Doing Business In Africa
By Ngoc Lan
The Vietnam-Africa national action plan in 2004-2010, which identifies the Black Continent as a key export market, has been implemented and even extended to include the 2011-2015 period. Two-way trade between Vietnam and Africa has grown by an average of 45% per annum. However, export is not the only way in which Vietnamese enterprises can penetrate Africa’s market.
Vietnam has established trade relations with 50 of 54 African nations, but reaped merely some US$670 million from exports to these markets in the first seven months of 2010, which was equal to approximately 1% of the total export earnings and stayed unchanged year-on-year. The country spent US$100 million on African goods and, as a result, is running a trade surplus with this continent.
South Africa accounts for 30% of the export turnover over this period, but its decision to slash gold import in the first half by US$60 million year-on-year pulled down Vietnam’s export earnings. However, even when gold and precious stone export to this African country soared in May and June to reach nearly US$70 million per month, according to statistics from the Ministry of Industry and Trade, it is questionable to claim that Africa is an appealing market for Vietnamese products. After all, gold and precious stone export is temporary and comes with low added value. Neither are these products Vietnam’s key export commodities.
Notably, Africa is a vast market with more than 50 countries, most of which are poor and developing. As the continent’s economy is forecast to expand by about 4.5% this year and will probably need to import various necessities. Such Vietnamese commodities as rice, footwear, apparel, textiles, plastic products, cashew nuts and common medicines can be exported in greater volumes.
In the first five months of 2010, Vietnam clinched mainly inter-governmental contracts worth almost US$700 million to supply rice to Angola, Ivory Coast and Ghana. Textiles and garments, footwear and plastic products, the three leading export categories, have all experienced various surges in shipment value. During World Cup 2010, South Africa imported nearly US$1 million worth of footwear, or 1% of the total export earnings. Textile and garment exports to this market also jumped dramatically over the same period.
At the second international seminar on Vietnam-Africa cooperation, which took place in Hanoi last month, Prime Minister Nguyen Tan Dung noted that Africa is a potential market in the long run. Unfortunately, Vietnam’s exports to the Black Continent, which takes a share of 0.18% of Africa’s import bill, are plagued by limited diversity as well as the inability to make use of legal frameworks to minimize risks.
Apart from Africa’s remote location, which pushes up transport costs, the difficulty in making payments is a daunting hurdle. Le Thi Thai Hoa, vice head of the African Market Department under the Ministry of Industry and Trade, says that several African countries are saddled by outdated payment facilities, which deter Vietnamese enterprises from penetrating this market. Hoa suggests businesses should actively contact her department and Vietnam’s trade offices in African countries to seek help, avoid fraud and minimize risks.
This year, Vietnam aims for a 20% increase in export revenue to Africa. However, this target is hard to achieve for several reasons. For instance, Vietnamese rice must vie against products from Thailand and Myanmar, Vietnamese tires face barriers in Egypt, Vietnamese plastic bags encounter more stringent environmental standards in Morocco, and footwear as well as textile and garment export to South Africa has hit the ceiling.
The Ministry of Industry and Trade is carrying out a project aimed at identifying key producers to boost export to Africa at lower risks.
Vietnamese firms may directly invest in Africa, where industries are largely undeveloped and focus on raw material export, as a long-term strategy. Industrial output currently accounts for merely 25% of Africa’s GDP. Meanwhile, Vietnam has succeeded, to some extent, in industrial processing.
At present, PVEP is overseeing several oil exploration projects in Algeria, Tunisia, Cameroon and Congo. The Vietnam National Chemical Group is embarking on a fertilizer production project in Morocco, with an expected capacity of 660,000-1,000,000 tons of DAP fertilizers per annum. Some small and medium private enterprises have also set up confectionery production facilities in Ghana and Angola.
The Government has ordered the Ministry of Industry and Trade to carry out the Vietnam-Africa national action plan 2011-2015 to boost technology transfer to Africa and secure material supplies from Africa for local production. Priority is given to oil, mining, chemicals, textiles and garments, footwear, woodwork, construction materials, agro-fishery, agro machinery, bicycles and motorbikes. To realize this vision, the Government needs to implement specific policies, legal tools and investment incentives to help enterprises wishing to invest in Africa.
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