COVID-19

COVID-19 Impact Assessment

and [INDUSTRY]
Analysis of the Potential Impacts of COVID-19 on Vietnamese Economy

The objective of this paper is to explore the potential impacts of the

COVID-19 outbreak on the Vietnamese economy. Such an exercise
is accompanied by a considerable level of uncertainty. Specifically,
in the case of COVID-19, projections have been reviewed and
readjusted every week since the start of the outbreak.

Additionally, Vietnam’s economy is highly dependent upon other

economies. As such, the scenarios and projections relating to the
effects on the Vietnamese economy are also strongly correlated with
the effects on other countries resulting from the COVID-19 outbreak.

This paper covers the following parts:

Part I Part II Part III

Vietnam’s Current Sluggish Economic Selected Sectors
Economic Prospects to Come Snapshot:
Prospects in Vietnam’s Key Textiles/Garments
Export Markets and Consumer
Electronics
Manufacturing

1
Part I: Vietnam’s Current Economic Prospects

Based on the projections that have been readjusted throughout April 2020, Vietnam’s short term
economic outlook remains positive, with the country still being expected to be one of the few countries
that will continue to grow in 2020, while the rest of the world is being projected to enter into recession.
However, there are considerable variations in the current projections, highlighting the considerable
levels of uncertainty that remain in May 2020.

Revision of Gross Domestic Product (GDP) growth forecast of selected countries due to the
outbreak of COVID-19
Unit: percentage

8.0%
7.0% 6.7% 6.1%
6.0%
6.0%
4.8%
4.0%
3.3% 3.2%
2.3% 2.4% 2.3% 2.4%
2.0% 2.7% 2.0%
1.9% 1.3%
0.7% 1.2%
0.4% 0.5%
0.0%

-1.5% -1.2%
-2.0%

-4.0%
-4.8%
-5.2%
-6.0% -5.9%
-6.7%
-8.0%
Vietnam United States Japan South Korea China Thailand

2019 2020f after COVID-19 (ADB – 03 April 2020) 2020f after COVID-19
(Fitch – 08 April 2020)
2020f before COVID-19 2020f after COVID-19 (IMF – 06 April 2020)

Source: ADB, IMF, FitchRatings, PwC Research and Analysis

So far, the official Q1 results published by the General Statistics Office of Vietnam appear to confirm
that economic slowdown resulting from the COVID-19 outbreak. Although tourism and hospitality
have been the most-heavily affected sectors, Vietnam’s exports have nonetheless been able to
marginally exceed their Q1 2019 levels, growing slightly on a year-over-year basis.

The impacts of the COVID-19 outbreak so far have varied, both by sector and by province. In
particular, Central Vietnam appears to have sustained the most dramatic effects, with Da Nang
announcing that its disbursed Foreign Direct Investment (FDI) – especially for the tourism sector -
has fallen by 80% in comparison with last year’s figures. Overall, however, Vietnam has still
managed to register GDP growth of +3.4% in Q1 2020, as compared to Q1 2019.

2
Real GDP (base year 2010) Tourism spending Export values by ownership
Unit: USDmn Unit: USDmn Unit: USDmn
+11.4% ’18-19 ’19-20
+5.6% +3.4% -28.1% +4.6% +0.5%

29,228 30,223 462 56,182 58,794 59,079

27,682 415
332 Domestic 15,640 17,157 18,650 9.7% 8.7%

FDI 40,542 41,636 40,429 2.7% -2.9%

Q1 2018 Q1 2019 Q1 2020 Q1 2018 Q1 2019 Q1 2020 Q1 2018 Q1 2019 Q1 2020

Domestic retail sales Domestic hospitality and food Registered foreign capital to Vietnam
Unit: USDmn services Unit: USDmn
Unit: USDmn
-20.9%
+86.2%
+12.1% +7.2% +7.9% -10.0%
10,805
39,283 42,127 5,555 5,993 8,552
35,032 5,394
5,802

Q1 2018 Q1 2019 Q1 2020 Q1 2018 Q1 2019 Q1 2020 Q1 2018 Q1 2019 Q1 2020

Source: GSO, PwC Research and Analysis

Following its accession to the WTO in January 2007, a notable trait of the Vietnamese economy over
the past decade has been its substantial and increasing interconnection with other economies, via
trade and investment. Two of the major drivers that have been essential for the previous growth and
economic development are: (1) the level of FDI in the country, and (2) the country’s capacity for
export. Indeed, a large chunk of the foreign direct investment has been directed towards the export-
heavy sectors. For instance, the manufacturing sector, which is largely aimed at exports, accounted
for c.57% of the total registered FDI in 2019.

