Impacts of COVID-19 Firms in Vietnam
COVID-19 Business Pulse Surveys
Report No. 2 November 2020
Shawn Tan
Trang Tran
Sarah Hebous
Equitable Growth, Finance and Institutions
Finance, Competitiveness and Innovation Global Practices
East Asia & Pacific Region
On the road to slow recovery
• Vietnam has reacted swiftly to COVID-19. A combination of early
measures – targeted testing and tracking as well as innovative
information campaigns – has proved to be highly effective.
• The country entered a 2-3 weeks lockdown in April, and experienced
subsequent mobility restrictions in July after the Da Nang outbreak.
• In September, the economy is slowly returning to a “new normal�? as
businesses and workers return to work.
• But cross-border entry into Vietnam is still largely restricted.
• The second Business Pulse Survey (BPS) is conducted at the end of
September to mid October to ascertain the extent of this recovery.
2
BPS results highlights (1)
• Firms are recovering on average with further reopening and lower revenue loss.
Firms also reported lower incidence of reduced hours worked, reduced demand, and
input disruptions.
• However, the extent of sales drop is still extensive (-36% relative to last year) and net
employment has not recovered, staying significantly below the January level.
• Further, recovery has been mixed and uneven:
• Some firms have improved sales level but many experienced even more severe revenue loss than
in June.
• Sales has recovered faster for wholesale/retail sector, and medium & large firms.
• Reduced demand appears to be the most important channel of impact currently – but
competition has increased for some while decreased for others.
• Firms relying on foreign inputs are more likely to experience supply chain disruptions.
• Liquidity has improved but firms are still at significant risk of arrears, particularly those in the
other services sectors.
3
BPS results highlights (2)
• Firm have become more pessimistic about sales and employment growth in the next
6 months – those experiencing higher sales drop are more pessimistic.
• Firms continue to adapt to the crisis by adopting digital platforms, but the rate of
new adoption has slowed down. At the same time SMEs are gradually catching up in
making investments for digital solutions.
• Health protocols, especially for workers and customers, are almost universally
adopted, at negligible costs.
• Access to government support increased significantly while awareness of
government programs has become significantly less likely to be a reason for lack of
access. However, there has been no evidence so far that having access to
government support is correlated with firm’s current performance.
4
BPS results highlights (3)
• Small and medium-sized enterprises (SMEs) are particularly vulnerable to COVID-19
impacts. These firms make up almost 95 percent of the Vietnamese sample.
• The survey results highlight different outcomes for SMEs relative to large firms.
• SMEs experience more negative impacts on their sales in Sept/Oct relative to last year,
but not in their operation status.
• SMEs experience different mechanisms of impact (mainly in access to finance):
• SMEs experience similar demand and supply chain issues to large firms.
• Small firms have less liquidity issues compared with medium and large firms, but medium firms are more
likely to fall into arrears compared to other firms.
• More SMEs cite high interest rates as a main access to finance issue compared with large firms.
• Adoption of digital platforms is similar across firm size but uses differs among SMEs.
• Medium firms are more likely to adopt digital platforms for business administration functions and small firms
for customer-facing functions like sales and payment.
• Medium-size firms have more negative growth expectations compared to other firms
• SMEs are less likely to access government support policies, with many citing ineligibility
or difficulty in application as a top reason.
5
How COVID-19 is affecting firms
Lockdown effects Supply shocks
COVID-19 shocks operate through Public health measures require non- Decline in labor and intermediate
many channels, but the magnitude essential businesses to close inputs, global value chains disrupted
and who is more affected is hard E.g., firms that rely on imports are affected.
Temporary shock, targeting non-essential
to predict. businesses, mostly in retail, hotels/restaurants
(tourism) and personal services.
The COVID BPS survey measures Financial shocks
the impact of shocks on firms’ Opportunities for finance becoming
further constrained
sales and employment, their
operations, expectations as well as Demand shocks Deterioration in availability of credit while demand
Economic downturn drives down decreases will affect access to finance
their adjustment mechanisms and demand domestically and abroad
access to government support.
