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Summary of impact of Covid-19 to Vietnam Textile & Garment Sector

09/04/2020 09:12 PM
Following the reports and recommendations of the Vietnam Textile and Apparel Association (VITAS) on the impact of the Covid-19 pandemic on the textile and garment industry, please kindly be submited to Esteemed Ministries, GDVC and SBV VITAS summary of recommendations in phase 1, identifying and evaluating the pandemic progress and impact on the textile and garment industry in phase 2.
 I.     Phase 1 of Covid-19 pandemic: starting from 31 December 2019- 11 March 2020:

1.    Summary of Covid-19 phase 1: World Health Organization (WHO) – Office in China announced the first case of the Covid-19 contracted case (also known as Corona virus) in Wuhan City, Hubei Province (China) on December 31, 2019 (afterwards, on 1 January 2020, 4 countries witnessed the infection). On March 11, 2019, an important milestone was marked upon WHO’s official announcement of Covid-19 as a global pandemic (with 108 countries reporting infected cases, including 125,821 positive cases and 4,619 deaths)

2.   Pandemic impact in Phase 1:
- The effect of Covid-19 on the textile industry during this phase was not yet evident.
- Businesses still maintained their operation with previously placed orders till April/May of the year.  Some businesses had signed orders till July/ August
- The epidemic was well controlled by the Party and Government, thus textile and garment businesses experienced no positive cases among their workers which might result into the isolation of the entire factory as forecasted.Therefore, the immense risk was considered as potential, mainly due to the concern over the shortage of raw material supply in case untimely recovery of Chinese production market. 
- By early March, 90% of Chinese enterprises recovered their production with 80% of their raw material supply capacity, in general, businesses were confident with stable supply of raw materials.
- Also during the first week of March, many businesses were optimistic with gradually stable supply of raw materials, smooth trading, with some businesses’ intending to recruit additional workers servicing new orders. 
- The epidemic surges the demand for medical masks and cloth masks, causing the phenomenon of insufficient global demand. It was expected that in March 2020, Vietnam National Textile and Garment Group (Vinatex) and its member units would supply 15 million antibacterial masks to the market as well as further maintain the capacity of nearly 35 tons of antibacterial knitted fabric/day, contributing to the prevention of Covid-19. In addition to Vinatex, other members of VITAS and textile enterprises nationwide have actively participated in production, contributing to ensure domestic demand. 

3.  VITAS recommendations during phase 1: 

VITAS has submitted many documents to the Government Office, Ministry of Industry and Trade, Ministry of Finance, Ministry of Labor, Invalids and Social Affairs, General Department of Vietnam Customs, State Bank of Vietnam to report the impact of the Covid-19 epidemic on the textile industry, as well as proposed  policies to remove difficulties mitigating losses among businesses. VITAS has also organized online meetings with Trade Missions, Embassies and international associations to connect supplies, orders, and expand partners for businesses. Please find below the summary of such recommendations.

i. Proposal to Government to timely introduce solutions to businesses to reduce losses such as through reducing costs of electricity, water, fuel, land taxes, interest, debt freezing, debt rescheduling ..

ii.
  Proposal to MOIT to coordinate the diversification of raw materials supplies to the industry to avoid dependence on China through various trade promotion activities.

iii.
 Proposal to MOLISA to study and guide enterprises on wage applicable to job discontinuation in case of involuntary prolonged underemployment time. 

iv.
 Proposal to the Government and MOF to remove difficulties that have been reflected by VITAS, such as:
§  VAT refund among expansion investment projects, as certain businesses have not been refunded with VAT within more than 3 years.
§  Abolishing the regulation of VAT payment among enterprises using domestic fabric for production and export instead of paying taxes first and being refunded later.
§  Applying taxes when enterprises in export processing zones receive processing orders from those outside the export processing zones.
§  The current provisions under Decree 134/2016/ND-CP dated September 1, 2016 on manufactured goods and exports when enterprises re-processing accessories and materials whose partly subject to import tax are recommended by VITAS and taken on MOF in the daft amended and supplemented Decree on no import tax on those accessories and materials. It is proposed to Government to issue the Decree promptly and not to collect taxes during the period of taking on amendments and lead time for promulgation.

v. 
Proposal to to Ministry of Transport to study and reduce tolls, extend the payback period among BOT projects to reduce costs in the future for businesses. Hai Phong City is proposed to stop collecting seaport fees to reduce costs among businesses.

vi. Proposal to MOIT, MOH and GDVC to complete the mechanism for enterprises to export cloth masks through effective market management measures, thereby not blocking exportation but avoiding frauds.

 

4.     Evaluation on feedback from management agencies on supporting enterprises.
i. Those recommendations are still under consideration, leaving the issue of the production and export of masks with no official instructions

ii.
 The Business Survey on the impact of Covid on business and production was conducted in conjunction with VITAS and other relevant joint agencies by Board IV (Private Economic Development Research Board) in coordination with VITAS (updated on 09 March 2020) in the attachment.

 

II.   Phase 2:  from  11/03/2020 till now:

1.     Summary of pandemic situation during phase 2: Since Covid-19 officially became a global pandemic, as of 26
March 2020, there have been 198 countries/territories recorded with positive cases, resulting in 21.283 deaths.