Correlation between total exports and nominal GDP Export as % of GDP

USD billion, 2010-2019 %, 2013-2019
2019
Nominal GDP 175%
(USD bn) Singapore 170%
170% 101%
300 100% Vietnam
100%
R-square = 97.2%
250 95% 96%
200 90% 86% Malaysia 66%
84%
150 85% Thailand 63%
81%
100 80% 77% Cambodia 63%
50
65% Indonesia 19%
0
0 50 100 150 200 250 300 China 17%
15%
Total exports (USD bn) 2013 2014 2015 2016 2017 2018 2019

Source: GSO, Custom, PwC Research and Analysis

3
>50% More than 50% of Vietnam’s exports are destined for the three markets: the U.S
(23%), China (16%) and the European Union and United Kingdom (14%). In addition,
the U.S and Europe have together accounted for more than USD 75bn in trade
of Vietnam’s
surpluses. These trade surpluses with both Europe and the U.S. have been critical to
exports are
the continuous growth of the country.
sent to the U.S,
China and the For Vietnam, a large proportion of the trade surplus with the U.S and Europe has
European Union been generated by: 1) consumer electronics; 2) textiles, garments, and shoes; and
and United 3) to a lesser extent, agriculture.
Kingdom
Annual aggregate trade balance CAGR
USD billion, 2012 – 2019 12-19

264 13%
215 243
150 162 177
115 132

1 0 2 2 2 7 11
4
114 132 148 166 175
213 237 253 12%

2012 2013 2014 2015 2016 2017 2018 2019

Export Import

Trade balance by top partners

USD billion, 2019
Export
Import
47
61 27 41
41
41 20 25 20
1
7
14 15
27
20 34
32
47

75
US EU Japan ASEAN South Korea China

Trade Surplus Trade Deficit

Source: GSO, PwC Research and Analysis

4
In 2019, consumer electronics as a whole accounted for 25% and 41% of the total exports to (1) the
U.S. and (2) the European Union and UK, respectively (see below). Textiles/Garments (including
footwear) accounted for 35% and 22%, respectively.

Vietnam’s top export products and destinations (2015-2019)

Unit: USD million

CAGR
264,189 2015-2019
+13.0% 243,697
Others +9.6%
20%
215,119
20%
3% HongKong +0.7%
3% 7% South Korea +21.9%
21% 176,581 21%
23% 7% Japan +9.6%
162,017 4% 8%
10% 21% 7% 8%
10% ASEAN +8.4%
23% 3% 8% 10%
11%
6%
4% 10% 14%
6% 8% EU +8.0%
15%
9% 10% 15%
11%
16% China +24.7%
16%
16% 17%
16%
12%
11%
23% US +16.4%
22% 19% 20%
21%

2015 2016 2017 2018 2019

351,494
CAGR
2015-2019
+14.0% 322,479

286,367

68%
68% Others +14.0%
229,853
207,791 68% 68%

66%
6% Agricultures* +4.0%
66% 6% 7% Machinery, equipment +22.4%
7% 7%
7%
6% 7% Footwear +11.1%
8% 7%
8% 6% 12% Textiles / Garment +9.6%
5% 13%
7% 12%
7%
13%
14% Consumer electronics +17.5%

32% 33%
33%
28% 30%

2015 2016 2017 2018 2019

(*) Agriculture includes cashew nut, pepper, fruits and vegetables, rice, coffee, tea, maize, wheats, and soya beans

Source: Vietnam Customs, PwC Research and Analysis

5
Vietnam’s export value by destination (2019)
Unit: USD million

61,347 41,414 35,752 25,209 20,413 19,720 7,156

Export products 21%
Others 25% 2%
30% 30%
35%
6%
Agriculture 3% 1% 10%
6% 8%
Machinery, 8% 56% 3%
equipment 10% 61% 4%
3%
12%
Footwear 11% 4%
4% 17%
4% 10%
2%
2
Textiles/ 10%
24% 8%
Garments
5% 59%
7%
2%
43% 41% 41%
6% 20%
1 Consumer
24%
electronics 17%
9%

