This situation is expected to last throughout the first quarter of 2023, which is creating an extremely worrisome state of affairs for all enterprises who are struggling to cope with day to day difficulties.
Lack of export orders
Recently, the Ty Hung Company Ltd in Binh Tan District in Ho Chi Minh City, a company specializing in export of footwear, announced termination of contract with nearly 1,200 employees from 1 December. The reason given by Ty Hung is that the import partner who is facing losses under the current economic situation will be not signing for a new order. Despite great efforts to divert the situation, the enterprise could not restore production as planned, so it is being forced to shrink its entire production base as well as a number of related units.
Mr. Nguyễn Chí Trung, Chairman of Board of Directors of the Gia Dinh Group Joint Stock Company, and Vice Chairman of the Vietnam Leather, Footwear and Handbag Association, shared with Saigon Investment that the lack of orders situation for the leather and footwear industry in the last two months of the year has been extremely difficult. Orders fell by 30% to 40%, and in some factories orders fell to more than 50%.
The reason behind this is that the main import countries of Vietnamese leather and footwear such as the US, and the European Union, have been severely affected by inflation and also by the impact of the ongoing Russia-Ukraine conflict. This has caused consumers to tighten their spending and limit purchase of non-essential items such as leather items and footwear.
Mr. Trung believes that it will be difficult for businesses to redirect their markets, because many countries are now affected by inflation and the current war conflict, and it is not just the US or the European Union that are suffering. The Vietnamese domestic market is too small and the purchasing power is also weak, so businesses do not know where to turn to. According to Mr. Trung, this year it will be very difficult for the leather and footwear industry to achieve their export targets, although the first six months of the year maintained a good growth rate.
Similarly, the textiles and garments exports are also experiencing a shortage of export orders for the last months of the year. Mr. Phạm Xuân Hồng, Chairman of the Ho Chi Minh City Association of Garments, Textiles, Embroidery, and Knitting, said that from the third quarter on, orders began to decline sharply by 20% to 30%. In particular, large-scale enterprises, including Foreign Direct Investment (FDI) enterprises, are being strongly affected and forced to lay off workers. Small and medium-sized enterprises are cost cutting by not working overtime or reducing working hours. Many businesses are even accepting cheap orders so that they can maintain production and continue to offer jobs to their workers.
Furniture exporters are also seeing a decline in orders. At a recent meeting of wood industry enterprises in Dong Nai province, some enterprises said that because there was a lack of orders, their production was in moderation and they plan to give all workers a month off for Tet celebrations. Currently, the two major markets of the wood industry, the US and the European Union, are drastically cutting down on spending on most wood products, so the orders for businesses have plummeted in some places by more than 50%.
Such a serious volume of reduction in orders during the biggest shopping season of the year is a rare occurrence for exporters of textiles, footwear, and furniture in recent years. According to survey results of more than 400 manufacturing enterprises in Vietnam by S&P Global and published by HS Markit in early November, the situation is not very positive when the number of new orders are at the weakest rate in more than a year, and since then output, employment, and purchasing activities have slowed substantially.
Barrage of difficulties
At this time every year, export enterprises boost production to serve the year-end shopping needs of major markets and also often receive orders for the first quarter of the coming year. Sometimes these orders can even cover until the end of the second quarter of the following year. However, this year, the textiles, leather, and footwear industries all agree that the first quarter of 2023 will be very difficult for orders to come in because customers themselves have warned businesses about a dire economic situation. Businesses can only hope that the world economic situation will recover soon and new orders will come in for businesses to run smooth operations.
Besides facing a lack of orders, businesses have other immediate difficulties. Mr. Nguyễn Chí Trung of the Gia Dinh Group, said that in order to solve immediate difficulties and prepare for next year's production, businesses need to access loans. However, they are unable to get loans because the banks have set a credit limit which has either expired or else they have to borrow at a very high rate of interest.
In early November, the Vietnam Association of Seafood Exporters and Producers (VASEP), sent an official dispatch to the Minister of Agriculture and Rural Development to report difficulties and problems affecting the production and business of seafood enterprises for the end of 2022 and 2023.
VASEP said that when entering the fourth quarter, seafood enterprises have had to face reduced credit limits from commercial banks. Specifically, from mid-2022 until now, many branches of commercial banks in localities have sharply cut credit for seafood enterprises, although the credit limit of many businesses has only been disbursed 60% to 80%. Hence many large enterprises that need a lot of capital, do not have enough money to buy raw materials and supplies for production, causing them to operate in moderation, and affecting the growth and export of the entire industry. There are some businesses that are even stopping the implementation of future seafood production projects.
The wood industry has also recently sought help against the unreasonable implementation of Value Added Tax (VAT) refund. According to an official letter sent from the Vietnam Timber and Forest Products Association (Viforest) to the Ministry of Agriculture and Rural Development, from the beginning of the year until now, export enterprises have used plantation timber, such as used for chipboard, peeled plywood and pellets. Viforest emphasized that in the context that Vietnam's export of wood products to major markets such as the US, EU, and UK has declined by 40% to 50%, the input cash flow of enterprises has severely reduced as well, and the VAT refund makes an already difficult situation worse for many businesses.
It is estimated that the VAT amount for enterprises using planted forest timber, that has not been refunded so far, is approximately VND 1,000 bln, with hundreds of businesses not yet refunded. Many businesses have a nonrefundable tax amount of up to VND 200 bln, and many businesses with a nonrefundable tax amount of VND 40 bln to VND 50 bln.