By Thuy Nguyen, LNT & Partners
Covid-19’s impact on Vietnam’s economy
Covid-19 began infecting China in the latter half of December 2019. As of March 11, 2020, it spread to over 114 international jurisdictions. In Vietnam, the virus had been thought contained, but on Monday, March 9, 13 new cases appeared on a single flight to Hanoi arriving from the UK. The Government has refrained from detailing specific consequences from the disease, but it has caused severe economic damage to Vietnam in various aspects.
From early February 2020, China restricted shipping between Vietnam and China to avoid the disease’s expansion. This froze the supply chain from China to Vietnam which adversely affected many key industries, eg, textiles, electronics, and logistics.
Also, offshore demand for Vietnam’s agricultural products and tourism inflows have dropped significantly. This has not only affected those industries directly but also Vietnam’s burgeoning aviation industry.
Inside Vietnam, schools and education centres have stopped their operations, rent prices for commercial areas in Hanoi and Ho Chi Minh Cities have dropped on slack demand. Online alternatives to education and other events have only offered marginal solutions and are applied as the exception, not the rule.
The government’s action plan
To remedy the economic impacts of Covid-19 and support the country’s anticipated growth after the crises abates, Prime Minister Nguyen Xuan Phuc issued Direction No. 11/2020/CT-TTg dated March 4, 2020 addressing comprehensive solutions for economic recovery (“Direction 11”).
For monetary policy, Direction 11 proposes the following credit support solutions:
- To stabilise interest rates, exchange rates, foreign exchange and precious metals markets, to continue to consolidate foreign exchange reserves and to provide adequate and timely credit for production and business.
- To shorten commercial banks’ review of loan applications and to consider a reduction of borrower interest rates as well as offer exemptions and restructuring of distressed loans so that enterprises affected by the disease can recover their business activities (a “VND 250 Trillion Credit Support Package”).
For budgetary policy, the Ministry of Finance is to propose specific plans to exempt, reduce, delay and defer payment of taxes, charges, and fees. This proposal is to include the extension of due dates for enterprise income tax, land rent, social insurance, and trade union fees. In response to Direction 11, the General Department of Taxes, under the Ministry of Finance, swiftly issued its Official Letter No. 837/TCT-QLN dated March 3, 2020 providing guidance for enterprises affected by Covid-19 to apply for the extension of tax payment and the exemption of late fees.
Direction 11 also suggests national investment activities (including both public and private investments) to stimulate the economy. These suggestions include:
- Acceleration of public investment projects, especially in the transportation sector (expansion of Tan Son Nhat and Noi Bai Airports, construction of Long Thanh Airport, new construction on the North-South Highway) and the energy sector (Thai Binh 2 thermal power plant, Long Phu I thermal power plant, Song Hau I thermal power plant, and gas power plants, renewable energy, and electricity transmission) by:
- Converting key projects from public-private-partnership into public-investment (eg, My Thuan — Can Tho Highway and portions of the North-South Highway);
- Considering the direct appointment of investors and contractors per relevant laws; and
- Advancing the due date for the national master plan of electricity development for the period from 2021 — 2030 with the vision to 2045.
- Promotion of disbursement of public investment capital (including ODA capital) of 2019 and 2020.
- Simplification of the investment conditions and investment procedures applicable to private investment projects and foreign investment projects.
The Government will also prepare for the Free Trade Agreement between Vietnam and the European Union (“EVFTA”) which is expected to finally come into force by the middle of 2020. And the Ministry of Information and Communication is promoting digital technology enterprises to develop products in e-commerce, digital economy, transportation, delivery, fin-tech, and e-payment.
Beneficiaries under the Government’s action plan
If Prime Minister Phuc’s proposals find their way into effect, there will be many opportunities opened for investors by the efforts of the Government.
First, in the industries primarily retarded by the disease, ie, tourism, agriculture, education and logistics, local enterprises will need new capital injections to resume operations. This should be an ideal time for investors with healthy cash surpluses to acquire players weakened by the virus economy but that otherwise performed well.
Second, as the Government is considering the conversion of some PPP projects into public investment projects, private investors may have the opportunity to restructure or withdraw their investments to their advantage.
Third, real estate investors and construction enterprises may consider making new investments or enlarge current investments where transportation projects will be accelerated. The selling price of real estate near Long Thanh Airport, for example, has increased significantly since the announcement of the project.
Fourth, the national master plan of electricity development for the period from 2021 — 2030 with the vision to 2045 may offer new opportunities, new feed-in tariffs, and new projects beneficial to infrastructure investors. Current investors will gain from the acceleration of development. One need only look to recent large-scale investments in the energy sector such as the US$4 billion LNG power plant in Bac Lieu province.
Fifth, while the Government is in a good mood, investors can take advantage of regulations that may be vague and open to local application. In particular, in the M&A sector, parties have a better chance to obtain clearance for economic concentration under the competition law.
Finally, the expansion of digital-economy businesses will ease the way for investments in e-commerce, fin-tech, and delivery businesses. For example, Tiki and Sendo, two of the biggest e-commerce platforms in Vietnam, are exploring merger possibilities and may very likely form Vietnam’s first startup unicorn.
Vietnam’s government is vitally aware of the dangers that Covid-19 poses to its economy, and if Direction 11 is a reliable signpost of what can be expected in the trenches, then the recovery promises to be a lucrative opening for investors and entrepreneurs who are willing to take risks on an economy short-changed by invasion of foreign viral occupiers.