USA China EU ASEAN Japan Korea Hong

Kong

Export destination
Source: Vietnam Customs, PwC Research and Analysis

The key to Vietnam’s continuous economic growth has been the country’s capacity to consistently
grow its exports. This has been driven by: (1) the growth in the overall imports from Europe and the
U.S.; and (2) the substantial gains in market share in Europe and in the U.S. over the previous
decade. In these markets, Vietnam’s main competitors have been China and, to a lesser extent,
other export-heavy countries in South East Asia, such as Thailand, Malaysia, and Taiwan.

European Union United States of America

Growth in Vietnam’s exports to the EU (phones, Growth in Vietnam’s exports to the US (phones,
consumer electronics and textile / garments) consumer electronics, and textiles / garments)
Unit: USDmn Unit: USDmn
22.8 33.7
2.5

15.9 4.3
18.9

13.2 1.6

2013 Growth in Gain in 2019 2013 Growth in Gain in 2019

EU imports market share U.S. imports market share
6
EU computer and parts imports by partner (USDbn) EU phone & transmission imports by partner (USDbn)
2013 2019 2013 2019
China 35.5 67.4% China 36.7 67.9% China 30.1 49.5% China 47.1 87.2%
United States 2.9 5.5% United Kingdom 3.3 6.1% Vietnam 9.1 15.0% Vietnam 11.8 21.8%
Thailand 2.4 4.6% United States 3.1 5.7% United Kingdom 3.6 5.9% United Kingdom 4.8 8.9%
United Kingdom 2.4 4.5% Thailand 2.4 4.4% South Korea 2.9 4.7% Malaysia 2.4 4.4%
Vietnam 2.0 3.9% Taiwan 1.7 3.2% Malaysia 2.5 4.1% Hong Kong 1.5 2.8%
Taiwan 1.0 1.9% Vietnam 1.1 2.1% Taiwan 2.3 3.7% Taiwan 1.2 2.2%
South Korea 0.7 1.3% South Korea 1.0 1.9% Hong Kong 1.8 3.0% Thailand 1.2 2.2%
Total 52.7 100.0% Total 54.0 100.0% Total 60.7 100.0% Total 78.0 100.0%

EU garment imports by partner (USDbn) EU footwear imports by partner (USDbn)

2013 2019 2013 2019
China 32.9 37.9% China 35.8 44.9% China 8.5 44.9% China 10.4 36.7%
Bangladesh 11.3 13.0% Bangladesh 20.2 17.1% Vietnam 2.6 13.8% Vietnam 5.4 19.0%
Turkey 11.1 12.8% Turkey 13.0 16.3% Indonesia 1.4 7.4% United Kingdom 2.4 8.4%
India 5.2 6.0% United Kingdom 6.9 8.1% United Kingdom 1.3 6.7% Indonesia 1.9 6.6%
United Kingdom 4.7 5.4% India 6.5 5.5% India 1.2 6.4% India 1.5 5.2%
Tunisia 2.8 3.3% Pakistan 5.0 6.3% Tunisia 0.5 2.8% Cambodia 0.9 3.1%
Morocco 2.7 3.1% Vietnam 4.4 5.5% Albania 0.3 1.6% Tunisia 0.6 2.2%
Vietnam (ranked 9) 2.2 2.5% Total 19.0 100.0% Total 28.4 100.0%
Total 86.8 100.0% Total 118.6 100.0%

US computer and part imports by partner (USDbn) US phone & transmission imports by partner (USDbn)
2013 2019 2013 2019
China 54.0 65.8% China 46.1 50.5% China 53.2 61.6% China 64.0 62.5%
Mexico 13.7 16.7% Mexico 27.3 29.8% Mexico 9.1 10.6% Vietnam 11.9 11.6%
Thailand 4.4 5.4% Taiwan 6.1 6.6% South Korea 7.1 8.3% Mexico 8.0 7.8%
Taiwan 1.5 1.9% Thailand 4.5 4.9% Malaysia 4.6 5.3% Taiwan 3.5 3.5%
Vietnam 1.2 1.5% Vietnam 1.2 1.3% Taiwan 2.7 3.2% South Korea 3.3 3.2%

