To overcome difficulties, Vietnamese enterprises must actively innovate, improve governance efficiency, reduce costs, and not be afraid to change to test new opportunities. Photo: collected

The environment is fluctuating

Although the foreign exchange rate is relatively stable in the country, the race to raise interest rates and tighten monetary policies of many countries - especially Vietnam's major export markets, means enterprises must take “precautions”. In particular, the fluctuations of two foreign currencies, US dollar and Euro, have also raised concerns for enterprises.

In a new report, analysts at the Economic Research Centre - MSB said that from the beginning of the year to mid-July, the Euro has fallen by more than 11% against the US dollar, to roughly equivalent. The main reason for the weakening of the Euro was concerns about the risk of an energy crisis in Europe. According to the Ministry of Industry and Trade, in the short term, the devaluation of the Euro may have certain effects on some Vietnamese import-export enterprises that have contracts for payment in Euro.

However, for enterprises, any currency fluctuations also have certain impacts. In this regard, a representative of Midico Co., Ltd. said that as an enterprise specializing in manufacturing and exporting shoe soles and accessories for footwear enterprises, 90% of plastic materials must be imported, so when the exchange rate was high, it would cause the price of input materials to inflate, thereby pushing the price of finished goods to consumers to increase, or the enterprise must accept to break even because the selling price had been signed with the previous partner.

The strong fluctuations in the exchange rate are only one part, the negative impacts of the Covid-19 pandemic as well as political, commercial and military conflicts among countries, especially Russia and many Western countries, are creating the risk of an economic recession. The fact is that countries have been dealing with this problem by constantly launching solutions to tighten monetary policy.

Economic expert Dr. Can Van Luc said that there had been 80 global interest rate hikes in the first six months of 2022, if the rate hike was too fast, it would cause an economic recession and create sub-effects. He believed that each increase in interest rates would cause four risks: exchange rate risk, increased insolvent risk, risk for capital withdrawal from emerging markets and geopolitical risk.

Regarding the high operating costs of enterprises, Mr. Vu Duc Giang, Chairman of the Vietnam Textile and Apparel Association (Vitas), said that the complicated developments of the Russia-Ukraine conflict caused the prices of raw materials and fuels to increase, in which cotton price increased by 19.1%; crude oil price increased by 40%, pushing transportation costs 3 times higher than the average in the past 5 years and the operating costs of textile and garment enterprises to increase by about 20-25%.

Meanwhile, the two major export markets of the textile and garment industry, the US and the EU, reduced their purchasing power, and high inflation had caused people to limit  their spending significantly, in which apparel was the item with the most spending cuts. In addition, for many enterprises, increased cost pressure can also lead to loans with high interest rates.

The opportunity is still open

In such a context, enterprises have to make plans to respond, such as finding sources of imports from markets less affected by exchange rates, increasing the proportion of input materials produced in Vietnam, as well as expanding exports to more potential markets.

In addition, experts recommend that enterprises should pay attention to the exchange rate to choose a profitable payment currency, and they should also diversify international payment currencies, avoiding using only US dollars for payment. In addition, large import-export enterprises should choose banks with good trade finance ability, providing simple and convenient exchange risk prevention services.

Recently, at a conference to review banking activities in the first six months of the year and implement tasks for the last six months of 2022, Deputy Governor of the State Bank of Vietnam (SBV) Pham Thanh Ha emphasized that the State Bank was committed to following domestic and international monetary developments; monitor inflation and market interest rates to flexibly and promptly manage interest rates and exchange rates in line with developments in the macro balance, inflation and monetary policy objectives. At the same time, the SBV encouraged credit institutions to continue to reduce operating costs to stabilize and strive to reduce lending interest rates.

However, from another point of view, Vietnam is a highly open economy, so the impact will not be small, but it can help Vietnamese enterprises take advantage of opportunities from the shift of investment capital flows due to the fears of economic recession.

Most recently, Apple is moving some iPad production from China to Vietnam. Previously, LG Electronics announced to invest more than US$1 billion in Vietnam to expand its OLED display capacity, and Intel of the US invested more than US$1 billion in a factory in Vietnam.

From the above issues, experts said that in order to overcome difficulties, Vietnamese enterprises must actively innovate, improve governance efficiency, reduce costs and not be afraid to change to test new solutions.

Management agencies also need to improve their responsibilities for enterprises and take advantage of all opportunities and resources from support policies that the State has issued, so that resources go straight to enterprises, helping them stand firm in the face of all changes.