Responding to new challenges

The closure of external borders is not a lockdown and in theory, goods transportation and trading activities are basically not restricted. However, according to the Ministry of Industry and Trade (MOIT), the move will still disrupt or slow down economy-trade flows, thus negatively affecting Vietnam’s exports to the EU. From a broader perspective, the epidemic is also causing world market demand to decline. Difficulties continue to besiege businesses, and may even result in more serious risks.

Shifting from lack of supply to lack of demand

Supplies of raw materials for Vietnam’s textile-garment and leather-footwear industries depend 65-70% on the Chinese market. Therefore, the outbreak of COVID-19 in the country has led to disruptions in the supply of materials during the past month, affecting the majority of Vietnam’s textile-garment and leather-footwear enterprises. At present, the epidemic in China has gradually been brought under control, and suppliers have also begun to resume production, with most running at “full speed” to compensate for the previous period of stagnation. As reported by domestic garment and textile companies, concerns over a lack of raw materials are gradually declining, and the situation is expected to stabilise by the end of April. Under the scheduled scenario, this is also the time when garment and textile firms speed up and focus resources to compensate for deliveries planned for the previous month. However, the market is showing worrying new signs. According to Bach Thang Long, managing director at the Garment 10 Corporation, in the last week, enterprises had managed to arrange materials for the processing of orders, but the customers then proposed to suspend or stop production.

Many businesses had completed orders but were forced to postpone delivery at the request of customers. Obviously, the global economy has been significantly affected by the COVID-19 epidemic, resulting in a decline in both purchasing power and order volumes. This is a worrisome scenario that is impacting businesses and the labour force, while it is hard for enterprises themselves to find solutions.

“At present, it is difficult to assess the severity of the coming developments because it depends on disease control efforts around the world. But in my opinion, the impacts will increase in Q2 and Q3, and could possibly last until Q4. Then, there will be no orders to manufacture even though enterprises are able to manage materials. Such a trend is becoming more and more conspicuous. I just hope that it will not last too long and the impacts will be not be so serious as the economy recovers following control of the epidemic,” Long stated.

Ready to cope with challenges

The latest developments in the international arena show that Long’s worries are completely grounded. Immediately after March 17, the EU officially decided to close the borders for 30 days in an effort to prevent the spread of the COVID-19 epidemic. Theoretically, it is likely that the move will not directly impact import-export activities between Vietnam and the EU, because the restrictions are only applied to individuals’ travel, while goods transportation and trading activities are basically unrestricted. However, according to the MOIT’s assessment, the aforementioned epidemic control measures will in fact affect the speed of goods circulation from the stages of export, transportation, customs clearance, storage and loading & unloading to the stage of consumption, while disrupting or delaying economy-trade-service flows. In addition, the market’s supply-demand volumes, the demand for goods exchange, and trade activities between the EU and partners (including Vietnam) will be somewhat restricted. The demand for non-essential goods such as garments & textiles, leather & footwear, wood items and phones, which are Vietnam’s major export items to the EU market, will possibly decrease. Not only that, goods imported to EU countries by air may be significantly affected due to delayed and cancelled flights. Regulations concerning epidemic control are also likely to stagnate the signing of export orders between Vietnamese and EU partners and hinder bilateral trade and investment promotion activities in the near future.

Nguyen Anh Duong, head of the general research department at the Central Institute for Economic Management (CIEM), said that major economies such as the US and Europe are all focusing more drastically on COVID-19 prevention and control, and considering it as a top priority. As a small economy with high openness, Vietnam’s exports depend a lot on the US and European markets. Therefore, an impact on businesses is inevitable. The level of impact will rely on each industry as well as the structure of enterprises’ supplier networks. Given that fact, in addition to support policies, it is necessary to build an information channel for businesses to directly share experiences and effective measures to cope with the difficulties caused by the epidemic. For example, if they share the utilisation of capacity in the same industry, businesses will be able to increase cooperation in goods consumption.

Some experts have also said that, for the export-specialised enterprises, especially to European and US markets, these are irregular and short-term difficulties due to external impacts, but they could possibly turn into a long-term recession unless effective solutions are found. Therefore, this is the time when businesses must seek ways to survive and to promote the domestic market, because it promises to be very difficult to promote new export markets. Regarding general solutions, the Government has issued Directive No. 11/CT-TTg on urgent tasks and solutions to remove difficulties for production and business activities, which, if properly implemented, will have a positive impact on enterprises. Solutions related to fiscal policies such as tax exemption, reduction and extension will work to assist liquidity so that businesses can prioritise capital flows for production and survive this difficult period, while waiting for opportunities to recover.