Malaysia 1.2 1.5% Germany 0.9 0.9% Thailand 2.5 2.9% Malaysia 2.8 2.7%

1.1 Canada 1.0 1.2% Thailand 2.4 2.3%

Singapore 1.3% Malaysia 0.8 0.9%
Vietnam (ranked 9) 0.8 1.0%
Total 82.0 100.0% Total 91.4 100.0%
Total 86.4 100.0% Total 102.3 100.0%

US garment imports by partner (USDbn) US footwear imports by partner (USDbn)

2013 2019 2013 2019
China 37.3 39.8% China 34.3 34.1% China 17.0 68.5% China 13.4 49.6%
Vietnam 8.2 8.7% Vietnam 13.6 13.5% Vietnam 2.9 11.7% Vietnam 7.0 25.8%
India 5.4 5.7% India 6.7 6.6% Italy 1.3 5.2% Indonesia 1.7 6.1%
Indonesia 5.0 5.4% Bangladesh 5.9 5.9% Indonesia 1.2 4.8% Italy 1.6 5.8%
Bangladesh 5.0 5.4% Indonesia 4.5 4.4% Mexico 0.5 2.0% Cambodia 0.5 1.8%
Mexico 4.6 4.9% Mexico 4.3 4.3% India 0.3 1.2% India 0.5 1.7%
Pakistan 2.8 3.0% Honduras 2.9 2.9% Dominican Rep. 0.3 1.2% Mexico 0.4 1.6%
Total 93.7 100.0% Total 100.8 100.0% Total 24.8 100.0% Total 27.1 100.0%

Source: USITC, Eurostat, PwC Research and Analysis

The Q1 results so far have displayed mixed results. Vietnam seems to have been able to maintain its
overall export levels to its key export destinations. Except for textiles, Vietnam’s exports have in fact
increased in Q1 2020, as compared to Q1 2019.

These Q1 results reveal the rather limited impacts of the COVID-19 outbreak on these key sectors.
However, we can expect to see more drastic impacts in Q2 and Q3, as these Q1 figures do not yet
reflect any downturns in the general economy or in consumption in the U.S. and in Europe. That said,
Q1 includes the China’s lower exports, as a result of the business restrictions that were implemented
until the end of March following the COVID-19 outbreak.
7
Vietnam’s export value of phones and parts
Unit: USD million 2018 2019 2020
US China EU

+56% -35% -13%

-34% +4%
+301%
+156% +573% 1,278
-10% 1,438 1,249
822 1,246
985 1,109
924 811 894 810 823 741 852 853
472 559 610 492
425 324
214 215 218 227 202
91

Jan Feb Mar Jan Feb Mar Jan Feb Mar

Vietnam’s export value of computers, electronics and parts

Unit: USD million 2018 2019 2020

US China EU
+60%
+21%
+98% +54%
+93% +196% 1,175 -23%
+17% +4%
561
754 691 680 475 730 735
591 612 600 407 392
442 273
381 362 410
306 315 263 318 348
220 150 207 215

Jan Feb Mar Jan Feb Mar Jan Feb Mar

Vietnam’s export value of textiles and garments

Unit: USD million 2018 2019 2020

US China EU
-23% -11%
+87%
1,585
-12% -21% -16%
1,074 1,188 -28% +75%
1,186 1,219 +34%
1,031 1,055
767 330
552 124 109 113 224
269 260 163 197 209 189
108 89 68 78 105 98 96

Jan Feb Mar Jan Feb Mar Jan Feb Mar

Vietnam’s export value of agricultural products

Unit: USD million 2018 2019 2020

US China EU
+5%
-32%
-4%
+18% -28% +19%
-33% 532 406 +60%
474
+67% 403 425
146 323 235 180
274 212 119
147 194 226 218 190 206 213
169 172 152 153
99 92 73 121

Jan Feb Mar Jan Feb Mar Jan Feb Mar

Source: Vietnam Customs, PwC Research and Analysis
8
Part II. Sluggish Economic Prospects to Come
in Vietnam’s Key Export Markets

In the upcoming period, one key driver of the Vietnamese economy will be the effects of the COVID-19
outbreak on the consumption indicators of significant export destinations – specifically, the U.S. and
Europe. The most recent projections from the WTO, dated April 2020, forecasted an unprecedented
decline in global trade, with U.S. and Europe imports being expected to be significantly impacted.

