The Impact of covid-19 on Vietnam construction industry

1. The total foreign direct investment in the first quarter 2020 reaches USD 8.6 billion, which decreases
20.9% compared to the same period in 2019. The serious condition of the epidemic, combined with
the Government policy of movement restriction, made the investment drop sharply in February and
March 2020. While statistical figures show a pronounced decline in foreign direct investment, the total
newly registered capital increases by nearly 45%, mainly thanks to a sharp increase in investment in
scientific and technological activities.
Source: General Statistics Of ce
11
FOREIGN DIRECT INVESTMENT
The impact of COVID-19 Epidemic
on Vietnam Construction

2. Manufacturing and processing industry
Source: VITAS
Ever since joining the WTO organization in 2007, the opening level of Vietnam economy has been
increased, reaching a threshold of more than 200% of GDP. The economy has a great openess,
focusing on the quantity over quality, which is reflected in the increasing proportion of raw, processed,
assembled goods in the total exporting value; The supporting industry is underdeveloped, so the
added value of import and export goods are low, imports of raw materials is large. It makes the
economy sensitive, vulnerable to external factors.
In this report, we focus on analyzing three processing industries with large foreign direct investment,
high sensitivity due to the source of the raw material depending primarily on imports. They are textile,
leather and shoes, electronics.
The textile & garment industry is the key
economic sector, contributing 10% to
the total industrial production value,
creating jobs for 3.6 million workers –
accounting for 25% of total labors in the
Industrial sector. In the global textile
value chain, Vietnamese textile and
garment industry focuses mainly on the
activities of sewing, processing – the
most labor-intensive operation but has
the lowest added value on the value
chain of the textile industry.
While domestic enterprises have not yet
been able to supply raw materials for
manufacturing activities – cotton, fiber
and yarn; as well as sewing, dyeing and
domestic completion activities have not
developed well in the role of providing
in-place materials for the textile industry.
According to the Vietnam Textile and
Apparel Association (VITAS), 70% raw
materials for the textile industry need to
be imported. The market imports more
than 55% of raw materials from the
Chinese and Korean markets. If the
COVID-19 epidemic becomes more
complicated and prolonged, the
domestic textile enterprises may have
to deal with shortage in inventory for
production.
12 The impact of COVID-19 Epidemic
on Vietnam Construction
40
15
9
7
5
5
19
Major raw materials importing markets
for textile and garment industry (%)
China Korea Taiwan United States
Japan Thailand Others

3. Source: HOUSELINK
Leather & shoes industry, including activities
related to the process of researching &
development, designing, manufacturing and
distributing products related to footwear,
handbags. With the advantage of low-cost
workers, combining with participation of
free trade agreements (FTA) such as the
Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP), the EU –
Vietnam Free Trade Agreement (EVFTA),
multi-national companies are shifting the
production of leather and footwear products
from China to Vietnam. However, just like the
textile industry, Vietnam leather and footwear
industry is focusing on the bottom of the
industry value chain.
Information from Vietnam Leather Footwear
and Handbag Association (LEFASO) shows that
the percentage of processing in Vietnam
footwear industry accounted for 70%, creating
low profitability and limiting the dynamic of
the enterprises. The underdevelopment of
supporting industry leads to product’s
localization rate of only 40%. Raw material for
production (leather, footwear cloth, soles) are
still importing mainly from China. It means
when the Chinese factories have not stabilized
their production, the shortage of raw materials
for the manufacturing of leather and footwear
products is inevitable.
Table: Smiling curve theory in manufacturing supply chain
13
VALUE ADDED
VALUE CHAIN
Sales/ Services
Marketing
DistributionManufacturingProcurement
Branding
R & D
The impact of COVID-19 Epidemic
on Vietnam Construction

4. Source: Nikkei Asian Review, Samsung Electronics
The electronics industry of Vietnam is "the play" amongst foreign directly invested enterprises such as
Samsung, LG, Foxconn, Nokia, etc. In 2018, Samsung alone contributed for 28% of gross domestic
product (GDP) of Vietnam.
In the supply chain of electronics, besides the production of domestic components, a large proportion
of electronic components for these enterprises are supplied by factories located in other countries
such as Korea, Japan, United States, China, Taiwan. As the epidemic situation is still complicated,
courier and airfreight become more and more difficult, electronics businesses face the risk of a sharp
decline in revenue.
Porportion of suppliers' origins for Samsung Electronics (%)
14
Japan 23%
39%Korea
5%Others
6%Taiwan
8%China
19%United States
The impact of COVID-19 Epidemic
on Vietnam Construction

5. Exporting – Importing of goods
Source: General Department of Vietnam Customs
Major trading partners of Vietnam are mainly from East Asia, Southeast Asia, United States, Europe
(EU). During the COVID-19 epidemic, all major Vietnam import-export partners - from East Asia
countries to Europe and the United States - are struggling with the epidemic. That means that the
demand for non – essential goods is declining, import-export businesses are facing with a series of
difficulties in running business with almost no preparation.
15 The impact of COVID-19 Epidemic
on Vietnam Construction
23
16
16
9
8
8
21
Proportion of exporting 2019 (%)
United States
China
EU
ASEAN
Japan
Korea
Others
30
19
13
8
6
6
20
Proportion of importing 2019 (%)
China
Korea
ASEAN
Japan
EU
United States
Others

6. Source: General Statistics Of ce of Vietnam
In the first quarter of 2020, Vietnam has a trade surplus of 2.8 billion USD. Due to the influence of the
epidemic, total import – export volume decreased by 0.7% compared to the same period last year,
with the largest reduction in March 2020 (11.1% declining compared to March 2019). The first quarter
2020 witnessed a sharp decline in exports to all markets, except for the United States, China (thanks
to increasing in the exporting of telephones and components, up to 187.5%), Japan. Meanwhile, due
to outbreak and complicated epidemic in China in the first quarter 2020, the amount of goods
imported from China plummeted.
USD billion
USD billion
USD billionUSD billion
USD billion
16 The impact of COVID-19 Epidemic
on Vietnam Construction