Luong Hoang Manh, Director of Mekong Seafood Joint Stock Company (AAM) said AAM’s revenue in the third quarter was modest, , at 129 billion dong, this is a sharp fall of 21 percent compared to the same period last year. Meanwhile, the prices of input materials increased sharply, resulting in the sharp decrease of 44 percent in post-tax profit.

The vicious circle

After rising sharply by 1.31 percent in September, the consumer price index (CPI) is expected to continue escalating in October and the last months of the year. Since the goods prices have been pushed up to new heights, the prices of input materialshave also become higher, which means higher production costs and lower competitiveness of Vietnamese goods in the world market.

The dollar price has increased by 5.2 percent since the beginning of the year. In theory, a weaker local currency helps to boost exports, because Vietnamese goods become cheaper in the world market. However, the theory is not true under Vietnam’s current conditions. In fact, the more expensive dollar has pushed the goods prices up, thus making already high inflation higher.

The goods prices have increased sharply in comparison with the beginning of the year. The prices of fresh seafood and rice, for example, have increased by 15-20 percent. Import products, which are the input materials for production, such as steel, cotton and fibre, fertilizers and pesticides, have also seen their prices escalating. Besides, the higher shipment fee, and electricity and water prices have also made it difficult for Vietnamese enterprises to sell their products abroad, leading to a serious trade deficit.

In the first nine months of the year, Vietnam exported $51.5 billion worth of products, an increase of 20.5 percent over the same period last year. While the export revenue has increased moderately, the import revenue has continued to increase, leading to the high trade deficit of $8.6 billion.

The high trade deficit in turn leads to the higher demand for dollar and higher value of the dollar. And a new vicious circle begins: the dollar becomes more expensive, the inflation becomes higher, the prices of input materials and goods escalate to new heights, and enterprises find it difficult to export their products.

High lending interest rates “gobble up” enterprises’ profit

Most Vietnamese enterprises are small and medium enterprises which have modest capital.. In order to run their business, the enterprises have to rely on bank loans. However, the current overly high interest rates eat up their profit.

Thanh Cong Investment and Trade Company (TCM) is an example. TCM has small stockholder equity of 549 billion dong, while its borrowed capital has reached 1147 billion. Therefore, though its quarterly revenue is high, at 400 billion dong, its profit remains modest. In the last four quarters, the company only got 82 billion dong in post tax profit, while the EPS (earning per share) is just 2100 dong per share.

According to finance expert Huynh Anh Tuan, high credit interest rates will also lead to higher inflation and cause difficulties to enterprises. Only when the bank loan interest rates are lowered to the levels equal to that in other countries, will Vietnamese goods be able to compete in the world market.

Source: Nguoi lao dong, VNR500