For automaker Ford, one of the greatest challenges doing business in Vietnam this year is not selling cars but finding enough US dollars to overseas suppliers on time, a media report said on Tuesday.
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The problem underscores the difficulties of doing business in a country where confidence in the local currency is low, and where the US dollar is still king and often scarce due to hoarding by a wary public, Reuters reported.
By law, Ford Vietnam can only earn money using the country’s non-convertible dong currency but pays most suppliers in hard currency because at least 85% of the content of its vehicles is imported.
“We’ve had days when the treasury guy’s come in and said: ‘We just can’t get enough US dollars’,” Ford Vietnam general director Michael Pease told the news agency.
“And we’ve had to make a choice at that point, whether it’s feasible for us to get another currency or whether we need to go back to our suppliers and simply say, look, based upon the bank advice we won’t be able to remit the funds on the date that we had committed.”
The report noted that Ford has had little problem selling cars in a market which saw car sales more than double in September, compared to the same time last year, partly due to a government stimulus plan. It’s main headache has been getting hard cash abroad.
Ford ranks sixth among car assemblers in Vietnam in unit sales so far this year, having sold 4,852 vehicles in the first nine months, according to the Vietnam Automobile Manufacturers’ Association. Pease said he expected sales this year to be about on par with last year.
But getting hard cash has been a different story, and the possibility of a devaluation, an ever present worry.
Ford has not been alone, Reuters noted. For the past year or so, psychological and market factors have created a shortage of dollars in the official market and kept the dong at or beyond the weak end of the band it is allowed to trade in against the dollar, making life tough for importers across the board.
The government has given priority access to foreign exchange to certain businesses, including oil products and fertiliser.
While most Asian currencies have been strong this year against a weaker dollar, Vietnam has defied the trend, the report added. The central bank has been unable to bring it back into the band, creating a major problem for the economy and a risk to investors.
Officially, the dong is now only allowed to go as weak as about 17,845 per dollar under its crawling peg, but in reality – in gold shops and in the interbank market via creative transactions – it is trading closer to 18,250.
Many economists, interbank forex traders and black marketeers have told Reuters they believe the dong will weaken in the coming months as the lunar new year approaches, the trade deficit widens, inflation rises and fast growth returns. Some think it will hit 19,000.
Vietnam’s economy, which relies heavily on exports of commodities, like rice and crude oil, and textiles, as well as remittances from abroad, has weathered the economic storm fairly well, with GDP growth in the first three quarters up 4.6%. The full year target is around 5%, which economists consider respectable, despite being below the 6.2% growth last year and even higher in previous years, the report added.
Though a currency black market exists, high-profile businesses like Ford cannot turn there for hard currency because it is illegal. Ford, also, has been given instructions to report to the central bank if its banking partners levy fees to try to create a different rate, Reuters noted.
The report said Pease has added the possibility of payment in euro or yen to Ford suppliers so that at least he can give them something on time. The SBV does not restrict trade with those currencies, and their rates are near what the black market dollar rate is.
“It’s an issue that I think most companies these days tend to recognise as a cost of doing business,” he said.
Vietnam’s long love affair with the dollar is hard to explain and perhaps out of step with the rest of the world where there are calls for another currency or currency basket to replace the ‘greenback’, the report said.
