About 67 per cent of surveyed banks believe they will lose market share within two years if they fail to digitally transform, according to a new…
Some 58 per cent of global respondents predict that they will completely cease to exist in the next five to ten years unless they change their business models. — Photo bnews.vn
About 67 per cent of surveyed banks believe they will lose market share within two years if they fail to digitally transform, according to a new report from cloud banking platform Mambu and The Financial Times Focus (FT Focus).
The 'Evolve or be extinct' report was conducted by FT Focus and surveyed over 500 senior banking executives globally to gain insights into their perception of the banking industry, now and in the future.
The results illustrate the urgent need for banks to modernise their offerings, with 58 per cent of global respondents predicting they will completely cease to exist in the next five to ten years unless they change their business models.
Pham Quang Minh, General Manager Viet Nam at Mambu, said: "What we are seeing in Viet Nam in particular is increasing demand for online and mobile banking services from consumers that is driving digital transformation of banks. Online transactions in Viet Nam for the first four months of this year jumped 66 per cent compared with the same period last year, which has been accelerated enormously by the pandemic."
"There's also been a huge increase in the use of e-wallets, payments via smartphones and QR codes, and high demand for 'instant credit' solutions such as Buy-Now-Pay-Later, particularly among those segments of the population that remain unbanked or underbanked. Viet Nam's consumers are demanding digital financial solutions, and our industry is rising to the challenge, with banks like Timo, TNEX and Cake at the cutting-edge of digital banking gaining attention around the world. This is an exciting time for Viet Nam, but as this research report shows, those banks that are reluctant to take a digital leap risk becoming extinct."
Looking more closely at Asia Pacific, the FT Focus report indicates that the region is lagging behind other regions on transformation, however, APAC banks are taking steps to 'catch up' to the rest of the world, with plans to increase investment in big data, machine learning and blockchain at significantly higher rates than other regions.
Myles Bertrand, Mambu's Managing Director APAC, said: "The research illustrates how the banking industry is diverging on its approach to digital transformation. While less than one third of APAC banks describe their digital transformation strategy as mature or advanced, there's an emerging cohort of digital 'evolvers' that is bucking this trend and really leading the way. These forward-thinking players are setting a blueprint for the rest of the industry to follow while demonstrating the business case for a customer-centric approach.
"And while the strong commitment from APAC banks to increase their investment in new technologies is very positive, banks in the region also need to change the way they approach innovation, and start proactively embracing new partnerships and collaborations. The 'ecosystem' approach has been incredibly successful in other regions, and with half of APAC banks concerned that they lack key internal workforce skills necessary to transform, it will prove very effective here too."
Elliott Limb, Chief Customer Officer at Mambu, said: "The last 18 months have shown banks just how important it is for them to have a robust and agile digital banking offering. And with 53 per cent of those surveyed admitting they're at risk of missing digital transformation targets, it’s time the industry took note of the financial 'evolvers' that are leading the charge in this space. These are fintechs, challenger banks, and forward-thinking traditional players that are prioritising purpose-driven services and great customer experience."
Quang Ninh grants investment registration certificate to silicon wafer project
Authorities in the northern province of Quang Ninh on September 19 to present an investment registration certificate to a 365.6 million USD project of Jinko Solar Vietnam Co. Ltd., an affiliate of the Jinko Solar Holding Co. Ltd.
Construction of the project will start in late September and it will produce its first silicon wafers in December.
Speaking at the handover ceremony, Chairman of the provincial People's Committee Nguyen Tuong Van said it is the second project by Jinko Solar in Song Khoai industrial park in Quang Yen township over the past six months.
Covering an area of 20.1 ha, the project is the highest worth in the province with an aim to manufacture, install and sell single-crystal silicon ingots and wafers, as well as study science and develop technologies.
It has a designed capacity of nearly 1.43 million silicon wafers each year. Once operatioal, the project is expected to attract 2,188 workers, including 1,946 domestic workers and 242 foreign experts and technicians.
Van asked the management board of Quang Ninh IPs, authorities of Quang Yen township, departments and agencies concerned to offer all possible support to the investor in line with the law.
Quang Ninh is expected to licence new projects and adjust capital in existing projects at a total value of some 1.2 billion USD by the year-end, more than doubling the figure in 2020. In the first nine months of this year, the province drew 1.067 billion USD in new and existing projects, compared to 398 million USD in the same period last year./.
National trade deficit with China stands at US$39 billion
The initial eight months of the year saw the country's trade deficit with China reach US$39 billion, a figure which is US$3.8 billion more than in the entirety of last year.
During the reviewed period Vietnamese exports to China grew by 22% to reach US$33.5 billion, accounting for 16% of its total exports, according to data released by the General Department of Customs.
This figure also includes 65% and 46% increases in cellphone and component exports, respectively.
China remained the country's largest source of imports, primarily machinery and equipment, phones and components and raw materials for the textile industry, which surged by 47% to US$72.5 billion.
Last year, the nation was China’s sixth largest trading partner and its fifth largest export market.
Enterprises strictly manage cash flow and make use of all financial resources
As the Delta variant of COVID-19 spreads, significantly disrupting production, firms are either experiencing or anticipating constraints on cash and working capital.
