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Unless COVID-19 ends soon, only 15% of enterprises will maintain operation

Monday 06, 04 2020
If COVID-19 lasts until the end of June 2020, only 14.9% of enterprises will maintain their operation, while 32.4% of enterprises will temporarily have to suspend their operation.
Unless COVID-19 ends soon, only 15% of enterprises will maintain operation

Nearly 94% of enterprises suffer from COVID-19

The National Economics University has just released a "COVID-19 impact report on the economy". The data published in the Report shows that, by the end of March 2020, more than 15% of businesses had to cut their production scale.

If the average labor of an enterprise is about 25 people, there will be about 400,000 employees affected by enterprises suspending business; and about 440,000 - 880,000 workers have to lose their working hours or lose their jobs.

If a pandemic breaks out, the number of workers with reduced working hours or job losses will possibly rise to 1.32 million. In response to the difficulties caused by the impact of the COVID-19 epidemic, businesses have had coping solutions.

Specifically, 65.5% of businesses have cut costs of regular operations; 35.3% of enterprises have had to reduce labor; 34% of businesses have had to cut down on workers' wages; 44.7% of businesses have cut production and business scale; 34.7% of businesses have chosen to suspend production and business activities to wait for the difficult times to pass; 15.1% of enterprises have converted their production and business forms to suit the new context.

Survey results show that nearly 94% of the surveyed businesses rated the COVID-19 epidemic as having a negative impact on their production and business activities. Decreasing revenue is the biggest difficulty that many businesses encounter during the epidemic period. Most enterprises have a decrease of 50% or more in revenue, and only 2.7% of enterprises have less than 10% of turnover.

While the revenue is heavily reduced, businesses still have to bear many expenses, with the largest ones being labor costs (for 34.5% of enterprises), interest payments on bank loans (for 25% of enterprises), operating expenses (for 20.6% of enterprises), renting costs (for 17.9% of enterprises). Although businesses have taken many actions to deal with the negative effects of COVID-19, if the disease continues to spread and lasts long, experts of the National Economics University said that there would be many potential risks.

Specifically, if the COVID-19 epidemic lasts until the end of April 2020, 49.2% of enterprises will still maintain production and business activities; 31.9% will cut production scale; 18.1% will have to suspend operation; 0.8% will be likely to go bankrupt.

“If the epidemic lasts until the end of June 2020, the situation will get worse as only 14.9% of businesses will be able to maintain operations; 46.6% of enterprises will continue to cut downscale; 32.4% will suspend operations and 6.1% of businesses will stand on the brink of bankruptcy.

The rate of enterprises that are likely to go bankrupt will increase to 19.3% if the epidemic lasts until the end of September 2020 and to 39.3% if the epidemic lasts until the end of this year,” according to Associate professor Dr. To Trung Thanh, Head of Scientific Management Department of the National Economics University.

Monitoring to avoid negative consequences

To rescue businesses and workers from the negative impacts of the epidemic, the Government, ministries, agencies, and departments have taken urgent measures to remove difficulties for production and business, ensure social security in response to the COVID-19 epidemic.

However, according to a research team at the National Economics University, there does not seem to be a better policy to meet the needs of the majority of businesses. The representative of the research team, Assoc. Prof. Dr. To Trung Thanh says that it is necessary to have very specific policy responses with the goal of human safety first and to prepare many different scenarios to have quick solutions, even in the worst scenarios.

Along with that, there should be policies aimed at improving liquidity, extending the ability of businesses to resist and ensure social security. The authorities should also pay special attention to vulnerable targets such as workers and small and medium-sized enterprises in the short-term (especially in the industries most affected) but at the same time, they also need to avoid the collapse of large enterprises which may spread to other areas.

For affected businesses, they have to relax credit conditions, postpone debt repayments, exempt and reduce interest rates, and allow debt restructuring to improve the liquidity and stamina of businesses until they have overcome the difficulties.

Unless COVID-19 ends soon, only 15% of enterprises will maintain operation

“The rescue policies must focus on not only the liquidity but also the solvency of businesses. The State Bank needs to be ready to pump more liquidity into the banking system with interest rates that can be cut by 1-2 percentage points”, Assoc. Prof. Dr. To Trung Thanh recommended. Regarding fiscal policy, it is necessary to exempt or reduce some types of taxes for enterprises, such as reducing 50% of enterprise income tax in 2020 for small and medium enterprises; reducing 50% of added value tax rates for goods and services meeting with difficulties; extending payment of added value tax in 6 months; and promoting the deployment of electronic tax service (eTax), etc., supporting businesses and employees with social insurance mechanisms.

On the side of enterprises, there must also be solutions to restructure enterprises in the direction of reducing ends, increasing efficiency, updating technology, restructuring and retraining human resources; developing domestic raw material sources; finding and replacing imported sources; and developing raw material sources and deep linking with domestic suppliers, etc. When the demand for spending from businesses and people falls sharply, the State needs to play the role of the main expenditure target. Therefore, public investment plays a more important role than ever.

Public investment must be for the right purpose, focusing on the approved infrastructure sector and be at the right time when the economy needs it. The close supervision of the National Assembly is also necessary to avoid negative consequences. Besides, when traditional monetary or fiscal policies are not sufficient to support the solvency of businesses, it is necessary to have direct fiscal interventions from the government such as debt acquisition, increasing ownership of state capital, etc. in some areas of particular importance.

The maximum collapse of large corporations should be avoided. “Regardless of how long the epidemic lasts, many businesses may still go bankrupt, therefore Vietnam needs to ensure macroeconomic stability. It is necessary to keep inflation and interest rates low, exchange rates stable, public investment carried out for the right purposes and well supervised, the investment environment improved so that after the epidemic, the economy will recover quickly”, the representative of the research team emphasized.

​ >> Impacts of covid-19 pandemic on Vietnam’s economy

Source: https://cafef.vn

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Business

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