Death of Samsung's Note7 set to hurt Vietnam exports

Visitors testing Samsung Galaxy Note7 smartphones at a Samsung showroom in Seoul.
Visitors testing Samsung Galaxy Note7 smartphones at a Samsung showroom in Seoul.PHOTO: AFP

HANOI (BLOOMBERG) - The fallout from Samsung Electronics' dramatic move to end production of its Galaxy Note7 smartphone is set to spread to Vietnam, hurting an economy already hit by drought and lower oil prices.

"Samsung's decision to kill off Galaxy Note7 will certainly impact Vietnam's exports this year," since the company's exports represent about 20 per cent of the nation's shipments, said Nguyen Mai, chairman of Vietnam's Association of Foreign Invested Enterprises.

The recall of 2.5 million smartphones after complaints of exploding batteries contributed to a US$1.1 billion decline in exports in September, according to the statistics office.

Samsung helped to turn Vietnam into an electronics manufacturing hub almost single-handedly with US$15 billion in investments from the technology giant and its affiliates, including battery-maker Samsung SDI Co. The South Korean company is Vietnam's biggest exporter, shipping about US$33 billion of electronics last year.

Vietnam now faces the loss of millions of dollars in exports at a time when its struggling to meet its 2016 economic growth target of 6.7 per cent. Part of the reason for the 6.8 per cent decline in exports in September from the previous month was due to the Note7 recall, said Nguyen Bich Lam, head of the country's General Statistics Office.

"It's another blow," said Alan Pham, the Ho Chi Minh City-based chief economist at VinaCapital Group Ltd, the country's largest fund manager. "This is the risk of putting all your bets on one company or industry. But that is the natural progression of a developing country: It starts by exporting commodities then turns to manufactured products, industrial products."

Even before the Note7 fallout, Vietnam was struggling to meet its target of 10 per cent export growth this year, Trade and Industry Minister Tran Tuan Anh said in a July interview. Still, Vietnam's economic growth is better than neighboring countries, Mr Pham said.

Vietnam's annual economic growth accelerated to 6.4 per cent last quarter, from 5.78 per cent in the previous three months, the General Statistics Office said Sept 29, behind only the Philippines in Southeast Asia. The government is pushing for 6.7 per cent growth target this year.

Earlier this month local news websites reported that Samsung had applied to the customs department for tax exemptions to re-import flawed Galaxy Note7 smartphones and export replacements to Samsung's headquarters in South Korea. The company declined to comment on ending production of the Note7.

"Samsung told me earlier this month that they have no lay-off plans for now as smartphones are just a part of their production portfolio," said Mr Mai, who estimated the total workforce tied to Samsung in Vietnam is about 400,000 people, including 130,000 direct workers.