In the recent decade, based on 2 key competitive advantages, including cheap labour (average monthly wage of US$300) and an abundant wood supply (3 million ha. of fast growing acacia plantation and 1 million ha. of rubberwood. Vietnam’s wood and wood product (W&WP) exports have consistently grown at over 10% annually. This growth was maintained during the first two and half months of 2020 when W&WP exports earned US$2.047 billion, a year on year growth of 18%.
With the COVID-19 pandemic spreading in the US (market for nearly 50% of W&WP shipped from Vietnam), Japan (13%), China (12%), EU (10%), South Korea (10%) the well-developed supply-demand chain has been disrupted.
Survey – Impact of pandemic on timber sector
A quick survey conducted recently by VIFOREST and local associations including HAWA, BIFA, FPA Binh Dinh Associations with 124 enterprises shows the severe impacts of the pandemic on Vietnamese wood industry.
Huge financial losses by enterprises
Responding to the questionnaire circulated by VIFOREST and its associates, 76% of enterprises state that they are facing pandemic damage and the initial loss is estimated at VND3,066 trillion (around US$130 million); 24% of the surveyed enterprises say that they have not identified damage.
Most enterprises have reduced production, some have to closed their factories
Over half (51%) of the respondents say that they had to reduce production; 35% of enterprises assume that their business can be maintained for some while, but suspension may not be avoided in coming days; only 7% of enterprises remain operational.
The situation, however, may turn worst at any time because the entire industry live on the orders left from 2019, and no new ones have made in 2020.
The army of unemployed/unwaged workers is massive
The quick survey shows that about 45% of the labour force employed in the wood processing industries have lost their jobs due to the pandemic. Out of the 124 interviewed enterprises, 105 respondents informed that before the virus outbreak they employed 47,506 workers but they have now laid off 21,410.
The burden of loan repayments, social insurance payments, taxes and other costs is acute
83 respondents complained that they are unable to pay VND 178.6 billion of social insurance for their employees (VND2.15 billion each enterprise on average); 50 enterprises responded that they cannot manage to cover VND174.6 billion of VAT (equivalent to VND3.49 billion per enterprise);
The income tax 64 enterprises have to pay is amounted to VND212.9 billion (VND3.1 billion each) is beyond their financial capacity at this crisis time; 61 enterprises tend unable to handle VND44 billion of land rental fees (in average, VND0.7 billion each enterprise has to pay);
The accumulated outstanding loans that 96 enterprises have to settle amounts to VND 6,207 trillion (VND64.7 billion per enterprise).
Emergency supports/rescue interventions by the Government needed
The emergency support/rescue intervention sort by the surveyed enterprises can be grouped á follows: Financial intervention to support workers who lose their jobs:
78 enterprises asked the Government to provide financial support for the minimum wage (VND3.6 million per worker per month) for workers who temporarily lost their job.
The Government is considering paying half of this minimum wage, while the employers can get access to low/non interest loan to cover the rest.
Immunity/postponement of taxes and fees applicable for enterprises:
31% of surveyed enterprises have requested the Government to exempt 100% of taxes, including corporate income tax, VAT, as well as social insurance and land rental fees; 31% have proposed to reduce 50% of these taxes and fees; 15% have requested to reduce current payment level to 40% or less.
Extending the term for outstanding loan repayment:
30% of the surveyed enterprises tend to favour commercial banks extending the term for loan repayment for an additional 6 month period; 29% prefer a 9 month extension; 13% ask for a 12 month extended; 6% for an extra 5 month period.
Reduction of loan interest rates applied by currently commercial banks:
52% of respondents proposed lowering annual loan interest rates down to 2-5%; 11% wish to have 2% rate; 5% can afford the rate varying 5.1-7.0%.
Other emergency requests:
- Struggling to survive and the hoping to overcome the pandemic in the near future, apart from the above-mentioned requests, enterprises also indicate specific considerations to be taken by relevant authorities at central and local levels, namely:
- Management boards responsible for running industrial parks to offer one year exemption of maintenance payment;
- Leaders of Binh Duong Province to issue “red book” (land use certificate) so that enterprises operating in provincial industrial parks could leave necessary collateral for bank loans;
- Extension the term for outstanding loan repayment without lowering the enterprise credit rating;
- Temporarily stop charging VAT on imported goods;
- Reduce the charge for goods uploading/unloading at ports;
- Temporary support livelihood of those workers who are not eligible to get unemployment insurance, and, thereby, enable suffering enterprises to keep workers for post-pandemic restoration of production;
- Provision of preferential commercial loans needed for enterprises to maintain and improve production capacity and get readiness for business development while the pandemic gets over;
- Support to maintain the limit of short-term loans to survive until the time when production and business get re-normalised;
- Stop collecting trade-union fee until the end of the pandemic;
- No regular inspections on enterprise taxation and other performances during the remained months of 2020;
- Allow enterprises to negotiate with their employees to fix non-employed wage/suspended production subsidies;
This survey of 124 wood enterprises illustrates that the COVID-19 pandemic is having a devastating impact on the timber industry sector of Vietnam. Even though the situation is changing fast and the worst picture be yet to come the export-biased wood industry of Vietnam is already facing a crisis.
The package of emergency support proposed by the government to adjust fiscal policies, social insurances, credit support, tax and fee exemption or reduction etc. is insufficient and inadequate to protect the industry from the impact of this pandemic. In all likelihood Vietnam not see growth of W&WP exports this year.
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