VIET NAM ECONOMY – COVID 19 – THE LINK

BEFORE COVID

-In 2019, Vietnam's economy achieved many positive results.

-This country's GDP growth rate reached 7.02%, higher than many previous years.
-This is a considerable achievement and puts Vietnam in a leading position in the
Southeast Asia region, affirming the timeliness and effectiveness of solutions
issued by the Government and drastically directed at all levels and sectors. ,
localities and the business community, with a view to working together to achieve
and exceed growth missions.

2019 marked the success of Vietnam's economy for the second consecutive year of achieving and

exceeding 12/12 socio-economic development targets. Total export-import turnover reached 500

billion USD for the first time; Consumer price index (CPI) was at 2.79% - the lowest in the past

3 years, ensuring the control target below 4%.

-Of which, the agriculture, forestry and fishery sector increased by 2.01%,
contributing 4.6% to the overall growth rate; The industrial and construction sector
increased by 8.9%, contributing 50.4%; Service sector increased by 7.3%,
contributing 45%, roughly a half of the overall rate

-In 2019, Vietnam's key industries such as processing, services and construction
achieved significant development. Industrial production grew strongly and
dramatically, especially in the electronics, automobile and textile sectors. Tourism
also continues to be a key industry, with a remarkable increase in international
tourist arrivals to Vietnam. Below is....

-In addition, Vietnam has achieved many accomplishments in attracting

multinational investment. Many large companies and coporations from nations
such as Japan, Korea and Singapore have invested in Vietnam, creating many job
opportunities and contributing to the country's economic development.

-However, it should also be noted that 2019 also poses some challenges for
Vietnam's economy. Issues such as public debt, environmental contamination and
lack of infrastructure still exist and need to be resolved.

-In short, 2019 was a year of many positive achievements for Vietnam's economy.
However, efforts are still needed to address challenges, combat the issues and
continue to develop in the future.

-Positive macroeconomic results in 2019 seemed to be be an indispensable

precursor and also lay the foundation to create stable growth momentum and
achieve the goals of 2020. Economic growth will continue to be supported by
consumption. , active investment and trade. It is forecasted that in 2020, Vietnam's
economic growth will be at 6.5 - 6.8%, inflation will continue to remain at a low
level of 3 - 3.8%.

IN COVID
Impact of the COVID-19 pandemic on Vietnam's commercial supply chain

Although it is one of the most open economies in the world (Vietnam's openness is
1.5 times higher than Thailand and 5 times higher than China), the level of
Vietnam's participation in global supply chains is low. and the region is still
limited and much lower than other ASEAN countries. According to the World
Bank (WB), Vietnam only generated 20.4 billion USD (in 2018) through
participating in the supply chain, ranked 53rd out of 174 countries, less than 1/ 4 of
the Philippines with 84.8 billion USD (ranked 34th). According to the World
Development Report (WDR) 2020, Vietnam's participation level is currently at the
"limited manufacturing" level and needs to improve participation in the global
supply chain to increase labor productivity and economic growth. However, the
COVID-19 pandemic has a significant impact on Vietnam's commercial supply
chain in the following aspects:

First, disruption of the regional supply chain leads to stagnation of production and
business in Vietnam.

Most of Vietnam's production and business sectors depend on raw materials,

supplies, and spare parts imported from China, so when the COVID-19 pandemic
broke out, crippling the Chinese economy. directly weakens Vietnam's production
and business activities. In particular, the electrical - electronics industry
(computers, electronic products and components, phones and components) is the
industry with the largest import-export turnover between Vietnam and China. The
pandemic affects the supply of inputs for production as well as the consumer
market of Vietnam's electronics industry, especially affecting the source of input
components for domestic production, leading to increased costs. Production costs
and profits decrease. Other manufacturing industries with input materials imported
from China such as footwear, textiles... also face "double" difficulties, both in
terms of supply of production inputs and decline in market purchasing power. The
number of newly established businesses also decreased in most fields, the sharpest
decline included the fields of arts, entertainment and recreation (down 23%),
wholesale and retail sectors (down 11, 8%), transportation and warehousing
services (down 37.9%).

China stopped customs clearance at border gates with Vietnam and strengthened
management of border gates to prevent the spread of the COVID-19 epidemic,
causing all export activities to China, especially agricultural goods - Forestry and
fisheries face many difficulties. The industries most negatively impacted by the
COVID-19 pandemic include: garment, retail, fisheries, oil and gas, securities,
seaports and shipping, airport services, and aviation. In particular, Vietnam's key
manufacturing and export industries that depend on input materials from China are
most affected due to lack of input materials and supply chain disruption due to
limited alternative sources. Because many Vietnamese manufacturing industries
depend on raw materials imported from China, although many Chinese factories
have reopened, the quarantine of imported goods from China is also stricter,
causing many industries to reopen. Vietnam's production continues to suffer from a
shortage of raw materials. As Vietnam's largest trading partner, when the
purchasing power of the Chinese economy decreases, the Vietnamese economy
will also suffer greater damage than other economies of similar size in the region.