In this regard, enterprises have to strictly manage cash flow and make use of all financial resources.
Mohammad Mudasser, Deals Director of PwC Vietnam, said cash flow scrutiny was crucial for businesses which were seeing their revenue decrease.
In addition, PwC Vietnam said delayed receivables collection and earlier payment settlements have resulted in tightened cash flow for many businesses. Therefore, managing cash pressures in uncertain times is vital.
Mudasser said: "We are living in extraordinary times where business as usual is being redefined. In a disrupted world, cash flow control becomes critical. A Treasury function can help prioritise future spending based on operational necessity, evaluate alternate financing mechanisms (like supply chain finance) and use data and analytics to enhance transaction/credit risk management.”
At a seminar to seek solutions to manage cash flow and maintain liquidity in difficult times, many experts and entrepreneurs agreed that tight cash flow management, creating good liquidity along with mobilising all financial resources are very important for businesses at this time.
Nguyen Thai Hanh Linh, deputy general director and CFO of Bibica Joint Stock Company, said that in the past few months, Bibica’s revenue has dropped sharply, while production costs under the “three on-site” model, logistics costs and employee support costs have increased.
Considering liquidity and cash flow management as key, then firm has applied a centralised cash flow management model, where subsidiaries transferred all cash flows to the parent company which would divide into two to serve the current production and business demand and to reserve for investment and development after the pandemic.
Linh said: "We cannot use up the existing money to maintain operations, and then when the pandemic is over, there will be no capital for development, reopening businesses and subsequent strategies. So we always have a reserve."
In another case, Phu Nhuan Jewelry Joint Stock Company (PNJ) had to close 90 per cent of its stores and had almost no revenue for the past two months.
CEO Le Tri Thong told local media that cash flow to maintain the company’s operations in the past few months was not small, however, thanks to the forecast and provisioning of scenarios in advance, the firm has solutions to turn cash flow quickly as it has worked with domestic and foreign partners to make them pay early since April and May.
Thong said though there was no revenue, it has completed the annual plan from June.
Also thanks to the forecast from the beginning of 2020, Thanh Thanh Cong Group has restructured all business activities, especially corporate governance. The company has also created provisions and reserves to be able to use during the pandemic.
Dang Van Thanh, chairman of group, compared the back-up to dry food that helped the firm stay strong even when it had no revenue for the past three months.
Thanh said: “When the market was stable, the group participated in bonds, promissory notes of banks and we sell them to solve shortfalls in cash flow and create good liquidity for subsidiaries."
Thanh said in corporate governance, financial management was important, helping to manage financial resources for businesses.
He added: "A leader who controls and manages good corporate governance will not let businesses fall into too difficult a situation."
As not many enterprises can create backup financial sources themselves, Nguyen Quoc Bao, chairman of Thanh Cong Mobile, said: "Businesses need to create good liquidity to access banks," adding to create good liquidity they could reduce profits and prices of items so that partners could more quickly pay for them.
Economist Le Tri Hieu said the lack of cash flow has impacted liquidity of hundreds of thousands of businesses, leading many to close.
Besides the backup funds or bank access, the more important thing was to have a plan in the next six and next 12 months, said Hieu.
At the same time, Bao, chairman of Thanh Cong Mobile, said firms should exploit all other financial resources like friends, partners, joint ventures or equitisation of capital.
Bao said: "Working with many people is better than working alone. That’s a way for businesses to save themselves instead of relying too much on bank loans.”
He added businesses should create close relationships with investment funds, large customers, and securities companies so that they can support businesses. In addition, businesses also step on the stock exchange to create cash flow for businesses in the long run, not only to deal with the current pandemic.
Hanoi landlords sell rental real estate to offset losses
Many mini apartments have been put on sale in Hanoi as the rental sector has collapsed during the Covid-19 pandemic.
The real estate market has been bleak since the start of 2021. In July, interest in rental real estate dropped by 20-30%.
The landlords in Nam Tu Liem, Bac Tu Liem, Cau Giay, Thanh Xuan and Dong Da districts have lowered rent by 10-20%, some apartments with previous monthly rental fees of between VND3m (USD131) to VND3.5m now only cost between VND1.8m to VND2.5m. However, they are still struggling to find tenants.
As a result, many landlords have put their apartment buildings up for sale. Hundreds of advertisements have been posted online every day.
A nine-storey building with 20 apartments in Ha Dong District has been put on sale for VND9.9bn (USD432,800) while an eight-storey apartment building with 42 apartments in Hai Ba Trung District has been put on sale for VND20bn. Another eight-storey building in Dong Da District with 25 apartments has been put on sale for VND12bn.
However, not many people have shown interest.
A large number of landlords borrowed money to invest in rental real estate. When Covid-19 broke out, university students returned to their home provinces to study online, while migrant workers also returned home or shared rent to save money. The landlords have had to sell buildings to repay bank loans and interest.
Landlords in Hanoi and HCM City are also worried about proposed increases in VAT and personal income taxes to 10% and are considering leaving the market.
