Doing Business

Coronavirus: How Vietnamese Businesses Are Affected?

Linh Pham

April 7, 2020

The Coronavirus pandemic has tremendous effects on the global economy in general and the Vietnamese economy in specific. Entrepreneurs are struggling to drive their companies and overcome hardships. Despite difficulties from the pandemic, businesses should look on the bright side and be ready under circumstances. The article will provide you with insights about the impacts on the Vietnamese economy and tips to help businesses survive.

How does the Coronavirus pandemic affect the global economy and in Vietnam?

The global economy during Coronavirus pandemic

The Coronavirus outbreak is like a “heart attack” to all countries. The world economy is predicted to go recession this year with the loss of trillions of dollars. According to the news analysis from United Nation Conference on Trade and Development, developed countries will face a drop of $2 to $3 trillion in foreign investment in the next two years. Global finance is suffering immense strain as Gross Domestic Product (GDP) of advanced economies is forecasted to decrease from 0.4% to 1.2% compared to the same period last year.
Businesses performance during Coronavirus crisis
The second biggest economy in the world suffers the hugest loss and it can be understandable because the Coronavirus outbreak stemmed from Hubei province and has lasted for more than 2 months. Not only China but other countries in the world also have been affected in terms of the financial and medical systems when the outbreak spread and became a global pandemic. Take Italy, Spain, and the United States as typical examples. 

The Vietnamese economy situation in Coronavirus pandemic

So, how about the Vietnamese economy? This part will provide you insights into the effect of Coronavirus on the Vietnamese economy. We will view on five perspectives: Gross Domestic Product, Employment Indicators, Consumer Price Index, Central Bank Minutes, PMI Manufacturing & Services.

Gross Domestic Product

Vietnam witnessed a slight increase in GDP in the first quarter of 2020, recording 3.82% yet this is the lowest number of GDP in the period of 2011 – 2020, according to General Statistics Office of Vietnam (GSO). In the picture of economic growth in the first quarter, merely some service sectors maintain the stable growth rate including finance and banking, information and communication, medicine and public support with 7.2%, 7.78%, and 9.97% respectively. It can be said that it is positive signs in the Vietnamese economic outlook 2020. 
Besides the bright side, we can not ignore hurdles faced by the whole economy as 42% of businesses confirmed they are in hardship. For instance, the textile industry finds it hard to import materials and look for market input. To get the target of economic growth this year, the government should prepare in advance solutions before and after the pandemic. The target of 6.8% GDP increase can only be achieved if:

  • COVID-19 is controlled in the second quarter
  • African swine fever is successfully under control
  • The processing and manufacturing industry provides sufficient materials for production.
  • The government has solutions to release public investment capital and support appropriate tax regulations, fiscal policies for businesses, production households; the supply chain is ready to meet the high demand after the COVID-19.

Employment Indicators

Under the pressure of COVID-19, enterprises face a lot of challenges. The number of companies temporarily closed reach 18.6 thousand, which is 26% higher than that of 2019. Across 30 provinces, more than 300 enterprises have suspended operations while 553 enterprises narrowed their production or business scale. As a result, 1,000 workers have made unemployed.

Consumer Price Index

Now, it is difficult to keep the CPI under 4% as the target set by the National Assembly. The current CPI is around 5.6%. The two scenarios are updated by General Statistics of Vietnam based on the current situation. Regarding to the first scenario, the average CPI in 2020 will increase by 3.4 – 3.8% compared to the last year, while the average CPI in 2020 will increase by 4.2 – 4.5% in case scenario 2 takes place.

How can business sustain during Coronavirus crisis?
Central Bank Minutes

At the meeting of offering credit solutions, realizing that the Coronavirus pandemic is severely affecting business, production and daily life, the central bank called on credit institutions to ensure that funds are sufficient to meet the demand for credit and support customers suffering from the outbreak. Hence, the Central Bank has instructed credit institutions nationwide to cooperate with local authorities to address problems encountered by businesses and borrowers. Specifically, on March 17, Vietnam State Bank has cut rates to support the coronavirus-hit economy, the refinancing rate will be reduced to 5% and the discount rate has risen to 4%

PMI Manufacturing and Services

According to a research conducted by Nikkei, COVID-19 has negative effects on the manufacturing field in Vietnam with a considerable decrease in production, orders, and jobs. Furthermore, the scarcity of materials and goods from China has posed pressure on the input price so, companies have to pay supplementary costs for the incapability of increasing price. In February, the PMI index in Vietnam has dropped to 50 points, which signals the first decline in 4 years.

Industries “stuck” in the Coronavirus pandemic

Obviously, the global pandemic has been a “shock” to the world economy. Many businesses face the threat of closing their operation. So which are industries getting stuck in the outbreak? Three sectors suffering huge loss are tourism, F&B, fashion and beauty, and real estate.

