|Tuan Ho - Senior lecturer, University of Bristol |
This picture is the opposite to what the rosy GDP, inflation, and industrial production figures just released by the General Statistics Office (GSO) illustrate. To me, the empty streets are an early indicator of the difficulty the economy will encounter in the next few months, which the statistics fail to capture.
One of my LinkedIn contacts, a Japanese engineer working for a company with nearly 400 employees, told me that his company has run out of orders for the next month. People may think that the pandemic outbreak is only serious in Ho Chi Minh City, but a lot of contract negotiations and business deals in all other regions in Vietnam actually come from the city.
The half-year GDP growth figure of 5.64 per cent reflects the results of economic orders and contracts settled months before the new outbreak took place. The decline of new contracts, production stagnation, and expected drop in dining and leisure expenditure will be reflected in the following quarters.
In other words, the rosy economic statistics in the first half of the year have not given us a reliable outlook about the economic impact of the current outbreak.
The half-year economic report of the GSO also raises a number of concerns. Inventories of the processing and manufacturing industry increased 24.3 per cent over the same period last year. The number of business closures also increased significantly compared to last year, with the number of companies completing dissolution procedures increasing by a third.
The recently released Purchasing Managers’ Index also sends a warning signal. The index fell to 44.1 in June, the biggest drop in more than a year. The fact that this index fell below 50 shows that surveyed enterprises are quite pessimistic about the future. These indicators suggest that the economic picture is not as bright as the near 6 per cent GDP figure indicates.
Some wondered why the stock market still rallied during such tough economic times. A significant part comes from businesses that have dissolved or stopped operating. Even some listed companies also invest heavily in stocks as their main operation is adversely affected.
A very close friend of mine temporarily closed his food service company with six cafes and restaurants in Ho Chi Minh City and put more than VND100 billion ($4.3 million) into stocks. Nearly 100 employees of his business have lost their jobs, hopefully temporarily.
Another friend running a business in the textile industry is more fortunate. His business has received full orders up until the third quarter of this year, thanks to the good progress of the company’s main export markets. However, he has faced the risk of labour shortages and delayed delivery. Instead of worrying about closing down business or lack of orders, he is concerned about being fined due to delays in delivering orders.
Stories around the tourism, aviation, hospitality, and leisure industries suggest that the services sector is in a difficult situation. Even the more optimistic part of the economy, such as the textile industry, is facing serious risks due to supply chain disruptions and labour shortages.
In such a context, small and micro enterprises will face more difficulties than large ones with better access to capital and stronger political connections. They can also have more market power to renegotiate orders with customers.
In March, the Vietnam Chamber of Commerce and Industry also published survey data showing that out of 8,633 domestic private enterprises participating, 87 per cent said they were negatively affected.
The obstacles caused by this outbreak may be more widespread in some provinces as supply chain disruption and business stagnation in a national business hub like Ho Chi Minh City is likely to have spillover effects elsewhere in the country.
While small business owners and average income earners will still be able to overcome hardship, the working poor are struggling. They are borrowing to pay for their children’s tuition fees and take care of the elderly. When their children have to study from home, they have to borrow money to buy computers.
Suitable stimulus required
To operationalise Vietnam’s pandemic-fighting philosophies, a large public spending package is required. Vietnam has passed the point where low-cost pandemic prevention is possible. The government was able to prevent the pandemic while the economy was less severely affected last year. This year, that is no longer an option. Without an appropriate stimulus package, Vietnam risks falling into the trap of its own success.
There are four key pillars of the new stimulus package that Vietnam could embrace. Firstly, don’t leave the poor behind. There should be a support package for the poor with the simplest possible procedure. Financial aid must reach the people who need it the most, as fast as possible. Based on the experience last year, it is not just a matter of having enough money, but the government also needs to make sure the disbursement is fast.
Secondly, there should be a special stimulus package for micro and small businesses. While large corporations like Vietnam Airlines have received large funding, smaller enterprises are facing great difficulties since last year, especially in tourism and hospitality.
From the experience of other countries, special loan packages and tax reductions are necessary. If Vietnam wants to achieve its goals, it must have a business support package and make sure that large corporations with excess money cannot take advantage of the support package much needed by the poor.
Next, additional spending to improve the health system’s capacity to improvise, test, and care for patients must be provided. One lesson from the UK in dealing with the pandemic is that, in addition to early preparation for vaccines, they also improved the capacity of the health system. The UK built up a healthcare system that could withstand an outbreak of more than 30,000 cases a day.
Lastly, Vietnam needs a concrete plan to invest in infrastructure and new industries. The country cannot achieve sustainable economic growth just by bailing out the economy, but it must also take this opportunity to renew the public investment plan, targeting industries like biomedicine.
If the first three pillars are to create a defensive position against the pandemic, the fourth fiscal expenditure pillar is the main offensive spearhead, forming a public investment strategy appropriate for Vietnam’s pandemic-prevention strategy
Based on the experience of this pandemic, we need to ensure that we can be self-reliant in producing vaccines as well as be able to supply vaccines to other countries when needed. Like energy or food security, this should be seen as an key investment to ensure national security in the future.
When it comes to energy security, investing in renewable energies is essential for any country in the next decade. Markets like Japan, the US, Europe, and China are all in the race. Renewable energy and green industries are where the growth is expected to be in the double digits for the new decade.
In addition, as many workers may continue to work from home after the pandemic, Vietnam is facing an opportunity to provide remote support services for countries in sectors where there is a shortage of skilled workers, such as AI. To capitalise on this opportunity, investment in human resources training of these industries cannot be delayed.