Committed spending will raise those at risk out of the doldrums
Committed spending will raise those at risk out of the doldrums
Prime Minister Nguyen Xuan Phuc recently signed and promulgated Directive No.11/CT-TTg on urgent tasks and solutions to help businesses overcome difficulties caused by the COVID-19 outbreak. Ken Atkinson, founder and senior board advisor at Grant Thornton Vietnam, assesses the impact of the economic measures to facilitate businesses in the face of the global pandemic.
Ken Atkinson, founder and senior board advisor at Grant Thornton Vietnam
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First and foremost, we really need to put matters into perspective and try to avoid any unnecessary panic, as Vietnam has done and continues to do a great job in terms of containing the spread of the virus. So far the number of cases is much lower than most of our regional neighbours and so far there have been no fatalities.
The government has been working hard and in addition to efforts on the medical front they are also evaluating how to help support business. Directive 11 is a move in this direction and covers a broad range of measures. This can be considered timely, in view of the strains being put on government departments with containment and prevention being the initial primary focus and certainly much needed to support businesses.
The measures outlined in Directive 11 are fairly wide-ranging but all positive and designed to support business generally. Some of the measures are not new and have been in process for some time, such as removing obstacles and reviewing and cutting administrative procedures. Hopefully more attention will be focused on these matters as a result of the directive, and in particular for industries that have been hit the hardest in the initial phase of COVID-19 like aviation, ground transportation, and tourism and hospitality.
However, as those of us who live here know there is often disconnect between the good intentions of central government and implementation and understanding at a local level. If government efforts and measures are to achieve the desired results, these issues need to be addressed.
Of course whatever measures are taken will not alleviate the immediate challenges faced by various sectors of the economy, for example tourism and hospitality. No measures are going to bring back tourists until regionally or globally COVID-19 is seen to be under control and such enablers like visa exemptions are reinstated and quarantine requirements removed.
Tourism numbers have dropped dramatically (well over 50 per cent) and are set to drop further with the temporary withdrawal of visa exemptions from European countries and total loss of inbound visitors from our three largest inbound markets of China, South Korea, and Japan.
Certainly helping speeding up the disbursement of investment capital and committed public spending on infrastructure will help support the economy generally, as will any measures to assist the import and export of goods, to keep production moving. In fact, trade volumes held up well in the first two months of the year in spite of the outbreak, largely due to mobile phone exports and in particular Samsung’s exports and move of some manufacturing to Vietnam.
The main things that business needs generally and the economy needs is keeping people in jobs and generating income, so the focus needs to be on helping companies weather the downturn in business, reducing costs of doing business, and encouraging people to spend. Therefore, reducing and/or deferring corporate income tax, social and health insurance costs, and value-added tax are critical, as is the acceleration of public investment as called for under Directive 11.
Several potential measures have been suggested but it seems that we are waiting for further approvals and more detailed implementation measures before these can be put into effect. So swift action on these is recommended as keeping people employed and incentivising companies to minimise layoffs is also a key to supporting business and the economy. Similar measures were introduced during the SARS crisis so we already have a template for these measures which were applied successfully at that time.
Access to working capital loans and rescheduling of existing loans for financially sound businesses is also imperative, as addressed as part of the credit support package announced by the State Bank of Vietnam, but this needs to cover well-managed and viable small- and medium-sized enterprises as well as big business.
Unfortunately, most lending in Vietnam is asset based, whilst many of the businesses needing financial support will probably not have assets to pledge to secure emergency funding and this is something that will have to be addressed by the government.
In fact, if the outbreak lasts over six months, nearly three-quarters of firms in Vietnam could go bankrupt as their revenues will fail to cover operational expenses, according to a survey by the Private Economic Development Research Board with the Government’s Advisory Council for Administrative Procedure Reform.
The next step major step after prevention and containment and immediate support for business is to prepare marketing and promotion plans, to be implemented as soon as we see that COVID-19 is under control and the number of new cases starts to fall globally. This will be important especially for such sectors as tourism, transportation, and trade so plans need to be ready to be implemented at the press of a button to let the world know Vietnam is again open for business.
However, with the new measure to suspend visa exemptions for several countries, along with e-visas too, the message is clearly that Vietnam is closed to visitors from Europe and other countries with a high number of cases.
So this will make it harder to reinvigorate trade and tourism from those countries, when e-visas and visa exemptions are reinstated. This is a good illustration of the dilemma facing the government, when having to make conservative decisions regarding containment and prevention versus business needs.
In addition, there needs to be a reliable source of up-to-date information regarding such things as changes in and travel restrictions, areas that are quarantined, advice on containment and prevention. This source needs to be widely publicised to avoid the spread of false or inaccurate information to business and the public at large. The foreign business chambers would be a good vehicle for distributing information to foreigners living and working in Vietnam.
To conclude, the situation is of concern to all of us but I personally see no need for panic and COVID-19 needs to be kept in perspective. Businesses should have proper contingency plans in place in case of quarantine requirements for staff and/or offices.
The government will need to look at financial and non-financial measures to support business, and the government and private sector will need to have appropriate plans in place for promoting Vietnam and the fact that the country is again open for business.
It will be difficult for many businesses and for families with loved ones diagnosed with the virus but Vietnam has shown resilience in the past and also has a good track record in containment, prevention, and treatment.
