Businesses struggle as dollar gets more expensive

Following the State Bank of Vietnam’s decision to devalue the dong against the US dollar by two percent, many companies in Ho Chi Minh City have complained they cannot keep their selling prices unchanged and maintain profits.

Customers at the Asia Commercial Bank in HCM City (Photo: SGGP)

On August 17, the State Bank of Vietnam (SBV) increased the average inter-bank exchange rate by VND 388 to VND 18,932 per US dollar in an effort to ease the trade deficit. The new exchange rate is applicable as of August 18, and the trading band remains unchanged at ±3%. The SBV also stipulated that the ceiling exchange rate listed by commercial banks is VND19,500.

Several manufacturers, retailers, and distributors told Sai Gon Giai Phong on Thursday, August 19, that the new exchange rate made it difficult to maintain the prices of many commodities, especially of items produced with imported materials whose prices depend on the USD-VND exchange rate.

Some importers, including those of kitchen utensils, are preparing to increase their selling prices to offset the rise in input costs, said Bui Hanh Thu, deputy director of the Saigon Co.op.

One representative of a supermarket chain said: “In early August, many suppliers of garments, food and cosmetics said they would increase prices of a number of commodities by 3-12 percent. While we were negotiating ways to maintain prices, the inter-bank rate increased, making it more difficult for us to keep prices unchanged.

“From September, we cannot help but raise the selling prices of a number of commodities at a rate that reconciles the benefit of producers, traders and consumers.”

Currently, most supermarkets, including Co.op Mart, Big C, Satramart, Maximart and Citimart, can offer goods at the same prices as before, owing to large reserves. Meanwhile, many traditional markets and shops that trade in imported goods have increased their selling prices.

The rise of the interbank rate had an immediate effect on traders who hold small quantities of goods in stock, said a trader of imported confectionary in Binh Thanh District said.  “For the time being, I try to keep prices unchanged but have to reduce the discount rates to maintain profit”.

Cao Tien Vi, chairman of the Saigon Paper JSC, said the increased inter-bank rate would directly affect the company’s business, as increased prices of many imported materials “would make our production costs rise”.  

The company’s investment plan has been also affected. “We are investing in a new production line worth VND100 billion. Now with the new inter-bank rate, we will suffer an increase of about 2.1 percent in our investment costs,” Vi said.

To maintain its competitiveness, the company is trying to not to increase selling prices, but if the situation continues, the company’s profits will come down to zero, he said.

Tran Quoc Manh, Vice President of HCM City's Association for Fine Arts and Wood Processing, said: “The country targets US$3 billion worth of woodwork exports this year, but with the increased inter-bank rate, the target becomes distant since as much as 80 percent of the materials for the wood processing industry are imported”.

Many long-term export contracts have been signed with foreign partners, so local importers could face a lot difficulties with a rise in their input costs that will eat away their profit, Manh cautioned.

By Thuy Hai – Translated by Truc Thinh

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