What do you think about recent rumors that foreign groups intend to shift their production out of Ho Chi Minh City to other countries due to the impact of Covid-19?
The rumors are true and justified, but to see whether the relocation would actually happen, we will have to wait for around six months as it depends on how the Covid-19 situation in Vietnam will turn out.
| Dr. Oliver Massmann, General Director of Duane Morris Vietnam LLC. Photo: Duane Morris Vietnam |
In 2020, thanks to its outstanding Covid-19 prevention, the country 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 EU-Vietnam Free Trade Agreement (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 four months. Factories that wished to continue production must have their employees work and live onsite, while office workers worked from home mostly.
Other issues include a shortage in material supply, contact restriction between enterprises and customers, expats unable to enter Vietnam. With the sudden disruption to the 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 the Philippines.
What major reasons are likely to cause these corporations to leave Vietnam?
In a CCIFV survey of French enterprises in Vietnam, on restoring business activities, 51% of businesses said they need at least six months to return to normal operations. Sixty-two percent of respondents would stop operating if the situation did not improve in the next 12 months. Some 65% of them will stop working immediately if the situation would not improve in the next three months.
So these corporations’ moves may happen in the near future if the Covid-19 situation in Vietnam is not well-controlled soon. The government should let foreign businesses clearly see the anti-pandemic plans and measures in each phase, as it can greatly support the company's plan.
| Production line at Nestlé's Tri An factory in Bien Hoa City, Dong Nai province. Photo: Nestlé |
What are the factors that retain large brands like Nestlé, Samsung, or Tetra Pak and LG in Vietnam?
First of all, it is not easy to immediately move 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.
Secondly, the Covid-19 situation in Vietnam has greatly improved with most of the population got at least the first jab of vaccination.
Thirdly, the Government has been issuing favorable policies on tax and fees for businesses suffering from the consequences of the coronavirus pandemic. By the end of 2021, at least one million businesses are expected to have access to favorable credit policies, reduction or termination of payment of tax, land fees as well as electricity, water, telecommunication charges.
One of such the policies is the latest draft document of the Ministry of Planning and Investment that mentioned reduction of electricity prices for goods warehouses of logistics and processing enterprises in the agro-forestry-fishery, a number of commodity industries with export turnover of over US$1 billion, as well as for tourist accommodation establishments.
What production shift scenarios do you predict may happen in the near future?
If Vietnam can effectively control the coronavirus pandemic in the next six months, I believe Vietnam will regain its position as one of the most ideal investment locations in South East Asia.
What should the Vietnamese Government do to keep the foreign companies' production and business stable?
The government need always to listen to enterprises’ difficulties and guide them on how to solve them. 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 applying vaccination cards that allow people to move freely after they have had two vaccine injections. Policies that assist foreign enterprises to overcome issues caused by the pandemic as well as to reopen operations and achieve target growth are always welcomed.
Thank you for your time!