World merchandise trade volume, 2000-2022

Index, 2015=100

Merchandise Trade Trend 2011 - 2018 Pessimistic Scenario

Trend 1990 - 2008 Optimistic Scenario

180

160

140

120

100

80

60

40
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
Ratio of world merchandise trade growth to world GDP growth, 1990-2020
% change and ratio

Growth Ratio
20% 7
6
10%
5
0%
4
-10% 3
2
-20%
1
-30%
0
-40% -1
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

Ratio of trade growth to GDP growth World trade volume growth World GDP growth

Source: WTO, PwC Research and Analysis

9
 WTO - Optimistic WTO - Pessimistic
Historical
Unit: Annual % change Scenario Scenario
2018 2019 2020F 2021F 2020F 2021F
World Imports 2.9 -0.1 -12.9 21.3 -31.9 24.0
North America 5.2 -0.4 -14.5 27.3 -22.8 29.5
Europe 1.5 0.5 -10.3 19.9 -28.9 24.5
Real GDP - World 2.9 2.3 -2.5 7.4 -8.8 5.9
North America 2.8 2.2 -3.3 7.2 -9.0 5.1
Europe 2.1 1.3 -3.5 6.6 -10.8 5.4

The most recent indicators also raise the possibility of substantial difficulties in Q2 and Q3 of this
year. For example, U.S. unemployment has already surpassed the 2008 figures, as a result of the
COVID-19 outbreak - and, with U.S. unemployment continuing to increase each week, it is now
projected to exceed 20% by end of 2020.
The partial or total lockdown in these countries will strongly affect consumption spending. In Europe,
a number of government policies have been implemented in order to support employment in many
key markets, mitigating the risk of dramatic increases in unemployment, for the moment. Two
examples of such policies are the “kurzarbeit” in Germany and the “chômage partiel” in France, which
enable workers to file for public unemployment and / or social subsidies on a temporary basis, via the
public scheme.

European Union United States of America

EU Economic Sentiment Index (avg. 2000-2019 = 100) US Consumer Sentiment Index (1985 = 100)
Unit: points Unit: points

105 102.5 103.0 140 130.4 132.6

100.4 100.9 101.0 126.1 126.8 128.2
100 120.0
94.8 120
95

100
Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20

EU unemployment rate US unemployment rate Estimates by end

Unit: % Unit: % of March and April
20.0%
10% 20%
6.3% 6.3% 6.2% 6.6% 6.5% 13.0%

5% 10%
3.6% 3.5% 3.5% 3.6% 3.5% 4.4%

0% 0%
Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20

Source: Eurostat, European Commission, US Bureau of Labor Statistics, PwC Research and Analysis

Overall, the most recent industry reports project an unprecedented decline in the consumption of: (1)
footwear and apparel; and (2) phones / other related consumer electronics in 2020. Most of the
scenarios for these two industries currently appear to project a steady decline in Q2 and Q3 of 2020,
with a progressive rebound to pre-COVID-19 crisis demand levels by end of 2020 and into Q1 2021.
10
1) For textiles, apparel and footwear, the global textiles consultancy Wazir Advisors projects
consumption declines of -40% and -45% in the U.S. and Europe, respectively. Any return to
normal levels of consumption will of course be highly dependent upon the development of the
lockdown measures and the reopening of stores in 2020. In the scenario that they present,
Wazir Advisors expect a progressive return to pre-COVID-19 consumption levels by the end of
2020.

Expected impact on apparel consumption

Unit: USDbn USA EU

713
690
654

263 +4% 273

251 +5%
-40%
405

165

+6% 427 +3% 440

403 -45%

240

2017 2018 2019 2020F

Expected impact on apparel and textile consumption

Unit: %

100% 100%
100% 100% 100% Normal
90% level

75% 75%

50%
40%

25%

10% 10% 10% 10%

5% 5% 5% 5%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Projected Consumption EU (2020) Avg. consumption EU: 59%

Projected Consumption US (2020) Avg. consumption US: 63%

Source: Wazir advisors, PwC Research and Analysis 11

2) According to specialist market research firm CCS Insight, the 2020 consumption of phones is
projected to drop by 13% (with -10.6% for smartphones). Indeed, this year is expected to be the
lowest year for sales since 2010. In the scenario that they present, the recovery in the
consumption of phones and consumer electronics, is expected to attain pre-COVID-19 levels by
the end of 2020 as well.

