest economy. Meanwhile, Indonesia, Southeast Asia’s largest economy and a member of the G20, exported $16.52 billion worth of goods to the US during the same period.
Due to the global financial crisis, the slowdown in China and the lower prices of commodities, Indonesia’s exports have been in constant decline since 2011 – from $203.49 billion in 2011 to $176.29 billion in 2014. Last year, Indonesia’s exports decreased by 3.43 percent to $176.29 billion from $182.55 billion in 2013.
Surprisingly, both Vietnam and Indonesia produce similar products, face similar challenges and compete for the same external markets. But Vietnamese exports have been growing in double digits since 2011. Vietnam’s exports surged rapidly – from $96.91 billion in 2011 to $150.21 billion in 2014 – thanks to a tremendous increase in the exports of smart phones, electronic goods, textiles and footwear.
In 2013, Vietnam exported $32.2 billion worth of smart phones, computers and other electronic items. These exports further increased to $35.2 billion in 2014. The second biggest contributor to Vietnam’s exports was the textiles and garments sector, the exports of which reached $20.91 billion in 2014. The third most populous nation in Southeast Asia also exported $10.32 billion worth of footwear items last year.
If this trend continues, Vietnam’s total exports may surpass Indonesia’s in just two years. Now the difference between both countries’ exports is just $26.08 billion. Vietnam is also heading toward a situation where its exports may exceed its gross domestic product (GDP), which currently stands at $180 billion.
The key to Vietnam’s rapid export growth is huge investments from foreign manufacturing companies, which currently contribute to around 65 percent of Vietnam’s total exports. For example, foreign direct investment (FDI) related export value, according to Vietnam’s General Department of Customs, was $93.95 billion out of the country’s total exports of $150.21 billion in 2014.
Indonesia may be one of the biggest markets for South Korea’s electronic firm Samsung but Vietnam is its biggest production base for its smart phones.
According to the Vietnam’s Ministry of Planning and Investment, Samsung has so far invested $12.6 billion in Vietnam and this may surge to $20 billion by 2017.
Several American giants like Ford, Apple, Intel and General Electric have invested heavily in Vietnam. Likewise, European and Asian companies and even companies from the ASEAN region have poured billions of dollars into Vietnam.
ASEAN investors’ cumulative investments, according to Vietnam’s Foreign Investment Agency, reached more than $54 billion in 2,600 projects in Vietnam as of April 2015.
Last year, Vietnam received $20.22 billion in FDI, a 9.6 percent increase from the previous year. Though Indonesia received much higher FDI of $28.32 billion in 2014 than Vietnam, it did not help to boost its GDP and exports.
In GDP growth also, Vietnam has recently outperformed Indonesia. The Indonesian economy decelerated to 4.71 percent in the first quarter of 2015, the lowest growth since 2009.The main reasons for the decline among others were low government spending, a drop in consumer spending, a weak rupiah and high inflation. In 2014, the Indonesian economy grew 5.02 percent, much lower than 5.58 percent in 2013.
By surpassing predictions, Vietnam’s economy grew 6.03 percent in the first quarter of 2015. With surging exports and FDI, Vietnam posted a GDP growth rate of 5.98 percent in 2014, a slight increase from 5.42 percent in 2013. Between 2000-2010, the average annual growth rate of Vietnam was around 7 percent.
While a bleak economic performance has haunted Indonesia this year and continues to cast a shadow over the coming years, global financial institutions like the World Bank, the International Monetary Fund (IMF), the Asian Development Bank (ADB) and HSBC are predicting a bright future for Vietnam, whose economy may grow 6 percent in 2015, 6.2 percent in 2016 and 6.5 percent in 2017.
This year, Vietnam may sign a free trade agreement (FTA) with the European Union and join the Trans-Pacific Partnership (TPP) process. If these two things are done, Vietnam’s economy and exports will really receive a big boost.
Surprisingly, Vietnam was able to cut its inflation rate from 32.28 percent in 2012 to just 4.09 percent in 2014. It recorded 0.04 percent of inflation in the first four months of 2015, the lowest in many years.
