Vietnamese agricultural exports have been hit by the severe drought (Photo: VNA)

HCM City (VNA) – Despite the Government’s willingness to enter into free trade agreements, Vietnamese companies are not taking advantage of such pacts to increase exports and are even losing out on their home turf to foreign rivals.

The 2015 annual Vietnam Business Report shows foreign companies accounted for 71 percent of the country’s exports, with local firms’ share shrinking, according to Saigon Entrepreneurs newspaper.

In the first five months of this year, local businesses’ exports grew by only 3.9 percent to 19.44 billion USD, accounting for 28 percent of exports. In comparison, FDI companies reported growth of 7.7 percent while overall growth was 6.6 percent.

The Government in fact offers many incentives for exports, but domestic companies have been unable to cope with challenges facing the global business environment.

Around 97 percent of local enterprises are small- or medium-sized and most of them are outside the global value chain. Their ability to take advantage of Vietnam’s international integration is very low and they are not ready to compete.

From next year Vietnamese companies cannot borrow in foreign currencies and dong loans carry much higher interest rates, and this will be another blow to the competitiveness of many companies.

The ban comes as part of the central bank’s efforts to stop dollarisation of the economy.

Bank lending rates in neighbouring countries like Thailand, Malaysia, and China are only 3 – 4.5 percent.

The strong dong is another factor that affects companies’ competitiveness. In recent times, while other currencies have fallen sharply against the US dollar, the Vietnamese currency has been very steady.

It makes Vietnamese exports costlier.

Economists estimate the dong to be overvalued by around 20 percent.

Low productivity is another weakness of Vietnamese companies, and in recent times natural disasters like severe drought and pollution have also hit exports.

Drought this year and the resultant seawater intrusion in the Mekong River Delta, and environmental pollution in the central region have sharply reduced seafood exports, one of Vietnam’s strong suits.

Furthermore, Vietnamese seafood products will also come under close scrutiny in export markets as a result.

European authorities have already notified all EU members that they should tighten checks of imports from Vietnam.

The 2015 Vietnam Businesses Report also said that the size of Vietnamese companies and their number of workers have shrunk.

With domestic firms frittering away the advantages offered by FTAs, their foreign rivals will only be happy to step into the breach.-VNA