Tourism and hospitality

According the Ministry of Transportation, the loss in February due to the COVID-19 is more than 1.62 billion USD, much higher than the estimation of 1.08 billion USD. Moreover, based on the statistics from GSO, merely 1.2 million international tourists come to Vietnam in February, which is 37.7% lower than the number of visitors in January.  Mr. Nguyễn Tuấn Việt, general manager of luxurious hotels and resorts chain in Hanoi said that: “Many hotel and resort chains have to cut off human resources due to lack of customers. We only keep core teams to run the business, and departments such as sales, marketing, and operation have to temporarily close because of the decline in KPI.

F&B

F&B sector is also affected. A lot of famous restaurant chains have been closed such as Kichi Kichi, Otoke Chicken, Gogi House… In addition, the policy from the government requesting all restaurants, bars, and heritages to shut down definitely affects these businesses.

Fashion and beauty

The fashion and beauty sector is struggling because people now are prioritizing essential products. The revenue decreases to 50% and beauty spas have to cut down the number of staffs. 

Real estate

Real estate projects are pending. Investors find it hard to withdraw from these projects. Ineffective marketing campaigns, high borrowing interest, bad debt are drawbacks which makes the real estate market become more difficult. 

Industries “take benefits” from the Coronavirus crisis

On the other hand, some industries take benefits from the Coronavirus. In fact, all industries go through the hardship, but some sectors seem to encounter less difficulties than the other. So what are they?

Pharmaceutical industry

When the Coronavirus started to spread to Vietnam (January 2020), Vietnamese people began to seek for hand sanitizer and facial mask. The demand was suddenly high, which led to the shortage of the two items in many pharmaceutical stores. Therefore, pharmaceutical stocks are experiencing an augmentation as the fear of Coronavirus. Moreover, the outbreak has led to the fall in benchmark VN-Index by 6.4%, but the pharmaceutical industry is witnessing stock prices rising sharply
In particular, enterprises that are able to import medicines and companies which supply and produce medicine machines take many benefits. While the other enterprises producing domestic medicine and functional foods will not take advantage of the outbreak.

E-commerce

Since the government requests all citizens to stay at home as much as possible, restaurants or clothes shops have to turn to online selling. Hence, online shopping and dropshipping today are preferential. COVID-19 has changed consumer’s behaviour. Consumers would like to stay away from crowds and go to supermarkets in case they need to buy something. As a result, online shopping becomes an ideal choice amid the Coronavirus pandemic. According to research done by Mekong Research, 76% of customers have bought items online at least one time during the first three months of 2020. It is predicted that the growth rate of e-commerce will increase in months later. 

Water and electricity

SSI assessed that there are four industries that could benefit from the pandemic including pharmaceuticals, information technology, electricity and water. It can be understandable because people would like to stay at home, then the demand for using water and electricity would be higher. 

The Automotive industry may have benefits in short terms

Due to the pandemic, Chinese business is temporarily closing its operation, which may reduce the competitiveness in our market. Firms from other countries will have chances to attract buyers. 

What should businesses do to survive in Coronavirus pandemic?

Giant corporations may have enough capitals to support employees during the pandemic while small and medium enterprises (SMEs) have no free cash flow, then they should prepare plan B to help the business survive. 

Cut down operation cost

Employers can consider suggestions:

  • Cut the working hour and maintain the number of staffs or convert full-time to part-time employees. 
  • Change the working shift, for instance, one employee can work 2 weeks, take one week off.
  • Work from home and have online discussions to reduce transportation costs.

Follow the sanitation guideline for the office

Plenty of enterprises follow the guideline from the Ministry of Health to protect employees’ health from the threat of COVID-19. Besides, health declaration is suggested to help employers manage which employees should work from home or self-quarantine with a view not to affecting other coworkers.

Implement research and develop new products 

It is time for brands to raise brand awareness if brands join in community support activities to assist the government in fighting against the Coronavirus pandemic. Let’s take some examples. Some education centres implement online classes via Zoom meeting, ClassDojo or Google meeting when students can not come to offline classes. Moreover, with online courses, parents can also join virtual classes to keep track of assignments and progress of their children. 
Business implement new product during Coronavirus crisis
Coca-Cola in Vietnam has temporarily stopped the advertising and contributed revenue of marketing to the national budget in order to aid the government. This decision of Coca-Cola has won consumers’ affection. Twitter Bean Coffee will serve 8,000 to 10,000 cups of coffee for free attached thankful messages to doctors at the frontlines. 

Implement important tasks which have not done

A lot of businesses make use of the time to re-design the website or make portfolios. It is also time for employers to reflect the business development plan after the pandemic. 

You can find further information about FDI guide in Vietnam 2019 – 2020.
To sum up, the Coronavirus pandemic is a “shock” to the world economy. Many Vietnamese companies are on the edge of closing their business because of a lack of revenue and capital. The problems come to all of us and we need to stay strong and be positive to overcome this hardship. Wish you all be healthy. 

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