Global number of Mobile phone shipments forecast

Unit: million shipments

Forecast CSS Insight Mar 2020

Growth rate vs. 12.1% 13.1%

previous year -2.2%
-13.3%
1,990.0
1,810.0 1,760.0
1,570.0

2019 2020F 2021F 2022F

Source: IDC, CSS Insight, PwC Research and Analysis

Global number of Smartphone shipments forecast

Unit: million shipments

Forecast IDC IDC CSS Insight

Nov 2019 Feb 2020 Mar 2020
Growth rate vs. 6.3%
1.5% 2.4%
previous year -2.3%
-10.6%
1,403.6 1,437.0 1,424.2
1,339.8
1,260.0

2020F 2021F 2020F 2021F 2020F

Source: IDC, CSS Insight, PwC Research and Analysis

12
Overall, given the unprecedented nature of the COVID-19 crisis, any attempts at projecting the actual
impacts on American and European consumption levels are highly uncertain. In the case that COVID-
19 is managed well and relatively controlled in Europe and the U.S., the most notable impact is likely
to be a dip in consumption lasting for several months, before progressively returning to pre-COVID 19
levels at the end of 2020 and into Q1 2021.

First Expected end Conditions to

Country Notes (as of 25/04)
Lockdown of lockdown ease restrictions
• Decreases in the rates of
• US States have already begun to ease their
increase for cases,
Late-April & restrictions – a ‘partial re-opening’
March 19th * deaths
Onwards* • Confirmed capacity of • Early June has been targeted as the most
likely time for the majority of states to more
USA hospitals & frontline
fully ‘re-open’
workers
21st Feb
(First) • Sustained declines in
May 3rd • The opening of factories and large gatherings
March 9 th rates of increase for
are projected to be delayed into the summer
Italy (National) cases, deaths
• Maintenance of hygiene,
social distancing
March 22 nd Late April measures • Mass gatherings are banned until at least
• Sustained declines in rate August 31st
Germany of increase for cases,
deaths
• After May 11th, the ‘progressive’ lifting of
• Sustained declines in rate confinement is expected
of increases for cases, • Full restrictions are projected to extend until at
March 17th May 11th deaths least July
France • Needs to have full testing • Social distancing will still be enforced and
capacity there will be some restrictions for the high-risk
population
• Sufficient protection for
• The UK has communicated the need to
NHS
March 23rd May 7th assess whether the situation is optimal for
• Sustained, consistent falls
minimizing the risk of a second peak before
in deaths, infection rates
UK fully re-opening
• Sufficient testing capacity

Source: Local press, PwC Analysis

How will these few months of a sharp decline in consumption level in both the U.S. and Europe likely
to affect Vietnam? Although Q1 2020 revealed only a slight and limited impact on the Vietnamese
economy, the worst may be ahead in Q2 and Q3, since: (1) consumer demand in key export markets
is expected to face an unprecedented decline; and (2) there will be stiffer competition from China,
with its business returning progressively to normal over Q2. Both of these factors pose considerable
threats to Vietnam’s trade balance and its surplus for 2020, and on the path to a smooth return to the
pre-COVID 19 situation.

13
Part III: Selected Sectors Snapshot: Textiles/Garments and
Consumer Electronics Manufacturing
At the sector level, the production of (1) textiles / garments and (2) phones and consumer electronics
reveal quite different market structures in Vietnam.

