A company that manufactures wooden furniture for US-based Ashley Furniture laid off 500 of its 1,000 total workers to save VND5 billion a month after export orders fell from 500 containers to 100-200 per month.
Many other exporters have been in the same situation since April. Declining consumption in the United States and Europe has posed challenges for Vietnamese joinery exporters. Some factories have had to lay off workers, according to the HCM City Wood Crafts and Industry Association. The association’s vice president, Phung Quoc Man, said some partners had canceled orders and companies were facing high inventories. As the products remain unsold, they experience financial problems.
The lack of orders also occurred for textile and clothing companies. Like the woodworking industry, the United States is its main market, which accounted for 44 percent of Vietnam’s total exports last year.
According to Vitas Deputy General Secretary Nguyen Thi Tuyet Mai, in the first quarter of 2022, the number of orders was so high that companies feared they could not employ enough workers to fulfill the orders. But now they are worried that they won’t have enough orders. Yarn producers also complain that they cannot sell their products.
A World Bank survey found that in January-March 2022, 56% of companies had lower turnover while 30% had to cancel orders in December 2021-February 2022 because they ran out of raw materials , and sales fell 35%.
Of the 12.2% of national companies supplying products to multinationals before the Covid-19 pandemic, 8% had to reduce their supply.
Where is the capital?
According to Man, senior companies can “rob Peter to pay Paul”, while newly created companies have bigger problems. Covid-19 and the fuel crisis caused by the Russian-Ukrainian conflict have created cash flow problems. Commercial banks have restricted lending, saying their line of credit is running out, while the business turnover cycle has stalled.
A woodworking company in HCM City previously said it could get payment within 30 days of the day of shipment, but US partners are now slow to make payments.
Meanwhile, businesses are finding it very difficult to borrow money. After applying for a loan, they have to wait for answers from bankers, which is new.
Ly Kim Chi, chairman of the Food and Foodstuff Association (FFA), said most companies in the industry are small and medium-sized and less than 3% of companies issue shares to raise capital, while the rest are looking for capital loans.
Currently, they need 50% more capital than in previous years, as commodity prices have increased by 50-60%.
Chi said companies need enough capital to store materials for the year-end and Tet production seasons, as well as to be sure product prices won’t rise.
“The State Bank of Vietnam (SBV) and commercial banks are all reporting credit growth, but we cannot borrow money from them. Who benefits from credit growth? said Chi.
Vo Minh Tuan, director of SBV’s HCM municipal branch, said credit in the city has increased by 11 percent and there are still VND 450 trillion left for lending.
Credit limit to be raised
SBV Deputy Governor Dao Minh Tu said at a press conference on Sept. 6 that SBV would relax limits on the credit growth rate. The bank has set a credit growth rate target of 14% for 2022. By the end of August, the credit growth rate had reached 9.91%, much higher than the same period the last year.
The central bank will grant more credit space to commercial banks in 1-2 days. Banks that get higher credit limits are those with good operating indicators.
He said interest rates have risen slightly. The average interest rate on loans is 7.9-9.5%, while the average interest rate on deposits is 6.3-6.8%.