Broad-based shock. Will especially hit firms
producing durables, apparel/textiles and those Uncertainty
reliant on export (manufacturing & services – e.g. Uncertainty is driving down
tourism). investment and innovation
Responses by firms Employment measures Digital Technology Government Support
Firms can adjust by tightening their Firms can adjust by adopting new digital Governments can provide fiscal support
and government labor force and wage bill technology and business models to firms facing negative shocks
6
Round 2 of the Vietnam Business Pulse Survey (BPS)
• The COVID-19 BPS is a rapid survey designed to
measure the various channels of impact of
COVID-19 on firms, firm adjustment strategies,
and public policy responses.
• The World Bank, in collaboration with the
General Statistics Office, conducted the BPS in
June 2020 (Round 1) and Sep/Oct 2020 (Round
2).
• Round 2 survey track results on key firm
outcomes from Round 1 and includes additional
questions to better understand the impacts on
supply chains, finance, market competition, and
firm’s implementation of public health
protocols.
• Close to 97% of all respondents in Round 1
survey are also included in Round 2’s sample
7
Sample Characteristics
• Firms were sampled randomly from the Technology Adoption Survey, recently implemented in February 2020.
• The sample is representative at three different firm size categories and four broad sectors: agriculture,
manufacturing, commerce (wholesale and retail), and all other services.
Sector Size
Location
Note: Firm size categories are defined by the number of workers and as follows: small (5-19), medium (20-99) and large (>100). The Commerce
sector includes wholesale and retail trade, and Other services sectors include all other services sector except wholesale and retail trade.
8
Firm survival and operational status
9
Businesses continue to return to normal operations
There is continued business reopening in Sep/Oct: an additional 13% of firms are now fully opened, bringing the
total share of fully opened businesses to 94 percent.
The pace of reopening appears similar across all firm sizes and is somewhat higher in services sectors, where there
was the highest rate of firms closed or partially open in June.
Note: 15 firms were not included from the
previous round. One firm could not be
contacted because it has closed, and 14
firms had invalid contact details.
10
While most firms are opened, many are still running
below normal (pre-crisis) capacity
• 23% of firms still have decreased operating hours
• On average, firms’ operating hours are 6.7% lower than last year
• This is true for all sectors, firm sizes, and regions on average
11
Impacts on Sales
12
Almost 2 in 3 firms reported a reduction in sales during September/October, but
the situation has improved since June
Sales has continued to recover, but firms are still experiencing significant revenue
loss. On average, firm sales are about 36% lower than the same period last year.
13
Recovery from June has been mixed and uneven
Some firms have experienced higher sales growth in Sep/Oct, but a large share of firms have also
experienced more severe revenue shock than in June
Higher sales growth in
Lower sales growth in
Sep/Oct than in June
Sep/Oct than in June
14
Recovery has been faster on average for medium, large
firms and wholesale/retail sector
• The extent of revenue loss in June was similar across firm sizes and sectors.
• By Sep/Oct, conditions for medium and large firms and wholesale/retail sector have improved, while small firms and
firms in manufacturing and agriculture continue to experience revenue shocks as severe as in June.
15
Impact of employment
16
Downward employment adjustments have eased but overall level of employment
are at similar levels to June
• Firms continue to rely on temporary adjustments to their labor force (granting leave, reducing wages, and
reducing working hours).
• However, the share of firms making these adjustments on the intensive margin has reduced substantially.
• Firms continued to lay off workers (10 percent) but a similar share have also hired new workers.
• With the mixed responses to employment, in general, the level of total employment has stabilized in Sep/Oct,
after a significant drop in April and partial recovery in June.
