As the dirt slowly begins to settle after the Japanese earthquake and tsunami, the world is rushing to help and at the same time gauge how much of an impact the disaster will have on the rest of us. Japan and Vietnam have long been trading partners. Naturally, Vietnam’s economy will suffer. Just how much of a hit is an open question.
A quick look at import export statistics points to significant potential damage. Trading value between the two countries in 2008 was $16.8 billion 1. Vietnam’s 2008 GDP was just above $80 billion. In 2009, Japan was Vietnam’s fourth largest trading partner, accounting for 11.5% of Vietnam global trade value, just after China, the EU, and the US 2. The earthquake and tsunami will cause major short-term and potentially long-term disruptions in this long-standing economic relation.
On closer examination of import and export composition, the damage may not be all that overwhelming. Vietnam’s three main exports to Japan are crude oil, seafood and garment, which together account for 40% of export value 3. Other products include electric wires and cables, computer components, wood and plastics products. The majority of Vietnam’s exports to Japan are basic commodities and necessity goods. Supply and demand theories posit that customers tend not to cut back that much on these goods when they have to decrease spending. Once Japan starts to rebuild the country’s infrastructure, these products will even see a significant demand boost.
On the other hand, imports from Japan are mostly machinery, steel, gasoline, automobile and computer parts. Disruptions in Japan’s factories will hold up delivery of those products. In the short term Vietnam may have to look elsewhere to import replacements necessary for infrastructure development. In the short to mid-term, the net impact will likely be Vietnam increasing export while reducing import from Japan.
Japan has much more economic influence on Vietnam than just import and export. In 2009, Japan made the most foreign direct investment (FDI) to Vietnam in terms of disbursement 4. After the earthquake and tsunami, Japanese firms may channel the money back to Japan to rebuild their home-bases rather than expand abroad. As Japan already pledged to contribute about 11.8% of FDI in Vietnam in 2011, a reduction in disbursement will significantly delay project implementation 5. Investors will be less likely to commit to new projects going forward. The same goes for Official Development Assistance (ODA), which funds economic development and welfare projects. Annually Japan’s contribution of more than $1 billion will likely see a sharp cutback.
What do you think disaster in Japan means for different industries and sectors in Vietnam? What does it mean for the population in their daily life?
Sources:
1. Comparisons of Vietnam and East Asia Countries (China, Korean, and Japan) Economic Relations by Ha Thi Hong Van
2. EU and Vietnam Trade Relations
3. Comparisons of Vietnam and East Asia Countries (China, Korean, and Japan) Economic Relations by Ha Thi Hong Van
4. Japan Tops FDI Disbursement in Vietnam
5. Economists see insignificant decline in Japanese investments in Vietnam after Crisis
Interesting article. Thanks for sharing. It is a little worrisome that FDI may increase next year, this makes me worry about how long the FDI drought (if it happens) may last and whether other countries may jump in to invest now that competition is less?
Also interesting to note why Japan and Vietnam enjoy such close economic relations–same reason why Taiwan is so heavily invested in Vietnam: as a strategic hedge against China. Vietnam has the natural resources, proximity, and cheap labor that China does, but without the sensitive political baggage. Vietnam finds these relationships of mutual benefit–beyond economic benefits, it seeks to cultivate strong ties as a hedge against future Chinese hegemony. Even more important than close relations with its Asian neighbors (not including China), Vietnam also seeks to build stronger relationships with India and the US. Economics and cultural ties (education, tourism) provides a strong, mutually-beneficial, relatively non-controversial foundation. Political and military ties will eventually follow. Despite being Constitutionally pacifist, the Japanese Self-Defense Forces (aka Japanese military) are one of the most capable militaries in the region.