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Samsung: driver of Vietnam’s economic growth?

Samsung: driver of Vietnam’s economic growth?

Thursday 06, 02 2020
"The main reason is that Samsung has launched the high-end smart phone product line - Galaxy Note 10, and promoted export,"

In a report on industrial and commercial production in the first nine months of 2019, the Ministry of Industry and Trade used figures to show Samsung's influence on the economy, including from industrial production to export and commented that the contribution from Samsung to the economy is still a mystery.

Leader of processing industry in Vietnam

Contribution from Samsung to the economy is still "unknown", or in other words, the regulatory agencies are not able to calculate, due to the fact that the fluctuation in Samsung's exports will affect the Vietnamese economy. This fluctuation resulted from “the sales of Samsung in the world which have not shown signs of positive growth again", stated in the report.
The Ministry of Industry and Trade quoted Standard Chartered Bank's global economic report for quarter 3-2019, saying that Vietnam will continue to be the fastest growing economy in Southeast Asia (ASEAN) in the short term, with the expected growth rate of 6.9% in 2019, of which the FDI sector is the main driver of growth.

In the first 9 months, the export turnover of goods was estimated at USD 194.3 billion, up 8.2% over the same period. This growth rate has been increasing steadily over the months but still lower than the same period in 2017-2018 (respectively 20.6% and 15.8%), partly due to the effects of the global trade war which is too complicated. Processing industry continues to play a major role in the overall export growth, estimated at USD 163.66 billion (up 10.3% over the same period last year). Notably, this sector's turnover accounted for 84.23% of total exports, higher than 2017 and 2018.
These are praiseworthy signs, however, some industries that used to be the driving forces for export growth including electronics, computers, optical products, especially mobile phones, have not been able to maintain the impressive growth rate as in the previous period. Meanwhile, the growth momentum from Samsung - the leader in FDI sector – remains a mystery for the regulators, due to Samsung's global sales declining and not growing again.

The official information on the financial situation is published by Samsung Vietnam on its website, citing the Financial Statements of the parent corporation in South Korea, saying that the first three quarters of 2019 revenue and operating profit reached USD 51-53 billion and USD 6.4-6.6 billion respectively. There are no separate financial statements for Vietnam market, which is Samsung's largest global production base, with a larger scale than factories in China, especially in the field of smart mobile phone manufacturing.
In late 2018, at a meeting with Deputy Prime Minister Vuong Dinh Hue, Samsung Vietnam General Director Shim Wohwan said that Samsung's exports in 2018 were estimated at USD 60 billion, accounting for about 25% of the total export turnover of Vietnam.

However, according to international financial analysts, this number may in fact be larger. As of 2018, Samsung Vietnam's revenue had been about USD 65 billion, equivalent to 28% of Vietnam's GDP, accounting for about 30% of Samsung's revenue globally. Therefore, the increase or decrease of profits of Samsung in Vietnam greatly affects Samsung Corporation in particular, and Vietnam's economic and export activities in general. The fall in profits of Samsung in 2018 compared to previous years at production facilities in Bac Ninh and Ho Chi Minh City also greatly affects the revenue growth of these localities.
According to the Report by Economist Marc Djandji, Head of Corporate Customer Department of Rong Viet Securities Company, by the end of 2018, mobile phone and electronics industry was an important part in processing and manufacturing sector, accounting for 18.8% of Vietnam's GDP and experienced annual growth rate of over 10%. In the first quarter of 2017 when Samsung Galaxy Note 7 encountered a problem, leading to a decline in sales, the GDP growth of that time was only 5.1%. Macroeconomic reports of the Ministry of Industry and Trade and the Government admitted this as well.

Note 10 and Vietnam’s economic growth

What is the impact of Samsung on Vietnam's economy currently? Well, in the first quarter of this year, when Samsung Galaxy Note 10 was not officially sold, the growth in production and exports of electronic components was strongly affected. The manufacturing of these products only started to recover from the middle of the second quarter and is regaining growth momentum. In August and September alone, the industry's IPP growth reached 20.1% and 14.6% over the previous month, signaling a gradual recovery after continuous negative growth compared to the same period last year.
"The main reason is that Samsung has launched the high-end smart phone product line - Galaxy Note 10, and promoted export," the Ministry of Industry and Trade said.

In the first 9 months of the year alone, the top 5 items with largest export turnover of more than USD 10 billion belonged to the processing and manufacturing industry, of which exported phones, mostly from Samsung, reached USD 38.6 billion, accounting for 23.5% of total exports. The low growth of the phone and components sector led to a lower overall export growth than the same period last years. Exporting other key products, therefore, although high, does not make up for this gap.
Decreasing dependence on FDI enterprises, especially large FDI enterprises, to get out of their strong "influence" on production, exports, and macroeconomic and financial issues are the government's wishes. However, with such a big impact as the case of Samsung for the above-mentioned export activity, or Thaibev and Sabeco with the change of foreign capital flows, it is very difficult to balance the impact of domestic enterprises and that of foreign enterprises in the years to come.

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