Vietnam is no match for Indonesia, but it is a latecomer that is performing much better than Indonesia in many fields. What are the main reasons for Vietnam’s sudden rise?
First and foremost, Vietnam is a country with nearly 100 million people with many natural resources. Half of the population is young. These young men and women are educated and technologically savvy.
Then comes Vietnam’s geo-strategic location. It shares a border with China, the world’s second largest economy. It is also situated very close to the busiest international shipping route on one side and geographically close to developed economies like China, Japan, South Korea, Hong Kong and Taiwan. So it is located in the heart of the Asia-Pacific region. It has numerous well built international sea ports. It has all the potential to become one of the highest growing economies in the world.
Low labor costs are the main attraction. Average labor costs, based on the International Labor Organization, are much lower than China, Thailand and Indonesia. The minimum wage in Vietnam is between $110-$160 per month and an average worker’s wage is $197 per month, while it is $613 in China and $391 in Thailand. In Jakarta, the minimum wage is Rp 2.7 million ($200).
Another important point is the “China factor”. After a big boom in the manufacturing sector in China for almost three decades, most foreign companies in China are facing many bottlenecks.
Rising wages, a major shift in government focus from cheap export goods to high-tech products, favoritism toward local technological companies and increasing geopolitical tensions have badly affected many labor-intensive manufacturing companies in the world’s most populous nation. The foreign manufacturers need a paradise, but close to China and other East Asian countries.
High-tech electronic companies as well as garment and leather manufacturers have found a new paradise in Vietnam. They have moved from China to Vietnam and have been taking advantage of the low cost, young, hardworking, fast learning and rapidly expanding work force in Vietnam.
Finally, the Communist Party-ruled Vietnam, which has an investor-friendly government, is providing a stable and problem-free environment for investors. Vietnam is offering investors numerous financial incentives, tax holidays, less bureaucracy, protection of investments, legal certainty, significant reductions in corporate and income taxes, easy repatriation of earnings, and providing land, water and electricity at affordable prices. It is a red-carpet welcome for foreign investors. Samsung, the biggest exporter in Vietnam, has its own terminal at Hanoi’s Noi Bai International Airport.
The country’s leadership is visionary and never shies away from admitting its mistakes and from launching bold political and economic reforms to bring major change. The best example is to privatize more than 200 state-owned enterprises to boost economic growth. The government is determined to safeguard macroeconomic stability, the low inflation rate, maintain money market stability, banking liquidity and lower interest rates to spur growth.
Some of the companies, before entering Vietnam, were considering tapping Indonesia, but there were neither incentives nor a red carpet welcome for foreign investors in the latter. The market may be lucrative but it will be a Herculean task in establishing a manufacturing plant. Rigid bureaucracy, legal uncertainty, higher
production costs, unstable currency, poor infrastructure, illegal levies, corruption and labor problems forced investors to change their minds and move to Vietnam.
With an influx of foreign companies from all over the world, Vietnam’s economic structure is changing from agriculture to manufacturing. All indications point is one direction – toward prosperity. The country is on course to become an industrialized and developed nation in the next 50 years.
Vietnam has impressed both friends and foes. Despite its serious problems with China over the South China Sea, China is Vietnam’s biggest trading partner with two-way trade reaching $58.64 billion in 2014.
Vietnam has received kudos from the UN chief.
“Vietnam is showing the world that a tragic past can open up a prosperous present. And I am confident that you will achieve even more dramatic development in the future,” UN Secretary-General Ban Ki-moon said while addressing Vietnam’s parliament in Hanoi recently.
It remains to be seen whether Indonesia, under President Joko “Jokowi” Widodo, will correct its mistakes and become a manufacturing hub in Southeast Asia.
*The writer is an author and a senior journalist living in Jakarta.
Why Is Vietnam Performing Better Than Indonesia In Manufacturing Sector? - OpEd - Eurasia Review
Which country was the biggest exporter to the United States from Southeast Asia last year? Many people immediately think Singapore or regional manufacturing powerhouses like Malaysia and Thailand. But the answer is Vietnam, the former foe of the US.