EVFTA promotes French business interests in Vietnam
After being in effect for almost one year, the Europe-Vietnam Free Trade Agreement (EVFTA) has been continuing to open up plenty of fresh opportunities for trade exchanges between the nation and France, thereby attracting French firms to do business in the Vietnamese market.
Upon addressing the event, Michel Suchaut, chairman of the CCI of Saône-et-Loire province, said that Vietnam is currently undergoing economic, industrial, and social changes. Its consumption growth, along with the emergence of a middle class which is expected to account for about 50% of the population by 2035, will create an increasingly strong demand for firms operating in the fields of transport infrastructure, energy, environment, and logistics.
For those reasons, the Vietnamese market has strong potential for French importers, exporters, and businesses in general, especially for those from Saône-et-Loire province, he said.
Suchaut added that the country has similarities with Saône-et-Loire which can contribute to developing the mutual relationship, adding that Vietnam is strategically located in the heart of Southeast Asia, while Saône-et-Loire is also a strategic crossroads in the centre of Europe.
In response, Vietnamese Ambassador to France Dinh Toan Thang underscored the potential and opportunities for foreign investment and international trade activities in the nation.
Along with the EVFTA, the EU-Vietnam Investment Protection Agreement (EVIPA), once officially approved, will create a framework that will boost stable and long-term economic, trade, and investment co-operation. It will also ensure the implementation of trade liberalisation commitments between the country and the EU, particularly with France, thereby creating an impetus to boost the strategic partnership between the two sides, he said.
Participants were updated on the investment and trade development environment in the Vietnamese market, the potential and opportunities that the EVFTA brings to French companies, as well as regulations and issues that businesses must focus on when promoting trade and investment activities.
Thibaut Giroux, president of the French Chamber of Commerce and Industry in Vietnam (CCI France-Vietnam), noted areas which are in high demand in the Vietnamese market. This is in addition to sectors which can be considered French strengths, including food, wine, industrial products, machinery, healthcare, technology, energy, and banking.
He went on to highlight the nation as an attractive market for foreign investors, adding that developing trade and investment relations with the country also means expanding trade with Southeast Asia, a dynamic market that accounts for 10% of the world’s population.
France now represents the third largest EU investor in the Vietnamese market with a total registered capital of over US$3.6 billion, primarily in the fields of industry, manufacturing, processing, waste treatment, and real estate.
It was the fifth biggest importer from the country in the EU last year, with total Vietnamese export turnover to the European nation reaching approximately EUR5.38 billion, equivalent to over US$ 6.3 billion.
During the event, Vietnamese trade and investment representatives also introduced in detail the areas of export strength that Vietnam can fully meet for French importers, such as electronic components, consumer goods as well as unique agricultural products.
Global customers count on continuity
Foreign investors are lauding the government's COVID-19 relief measures, but more will need to be done to help them maintain business continuity throughout the evolving crisis.
Adam Koulaksezian, executive director of the French Chamber of Commerce and Industry in Vietnam, told VIR, "The Vietnamese government has provided a number of relief measures to support businesses during the pandemic. We applaud this initiative and we invite French companies to try to benefit as much as possible from these mechanisms. However, we must underline that there are sometimes operational difficulties that complicate access to these measures."
The chamber's latest survey of 63 French companies in Vietnam shows that some additional measures are necessary in order to preserve many businesses. It includes reducing/suppressing social security contributions and waiving penalties related to late payments. There should be a consideration of a longer term approach to VAT and corporate income tax reductions.
"With regard to financial and banking policies, companies facing difficulties need access to bank loans at a preferential interest rate and debt rescheduling for SMEs that had to suspend their activities and that experienced difficulties," he said.
A French SME in Vietnam's food industry for more than 10 years hopes to gain access to loans at reduced interest rates with a grace period of one year from the date of the start of the recovery and repayment on 4-5 years.
Michele D'Ercole, chairman of the Italian Chamber of Commerce in Vietnam, told VIR, "The majority of Italian companies are still in operation in an unusual business working environment. At the moment, it is a big challenge for any company, especially manufacturers, to maintain stay-at-work production. However, Italian companies are trying our best because we have customers around the world waiting for our products."
He added that Italian investors were facing reductions in profit turnover in August. The costs are increasing to keep workers in the factory and pay everything to maintain the stay-at-work model. Thus, Italian investors welcome any relief measures related to the operation of factories like tax exemption, interest reduction, energy, and rental fee support.
Italian investors already accessed the government's relief measures last year. This year, they will use this small advantage to cope with the pandemic. However, he noted that this is not enough to resolve all of the problems. Ho Chi Minh City and neighbouring provinces like Binh Duong, Dong Nai, and Long An are still facing a harsh situation. The most important thing is to vaccinate the workers as soon as possible in such localities, ensure the free-flow of goods, ease the movement of workers, to get factories back to work as soon as possible, D'Ercole said.
In response to the latest coronavirus wave, the Vietnamese government has announced a support package worth VND26 trillion ($1.1 billion) to support businesses and employees that were severely affected. Another support package estimated at VND24 trillion ($1 billion) relating to tax and fee payments for affected businesses is also being considered.