- The pandemic was escalating, initially taking 67 days for the number of cases to increase from one to 100,000. However, the next 100,000 cases occurred within 11 days, but now it takes only 4 days to record an additional 100,000 new patients.
- Developed countries where most of Vietnam's textile and garment industry orders concentrate (the US accounting for 50% of total export turnover) and the EU market (accounting for 12% of total export turnover) have been in epidemic crisis with highly increasing rate of positive cases and deaths. US and EU Governments decided to temporarily close their borders and enforce restraining orders

2.      Evaluation on Pandemic impact in Phase 2:
- The disease has been well controlled in China, with 90% of factories in China being put back in operation, restoring the supply of raw materials for the industry to 85-90%.

- However, the alarming pandemic spreading in US and EU has led to a sharp drop in the demand for textile and garment products in those two markets. The outbreak of Covid 19 has constrained global retail growth and at the same time disrupted global supply chains.

- Phase 2 of the epidemic has also dramatically reduced Vietnam's textile and apparel demand, in which major brands have postponed or cancelled all orders and store systems in March and April, even till the end of June 2020 without any support for businesses upon abrupt cancellation of orders. Meanwhile, businesses had already partly or largely paid for the accessories and materials for production. This has posed direct and strong impact on garment and textile enterprises, immediately reducing employment among workers, as well as immense damage to enterprises. VITAS estimated that nearly 100% of businesses were affected depending on the size, level and specificity of the enterprise's products.

- A number of measures have been taken into account, such as reducing working hours and personnel during this period. Moreover, even more compelling financial and business decisions should be made in 2020.

- The impact on garment enterprises is most evident with 100% of garment manufacturing enterprises affected, of which 70% of enterprises must immediately cut jobs in March and 80% of enterprises are expected to have further job cuts in April and May.

- Enterprises of fiber and weaving are under less severe impact than 90% as the rest owns the capacity to produce cloth/accessories/materials for mask and protective clothing making. 

- Without the State’s taking timely supporting measures to businesses, it will easily lead to numerous bankruptcy among enterprises (especially among SMEs).

- The estimated damage on textile and garment industry if the epidemic lasts until the end of June could reach over VND 12 trillion.

- Above is the data available from quick survey among about 200 medium and large enterprises. This figure may be lower than the official figure as small businesses are the most severely affected/vulnerable, in addition to foreign invested enterprises (FDI enterprises) with no official data.

 

3.     VITAS Recommendations during Phase 2 in Covid-19: VITAS will futher propose to Ministries, GDVC, SBV for prompt introduction of supporting measures to textile enterprises affected by Covid-19, emphasing following topics:  

i.
  Proposal to exempt social insurance and union fees in 2020 for both employers and employees

ii.  Proposal to postpone the payment of CIT in 2019 among businesses, and postpone the payment of VAT of all kinds until 2020

iii. Proposal to Government to spend the unemployment insurance fund funding 50% of the minimum wage among workers who are underemployed, and leaving enterprises to pay for the rest 50% to ensure the minimum income among employees. In the temporary absence of specific policies on exemption and reduction of social insurance and union fees, VITAS proposed to Government to stop collection of such fees from March to support businesses with budget to pay for underemployed workers.

iv.  Proposing the Government to guide commercial banks for
- the grace package not to pay the principal and interest on long-term loans due and payable in 2020

- Extending working loan time to 11 months, including the part borrowed due to slow materials and customers' deferred payment, delay delivery.

v. Proposal to GDVC to promptly issue guiding documents on amending Ofifical Letter No. 1431/TCHQ-GSQL dated 9th March 2020, specifying that the export of antibacterial cloth masks does not subject to obtaining license by MOH as not being medical mask, including the import of fabrics for mask producting to compensate for the shortage of orders. Delay in Government’s support can resulting into losing those orders to the hands of competitors.

vi.  In addition, VITAS also cooperated with MOIT, Trade Office in the United States and the Delegation of the European Union in Vietnam to submit the petition to the US Department of State and representatives of the European Union to verify the inaccurate information of "the US and EU markets officially discontinued importing Vietnamese textiles and garments" to prevent enterprises from bewildering.

vii. VITAS Joint Statement on Responsible Purchasing Practices amid the COVID-19 Crisis. VITAS, working with other textile and garment business associations from six producing and export countries including china, Bangladesh, Pakistan, Cambodia, Myanmar to work out one joint statement on  Responsible Purchasing Practices amid the COVID-19 Crisis to call on global brand companies, retailers and traders to (i) consider all potential impacts on workers, small businesses in the supply chain when taking significant purchasing decisions;(ii) to honor the terms of purchasing contracts, fulfil obligations therein, and not re-negotiate price or payment terms; (iii) Take delivery or shipment, and proceed with payment as agreed upon for goods already produced and currently in production with materials ready, and not cancel orders which are already in production;

Annex:

Quick interview with garment manufacruring companies in Vietnam (VITAS members, time of interview, by 28-29Mar 20

1.     How were you orders impacted by the Corona-pandemic?

 





















2.     What are your expectations for the company’s turnover for the 2020 compared to 2019?

 
























3.     What are the challenges and opportunities your company is facing in the short- and medium-term?

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