In 2014, Vietnam exported US$28.64 billion (based on US Census Bureau data it was in fact $30.58 billion) worth of goods to the US, the world’s largest economy. Meanwhile, Indonesia, Southeast Asia’s largest economy and a member of the G20, exported $16.52 billion worth of goods to the US during the same period.
Due to the global financial crisis, the slowdown in China and the lower prices of commodities, Indonesia’s exports have been in constant decline since 2011 – from $203.49 billion in 2011 to $176.29 billion in 2014. Last year, Indonesia’s exports decreased by 3.43 percent to $176.29 billion from $182.55 billion in 2013.
Surprisingly, both Vietnam and Indonesia produce similar products, face similar challenges and compete for the same external markets. But Vietnamese exports have been growing in double digits since 2011. Vietnam’s exports surged rapidly – from $96.91 billion in 2011 to $150.21 billion in 2014 – thanks to a tremendous increase in the exports of smart phones, electronic goods, textiles and footwear.
In 2013, Vietnam exported $32.2 billion worth of smart phones, computers and other electronic items. These exports further increased to $35.2 billion in 2014. The second biggest contributor to Vietnam’s exports was the textiles and garments sector, the exports of which reached $20.91 billion in 2014. The third most populous nation in Southeast Asia also exported $10.32 billion worth of footwear items last year.
If this trend continues, Vietnam’s total exports may surpass Indonesia’s in just two years. Now the difference between both countries’ exports is just $26.08 billion. Vietnam is also heading toward a situation where its exports may exceed its gross domestic product (GDP), which currently stands at $180 billion.
The key to Vietnam’s rapid export growth is huge investments from foreign manufacturing companies, which currently contribute to around 65 percent of Vietnam’s total exports. For example, foreign direct investment (FDI) related export value, according to Vietnam’s General Department of Customs, was $93.95 billion out of the country’s total exports of $150.21 billion in 2014.
Indonesia may be one of the biggest markets for South Korea’s electronic firm Samsung but Vietnam is its biggest production base for its smart phones.
According to the Vietnam’s Ministry of Planning and Investment, Samsung has so far invested $12.6 billion in Vietnam and this may surge to $20 billion by 2017.
Several American giants like Ford, Apple, Intel and General Electric have invested heavily in Vietnam. Likewise, European and Asian companies and even companies from the ASEAN region have poured billions of dollars into Vietnam.
ASEAN investors’ cumulative investments, according to Vietnam’s Foreign Investment Agency, reached more than $54 billion in 2,600 projects in Vietnam as of April 2015.
Last year, Vietnam received $20.22 billion in FDI, a 9.6 percent increase from the previous year. Though Indonesia received much higher FDI of $28.32 billion in 2014 than Vietnam, it did not help to boost its GDP and exports.
In GDP growth also, Vietnam has recently outperformed Indonesia. The Indonesian economy decelerated to 4.71 percent in the first quarter of 2015, the lowest growth since 2009.The main reasons for the decline among others were low government spending, a drop in consumer spending, a weak rupiah and high inflation. In 2014, the Indonesian economy grew 5.02 percent, much lower than 5.58 percent in 2013.
By surpassing predictions, Vietnam’s economy grew 6.03 percent in the first quarter of 2015. With surging exports and FDI, Vietnam posted a GDP growth rate of 5.98 percent in 2014, a slight increase from 5.42 percent in 2013. Between 2000-2010, the average annual growth rate of Vietnam was around 7 percent.
While a bleak economic performance has haunted Indonesia this year and continues to cast a shadow over the coming years, global financial institutions like the World Bank, the International Monetary Fund (IMF), the Asian Development Bank (ADB) and HSBC are predicting a bright future for Vietnam, whose economy may grow 6 percent in 2015, 6.2 percent in 2016 and 6.5 percent in 2017.
This year, Vietnam may sign a free trade agreement (FTA) with the European Union and join the Trans-Pacific Partnership (TPP) process. If these two things are done, Vietnam’s economy and exports will really receive a big boost.
