A Sweet Financing Deal Creates New Jobs In Viet Nam

Article | 24 August 2010

ADB's $1 billion Trade Finance Program, which started operations in 2004, provides credit and guarantees on trade financing via banks in developing Asia.

Most Vietnamese looking to earn a living to put food on the table or send their children to school have two choices ―toil in the fields or move to a far-away city like Ha Noi or Ho Chi Minh.

Local confectionary firm, Trang An JSC has provided a welcome alternative for nearly 300 people in Cua Lo town in North Central Nghe An province. In January 2010 it set up Trang An 2, a small but bustling company which makes rice crackers and other snacks.

One of them is Le Anh Trung who is now able to work near his home town and provide for his family. For two years, he had been in Viet Nam's capital city of Ha Noi training and working in one of Trang An's other factories.

The 32-year-old is proud of his job on the production line where he oversees the ingredients for low-fat snacks like the delicious local "Cu Do" specialty cake made of rice cracker layers filled with nuts and sweetened corn.

"We can produce 150 kg of snacks per hour with just 1% faulty products. With this, I can earn about VND4 million a month," he said. The salary, equivalent to around $210, is high compared to the average monthly wage of VND730,000 in nearby Vinh City or even VND980,000 in Ha Noi.

Trang An 2 employees hail mainly from the surrounding region where most work comes from rice and maize cultivation which provides a modest yet backbreaking living. The factory is a welcome source of jobs, especially for women who make up 70% of the workforce and are mainly engaged in weighing, packaging, or transporting the final goods to the company's store.

The first obstacle

The factory is the brainchild of Trinh Sy, General Director of the 40-year-old parent company, who last year saw an opportunity to set up a new business in the countryside despite the global financial crisis which was deterring other firms.

But getting the first snack off the production line was no mean feat. And the first obstacle is funds; smaller businesses in Viet Nam and elsewhere typically have trouble getting trade finance to support the import of key components to kick-start operations, and for intermediate goods needed to keep manufacturing going.

In the case of Trang An 2, Mr. Sy had little trouble getting the finance to import the various equipment he needed for his rice cracker production line. Getting the critical snack production machinery from far-distant France proved tougher. Banks it approached were only willing to provide payment guarantees for a few months - not long enough for Trang An 2 to finalize the transaction.

Fortunately, Vietnam International Commercial Joint Stock Bank (VIB) was able to help. Through its participation in Asian Development Bank's (ADB) Trade Finance Program (TFP), VIB was able to offer financing backed by a full, 13-month ADB guarantee on the $970,000 Trang An 2 needed to buy the equipment. As a result, the deal was sealed.

"Thanks to VIB and its partners, we were able to import the new production lines at a lower price, and even expand our production despite the financial crisis," said Mr. Sy, who expects the Trang An 2 to soon be able to export its goods to customers in nearby Lao People's Democratic Republic. "We are proud of what we managed to achieve and are confident about our business plan."

The benefits

ADB's $1 billion Trade Finance Program, which started operations in 2004, provides credit and guarantees on trade financing via banks in developing Asia. Nearly 200 banks are part of the program, including the leading state-owned and private joint-stock banks in Viet Nam. In 2009, the program supported trade deals worth $1.9 billion, with over 250 of them for small firms like Trang An 2 which provide the bulk of jobs in developing Asia.

But there are other benefits too. By manufacturing in Cua Lo, Trang An 2 can source 80% of its raw materials like maize, rice, sugar and chilies from nearby farmers. And by avoiding the transportation costs competitors pay to shift ingredients and final products between the countryside and factories in Ha Noi and Ho Chi Minh, Trang An 2 can keep the price of its goods down. Sourcing and selling locally keeps traffic off the roads and keeps the goods fresh.

The successful trade deal has also helped VIB gain valuable experience and build banking relationships outside the region which could aid other borrowers in the future.

"TFP helped VIB improve the quality of its services, enhance customer service, expand its correspondent banking network and raise VIB's profile in the international market," said An Thanh Son, General Director of VIB. "Through TFP we can contribute more to job creation as well as to the social and economic development of our country."