The government last week launched a new resolution on supporting businesses, cooperatives, and business households in the context of the pandemic. Accordingly, about one million businesses will receive credit support while 160,000 businesses will enjoy extension, exemption, and reduction of taxes and fees. The relief measures will help 50,000 businesses to resume operations in 2021, it is hoped.
The government assigned the Ministry of Labour, Invalids and Social Affairs to guide Vietnam Social Security to study and propose policies to suspend and reduce the payment of social insurance premiums in 2021. Meanwhile, the Ministry of Transport is to coordinate with the Ministry of Finance and the State Bank of Vietnam to develop a plan to support air transport enterprises and report to the prime minister in September.
The Ministry of Industry and Trade will study and report to the prime minister a plan to reduce electricity tariffs for warehouses by logistics enterprises, agro-forestry-fishery processing enterprises, and some commodity industries that enjoyed export turnover of over $1 billion in 2020.
System crafted for ASEAN attraction
A new facilitation framework for ASEAN is being crafted as part of new plans to boost funding from overseas as the region attempts to claw its way out of the depths of the pandemic.
The AIFF points out some practical recommendations for ASEAN country members. In the opinion of Secretary General of ASEAN Lim Jock Hoi, improving investment facilitation processes and procedures is the most important target, which includes improving transparency and predictability of investment measures, streaming and speeding up administrative procedures and requirements, and strengthening coordination and cooperation, especially on cross-border issues.
"The movement of people and capital should be focused on enhancing talent mobility within the region and from outside the region, as well as providing necessary regulations/ framework for movement of people and capital," said the secretary general.
Digitalisation, a modern economy, and sustainability are also on the radar of the bloc through smarter incentives for sectors contributing to sustainable development and leveraging new technologies to attract new economies.
"The role of FDI for economic recovery is quite important, focusing on liberalisation and protection, but less attention on promotion and facilitation, which are the things that the AIFF aims to do," said Hoi.
Several initiatives have been carried out in ASEAN member states to improve FDI mobilisation. Countries such as Cambodia, Laos, and Vietnam have built public-private dialogue mechanisms, established business support centres and one-stop online services, and amended numerous laws and regulations related to business and trade.
Elsewhere, in addition to updating legal provisions, Myanmar is interested in infrastructural development as a key factor in the comprehensive economic recovery plan, which will be approved at the end of this month, and considered as momentum for growth.
And in Indonesia, its investment ministry believes mining will be the country's key industry once it recovers from the global health crisis, hoped to be by early 2022.
FDI flows into ASEAN in 2020 fell by 25 per cent to $137 billion from an all-time high of $182 billion in 2019 due to the COVID-19 pandemic. Despite the decline, ASEAN remained an attractive investment destination, with its share of global FDI rising from 11.9 per cent in 2019 to 13.7 per cent in 2020. The United States is currently the biggest investor in ASEAN with the proportion of more than 30 per cent, even higher than intra-regional FDI. This is followed by Hong Kong (8.7 per cent), Japan, China, South Korea, and Canada.
Seeing the challenges that the COVID-19 is bringing to all economies around the world, Vietnam's Deputy Minister of Planning and Investment Nguyen Thi Bich Ngoc noted some opportunities that the health crisis has opened for Vietnam and its neighbours such as investment relocation and joining more supply chains.
"I recommend that the AIFF should provide some assessment on the recent pandemic outbreaks in ASEAN and its impacts on regional and global supply chains, as well as the moving trend of FDI. Some facilitation solutions involving transport and immigration are quite necessary in this context," said Ngoc.
In the ASEAN Investment Surveillance Report 2020, the growth of the bloc's real GDP in 2020 was estimated at -3.3 per cent, dropping from 4.7-6.2 per cent over the last decade. It is forecasted to recover to 4 per cent in 2021 and 5.2 per cent in 2022.
"However, these forecasts are not all that concrete because of the emergence of new COVID-19 variants and low coverage of vaccinations in some member countries," said ASEAN Secretary General Hoi.
Compared to some other ASEAN nations, Vietnam is still expected retain positive growth in 2021. Registered FDI into the country last year decreased by 15 per cent, albeit stronger than the average drop of 31 per cent in ASEAN as a whole. Registered FDI in the first eight months of the year remained good despite a decline of 2 per cent on-year only.
Over the last decade, Vietnam has been an attractive destination for overseas funding thanks to the impressive registered FDI growth between 10.4 per cent in 2013 and the peak of 81 per cent in 2019, while Singapore reported a growth at 63 per cent over the previous six years and Thailand and Malaysia confirmed a fall in FDI.
Economic impacts in ASEAN since emergence of COVID-19
According to the Asia-Pacific Trade and Investment Trends 2020-2021 of the United Nations Conference on Trade and Development, ASEAN member states were one of the largest subregional sources of intraregional investments in both 2019 and 2020, contributing 35 per cent and 20 per cent of the total in each of the respective years. While intraregional investment from this subregion remained stable at around $48 billion in 2018 and 2019, it has nonetheless significantly dropped off in the first eight months of 2020 to just below $10 billion.