Second, disruption of the trade supply chain leads to reduced production activities
of the processing and manufacturing industry.

Due to the impact of the epidemic, raw material supply and production markets
were disrupted, affecting supply chains in the manufacturing industry and
spreading throughout the region due to China's dominant role as a production base.
export. The closure of thousands of factories in China means production will be
disrupted in countries using Chinese-made components. Even companies not
directly connected to China are affected.

Processing and manufacturing enterprises face many difficulties in production

activities when the COVID-19 pandemic directly impacts the import-export market
and raw material consumption market. Many partners in other countries stopped
transactions and even asked to cancel pre-signed orders. That context forces
businesses to proactively rearrange their organizations and production lines and
find solutions to overcome difficulties and obstacles. The processing and
manufacturing industry for export faces a constant decline in foreign orders. In
2020, Vietnam's export turnover of manufactured and processed goods decreased.

Although the Vietnamese Government has had many orientations in maintaining

and stabilizing production and business activities, not allowing supply chain
disruptions, due to the complicated developments of the epidemic, the number of
processing enterprises, Manufacturing withdrawals from the market continue to
increase. In the first 6 months of 2021, the number of processing and
manufacturing enterprises temporarily suspending business was 4,225 enterprises,
an increase of 18.5% over the same period in 2020. Processing and manufacturing
enterprises completed their procedures. 1,138 enterprises continued to be
dissolved, an increase of 29.8%.

Supply chain disruption leads to limitations of long-distance supply chains. These

long-distance supply chains can leave businesses facing a situation where
inventory is piling up. The inventory index of the entire processing and
manufacturing industry increased by 24.3% (June 2021) compared to the same
period in 2020 (up 26.7%). Among them, some industries have high inventory
rates, such as manufacturing products from rubber and plastic; wood processing
and production of products from wood and bamboo; weaving; food production and
processing; production of chemicals and chemical products.
Third, the source of "supply and demand" for labor and employment is disrupted,
and the unemployment rate increases.

Not only is there a risk of disruption in the supply chain of raw materials, the
COVID-19 pandemic also makes the risk of disruption in the supply and demand
chain of labor resources real. In April 2020, over 30 million Vietnamese workers
(equivalent to about 50% of the workforce) were affected during the peak
quarantine period. According to the Ministry of Labor, War Invalids and Social
Affairs, in the second quarter of 2020, the unemployment rate in urban areas
increased by 33%, the average income of workers decreased by 5%. In June 2021,
the proportion of workers working in industrial enterprises decreased by 1.4%
compared to May 2021 and decreased by 1% compared to the same period in 2020.

In February 2021, the outbreak of the fourth COVID-19 pandemic, which was
more difficult to control, caused the unemployment and underemployment rate to
increase sharply in the second quarter of 2021. Of which, the number of
unemployed people reached nearly 1.2 million people, the number of
underemployed people was about 1.1 million people, the underemployment rate of
workers in urban areas increased by 2.8%. , higher than the rural area increase of
about 2.49%.

In the second quarter of 2021, the number of working workers decreased by 65,000
people. Unemployment and underemployment rates among working age people
both increased. Unemployment and underemployment increased, businesses fell
into difficult situations due to lack of labor. In the processing and manufacturing
industry, up to 26.7% of businesses cannot recruit workers as required. Although
unemployment and underemployment rates are increasing, businesses cannot find
enough workers. This shows signs of a disruption in the "supply and demand" of
labor, directly affecting the output of goods production and service provision,
leading to a disruption in the supply of goods and products. services to market.

The great enemy COVID-19 increases inequality because it affects workers in

many different ways. Workers in service industries have had their income reduced
much more than agricultural workers and other industries. If the epidemic
continues for a long time in the US and Europe, almost 100% of Vietnamese
businesses will be affected, and may affect more than three-quarters of workers in
the textile, garment and footwear industries. with more than 3 million direct
workers and millions of indirect workers in related service industries.
AFTER COVID

Vietnam's response solution

Participating in the global supply chain brings development opportunities for the
Vietnamese economy and businesses, contributing to promoting export growth and
helping to balance the trade structure. However, disruptions in supply chains and
international trade flows have stagnated production, business and service activities,
leading to a trend of shifting investment and global supply chains to disperse and
minimize risks, these issues have posed mixed challenges and opportunities for
Vietnam. Therefore, to restore and develop the supply chain and value chain
during and after the COVID-19 pandemic, Vietnam focuses on implementing a
number of solutions such as:

Firstly, reorganize supply chains for industrial production, creating sustainability

and flexibility to develop new supply chains.

