Imports would increase more rapidly than exports to begin with. Given the need to build and stock new factories – As Vietnam lacks a domestic machinery industry capable of producing the wide variety of machinery required by new factories, an increase in FDI is closely tied to a surge in machinery imports, followed by a surge in raw material imports once the factories are built. Only later when they start operating normally that the jump in exports follows.
Hence the lag between an increase in imports and the eventual jump in exports could be 24-36 months apart. The challenge in the meantime is to manage the worsening trade deficit although arguably this should be covered by an improvement in the capital account from incoming FDI and FII flows. Consensus suggests that imports may increase by 10-15% as a result of the agreement over a period of several years.
Exports should see sharp growth but after a lag only – As for exports, nobody can seem to come up with an answer that makes sense, which is ironic given that increasing Vietnamese exports is the main logic behind the agreement to begin with. HSC has a simple observation here. Since Vietnam entered WTO in 2006; Vietnamese exports have increases at a CAGR of 18.1% (2006-2014).
TTP may not have as big an impact but it surely won’t be that far behind either. And allowing for a lag of 2 years, we expect a strong and discernible impact on exports similar to what we see in the post WTO years.
These submissions are extracted from reports accomplished by Ho Chi Minh City Securities Corporation (HSC)’s Research Division team led by Fiachra Mac Cana, Managing Director, Head of Research
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