Note: employment data for Jan, Apr are based on recall from surveys in Jun;
employment data for Jun are based on recall from surveys in Sep/Oct so might be 17
subject to higher recall bias
Net employment across firms has stayed fairly stable
Most firms have not change net Net changes in employment is the most negative in the
employment between June and Sep/Oct wholesale/retail sector and for medium firms
18
Mechanisms of impact
Demand and product markets
Supply and input markets
Access to finance and impact on liquidity
19
Falling demand remains an issue, largely from reduced
new orders
Falling demand remains the most prevalent channel of Firms are facing payment delays and cancellation of existing
impact but the share of firms reporting issues with orders, but the most important issue with demand is reduced
demand, supply, and working hours have all decreased new orders
20
Countervailing pressures on competition from negative demand
shocks and exiting firms
• Most firms (61 percent) did not experience a change in competition relative to last year.
• A quarter of firms experience an increase in competition, which is mainly due to a reduction in demand.
• A significant portion of firms (16 percent) experience a decrease in competition due to the exit of competitors.
• Firms facing increased competition are also more likely to reduce prices.
21
Production costs increased for 1 in 5 firms, by an
average of 14 percent
22
Close to 40 percent of firms experienced decrease in availability of inputs, and 10
percent have had to canceled sales due to lack of inputs
• Firms also experienced issues with lead time and logistics operations.
• Large firms experienced relatively less impact on their supply chains.
23
Firms relying on foreign inputs are more likely to report supply chain difficulties
• The majority of firms source locally or from China • Firms sourcing mainly from China are more likely to have
experienced decreased input availability
• Logistics issues are more common among firms relying on
foreign inputs
24
Lead time did not change for most firms
But for those firms did experienced a change in lead time, there was an average of about
25 percent increase or decrease in lead time in September compared to last year.
25
With continued below normal demand, liquidity is a
persisting issue despite some slight improvements
• About half of firms have under 3 months of cashflow and close to 60
percent have under 6 months of cash flow before facing shortages.
• Liquidity issues are the most severe for firms in other services (i.e. non-
retail or wholesale trade) sectors
26
External finance can stave off liquidity shortages
27
However, lack of access to finance is a concern: over 60 percent of
firms have reported some difficulties with access to finance
• Main difficulties related to access to finance are interest rate, fear of repayment risk, and lack of
collaterals.
• Large firms are more likely to report having no difficulty having access to finance, whereas SMEs
report issues with collaterals.
• All firms are similarly concerned about interest rates and repayment risks.
• Firms with higher revenue loss are also more likely to have difficulty in accessing finance.
28
Firms are still at significant risk of falling in arrears
• Over 40 percent of firms are already in arrears or at risk of falling into arrears in the next 6 months
• Agriculture and other services have the highest share of firms that are already in arrears or at risk
of falling in arrears
29
Investments in Health Protocols
30
Almost universal adoption of health protocols, mainly
for workers and customers
31
Manufacturing firms and large firms are making the most investment
in health protocols, but these investments are not significant
Avg. investment is only
0.9% of 2019 sales.
32
Uptake of Digital Technology
33
Firms are continuing to use digital platforms, invest in digital solutions, &
switch to new products but uptake of digital platforms has slowed down
• There was a large increase in
the share of firms turning to
digital platforms in June.
• There is a smaller but still
significant increase (11 p.p.) in
the share of firms using more
digital platforms in September.
• Current uptake of digital
platforms and digital solutions
are not statistically different
across firm sizes, regions, and
sector, except for a notable
lower update in agriculture
sector
34
SMEs are more likely to use digital platforms for less complex front-end business
functions, suggesting potential capacity or resource constraints
• Most digital adjustments are in customer-facing functions such as sales and payment methods,
which are likely less complex and cheaper to implement than changes in other business functions.
• Large firms, however, are more likely to use digital platforms for more sophisticated functions such as
production planning and SCM, suggesting a capacity or resource constraints among small-size firms.
35
At the same time, SMEs are gradually catching up in
investments in digital solutions
36
Uncertainty and business
expectations
37
Most firms expect negative sales growth in the next 6
months
On average, expectations of sales growth range from
Taking into firm’s assessment of the likelihood of
-51% to -11% depending on whether the firms different scenarios, the overall expected sales in
believe the scenario will be optimistic, regular or
the next 6 months is 31% lower than last year
pessimistic.