Gradually promote the restructuring of industrial production activities, especially

supporting industries, to have autonomy in domestic raw materials and accessories
to serve sustainable industrial development. The supporting industry is oriented as
one of the priority industries for development and is given investment incentives.
The quantity and quality of Vietnam's supporting industry enterprises are
increasingly improving. Supporting industrial products partly meet domestic
demand and are exported to many countries around the world. Some supporting
industrial enterprises actively use modern management tools in production, meet
international standards, and become suppliers to many multinational companies. In
2018, the number of Samsung's tier 1 suppliers increased from 35 businesses to 42
businesses; The number of level 2 suppliers also increased from 157 businesses to
170 businesses and three more businesses qualified to participate in Toyota's
supply chain (April 2021).

In the context of the COVID-19 pandemic, direct trade activities face many
difficulties, so the Ministry of Industry and Trade has launched a database system
for processing, manufacturing and supporting industries. . This is an important
milestone to address the need to form a business-to-business (B2B) connection
network at home and abroad, helping businesses and investors find information
quickly and accurately. accurately, meeting the need for connection and enhancing
cooperation opportunities between Vietnamese businesses and businesses with
foreign direct investment (FDI) to gradually bring products into the supply chain
and price chain. global rule.
Second, restructure export and import products, diversify import-export markets
and foreign markets, avoiding dependence on some old markets.

Focus on developing export and import markets according to product groups that
Vietnam has advantages in, especially markets where Vietnam has signed FTAs.
Focus on researching tastes, market capacity, and domestic production capacity for
Vietnamese products that have strengths and receive many tax incentives. Deploy
support for the development of industries and fields with potential and advantages
to participate deeply in value chains.

In August 2020, the Vietnam - EU Free Trade Agreement (EVFTA) took effect,
creating opportunities for Vietnam to promote trade and investment, especially
forming new supply chains. As one of the first developing countries in the region
to have an FTA with the EU, Vietnam is in a favorable position to become a
recipient of new supply chains, building a sustainable supply chain connecting the
EU. with Vietnam. Because the EU is part of global value chains in many areas of
product creation, such as design, production, marketing, distribution, recycling, the
EU is also a driving force for global value supply chains in Vietnam.

In 2020, Vietnam successfully signed the Regional Comprehensive Economic

Partnership (RCEP) with the participation of 10 ASEAN economies and 5
countries with which ASEAN already has FTAs. Along with EVFTA, RCEP is
expected to be a favorable opportunity for all participating countries as well as
businesses of countries in the Agreement to structure, reposition supply chains and
participate in the global value chain after in the new situation. Vietnam, as an open
economy, will better exploit this position to build its position in the map of global
supply chains.

Third, develop domestic commodity supply chains.

Continue to develop supply chains of essential agricultural and food products in

the domestic market, promote chain links, and strengthen links between
manufacturing enterprises and distribution and retail enterprises; Promote links
throughout the supply chain, associated with regulations on quality, food safety,
and traceability of goods. Forming pure Vietnamese link chains that meet
regulations and standards of international practices. Strengthen the promotion of
initiatives connecting supply and demand in the domestic market. Implement
activities to connect supply and demand of goods, stimulate domestic consumption
to facilitate the consumption of domestically produced goods in traditional and
modern distribution channels.

Fourth, take advantage of Free Trade Agreements to expand the search for
material supplies and output for products.

To overcome the shortage of input materials for production, it is necessary to

support businesses in finding alternative sources of supply through strengthening
links and taking full advantage of newly opened markets from free trade
agreements ( FTA). With 15 existing FTAs, Vietnam's exports enjoy preferential
tax rates when accessing markets in over 50 countries, including most of the
largest trading partners, accounting for over 70% of total export turnover. .

In order to expand the search for new material supplies, Vietnamese textile and
garment enterprises are shifting to importing raw materials from Korea, India,
Bangladesh and Brazil to avoid relying heavily on imports from China. India is
also increasing the amount of fruit imported from Vietnam (such as longan, lychee,
custard apple, dragon fruit). The EVFTA trade agreement approved on February
12, 2020 is an opportunity for Vietnam to expand its economy, increase trade
exchange with the EU, and avoid dependence on China.

As a catalyst for ongoing changes in the supply chain, the COVID-19 pandemic
helps promote the transformation of supply and production networks to closer
countries in the region, deeper digitalization with more sustainable production
methods. Along with the strong development of science and technology,
optimizing production and costs, the trend of shifting investment and global supply
chains to disperse and minimize risks is strongly present. The COVID-19
pandemic forces businesses and supply chains to change to thrive. Businesses need
to innovate more to be able to operate and develop in the long term. Vietnam needs
to take advantage of the opportunity to be part of a regional group to increase
investment in infrastructure, ensure the quality of infrastructure (ports and roads)
to meet consumer needs, as well as ensure green and sustainable supply chain./.