Enterprises need breathing machines, too
By Assoc. Prof. Nguyen Khac Quoc Bao(*)
|Up to 60% of HCMC's GDP (Gross Domestic Product) comes from the service sector; yet it has almost come to a halt because of the social distancing, which is both prolonged and stricter – PHOTO: LE VU|
Mechanical ventilators help Covid-19 patients maintain respiration after their lungs have been damaged by the coronavirus. From the economic viewpoint, it is almost the same when the economy is more ailing and enterprises are exhausted. Without timely and effective measures, the current situation would get even worse.
Businesses are the kingpin of the economy and one of the key factors which help Vietnam win a "dual goal," which is disease prevention and high economic growth, in 2020. It was the resilience and flexibility of businesses—particularly those in the private sector—which shored up Vietnam during the social distancing orders imposed to fight the pandemic last year. Accumulation and provisions saved after a long time have assisted businesses in withstanding crises, maintaining trade and production, and ensuring the people's livelihoods and contracts signed.
However, a year of fierce battles against the coronavirus and the current brutal showdown with the fourth attack of Covid-19 are using up what is left to the corporate sector. Statistics show that the number of businesses withdrawing from the market is on the rise, especially smaller ones. More than 70,000 enterprises have stopped operation, 25% higher than in the same period of last year. Over 35,600 enterprises temporarily put on hold their operation, a rise of 22% year on year, accounting for almost 51% of the number of businesses withdrawing from the market in the first half of 2021.
The army of businesses would definitely find it harder to remain operational when trade and production have to be restricted to comply with regulations on pandemic combat. In reality, few businesses are able to meet the three "on-the-spot" conditions (working, eating and resting on the spot) and the "one path with two destinations" (from the workplace to the gathering point and vice versa). For those that are, costs will be higher while productivity goes down because production processes are no longer normal, which will deteriorate efficiency and competitiveness.
In the meantime, inflation is picking up, which in turn will surely drive up businesses' input costs. Global prices of materials and commodities are rising swiftly. By the end of June, prices of non-fuel goods—including agricultural raw materials and industrial inputs—had jumped by almost 40% over the year-earlier period. A further breakdown shows that prices of input materials for industrial manufacturing increased nearly 70% while those of raw agricultural materials rose by 30%. Fuel prices also surged 110% due mainly to reduced supplies. The CPI (Consumer Price Index) graph showing inflation expectations tends to soar.
Reversely, the PMI (Purchasing Managers' Index)—which represents the number of purchasing orders of the manufacturing sector—declined dramatically, standing at 44 points in June, which is an indication of shrinking production and trade.
Therefore, without ample and efficient support measures, the situation would definitely become worse. When adverse factors of the macro-economic environment combine, they will exert even a bigger impact on enterprises. Then, the number of firms that have to be temporarily "quarantined" or shut down for good is likely to rise in the context of worsening pandemic and the lag time of the economy.
Although a host of policies on the support for business have been worked out and implemented, their real impact is limited. Delayed debt and tax payments and interest cuts together with the aid packages worth VND62 trillion have little effects given the current context.
This time, aid packages must be bigger in scale because the corporate sector's health is not good now as it was last year. Meanwhile, the number of businesses in need of support is greater. Furthermore, it is necessary to make classifications and appraisal of companies' situation to come up with appropriate support policies. The idea here is similar to the healthcare sector's classification of Covid-19 patients, which categorizes businesses into those that can manage things themselves, those cannot, those in need of priority, and those having to undergo restructuring and even those that have to stop operation. Although this is a comprehensive strategy which requires quite a few resources, a hesitation in implementing it while letting businesses go their own ways would pay a high price.
Business environment is likely to deteriorate
Last week, Hanoi imposed a social distancing order in line with Directive 16 of the Prime Minister. Prior to this date, 19 southern provinces and cities, as well as several provinces in the central region, had activated Directive 16. HCMC, in particular, has had to restrict economic activities to prioritize pandemic prevention for two months.
Compared with last year, the currently effective social distancing is more stringent, longer and wider in space. More importantly, the Delta variant has spread extremely rapidly in Vietnam's key economic hubs, such as HCMC and Hanoi, and, previously, Bac Giang and Bac Ninh, the suppliers of industrial goods and significant intermediate commodities for the value chain and production lines of factories nationwide.
HCMC—which accounts for a quarter of Vietnam's economic scale and a third of the national budget—is the hardest hit locality in this fourth wave of Covid-19 attack. As the "locomotive" has to apply a hard break, the entire train would lose its speed and it would take some time for the whole train to regain the pace because economic activities always have a lag time.
Public investment, export and domestic consumption are considered the pillars that propped up the economy last year. However, these resources are weak at present and not likely to play their role as they did a year ago.
The first half socioeconomic report and the second half plan of the Government indicate that allocation and disbursement of public investment are at a snail's pace. During the first six months, only less than 30% of public investment was disbursed versus the schemes, 5% lower than in the same period of last year. Likewise, export failed to meet targets while trade balance moved towards deficit.
The remaining factors—domestic consumption and the private sector's investment—are declining substantially due to the fear of the pandemic permeating through the community. That the 19 southern provinces and cities and Hanoi are in social distancing would deal a major blow to consumption and investment in the coming months, which means that the economic lag may extend to the end of the year. More significantly, up to 60% of
HCMC's GDP (Gross Domestic Product) comes from the service sector; yet it has almost come to a halt because of the social distancing, which is both prolonged and stricter.
Meanwhile, no clear-cut macroeconomic measures which ensure the smooth flow of economic activities have been seen, except for the fact that all will depend on vaccines. Even Vietnam's vaccine strategy can be implemented according to which 70% of the population will be fully inoculated by March 2022 to attain herd community, economic prospects are by no means certain. As no vaccines have a 100% effect, the rate of inefficiency plus people who are not given a jab may be big enough to cause new waves of infections that are detrimental to the healthcare system and make the economy highly vulnerable again.
The above fear is evident in several countries—such as Britain, France and Israel. Although these nation's vaccination rate has been obtained, they are still facing a return of infections and new waves of attacks.
Therefore, only when specialty drugs for Covid-19 treatment are available, widely accepted and mass produced will the economy return to the "old normal," which is much clearer to the vague "new normal" term. From now to that time in the future, the corporate sector's health should be taken care of as opportunely as the fight against the pandemic is if Vietnam wishes to achieve the "dual goal."
(*)University of Economics HCMC
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