Businesses Shaken by Covid-19 Epidemic

LG Group said that if Covid-19 epidemic is not contained in the next two weeks, it will run out of input materials for production. With hundreds of containers of imported input materials congested at Lang Son Border Gate, Samsung Group will face a 50% sales drop in 2020 if these commodities are not cleared in time.

Covid-19 epidemic immediately sent a lot of companies to hardship. According to the Ministry of Planning and Investment, the epidemic is directly wrecking agriculture, industry, construction, trade and services. When the manufacturing sector is afflicted, investment will be immediately cut in the short and long terms, especially foreign and private investment.

As for foreign direct investment (FDI), the worst affected is Chinese people working for FDI projects in Vietnam and importers and exporters doing business with China. Consumer demand, especially for non-essential goods, will sharply decline to slow manufacturing and increase inventories. New investors will be hesitant to make investment decisions at this time. For already invested projects, investors will likely postpone investment expansion.

The closure of border gates is disrupting manufacturing activity of many FDI projects, particularly big imported items like computers, electrical products, components, machinery and equipment. This again affects the progress, preparation and implementation of projects in Vietnam. Enterprises are currently not working at their full capacity on lack of inputs as their imported inputs are not cleared at border gates.

The labor force of many Chinese FDI projects in Vietnam decreased as many Chinese workers cannot enter Vietnam as a result of travel restrictions. Some companies are currently unable to resume production or working in moderation as their management isolated at home or Chinese technical experts cannot return from China. Badly affected Chinese projects include Duyen Hai 2 Power Plant, Vinh Tan 1 Power Plant and Hai Duong Power Plant. New investors will hesitate to make investment decisions at this time. For already invested projects, they will likely postpone their investment expansion.

In case the Covid-19 epidemic lasts 4-5 months or longer, Chinese input-reliant industries (e.g. garment and textile, footwear, electronics and consumer goods), including multinational corporations (like Apple, Samsung and LG) will face difficulties. The slowing progress of investment projects that use funds, labor and inputs from China will affect the growth of related industries and fields. At the same time, export shipments to China will also be delayed due to travel restrictions and demand shrinkage. This will, in turn, weaken domestic manufacturing momentums.

Remarkably, although domestic steelmakers are basically not impacted, the steel production project of Viet Trung Mineral and Metallurgical Company Limited (VTM) will be seriously distressed because its inputs (e.g. coke, refractory materials) and spare parts are mainly imported through border gates in Lao Cai. If commodity import and export through land border gates with China is stopped, its project will encounter enormous difficulties. Waterway import will incur many expenses for already troubled projects. A copper smelting project in Lao Cai (invested by Vietnam National Coal, Mineral Industries Holding Corporation Limited - Vinacomin) will also be in trouble if commodity import via road border gates is stopped because its equipment is being imported from China through land border gates in Lao Cai province.

Not only giant firms, small and medium enterprises and cooperatives with limited financial and production capacity are prone to direct and indirect impacts from the epidemic in all stages like sales, revenue, reinvestment, liquidity, financial obligations, recruitment and input costs.

Many Vietnamese companies that employ Chinese managers and technical experts are also running into hardship after the Lunar New Year.

The number of newly established enterprises is forecast to decline in most sectors as compared to the same period of 2019 (15 out of 17 sectors), with the worst performers including arts and entertainment (down 23%), wholesale, retail and vehicle repairing (down 11.8%), accommodation and food services (down 14.5%), and transportation and warehousing (down 37.9%).

2020 will be a very tough year for Vietnamese businesses and economy. Achieving the growth target of 6.8% is a huge challenge in the context of drought, saline intrusion, and epidemics. Covid-19 and other diseases on cattle and poultry (H5N1, H5N6) are happening now.

By Anh Mai, Vietnam Business Forum