Selected sectors: Split by ownership (2018) Source: GSO, PwC Research and Analysis
Unit: USDbn

Textiles /
39% 61% 34bn
Garments
Local

Foreign

Electronics
1% 99% 107bn
Manufacturing

Selected sectors: Split by enterprise size (2018)

Unit: USDbn Source: GSO, PwC Research and Analysis

9%
Textiles / Annual revenue
16% 27% 13% 35% 34bn
Garments Less than USD 5m
5-10m
10-50m
50-100m
Electronics 3%
92% 107bn Greater than USD 100m
Manufacturing 3%

1%

In 2019, there were c.11,000 and c.1,800 registered enterprises in Vietnam in the sectors of (1) textile
/ garment and (2) consumer electronics manufacturing, respectively. These companies employed c.3
million workers in 2019. Taking into account the other manufacturing enterprises that rely directly
upon these two sectors (e.g. the subcontractors of and the suppliers to the textile / garment and
consumer electronics manufacturers), the total number of employees who work in these sectors
would be closer to 10 million.

1) The Vietnamese textiles industry remains largely driven by small and medium local enterprises,
working as contracted manufacturers to foreign clients in Europe, the U.S., and China. These
small and medium enterprises (i.e. enterprise with annual revenues of less than 50m) are
estimated to account for more than 50% of the sector.

14
 Material Cut and Distribution/
Branding Designing
Sourcing Trim Retail

Top Textiles 1 CMT

No.
Manufacturing Countries 2 FOB
3 ODM
4 OBM

1 China
2 EU (28)
3 India
4 Bangladesh
5 Vietnam
6 Turkey
7 United States
8 Hong Kong
9 Indonesia
10 Cambodia

Source: PwC Research and Analysis

The sector in Vietnam is largely composed of small “cut, make, and trim” (“CMT”) companies,
which conduct their work at the very final stages of the manufacturing value chain. A few of
these companies have been able to move to the FOB level.

Furthermore, Vietnamese CMT textile companies are labour-intensive, and relatively low-margin
businesses (with a 5 to 10% net profit, on average, as compared to 15 to 20% for FOB textile
companies). A recent survey that was conducted by Dragon Capital in Q1 2020 revealed that
CMT companies have already lost 20 to 30% of their orders for Q1, as compared to Q1 2019.
The impact of the COVID-19 outbreak in Q2 may be of even greater magnitude, given the
prospects for the U.S. and Europe.

For the textiles / garment industry in Vietnam, the COVID-19 crisis may accelerate (i) the
recently observed trend of concentration, and (ii) a shift towards increased value-added activities
by moving to FOB activities.

2) Regarding consumer electronics / phones / computers and parts, the sector is largely driven by
large international companies that have recently been relocated elements of their production to
Vietnam. For such companies, their exposure to the COVID-19 crisis is not likely to be as critical
as for the Vietnamese textiles / garment sector. Even so, such companies can expect to face a
contraction of 10 to 20% in their orders for 2020 (as suggested by the recent market projections
in Part II), as compared to 30 to 40% contraction for textiles firms.

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 Factory Location Investment overview Description
- Phase I: USD 670mn (operation in April
2019)
- Phase II: USD 830mn (completed
The Samsung Electronics Vietnam complex (Bac Ninh),
Samsung disbursement in 2013)
Bac Ninh produces cell phones, tablets, smart watch, computer
Electronics Vietnam - Phase III: USD 1bn
display and other electronics products
+ 2013-2015: USD 600mn
+ 2016: USD 200mn
+ 2017: USD 200mn
- Phase I: USD 2bn (operation in March
Samsung
2014)
Vietnam
+ 2013-2016: USD 1.6bn
(Korea) Samsung
+ 2017: USD 200mn
Electronics Vietnam The SEVT complex, produces cell phones, tablets, smart
Thai Nguyen + 2018: USD 200mn
Thai Nguyen watches, and other electronics products
- Phase II: USD 3bn
(“SEVT”)
+ 2015-2017: USD 2.5bn
+ 2018: USD 300mn
+ 2019: USD 200mn
The SEHC produces TVs and electrical household
Samsung CE Ho Chi Minh
USD 2.0bn (operation since June 2016) appliances such as AC units, washing machines, fridges,
Complex (“SEHC”) City
vacuum cleaners, etc.
Nidec Shimpo Developing, manufacturing and trading small-sized gear
Hanoi - 2018: registered capital of USD 200mn
Vietnam reducers with high accuracy
Nidec
Nidec Techno Motor Developing, manufacturing and selling of DC brushless
Group Hanoi - 2018: registered capital of USD 200mn
Vietnam motor
(Japan)
3 other projects in the future, increasing the Motors and industrial products supporting manufacturing
Upcoming Projects Hanoi
total investment in Hanoi to USD 1bn of high-tech engines
Established complexes with 3 factories in Hai Phong in
LG Electronics Hai - 2013: registered capital of USD 1.5bn
Hai Phong order to produce and process OLED screens,
Phong (operation since March 2015)
smartphones, TV and other consumer electronic products
- 2016: registered capital of USD 1.5bn
LG
LG Display Hai (operation since June 2016) Produces and processes OLED displays, including TV
Electronics Hai Phong
Phong - 2018: increased capital by USD 500mn displays and plastic displays for mobile devices;
(Korea)
- 2019: increased capital by USD 410mn
- 2016: registered capital of USD 550mn
LG Innotek Hai Manufactures electronic components and micro camera
Hai Phong (operation since late 2017)
Phong modules;
- 2018: increased capital by USD 501mn
Techtronic
Produces of electrical equipment, electrical accessories,
Industries - 2019: registered capital of USD 650mn.
Techtronic Tool outdoor electrical appliances, lighting equipment,
(TTI) HCMC The project will progress from 2021 to
Vietnam appliances; measuring tools, pumps and other similar
(Hong 2028
tools, accessories and devices
Kong)
Produces of headsets (wired headsets, Bluetooth
Goertek
headsets, etc.); conference phone systems; VR virtual
(Hong Goertek Vina Bac Ninh - 2019: registered capital of USD 260mn
reality glasses; speakers, speaker boards, microphones,
Kong)
receivers, etc.

