Growing at an impressive rate of 15 to 20 percent annually for the past decade, Vietnam’s woodworking industry has been building great momentum. But what is heating up the Vietnamese industry for 2017 with the slew of happenings in the global market?
By the end of 2015 the total export turnover of Vietnamese wood and wood products was US$6.8 billion and was expected to grow a further 12 percent in 2016. The country is the second largest market outside North America for American hardwood lumber and accounts for 71 percent of Southeast Asian shipments at US$154.7 million, with a further US$5.2million of veneer.
However, the fade-out of its main dynamics such as a young population, low cost labour and the US’ announcement to withdraw from the Trans Pacific Pact (TPP) has slowed the economy down a little.
But these factors have not dampened the country’s momentum for success.
The value of TPP
Vietnam would be the ultimate winner if the TPP is ratified, but given the red light, will it be a blow to Vietnam’s woodworking industry?
Analysts think not. While TPP provides considerable benefits, Vietnam’s woodworking industry has already been enjoying the advantage of import tariff removal for many years due to its status as most favoured nation (MFN) with major TPP members: US (0%), Japan (0%), Australia (5%) and New Zealand (5%). In addition, many of the TPP nations are currently the wood material suppliers for Vietnam with zero export tariff including US, New Zealand, Canada, Australia and Chile.
Binh Duong in the south, especially, has become the leading province for industrial parks and foreign investments. It is showing signs of strong growth in the wood processing industry.
The Regional Comprehensive Economic Partnership (RCEP) is also a feasible alternative for Vietnam as the country stands to gain from increased sourcing of production from RCEP member countries such as Japan, South Korea and China.
In addition, Pham Hong Hai, CEO of HSBC Vietnam, commented that a bigger deal is the FTA of the Asia Pacific (FTAAP), an initiative nurtured for 20 years by APEC that links 21 economies around the region, including China and the US.
The FTAAP covers 60 percent of global GDP and 50 percent of world trade with the bulk of it completed. The final chapter is being worked on.
According to HSBC research, the RCEP links the world’s three largest consumer markets – China, India and ASEAN – to create a free trade area between 16 Asian economies, hence, generating around US$22.4 trillion in GDP and about US$10 trillion of total world trade.
“This deal will be particularly advantageous for ASEAN as it will reduce the incongruity across pre-existing FTAs and thereby strengthen the appeal of the region as a production base,” said Hai.
Forging strong ties in the AEC
Another direct impact to Vietnam’s woodworking industry is the commencement of the ASEAN Economic Community (AEC) since 31st December 2015. It unites the market with zero import tariff among member nations and offers opportunities in the form of a huge market worth US$2.6 trillion and over 622 million people. This benefits Vietnamese manufacturers as they are able to sell their products to 10 countries without any tax barriers.
Wood consumption in Vietnam was estimated to increase by more than 10 percent in 2016 from 2015’s figure of US$1.3 billion with the recovery of Vietnam’s property market.
According to the Ministry of Industry and Trade, in the first 10 months of 2016, Vietnam earned US$5.76 billion from wood and wooden products exports, a year-on-year increase of 0.8 per cent, with the US, the largest importer of Vietnamese wood products, followed by Japan.
Revenue from wood and wood product exports is also expected to reach US$7.2 billion this year.
With or without the TPP, Vietnam will continue to maintain its growth and be on track to be one of the top five largest woodworking manufacturing countries in the world. The future is bright for the land of the ascending dragon as it reaps the benefits from home and around the world.
This article was first published in Panels & Furniture Asia (Jan/Feb).