VZCZCXRO4736
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0806/01 1931031
ZNR UUUUU ZZH
P 111031Z JUL 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8125
INFO RUEHHM/AMCONSUL HO CHI MINH 4913
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 02 HANOI 000806
SIPDIS
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE
STATE FOR EEB/IFD
E.O. 12958: N/A
TAGS: EFIN EAID ECPS ECON EAGR EAIR ETRD VM
SUBJECT: VIETNAM ECONOMIC HIGHLIGHTS: FARMERS BENEFIT FROM HIGHER
FOOD PRICES, SUBSIDIES TO REMAIN, FOSSIL FUEL EXPORTS DECLINE
HANOI 00000806 001.2 OF 002
1. This cable is part of an ongoing series on developing economic
stories in Vietnam.
RISING FOOD PRICES INCREASE AVERAGE WELFARE
-------------------------------------------
2. Rising food prices have benefited Vietnam's average household
welfare and helped push down further the poverty rate, according to
a June study released by the University of Minnesota. Vietnamese
farmers have been able to reap benefits from higher international
prices for the export commodities that they grow, according to the
Minnesota study, "Impacts of Rising Food Prices on Poverty and
Welfare in Vietnam." The paper showed that a 10 percent rise in
food prices results in a 1.7 percent increase in average household
welfare and a 0.6 percentage point decrease in the poverty rate.
The foodstuff portion of Vietnam's consumer price index has risen
31.9 during the first half of 2008 compared with the same period
last year.
Over 70 percent of Vietnamese households are entirely or partly
dedicated to farming, and these same households make up the
overwhelming majority (90 percent) of Vietnamese poor.
DECLINING ENERGY PRODUCTION, RISING DEMAND
------------------------------------------
3. Vietnam's production of crude oil, natural gas, and coal is
declining while demand is rising. State oil company PetroVietnam's
crude oil output is down 15 percent this year, to 7.2 million tons,
and its natural gas output is down 4.7 percent, to 3.6 billion cubic
meters. Despite this, revenues are up 55 percent this year to $5.72
billion, accounting for 19.3 percent of Vietnam's total export
turnover, according to PetroVietnam Chairman Dinh La Thang. For
coal, Vietnam is likely to turn from a net exporter into an importer
faster than it expected. State-owned mining company Vinacomin
anticipates that domestic demand for power generation will require
Vietnam to import 34 million tons of coal in 2015, 144 million tons
in 2020, and 228 million tons in 2025. Vietnam is currently a key
supplier of coal to China and Japan. On July 4, the Government of
Vietnam (GVN) announced that it would cut coal exports this year by
more than 32 percent to about 22 million tons in order to meet local
demand.
GVN ABANDONS PHASING OUT SUBSIDIES IN 2008
------------------------------------------
4. On July 9, the GVN announced that it had ruled out price
increases for petrol, diesel, power, coal, steel, and fertilizer for
the remainder of the year. The decision reverses a GVN pledge to
phase out subsidies on fuel and other goods by June 2008. The GVN
will continue to cap gasoline prices at $3.40 per gallon, and will
reimburse the state-owned retailers at the end of the year, as it
has done in previous years.
SLOWEST ECONOMIC GROWTH IN 7 YEARS
----------------------------------
5. Vietnam's economy grew 6.5 percent in the first half of the
year, the country's slowest growth rate in seven years. Factors
contributing to the lower growth included the effect of the cooling
of the stock and property markets on spending by consumers and
investors as well as the tightening of credit (the latter as part of
Government efforts to tame inflation by hiking interest rates).
MORE JOBS, MORE STRIKES, NOT ENOUGH SKILLS
------------------------------------------
6. Vietnam's economy created more than 780,000 new jobs in the
first half of 2008, but employers remain concerned about the lack of
skilled labor and the rise in labor strife, with twice as many
strikes this year as during the same period last year. According to
the GVN, 70 percent of the labor pool is unskilled and only nine
percent of available employees have higher education. Even many
skilled workers are not properly qualified. For example, a study
earlier this year by the Vietnam Union of Science and Technology
Associations found that just 138 out of approximately 500,000
engineers in Vietnam are properly qualified. Meanwhile, Vietnam has
experienced 330 "illegal" strikes in the first half of the year, a
rate that will almost certainly exceed the approximately 400 strikes
that took place in all of 2007. Foreign investors have asked the
GVN and union leaders to talk and train the workforce about pursuing
mediation efforts instead.
FLYING HIGH DESPITE ECONOMIC CONCERNS
HANOI 00000806 002.2 OF 002
--------------------------------------
7. Two privately-owned airlines in Vietnam are expanding their
fleets, while Danang International Airport plans to increase
capacity six-fold by 2025. Earlier this year, Viet Jet Air (VJA)
leased two Boeing 737-700s for seven years and is preparing to lease
a third. Now, VJA plans to lease or buy as many as 20 more
airplanes and hire up to 400 employees. Vietnam's second
privately-owned startup, Air Speed Up, also plans to expand its
fleet with the purchase of ten Boeing 737s. VJA is already flying,
while Air Speed Up hopes to begin flights in September, both
servicing domestic routes. Meanwhile, the Danang International
Airport, which handles one million passengers per year, hopes to be
able to handle four million passengers by 2015 and six million by
2025.
MICHALAK