Surprisingly, Vietnam was able to cut its inflation rate from 32.28 percent in 2012 to just 4.09 percent in 2014. It recorded 0.04 percent of inflation in the first four months of 2015, the lowest in many years.
Vietnam is no match for Indonesia, but it is a latecomer that is performing much better than Indonesia in many fields. What are the main reasons for Vietnam’s sudden rise?
First and foremost, Vietnam is a country with nearly 100 million people with many natural resources. Half of the population is young. These young men and women are educated and technologically savvy.
Then comes Vietnam’s geo-strategic location. It shares a border with China, the world’s second largest economy. It is also situated very close to the busiest international shipping route on one side and geographically close to developed economies like China, Japan, South Korea, Hong Kong and Taiwan. So it is located in the heart of the Asia-Pacific region. It has numerous well built international sea ports. It has all the potential to become one of the highest growing economies in the world.
Low labor costs are the main attraction. Average labor costs, based on the International Labor Organization, are much lower than China, Thailand and Indonesia. The minimum wage in Vietnam is between $110-$160 per month and an average worker’s wage is $197 per month, while it is $613 in China and $391 in Thailand. In Jakarta, the minimum wage is Rp 2.7 million ($200).
Another important point is the “China factor”. After a big boom in the manufacturing sector in China for almost three decades, most foreign companies in China are facing many bottlenecks.
Rising wages, a major shift in government focus from cheap export goods to high-tech products, favoritism toward local technological companies and increasing geopolitical tensions have badly affected many labor-intensive manufacturing companies in the world’s most populous nation. The foreign manufacturers need a paradise, but close to China and other East Asian countries.
High-tech electronic companies as well as garment and leather manufacturers have found a new paradise in Vietnam. They have moved from China to Vietnam and have been taking advantage of the low cost, young, hardworking, fast learning and rapidly expanding work force in Vietnam.
Finally, the Communist Party-ruled Vietnam, which has an investor-friendly government, is providing a stable and problem-free environment for investors. Vietnam is offering investors numerous financial incentives, tax holidays, less bureaucracy, protection of investments, legal certainty, significant reductions in corporate and income taxes, easy repatriation of earnings, and providing land, water and electricity at affordable prices. It is a red-carpet welcome for foreign investors. Samsung, the biggest exporter in Vietnam, has its own terminal at Hanoi’s Noi Bai International Airport.
The country’s leadership is visionary and never shies away from admitting its mistakes and from launching bold political and economic reforms to bring major change. The best example is to privatize more than 200 state-owned enterprises to boost economic growth. The government is determined to safeguard macroeconomic stability, the low inflation rate, maintain money market stability, banking liquidity and lower interest rates to spur growth.
Some of the companies, before entering Vietnam, were considering tapping Indonesia, but there were neither incentives nor a red carpet welcome for foreign investors in the latter. The market may be lucrative but it will be a Herculean task in establishing a manufacturing plant. Rigid bureaucracy, legal uncertainty, higher
production costs, unstable currency, poor infrastructure, illegal levies, corruption and labor problems forced investors to change their minds and move to Vietnam.
With an influx of foreign companies from all over the world, Vietnam’s economic structure is changing from agriculture to manufacturing. All indications point is one direction – toward prosperity. The country is on course to become an industrialized and developed nation in the next 50 years.
Vietnam has impressed both friends and foes. Despite its serious problems with China over the South China Sea, China is Vietnam’s biggest trading partner with two-way trade reaching $58.64 billion in 2014.
Vietnam has received kudos from the UN chief.
“Vietnam is showing the world that a tragic past can open up a prosperous present. And I am confident that you will achieve even more dramatic development in the future,” UN Secretary-General Ban Ki-moon said while addressing Vietnam’s parliament in Hanoi recently.
It remains to be seen whether Indonesia, under President Joko “Jokowi” Widodo, will correct its mistakes and become a manufacturing hub in Southeast Asia.
*The writer is an author and a senior journalist living in Jakarta.
Why Is Vietnam Performing Better Than Indonesia In Manufacturing Sector? - OpEd - Eurasia Review