38
Employment expectations are as negative as sales
expectations
On average, expectations of sales growth range from Taking into firm’s assessment of the likelihood of
different scenarios, the overall expected
-61% to -7% depending on whether the firms
believe the scenario will be optimistic, regular or employment in the next 6 months is 27% lower
pessimistic. than last year
39
Medium-size firms have more negative growth
expectations compared to small and large firms
• The median medium firm expects more negative sales growth by 5 p.p. and employment growth by 10
p.p., relative to other firm size categories.
• The median medium firm expect a 30 percent negative sales growth and a 25.5 percent negative employment
growth.
• In contrast, the median small and large firm expects a -26 and -25 percent for sales growth, and a -14 and -15
percent for employment growth respectively.
40
Firms have become more pessimistic about growth
prospects in Sep/Oct as they adjust their expectations
Revenue has partially recovered There are signs of firms adjusting their expectations downward as they faced lower than
since June but firms' expectations expected sales
• Actual sales growth in Sep/Oct appears significantly lower than firms’ expected sales
about sales in the next 6 months growth in June
has become more negative • Firms experiencing a higher sales drop in the last months are also more pessimistic
about the future.
41
Government Support
42
Share of firms accessing support policies has increased
significantly
• Access to government support policies has improved significantly
• Among firms with some form of government support, policies with the highest
access are tax/fee deferrals
43
Large firms and manufacturing firms continue to have higher access government
support, with considerably more agriculture firms receiving support
44
Lack of awareness and difficult procedures remain barriers to access government
support, but firm’s awareness has improved significantly since June
45
Main reasons for not receiving support are similar across
sectors and firm sizes
Ineligibility is the main reason for lack of Difficult procedures appear to stand out as the main
access across firm sizes. reasons for lack of access for agricultural firms.
The eligibility criteria for the two main government support programs may have been too narrow to benefit firms.
*Note: Government Decree No 41/2020/ND-CP allows firms to benefit from VAT and CIT deferrals depending on whether the firm is operating in some industries, produces certain key inputs, or
is micro or small-sized. Resolution 42/NQ-CP provides firms with interest-free loans for salary payment if the firm has paid at least 50% of salary for worker suspension in April-June 2020.
46
Receiving government support is not correlated with
improved firm outcomes
So far, there has been no evidence suggesting that firms receiving government support previously
is correlated with current sales, likelihood of hiring workers, laying off workers, or having cashflow
shortages.
47
Conclusions and Next Steps
48
On the slow road to recovery
• Firms are recovering on average with further reopening and lower revenue loss.
Firms also reported lower incidence of reduced hours worked, reduced demand,
and input disruptions. However, the recovery has been mixed and uneven.
• Firm have become more pessimistic about future sales and employment growth.
• Firms continue to adapt to the crisis by adopting digital platforms and they have
almost universally implemented health protocols for their workers and
customers.
• Access to government support remains almost unchanged, even as awareness of
government programs has improved. So far, there is no evidence access to
government support is correlated with the firm’s current performance.
• Continued monitoring of the situation is required to understand how firms in
Vietnam are recovering from and adapting to the COVID-19 crisis.
• Fieldwork for Round 3 of BPS is planned in December 2020 to January 2021.
• A separate brief to examine the gender differences in the effects of COVID-19 is planned for
end November.
49
Check the Vietnam COVID monitoring website for the
latest information on the BPS
Access website by clicking on
picture or this link:
https://www.worldbank.org/en/co
untry/vietnam/brief/monitoring-
households-and-firms-in-vietnam-
during-covid-19
50
Thank You
The team is grateful to the Australian Government for financial support from the Australia-World Bank Group
Strategic Partnership in Vietnam Phase 2 to implement the Vietnam BPS.
The slides were prepared by Shawn Tan, Trang Tran, and Sarah Hebous. The survey was implemented by Xavier Cirera and Trang Tran,
supported by Tanay Balantrapu. Hoa Chau Nguyen provided excellent administrative support.