Hopes Pinned on Export Growth in H2, 2020

After achieving positive growth in the first quarter of 2020, Vietnam's exports began to be adversely affected by the Covid-19 pandemic in April.

Shrinking merchandise demand

In the first quarter of 2020, the epidemic only affected Vietnam-China trade, especially agricultural and aquatic products. But, entering the second quarter, Vietnam's trade is facing more challenges, especially as the opening economy is vulnerable to mixed effects because the world is in an increasingly complicated and unpredictable position due to the Covid-19 epidemic development. In the first four months of 2020, Vietnam's merchandise export value was estimated to rise 4.7% year on year to US$82.94 billion.

According to the Ministry of Industry and Trade, Vietnam's import partners announced postponing orders in April and May and temporarily not negotiating orders from June onwards (in previous years, this was the time for settling year-end orders.) They largely applied the force majeure clause when many countries exercised entire or partial lockdowns and required people to stay at home. For this reason, items such as apparels, footwear and woodwork are suffering from the double impact of the Covid-19 epidemic because its export path was very rough, especially to the European Union (EU) and the United States - two key export markets of Vietnam, although input supplies have improved since early March.

Trading activity has also been restricted in the past time. Vietnam, like many other countries, reduced incoming and outgoing international flights while applying social distancing. In addition, the recommended guidance on avoiding face-to-face contact also seriously affected transactions and exchanges of Vietnamese businesses and partners. Commodity clearance was harder, more time-consuming and more expensive. Many countries still allow merchandise clearance, but customs processes are slow due to enhanced epidemic inspection and control at both export and import ends.

According to the Ministry of Industry and Trade, prolonged order cancellations and delays will put many companies in a dilemma. When Covid-19 is controlled and orders return, many companies will not be able to restore production immediately, thus affecting supplies for export.

The decline in commodity prices also affected Vietnam's merchandise exports. In the first four months of 2020, the export price of cashew nuts declined by 12.9% against the same period in 2019; coffee, down 2.2%; tea, down 13.1%; and pepper, down 19%. On the world market, as of April 27, 2020, WTI crude price dropped sharply by 77.3% or US$53.46 per barrel from early 2020, to US$15.72. Notably, WTI oil price plunged to minus US$37.63 per barrel for the first time April 20.

Supporting factors

According to a report by the Ministry of Industry and Trade, if the pandemic is controlled in the second quarter of 2020, exports are expected to rebound in the second half of the year and continue to be the main growth driver of Vietnam’s economy in 2020, because global demand increases and a competitive advantage gets sharpened when the EU - Vietnam Free Trade Agreement (EVFTA) comes into effect.

Globally, many economies launched large-scale stimulus packages, increased fiscal spending to cope with the disease, sustained essential economic activities, and supported workers. In Vietnam, the Government, ministries and agencies have also endeavored to carry out many solutions to help businesses deal with problems arising from the Covid-19 epidemic.

Many countries gradually reopened their economy amid the ongoing fight against the Covid-19 epidemic, such as Italy, Belgium, India, Iran, Israel, Australia and New Zealand. To date, the Covid-19 epidemic has been well controlled in China and South Korea. Other countries are also trying to contain the contagion. So, the demand is expected to gradually pick up in the near term.

On April 24, the United States Department of Commerce (DOC) announced the official results of the 15th period of review (POR15) on anti-dumping duty on Vietnamese catfish, from August 1, 2017 to July 31, 2018. Accordingly, the final tariff applied to companies that answered the questionnaire and cooperated with the DOC is 15 cent per kilo (equivalent to about 3.8% of the export price), a significant reduction compared to the last review.

While the Covid-19 epidemic forced countries to take measures to restrict travel and trade promotion, online connectivity is an effective approach for Vietnamese firms to boost trade with foreign firms and expand export markets. The Ministry of Industry and Trade connected with the market of Guangxi Zhuang Autonomous Region of China and India through this form.

The EVFTA, scheduled to come into force in the second half of 2020, is expected to open an opportunity to boost Vietnam's commodity exports to the European Union (EU) in the last months of this year and the coming years. Under EVFTA commitments, up to 70% of goods are eligible for tariff reduction and the EU will eliminate import duties on 99.7% of tariff lines on Vietnam’s goods. This is a great advantage for Vietnam's exports.

With such positive information, Vietnam's merchandise export will thrive in the second half of 2020.

By Huong Ly, Vietnam Business Forum