Risk of manufacturing halt
According to the Ministry of Industry and Trade (MOIT), many domestic manufacturers reported that their foreign partners have extended delivery times and suspended orders in April and May while orders from June onwards are not on the table.
Garment, footwear and timber manufacturers face a double hit as input materials have only started to improve since mid-March but now they are encountering difficulties in selling their products as the EU and the US remain gripped by the coronavirus epidemic.
Timber production has been hardest hit as the US accounted for 50% of its exports. Vifores, which represents the timber industry in Vietnam, stated that many enterprises have had to reduce their capacity and if the situation does not improve in the next one or two weeks, they will have to cut capacity by 70%. A month later, production for export orders will be stopped completely while production capacity for domestic consumption will be kept at only 10-15%.
The garment and footwear sectors are in the same situation, with 90% of their products aimed at export while only 10% are for the domestic market. It is estimated that garment orders will plummet by 70% in April and May and will not recover until the end of next year. Footwear companies are expected to see a similar reduction in orders from the EU and the US, and they can only maintain operation until the end of April if the situation does not improve.
With nearly one quarter of Vietnamese total export revenue coming from these two industries, the country’s overall export performance is bound to be deeply affected.
Some other important sectors such as electronics are also projected to be badly hurt in the coming quarters of 2020 as the coronavirus epidemic in the EU and the US can slash demand for electronic devices. In the seafood sector, the ratio of orders delivered on time is just 30-50% while 20-40% of orders have been asked to be suspended or cancelled. It is now very difficult to secure new orders, with virtually none in the second and third quarters for small and medium enterprises.
Opening export channels
In order to support domestic manufacturers, the MOIT stated that it is implementing urgent measures and considering other solutions in the longer run. First it will focus on diversifying export markets, looking for new markets suitable with Vietnam’s strengths and giving priority to markets with preferences from existing free trade agreements. Vietnamese trade missions abroad have been tasked with learning about the import demands where they are stationed and communicating regularly with domestic associations and large manufacturers in order to understand their production plans thoroughly and connect them with foreign partners.
For the EU market, it is necessary to complete the procedures to soon ratify the EU-Vietnam Free Trade Agreement and prepare for its immediate implementation when it comes into force.
For the US market, the relevant agencies and the business community need to closely study the US$2 trillion stimulus package approved by the US government in order to devise appropriate export plans, while it is also necessary to continue adequately addressing issues in bilateral economic, trade and investment relations.
With regards to China’s recent tightening of trade activities due to concerns over the return of the epidemic through border areas, the MOIT will continue to arrange talks with the Chinese side to accelerate the addressing of obstacles to ensure seamless trade between the two countries.
The MOIT has also suggested that the Ministry of Agriculture and Rural Development should work with the Chinese side to expedite the clearance of some Vietnamese agricultural goods to this market. It is a highly important basis to bolster Vietnamese agricultural exports to the world’s second largest economy in the time ahead.