Major disruptions in supply chains along with postponed and cancelled investment projects due to lockdown measures have largely been responsible for this considerable slowdown. Singapore and Thailand were the largest sources of intraregional FDI from ASEAN in both 2019 and 2020, with Singapore responsible for 26 per cent of total intraregional investment emanating from ASEAN in 2019 and 85 per cent thus far in 2020; and Thailand responsible for 17 per cent in 2019 and 13 per cent in 2020.
Intraregional investments as a whole have slowed in 2020 and 2021 due to the pandemic. Although intraregional investments are not expected to rebound before 2022, the recent signing of the Regional Comprehensive Economic Partnership (RCEP) is expected to strengthen flows and lift investment prospects.
Despite large increases in 2019, inflows into ASEAN have significantly tapered off in 2020 in large part due to the pandemic. In particular, as these economies are highly integrated into regional and global value chains in the manufacturing sector, lockdown measures that temporarily halted production have contributed to slowing investment levels.
For instance, Mazda, and Nissan all halted production in Thailand, Ford temporarily slowed production in Thailand and Vietnam, while Toyota temporarily stopped production in Indonesia and Thailand. Similar production shutdowns also occurred in several other sectors, including most notably the textile and apparel sector. These temporary factory shutdowns are expected to translate into lower overall investment levels, particularly reinvested earnings and greenfield investment levels.
Although the crisis has caused a downturn in investment in the subregion, prospects for recovery in the medium and long term remain strong because of the subregion's well-established trade and supply chain networks, growing middle class, and young and educated workforce. The dual pressure of increased automation and widespread demand and supply shocks to global value chains caused by the pandemic has intensified pressure on lead businesses to rethink supply chain dependencies and ways to make them more resilient.
Looking ahead, this may prompt more lead corporations to re-shore or nearshore critical parts and equipment in the short- and medium-term. This will have important consequences for value chain-linked FDI in the subregion's economies as well as more broadly for the subregion's small- and medium-sized enterprises which are both highly integrated into and dependent on value chain networks. Enhanced regional integration through both RCEP and the ASEAN Economic Community will therefore become even more important as it may present alternative and new opportunities for businesses to strengthen their competitiveness. Beyond this, new opportunities may emerge for businesses, with the support of a conducive policy environment, to leverage opportunities to strengthen their competitiveness in new and emerging value chains in digital technologies, such as AI, blockchain and 5G. Source: United Nations Conference on Trade and Development.
Pharma industry picks up the pace in digital
Offline to online trends are being sped up among pharma stakeholders, which is expected to benefit the development of the pharma supply chain in the long run.
"The pandemic has forced stakeholders in industry to go digital faster than ever before," Hoang said.
Thuocsi.vn has resolved this fragmentation by building a pharmaceutical distribution marketplace to simplify the distribution system. The platform has an extended network of 700 verified suppliers, distributors, and manufacturers, serving over 7,000 healthcare providers. This month, the startup has secured $8.8 million in its latest funding round led by South Korea's Smilegate Investment along with Nextrans and Cocoon Capital to expand its operation.
Likewise, POC Pharma also wrapped up a $4.5 million investment in April to digitalise pharmacies in Vietnam. POC Pharma is a technology solutions company offering omnichannel sales management, trade programme systems, remote selling, and proprietary data.
POC founder Thomas Miklavec, whose clients include global pharma firms like Bayer Pharma and Pfizer said, "We help stakeholders in the pharmaceutical industry to mix digital and physical interaction. We put on the table the solutions that enable stakeholders like manufacturers, distributors, small sellers, and pharmacies to implement the digital transition."
Meanwhile, Chothuoctay.com is operated as an e-commerce platform in pharma. It helps independent pharmacies, manufacturers, and distributors to set up shops online to reach more customers.
CEO Huynh Suong said, "Drug trading is a conditional business so to operate in the platform we require pharmacies and manufacturers to provide their licenses. Meanwhile, customers will show their prescriptions if they want to buy any drugs."
Along with digital health startups, big pharma retail chains have also formulated digital transformation strategies. Pharmacity, Vietnam's largest pharmacy chain, has a plan to strengthen its digital infrastructure. In the next five years, Pharmacity will launch a super-app that will provide various services such as e-pharmacist and e-doctor, healthcare records, emergency ambulance booking, and at-home or in-patient care services.
In the latest move, Pharmacity's parent company Maroon Bells issued more than VND1 trillion ($43.9 million) of convertible bonds to fund its upcoming expansion.
Meanwhile, FPT Retail with the backing of tech giant FPT continuously adopts digital tools to optimise product management for the Long Chau pharmacy chain. By using technology, staff at Long Chau can quickly locate the position of each drug box to give to customers. Meanwhile, its real-time system can monitor the expiration date of its 5,000 products, thereby cutting the cost of disposing of expired drugs. As a result, Long Chau has quickly improved its services and scaled up its presence with nearly 300 outlets.
According to the Digital Health in Vietnam report by KPMG, innovation and technology have touched many aspects of life in Vietnam and healthcare is no exception. In a concerted effort to embrace Industry 4.0, the Vietnamese government has committed to a national agenda that seeks to harness the potential of digital solutions across the health system. This has set a solid foundation for digital transformation in Vietnam.
