1. What do you think about recent rumors that factories of foreign corporations intend to move their production from HCMC to other countries due to the impact of Covid-19?
In 2020, thanks to its outstanding Covid-19 prevention, Vietnam became one of the most attractive destinations for foreign investors looking to move its production out of pandemic-ridden China. Coupled with the enforcement of the EVFTA, Vietnam was set to be the new manufacturing hub of South East Asia. However, since May 2021, the Covid-19 situation in Vietnam, especially Ho Chi Minh City, took a rapid U-turn that led to nationwide lockdown for 4 months. Factories that wished to continue production must have their employee work and live onsite, while office workers worked from home mostly. Other issues include shortage in material supply, contact restriction between enterprises and customers, expats unable to enter Vietnam,… With the sudden disruption to operation and increased costs to ensure workers' safety and needs onsite, enterprises found themselves having to find a more efficient working way. Some started transferring part of their orders to China, some suspended their process from moving from China to Vietnam and some are looking at alternative countries like Philippines.
2. In your opinion, what major factors will likely cause these corporations' move?
In a survey of foreign enterprises in Vietnam, to return to
operation, 51% of businesses said they need at least 6 months to
return to normal operations. 62% of businesses said they would stop
operating if the situation did not improve in the next 12 months.
65% of them will stop working immediately if in the next 3 months
the situation has not improved.
So the most important factors that will cause these
corporations' move in the near future is if the Covid-19
situation in Vietnam does not become well-controlled soon. The
government should let foreign businesses clearly see the
anti-epidemic plans and measures in each phase, as it can greatly
support the business's plan.
3. What factors make the remaining large brands like Néstle, Samsung, or Tetra Pak, LG continue to invest in Vietnam?
First of all, it is not easy to immediately move a production to another country. Companies may look to other alternative destinations but will keep an eye on the existing location to see if there're any considerable new improvements. Second, the Covid-19 situation in Vietnam has greatly improved with most of the population got at least the first jab of vaccination. Third, the Government has been issuing favourable policies on tax and fees for businesses suffering from the consequence of the corona virus pandemic. It is aimed that by the end of 2021, at least 01 million businesses will have access to favourable credit policies, reduction or termination of payment of tax, land fees as well as electricity, water, telecommunication charges.
For example, the latest draft of the Ministry of Planning and
Investment on this matter covered the following points to support
to cut costs, remove difficulties in cash flow for
businesses:
_ Propose policies suspending or reducing the social insurance
premiums in 2021 for businesses until June 2022.
_ Develop a plan to support air transport enterprises, and report
to the Prime Minister in September 2021.
– Requesting shipping companies to publicly and transparently
list shipping rates to eliminate unreasonable increase in freight
rates that lead to cost burden for enterprises
_ Reduce of electricity prices for goods warehouses of logistics
and processing enterprises in the agriculture, forestry, fishery
and a number of commodity industries with export turnover of over
USD 1 billion USD. Continue to reduce electricity prices for
tourist accommodation establishments.
– Expeditiously implement the issued policies on relaxation
and reduction of taxes, fees, charges and land rents; implement
preferential tax policies for imported goods to finance COVID-19
prevention and control after being approved by the
Government.
– Extend the deadline for paying excise tax on automobiles
manufactured or assembled in Vietnam. Continue to reduce
registration fees for domestically manufactured or assembled cars
for an additional period of time in line with the COVID-19
pandemic.
_ Research to allow travel businesses to temporarily withdraw
deposits for domestic and international travel and tourism
services; reduce deposit withdrawal settlement time from 60 days to
30 days; continue to extend the reduction of the license fee for
travel service business and issue tourist guide cards until the end
of 2021.
_ Continue to administer monetary policy to control inflation,
contributing to stabilizing the macro-economy; encourage credit
institutions to continue reducing lending interest rates for
existing loans and new loans to support production and
business.
_ Supplement policies on debt rescheduling, exemption and reduction
of interest and fees, keeping the same debt group for customers
affected by the Covid-19 epidemic
_ Research and consider the exemption of trade union fees for
members of businesses affected by the COVID-19 pandemic in 2021 and
2022
4. What production shift scenarios do you predict may happen in the near future?
If Vietnam can effectively control the corona-virus pandemic in the next 6 months, I believe Vietnam will regain its position as one of the most ideal investment locations in South East Asia.
5. What should the Vietnamese government do to make production and business of foreign corporations stable?
The government must always listen to enterprises' difficulties and guide them on how to solve it. It is imperative to reopen the economy as soon as possible while ensuring that businesses are conducted safely to prevent the spread of Covid-19. Vietnam has started to apply vaccination cards that allows people to move freely after they have had 2 vaccine injections. Policies that assist foreign enterprises to overcome issues caused by the pandemic as well as policies that assist them to reopen operation and achieve target growth are always welcome.
For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.