One expected key impact of the COVID-19 crisis is the slowdown of foreign direct investment in the
consumer electronics manufacturing sector. Most expansion plans have been suspended or stopped
since the COVID-19 outbreak.
Although the outbreak is likely to result in a delay in investment, rather than threaten the overall
attractiveness of the country in terms of foreign investment, the lower level of FDI that is expected for the
rest of 2020 may place considerable short-term pressure on the Vietnamese economy.

Noticeable impacts of the COVID-19 outbreak on the FDI sector and investments
Industry Factory Location Actions Details
Authorities ordered people working at a unit of Samsung Display
Samsung Vietnam Samsung Display Quarantined and in Bac Ninh province to be quarantined and isolated the Samsung
Electronics Bac Ninh
(Korea) Bac Ninh isolated factory after a worker tested positive for COVID-19. Samsung
however, has stated that its production lines remain unaffected
Poongsan
Poongsan System Postponing
Electronics System Hai Hai Duong n/a
(Korea) investment
Duong
Google Reconsidering
Electronics n/a n/a n/a
(U.S.) investment timing
Microsoft Reconsidering
Electronics n/a n/a n/a
(U.S.) investment timing
Apple Reconsidering
Electronics n/a n/a n/a
(U.S.) investment timing
Shan Hong Shan Hong Postponing
Textiles Dong Nai Postponing investment from 9/2020 to 11/2020
Vietnam Factory Dong Nai investment
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 Overall, as we look ahead to Q2 and rest of 2020, we are likely to see the first signs of a considerable
slowdown in the Vietnamese economy. On April 21st, the International Labour Organisation (“ILO”)
provided a re-adjusted – and less favorable outlook for Q2 2020. The ILO is now projecting that 20 to
40% of Vietnamese workers in textiles and electronics manufacturing becoming unemployed or
suffering substantial salary cut as a result of the downturn, depending heavily on the pace of recovery
in key export markets.

In a scenario where the orders from Europe and the U.S. would recover by September 2020, the key
questions would be (1) the capacity of local entities to sustain several months of low business
activities, resulting in low income, and (2) their ability to quickly return to pre-COVID 19 production
levels, following several months of, effectively, complete shutdown. Both of the answers are currently
unknowns for Vietnam at the moment, as companies in both textiles and consumer electronics have
historically been more accustomed to dealing with issues resulting from overdemand than from
excess capacity.

Thank you.

Contact us
Nguyen Luong Hien Johnathan Ooi Ong Tiong Hooi
Partner Partner Partner
Deals Strategy Valuation, Capital Projects Transaction Services
nguyen.luong.hien@pwc.com & Infrastructure tiong.hooi.ong@pwc.com
johnathan.sl.ooi@pwc.com

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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