In an age of growing challenges from non-communicable diseases and emerging threats from infections such as COVID-19, digital health has the potential to offer new solutions and alleviate pressure on overstretched health systems.
Market research firm IBM forecasts that the entire scale of the Vietnamese pharmaceutical industry could reach $7.7 billion by the end of 2021 and up to $16.1 billion by 2026, and the compound annual growth rate could reach 11 per cent. According to IQVIA, the total value of pharmaceutical products consumed in Vietnam will continue growing in 2021, estimated at VND123.6 trillion ($5.42 million), an increase of about 8.0 per cent compared to the same period last year.
Long-term prospects outlast supply chain concerns
Vietnam's rising involvement in global supply chain networks has been hampered by the pandemic, but its increasingly important role in the long term is not judged to be at risk.
The bottlenecks in the supply chain are causing numerous difficulties in terms of production activities for the surveyed companies such as higher input prices, longer waiting times, and even production interruption and operation halts.
The survey covered 3,000 German companies in various countries across all sectors. It pointed out that 90 per cent of German companies in Vietnam said seeking new or additional suppliers in Asia-Pacific and raising inventory levels are relevant solutions. Half of the companies surveyed have had no choice but to increase the manufacturing prices of their products, or they intend to do so.
Despite the challenges, Marko Walde, chief representative of AHK Vietnam, told VIR that Vietnam still plays an increasing role for German businesses as a manufacturing base in the mid-term. Thanks to the EU-Vietnam Free Trade Agreement, Vietnam is becoming increasingly essential for German investors in the Southeast Asia region.
Meanwhile, Prime Minister Pham Minh Chinh recently hosted a reception for Chargé d' Affaires of the US Embassy in Vietnam Christopher Klein, as well as a number of US businesses and investors in this country. At the reception, the US representatives voiced their concerns about some challenges in sustaining the global supply chain from Vietnam, including transportation, production, administrative procedures, tax and fees, access to COVID-19 vaccinations, and foreign expert entry and travel visas.
The businesses stated that they want to make long-term investments in the country. Nonetheless, they expected future protocols at the local level to be more effective, detailed, and responsive to avoid supply chain headwinds.
Supply chain complexities are increasingly mounting as Vietnam is battling with its largest-ever coronavirus outbreak. In August, Vietnam's economy fell for the fourth month in a row, marking the country's longest period of recession since the pandemic began, according to the ANZ Vietnam Activity Tracker.
While the number of COVID-19 cases has generally been on the increase every day for the past few weeks, vaccination rates are still low. The vaccine campaign accelerated in the early half of August but has since decreased. Only over 20 per cent of the population has received their first dosage, and only 3 per cent of the population has been fully vaccinated, the lowest rate in Asia.
Last week, Hanoi in particular kick-started its vaccination drive in an attempt to reverse the trend, with wide-scale programmes taking place across various districts.
Analysts Dhiraj Nim and Khoon Goh at ANZ wrote that the pressure on exports is of particular concern in light of the weakening growth forecast. Specifically, exports had been the mainstay of growth until the ongoing pandemic wave caused manufacturing hubs to shut down earlier this summer.
In spite of the present deep slump in the domestic demand, the analysts still highlighted the role of Vietnam's longer-term prospects in the global supply chain. "Beyond the near-term concerns, Vietnam's medium-term economic prospects remain favourable," they wrote. "The pandemic has had no effect on the country's appeal as a manufacturing hub. There's also plenty of room for policy support to help the economy recover even more."
Filippo Bortoletti, senior manager of International Business Advisory at Dezan Shira & Associates, told VIR, "Due to restrictions imposed by the government to contain the pandemic, bottlenecks in the logistics infrastructure are hampering local manufacturing industry as manufacturers are challenged by the cumbersome restrictions and regulation on the circulation of goods. In the coming period, manufacturers shall implement safety measures at the workplace and devise appropriate contingency plans in case of outbreaks inside the factory."
While the outbreaks have slowed down the scaling up of manufacturing orders in Vietnam, Bortoletti trusted that such delays are only temporary. "They have made multinational corporations realise it is paramount to diversify geographically to mitigate the risk of supply chain disruptions," he explained.
"As soon as the situation in Vietnam stabilises, then orders are likely to flood into Vietnamese manufacturing as forecasted by analysts and as planned by such multinationals before the current coronavirus outbreak emerged."
Localities attempt to buck funding trend
An increase in financing for operational projects so far this year is demonstrating foreign investors' trust in the local investment environment and the efforts of localities in improving the business community.
At the same time, the southern province also licensed South Korean paint manufacturer KCC Vietnam Co., Ltd. to adjust an additional $30 million to expand its manufacturing line, increasing the company's capital in the province to $111 million.
They are only two of numerous added-capital projects approved in recent months. In Dong Nai, a majority of foreign-invested enterprises are operating at between 25 and 60 per cent capacity compared to before the summer pandemic woes began. However, they are still determined to expand operations with the trust that the current situation can ease before the end of the year.
