III. Recent Export Performance
Export performance in 1999 and early 2000
The growth rate of Vietnam’s exports in 1999 outperformed that of most Asian countries. After a weak performance in 1998, exports rose sharply by 23 percent (to US$11.5 billion) a rate comparable to those prevailing in the mid-1990s. Performance in the first half of 2000 continued to be strong, rising by an estimated 25 percent over the same period in 1999. Three main factors have contributed to this strong performance in 1999:
- A surge in the value of crude oil exports by 62 percent due equally to increases in both price and volume, accounting for slightly more than one-third of total export growth. The bulk of oil exports continued to go to the Asian region.
- A recovery in the Asian region, which also led to increased demand for nonoil exports from Vietnam.
- An increase in nonoil exports to the European Union (in particular garments and footwear) which benefited from more favorable access to the area in 1999.
Over the medium term, exports are expected to continue to grow, especially with more robust growth in nonoil exports, assuming cautious macroeconomic policies, an acceleration of structural reforms, and the liberalization of exchange and trade arrangements.
|Total exports 1/||24.6||2.4||23.2|
|Asia & Pacific region||10.5||3.0||4.7|
Annual percentage change.
Annual percentage change.
Regional demand for nonoil exports from Vietnam is also expected to remain reasonably strong, given the projected continuation of the regional recovery. Staff projections suggest that real GDP growth in most countries in the region would be in the range of 4-6 percent in 2000, with the average export-weighted real GDP growth rate for the Asian region of about 5 percent per year during 2000-02.
However, given the volatility in oil prices and the large share of crude oil in total exports (17.5 percent in 1999), and the continued reliance on other traditional exports (i.e., coffee and rice), the export base will remain vulnerable to terms of trade shocks if structural reforms and private sector development—which aim in part at diversifying this base over the medium term—do not materialize.4 In addition, the possible loss of competitiveness in other sectors such as garments and footwear due to higher production costs associated with continued heavy regulations would put at risk this medium-term outlook.
Export market shares
In the last few years Vietnam appears to have gained some market share in major export markets. Vietnam’s relative performance in the markets of Japan, other Asia, western Europe, and the United States was compared with imports from a group of competitor countries (Thailand, Indonesia, Philippines, and China) in 1996-98. Vietnam has lost only marginally its market share in Japan, and made some small market gains in other markets with a noticeable increase in Europe. Imports from the Philippines and China increased the most in these markets at the expense of imports from Thailand and Indonesia. The relatively large increase in Vietnam’s market share in Europe mainly reflects increases in quotas and improved market access.
Real effective exchange rates
Using recent trade weights, Vietnam’s real effective exchange rate (REER) appreciated by about 3 percent since June 1997. The REER with respect to Asia (excluding Japan) appreciated by 8 percent in the period since June 1997, largely due to the sharp depreciation of the nominal exchange rates of its regional trade partners, and by 4 percent against main European partners. By contrast, the dong depreciated by 14 percent in real terms with respect to the dollar and the Japanese yen. Compared to the REERs of selected Asian countries, Vietnam’s REER has appreciated, while others have depreciated since the onset of the Asian crisis (see chart).
Notwithstanding these developments, caution is required in using the REER as a measure of export competitiveness, especially in an economy such as Vietnam. To the extent that there are administered prices (such as petroleum products), ceilings on bank lending rates, and subsidized production (as with loss-making SOEs), the REER is likely to overstate Vietnam’s competitiveness. In addition, the presence of significant trade and exchange restrictions means that it is harder to determine an equilibrium exchange rate to serve as a benchmark for comparisons. Also, the equilibrium REER can change over time due to structural changes in both the home and directly competing countries.
Vietnam Real Effective Exchange Rates
Sources: IMF Information Notice System, the Vietnamese authorities, and Fund staff estimates.
1/ Bilateral real exchange rates.
In addition, at current levels of production, a US$5 decline in the average per barrel price of crude oil would likely lower exports by US$0.5 billion, or 5 percent of total exports.