Proposed ways to deal with the Russia-Ukraine conflict

VCN - The conflict between Russia and Ukraine is causing many difficulties for Vietnamese enterprises that have import-export relations with these markets. Smart behavior not only helps to avoid risks, but also can seize opportunities when the market changes.
Vietnam's rice and agricultural products have opportunities to increase exports to offset the interrupted supply from Russia and Ukraine. Photo: LT
Vietnam's rice and agricultural products have opportunities to increase exports to offset the interrupted supply from Russia and Ukraine. Photo: LT

The payment conundrum

Many enterprises exporting goods to Russia are suffering great damage when some of its big banks have been excluded from the SWIFT international payment system, leaving many contracts unpaid. Dr. Tran Quoc Hung, General Director of the Institute of International Finance IIF Washington DC, assessed that the most serious impact of the Russia-Ukraine conflict was the financial embargo. Therefore, businesses need to create a clear and legal payment channel with Russian partners, minimizing the risk of being accused of violating the US embargo against Western countries.

Taking these opportunities, Vietnamese enterprises can switch to importing corn and wheat from the US to reduce Vietnam's trade surplus through the US.

"This is a problem that the Government and diplomatic missions of Vietnam must research and enlist the advice of international experts on the US embargo law to support businesses," said Hung.

Regarding the option that businesses can use banks that have not been embargoed to make payments, Hung pointed out that the embargo changed daily. Currently, more than 10 Russian banks are embargoed, including the central bank, and more than 20 Russian enterprises in many fields are also being in the same situation. The problem is that the units that have not been embargoed may be embargoed in the coming days.

Therefore, finding ways to transact and set up payment channels through banks or businesses that have not been embargoed is not a stable solution because in the future they may be suddenly embargoed, and Vietnam cannot take the initiative.

Furthermore, according to Hung, when trying to set up a payment channel through units that have not been embargoed, it's fine if you do it on a small scale, but with a large scale, the US will likely consider it as indirectly sabotaging and reducing the effectiveness of the embargo policy against Russia.

Some argue that Russia can use bitcoin to avoid financial sanctions. However, Hung considered this very difficult because when using bitcoin to buy and sell, it must also go through the market to change into US$ and Euro. While the category and scale of the bitcoin market is too small compared to the needs of a country like Russia, it is impossible to switch from a foreign currency like USD to bitcoin instead. Additionally, using bitcoin cannot be completely evaded, it can still be tracked by the US or other countries. Thus, it is still accused of having transactions with embargoed units and will be subject to a secondary embargo.

Agree with Hung, Assoc. Prof. Dr. Nguyen Duc Thanh, Director of the Vietnam Center for Economic and Strategic Research VESS, said that cryptocurrencies have unstable values due to the nature of supply and demand. “So far, trading for serious and stable deals doesn't hold much hope. This currency is only exchanged as an asset, not as a means of payment. However, its role will gradually take shape. As for solving the Russian crisis, this is not the key," said Thanh.

Diversify import and export markets

In addition to the damage caused by payment problems, the Russia-Ukraine conflict also caused many businesses that are importing goods such as wheat and corn from Russia to suffer supply disruptions. According to experts, this will open up opportunities and motivation for Vietnam to restructure and seek new markets to diversify.

According to Hung, the US can be a good suggestion for the supply of corn and wheat for Vietnamese enterprises because this nation is also a large producer of these items. Meanwhile, in recent years, Vietnam has always had a huge trade surplus with the US and the US has also expressed concerns about this issue. Therefore, taking this opportunity, Vietnamese enterprises can switch to importing corn and wheat from the US to reduce Vietnam's trade surplus through the US.

Regarding the issue that enterprises can no longer import goods such as fertilizers and animal feed from Russia, so they have to import from other countries, causing prices to increase, Thanh said, businesses need to get used to it to because the market economy is like that, without this crisis there will be another crisis. These difficulties will force businesses to diversify supply and markets and the role of the State is to connect to make this transition better.

For export activities, experts also pointed out great opportunities for Vietnamese agricultural products in the context of supply from Russia - Ukraine being embargoed. Hung said that each year Russia and Ukraine provide more than 30% of wheat for the world market. The conflict and embargo have increased wheat prices by 50% in the past month and pushed up prices of other grains and agricultural products. If the conflict drags on, the world supply of wheat can drop by 30%, triggering a food crisis that will drive up agricultural prices.

Meanwhile, each year Vietnam exports more than 6.5 million tons of rice, ranking second in the world, so the increase in rice prices and agricultural products will benefit Vietnam. This time is a good opportunity for Vietnam to increase exports of rice and agricultural products to the EU.

“Because of the embargo and because people automatically boycott Russian goods, the EU is in need of an alternative source of grain and agricultural products. Vietnam should focus on improving its market share in the EU market by using up the export quota of 80,000 tons of rice per year with a tax rate of 0% under the EVFTA. In particular, it is recommended to develop high-grade aromatic rice that is favored by European consumers," said Hung.

Besides, North Africa and the Middle East are also countries that import a lot of wheat from Russia and Ukraine. They are in short supply and need to find an alternative source. This is an opportunity for Vietnam to export.

Additionally, exporting to the EU that requires high standards is a chance for Vietnamese enterprises to improve quality, because successfully selling in Europe will be able to compete with other markets in the world. This is an opportunity for Vietnam to develop and upgrade its agricultural technology, not only rice but also other agricultural products and food.

By Khai Ky/Ha Thanh

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