"Foreign investor expansion is a part of their long-term plans in the province. Along with trust in the investment environment here, they see the potential in Long Thanh International Airport, which is undergoing construction," Le Van Danh, deputy director of Dong Nai Industrial Zones Management Authority, told VIR.
"The province supports maximum favourable conditions for investors to develop projects. When they prepare dossiers with the full necessary papers, the authorities can take only one day to approve their projects," Danh said.
In normal times, almost all investors can meet construction deadlines as committed. However, at present, the pandemic is impacting this process. "In newly-registered projects and added-capital projects, the investors are eager to wait for the control of the pandemic in order that they can implement their projects as soon as possible," Danh added.
Over the past year, global foreign direct investment flows have fallen by 35 per cent to $1 trillion amid the COVID-19 pandemic, the lowest level since 2005 and almost 20 per cent lower than after the 2008 global financial crisis hit, according to the United Nations Conference on Trade and Development's (UNCTAD) World Investment Report 2021. But after a stronger-than-most 2020 in Vietnam, various cities and provinces are doing all they can to continue their decent progress in this regard.
Masato Kataoka, general director of Ojitex Vietnam Co., Ltd, said that after the success of the first project in Dong Nai, the firm decided to build another factory in Loc An-Binh Son Industral Zone of Long Thanh district, with the total investment capital of $60 million and capacity of 78,000 tonnes of paper products a year.
Kataoka explained that the province has methodical plans for growth and the infrastructure is basically completed. Besides that, the province has made efforts to create regional links to ensure smooth goods transportation. Especially, the leadership team is willing to accompany enterprises to deal with difficulties during the investment process. These reasons are the basis for the company's decision for investment expansion.
These projects have contributed to lighting up the picture of foreign-invested capital attraction in 2021 thus far. Statistics published by the Ministry of Planning and Investment's Foreign Investment Agency showed that during January-August 20, the total newly-registered capital increased by 16.3 per cent on-year to $11.33 billion and the total added capital increased by 2.3 per cent to nearly $5 billion. The number of projects with capital of over $50 million has also increased.
In Bac Giang, Bac Ninh, and Ho Chi Minh City among others, organised meetings with representatives of the business community have discussed the difficulties and look for solutions. Cities and provinces have inevitably been dealing with problems relating to the production and business activities of a large number of enterprises where social distancing measures are being imposed to prevent the spread of COVID-19.
Especially, local authorities are paying attention to issues related to regulations on COVID-19 prevention and control, such as transport control, goods circulation, vaccinations, entry of experts, policies to support businesses, and digital transformation in enterprises. Direct dialogue, emails, and consulting via hotlines are maintained as regularly as possible despite the current restrictions.
Nguyen Van Hieu, head of Planning at Bac Ninh Department of Planning and Investment, told VIR that the province is implementing a four-pronged policy to support and attract investors, covering land, labour force, investment reform, and general support.
"Reforming the investment environment is considered the leading priority to attract investors. In Bac Ninh, the trust and satisfaction of investors are considered the core goal to promote the economic development of the province," said Hieu. "We support investors through a task force model to work directly with enterprises. Besides that, we gain feedback from organisations and individuals via a hotline when they carry out administrative procedures."
Woes persist in logistics regulations
Deemed as an emerging logistics hub for the region, Vietnam nevertheless still features some undue regulatory barriers that prevent foreign investors from entering the fast-growing sector.
Amongst others, foreign investors must obtain merger and acquisition (M&A) approval and meet several requirements on economic needs test, morality, community health, and more. Furthermore, foreigners are not allowed to hold more than 49 per cent shareholding in a public company.
"Over the last 20 years, Vietnam has seen increasing M&A activity, whose percentage growth in terms of value has been faster than in comparable ASEAN economies," said Ruben Maximiano, a senior competition expert at the OECD. "In regards to investments by foreign companies, Vietnam has made significant reforms to liberalise its FDI regime since 1987. Despite such reforms and increasing M&A activity, foreign companies still face challenges when investing in Vietnam."
Maximiano told VIR that the inclusion of logistics in the list of conditional business sectors affects logistics activities as diverse as sea freight transport services, container handling, goods transport brokerage services, freight transport services on inland waterways, and road transport services, to name a few.
Higher FDI regulatory restrictiveness in the Vietnamese transport sector compared to certain ASEAN countries is also reflected in the OECD FDI Regulatory Restrictiveness Index, which measures statutory restrictions on FDI in 69 countries.
In order to remove barriers limiting foreign investments in the logistics sector, the OECD recommended excluding logistics-relevant activities from the list of conditional business sectors. This could be done by applying provisions that are already laid down in Vietnam's legislation. Such provisions grant the government the power to review activities qualified as conditional business sectors, based on socioeconomic considerations.
According to Jeffrey Tan, head of Group Corporate Development and Technologies at YCH Group, Singapore's largest home-grown supply chain solutions company, there are still challenges for foreign logistics firms to expand their business in Vietnam. One such instance is the lengthy administrative procedures, and delays in customs clearances will also only increase operational costs.
