Vietnam's plastics industry is expected to grow by up to 18% by 2010, with total production to hit 4.2 million tonnes, double the level in 2007. Some of the country's key sectors are crying out for plastics - particularly the packaging industry, which is aimed at the export sector.

Several major projects are expected to increase production capacity of Vietnam's northern region from 26% to 31% of total output, while production in the south is to be tapered off.
The country's Master Plan of four years ago is set to build up the plastics industry under a number of different programmes. One aim is to establish domestic sources of input materials, while increasing production of high-tech content products, especially for export.

The government is encouraging investment in the production of materials in an effort to reduce dependency on imports. The industry aims to supply nearly 50% of materials needed for production by 2010.

Hong Kong investors, particularly those with expertise in the Pearl River Delta, could see advantages in taking part in developing a sector which is still in its infancy.
In terms of output, packaging and high-tech content products are the key strategic goals, which need substantial investment. Furthermore, packing output is expected to remain stable through 2010, at 30% of total production. This equates to a growth rate of 15% per annum.

Plastic products specifically requiring investment are in the agriculture, processed food, cement, chemicals and fertiliser packaging sectors.
In the next few years, the production capacity of existing companies is set to increase, and there are plans to build additional packaging factories to reach the level of 1.2 million tonnes of plastic products by 2010.

The proportion of high-tech content plastic products used will also increase to meet rising demand of other sectors, particularly in the auto and electronics fields.
The promise of 2010

According to the Vietnam Plastics Association (VPA), total domestic demand for plastic products rose 13-fold between 1990 and 2000, and expanded an additional 2.5 fold between 2000 and 2007, to reach 2.13 million tonnes. Plastics consumption per capita dramatically increased from less than 1 kg in 1990 to around 25 kg last year.
Even so, Vietnam's plastics industry is still tiny in comparative terms. Consumption of plastics per capita is at around 30 kg, compared to 100 kg in developed countries. Vietnam's figure in 2007 was 25 kg, and the government is ambitiously trying to increase this figure to 50 kg by 2010.

Packaging will be the crucial target, as this sector accounts for 40% of all output, and nearly all of Vietnam's plastic packing is produced domestically.
Because of a shortage of skilled workers, old technology and machinery, Vietnam's plastics industry can only satisfy the local demand for simple products.
Locally produced high-tech content products are limited and have to be imported. The hope is that the industry will receive significant investment in technology and production capacity to increase not only output, but also the quality and diversity of products.

Vietnam's plastics exports have been increasing. Turnover has risen from US$100 million in 2001 to US$725 million in 2007. Packing accounted for 80% of value and is currently being exported to 41 countries and regions. Plastics exports are expected to rise to US$1 billion this year, up 42.9% compared to last year.
Limited leverage for Vietnam for now

The three biggest plastics markets - the US, the EU and Japan - currently have little need for Vietnam's plastics contribution, as the latter's market has yet to reach a size to command bargaining power. Also, most investment in Vietnam's plastics industry comes from the Chinese mainland, Malaysia and Thailand, primarily to exploit the preferential import duty when exporting to other markets. This might pose a significant challenge to even a substantial increase in Vietnamese plastics exports in the short term.

In terms of technology, Vietnam almost solely concentrates on manufacturing plastics, and has ignored other areas of the industry such as input materials, moulds and machinery. According to the VPA, there are nearly 2,200 plastics and rubber companies that employ over 114,000 workers (2% of the total industrial workforce).

Most Vietnamese plastics companies are SMEs, with archaic technology and limited capital capability. According to a survey conducted by the Japan International Cooperation Agency (JICA), Vietnam's plastics production consumes 3 times as much power and 2.7 times as many materials than either Japan or the US; compared to the Chinese mainland, Malaysia, or Thailand, Vietnam uses between 1.5 and 1.7 times more power and materials.

Vietnam's plastics industry is also heavily reliant on imports. It currently brings on around 1.5 to 2 million tonnes of raw materials per annum, plus hundreds of auxiliary chemicals.
According to the General Department of Vietnam Customs (GDVC), the biggest exporters of primary plastic grains to Vietnam are regional countries such as Thailand, Singapore, Taiwan and South Korea. Together these four accounted for 62% of plastics related imports in 2007.

However, given Vietnam's determination to move ahead with light industrial exports, there are severe limitations on imports to feed the packaging and electronics sectors, largely due to price fluctuations in the oil and shipping markets. The country is going to have to bite the bullet on plastics production and investors could certainly profit from its development.
from Nguyen Quoc Uy, Ho Chi Minh City Office

(Image courtesy of Andy Bahn)

Contact:

Association/Government Tel/Fax/Web
General Department of Vietnam Customs (GDVC) Tel: (84) 4-8727-033
Fax: (84) 4-8725-949
Web: http://www.customs.gov.vn

Japan International Cooperation Agency (JICA) Tel: (81) 3-5352-5311, (81) 3-5352-5312, (81) 3-5352-5313, (81) 3-5352-5314
Web: http://www.jica.go.jp