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Expanding domestic market – an urgent need
Since the beginning of this year, Prime Minister Nguyen Tan Dung has called for expansion of the domestic market. Most recently, he approved a demand stimulus package to support local enterprises in maintaining their production and to boost domestic consumption.
The Ministry of Industry and Trade (MoIT) is also finalizing a stimulus programme to boost the domestic consumption of goods, and urging every enterprise to devise their own plans for production and business development.
Difficulties in seeking new outlets
With the government’s stimulus package, the national economy has shown positive signs of recovery despite the impact of the global financial crisis. Economic growth reached 3.1 percent in the first quarter of the year. Although there is a slight increase in the consumption of construction materials such as cement, iron and steel, enterprises have said that they encountered difficulties in seeking outlets for their products. Many goods remain in inventory as the domestic consumption of goods remains low.
In addition, vice chairman of the Vietnam Steel Association Nguyen Tien Nghi expressed concern that local enterprises are now under great pressure due to imported goods. While local-made steel is traded at VND9.7 million per tonne exclusive of VAT, the price of steel from ASEAN countries is only VND9.3 million per tonne.
Realising the importance of expanding the domestic market, the government directed the MoIT to devise solutions to stimulate consumption. Many departments and agencies under the MoIT have co-ordinated to launch a campaign entitled “Vietnamese people use Vietnamese goods”, to promote Vietnamese goods in rural areas. Vo Van Quyen, deputy head of the Domestic Market Department under the MoIT said that the rural market has great potential as it accounts for 70 percent of the country’s population.
Solutions to overcome obstacles
Mr Quyen said that Vietnam’s farm products, garments and textiles, and footwear can compete with foreign products in terms of both quality and design. Plastics, home appliances and mechanical products are also competitive. The problem is how to re-organise the domestic market and devise solutions to fully tap into it.
Mr Quyen added that the State has issued many policies to promote exports rather than to stimulate the local and rural markets. Trade promotion activities are always aimed at supporting export actvities rather than boosting domestic consumption.
Former deputy minister of Industry and Trade Luong Van Tu said that one of the biggest hindrances to encouraging local businesses is tax policy. Currently, manufactured goods are often exempted from export tax while the import of material needed for domestic production is taxed at a high rate, reducing consumption. Therefore, the State should consider policies such as exemption of value added tax (VAT) to help businesses produce goods for domestic consumption.
Mr Quyen said that the project to boost the consumption of Vietnamese goods in the local market is now being compiled by the MoIT. The ministry has asked the State to provide mechanisms for businesses so that people can access local goods by deferred payment. In addition, the state should offer loans at a preferential rate to help businesses develop production and infrastructure.
Opportunities for Vietnamese businesses
As a matter of fact, the economic downturn will slow the growth of the GDP, especially GDP per capita. However, this can also be seen as a time of great opportunities for Vietnamese businesses. Mr Quyen noted that Vietnam earned nearly US$62 billion from exports in 2008 while its total retail trade on the domestic market reached VND980 trillion (nearly US$60 billion), up 31 percent over 2007.
In the long term, along with a steady increase in economic growth rates and people’s living standards, domestic trade will grow and flourish to outstrip export trade.
VOV
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