The establishment of new companies is also subject to conditions on ownership and services, with services being clearly segmented into 16 types, such as cargo handling services, container warehousing services, and cargo agency services. This will lengthen the paperwork for companies like YCH Group, which primarily focuses on being an integrated end-to-end supply chain and logistics solutions provider.
"Although the areas of logistics business in Vietnam have considerably improved as compared to when YCH Group entered the market back in 2009, there are still plenty of restrictions for foreign logistics firms to expand their business in the country, and it is far from being a liberalised logistics industry," Tan said.
"The Vietnamese government does not only need to focus on simplifying administrative reforms, but also increases investments in logistics infrastructure and warehouses to strengthen its logistics ecosystem and regional connectivity," Tan added. "This will not only reduce logistics costs, but also increase Vietnam's trade competitiveness on the global stage."
In the World Bank's Doing Business 2020 report, Vietnam was ranked 70th among 190 economies, with reforms focusing on access to credit and taxes. Vietnam still ranks low on the aspects of starting a business and paying tax, ranking 115th and 109th, respectively. Moreover, the report also stresses the need for further digitalisation and streamlining of administrative processes to boost the country's business environment.
"These will be key factors for Vietnam moving forward," Tan said. "While there are already reforms in paying taxes and slowly easing procedures in starting a new business, these are the two areas Vietnam still needs to continue to work on."
According to estimates, Vietnam's logistics sector will continue growing with an estimated compound annual growth rate of 13.6 per cent until 2023. The sector is dominated by freight transport by water, which accounted for 48 per cent of the total logistics revenues in 2017, though freight transport by road also accounted for a large percentage.
Vietnam has adopted an action plan for the development of logistics services by 2025, which includes ambitious goals regarding infrastructure, policies, business capacity and human resources.
Electronics traders bemoan bleak results
Owners of electronics and electrical appliance stores in Vietnam have been driven to deadlock, with a high volume of unsold products despite solid discounts and various promotional programmes.
Nguyen Kim, operated by Thailand's Central Group, also offers free delivery and instalment purchase programmes to attract customers, along with standard discounts.
On the websites of other electronics traders such as HC and Pico, competitive discounts and promotions have been offered to lure customers. However, in general, many of these appliances remain unsold despite the large promotions.
Nguyen Anh Tu, manager of a home appliance centre in Hanoi's Cau Giay district, told VIR that since social distancing was applied in Hanoi sales have plummeted, especially in segments like air purifiers, washing machines, refrigerators, air conditioners, and televisions.
"Usually, issuing such deep discounts is considered a trump card to lure customers in during every shopping season. However at this time, the solution is no longer effective because people are forced to tighten their purchases as they need to spend their money on essentials like food," Tu said.
Quang Duc, a marketing director at Pico, said that the situation started in May when the number of local infections rose dramatically. The biggest decline was seen in sales of televisions.
"Normally, revenues from sales amount to hundreds of billions of VND [several millions of US dollars] per month, and Hanoi is the largest distribution market. However, at present these figures can only reach a third of the usual sales. Our company also had to deal with transporting products within the inner-city areas, especially to stores and warehouses in other cities and provinces as electronics are not essential goods," Duc said. "Along with the plunge in revenues, our company as well as others are suffering under the pressure of paying the rent for the retail space."
According to Savills Hanoi, the average rental price for Hanoi's retail market remains at $40-50 per square metre. Meanwhile, the average area of a larger electronics shop amounts to 1,000sq.m, leading to very high recurring costs.
In addition, the pandemic also prevents the expansion of electronics businesses. In July, Media Mart opened an additional seven stores in the northern provinces of Ha Giang, Ninh Binh, Yen Bai, and elsewhere. However, during August and September, no customer could reach these stores.
According to the report "Electronics and Appliance Specialist Retailers in Vietnam" by Euromonitor International, under the impact of the pandemic, electronics retailers registered a notably lower sales growth in 2020, with the average unit price dropping significantly.
Vietnamese consumers have become more cautious about their expenditures, especially on unnecessary products such as electronic appliances, because they are focused on ensuring sufficient supply of food and other essential products.
As data from the YouGov Brand Index suggested, Vietnamese consumers are likely to purchase electronic devices and home appliances from electronic retailers after the pandemic. May and June saw an increase in the purchase intent of these products within locals. However, the figure decreased in July and August as strict lockdowns prohibited people from receiving non-essential goods through delivery services. YouGov expects sales to pick up again after the current lockdowns.
YouGov Vietnam CEO Thue Quist Thomasen said, "Even though Vietnamese are used to purchasing almost everything through online platforms since the start of the pandemic, we believe that the story is slightly different for whitegoods and other electronic devices. For the majority of Vietnamese, these big-ticket purchases need careful consideration within the household. The ongoing lockdown has pushed many appliance retailers to scale down or fully close their shops. With this, they are also moving their business from physical stores to online platforms."
Thomasen added, "This catch-22 situation is very inconvenient for consumers and retailers. Although times are hard, we know the resilience of the Vietnamese and believe businesses will quickly recover with proper planning and readiness for adjustments along the way."
Source: VNA/VNS/VOV/VIR/SGT/SGGP/Nhan Dan/Hanoitimes
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