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Stimulating domestic consumption
While the global demand for consumer goods is declining as a result of the economic slowdown, affecting many export businesses, stimulating domestic consumption is considered the best way to help businesses maintain production and encourage growth.
However, it is not easy to do this when the purchasing power of the public is falling and the competitive pressure is growing.
Domestic production
Many industries admit that their products are competing fiercely with imports. The Vietnam Paper and Paper Pulp Association has warned that the domestic paper industry is being seriously damaged by the high influx of imported products at competitive prices. As a result, most of its members have slashed production by between 20-40 percent.
Meanwhile, the Vietnam Steel Association says that its members are facing mounting pressure after China reduced its export tariffs on steel products from 5 to zero percent in December 2008.
Other industries such as garments and footwear, which are Vietnam’s leading exports, have also come under competitive pressure from imports.
The Ministry of Industry and Trade (MoIT) says that this year it will provide support to businesses to help them manufacture consumer goods for domestic sales to compete better with imports. Priority will be given to businesses specialising in foodstuffs, drinks, garments, pharmaceuticals, building materials, mechanical engineering, shipbuilding and fertilizers.
Several industrial businesses that have great volumes of products in stock, such as steel ingots, building steel, cement, fertilizers, paper and chemicals, will also enjoy interest rate cuts or exemptions from banks.
MoIT Deputy Minister Nguyen Cam Tu confirms that the State will provide appropriate policies and create a favourable environment for businesses to promote Vietnamese products on the domestic market. It will also ask retail shops and market chains to increase the proportion of locally-made products they stock and will provide preferential policies to encourage them to sell these products in large quantities.
Price- a decisive factor
However, the falling purchasing power of consumers is a big challenge to many businesses. According to the MoIT, total retail and service revenues last month fetched VND98,500 billion, an increase of 27.1 percent from a year earlier. Total retail revenues alone increased by 8.2 percent compared to 11.7 percent recorded in January 2008.
In the current context, consumers will continue to tighten their belts and their purchasing power is expected to fall further. Economic specialists say that to increase their purchasing power, businesses will have no choice but to lower the prices of their products.
“Consumption will only go up when we reduce the prices and improve the quality of our products,” says Dr Vu Dinh Anh, deputy head of the Market Price Research Institute.
Hoang Tho Xuan, head of the Domestic Market Department under the MoIT, shares the view that product prices should be slashed to certain levels to ensure the interests of both consumers and businesses.
“To stimulate consumption effectively, we have to improve the distribution network which currently has too many brokers, who drive prices up,” says Mr Xuan. “At the same time, distributors should work closely with banks and credit organisations to offer their clients preferential methods of payment.”
The Ministry of Finance has decided to reduce taxes and extend the deadlines for tax payments, which are effective as from February 1. Many businesses have drawn up plans to lower their product prices to encourage consumers to spend their money.
When this happens, the prices of consumer goods should fall by between 2-6 percent. However, it will take some time to prime the pump after the policy is put in place. Analysts insist that State agencies should remove obstacles to administrative procedures and take effective measures to encourage businesses to reduce the prices of their products at a reasonable level.
VOV
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