Seafood enterprises wait for cheap capital to buy raw materials for export production

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Processing seafood for export at Fimex Vietnam Company. Photo: TL

According to Truong Dinh Hoe, General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), seafood exports in the first five months of 2023 continued to decline by double digits compared to the same period in 2022, reaching only USD 3.379 billion, down 27.9%.

Businesses in the industry all assess that the current decline and disruption are more serious than the peak of the Covid-19 pandemic. Export orders of enterprises have decreased by 20% - 50%, leading to high inventory.

Faced with this fact, seafood enterprises continue to be under heavy pressure because the consumption market plunges, export prices plummet and domestic production and processing are burdened with various fees and high banking interest rates.

Besides, businesses are worried because they face two big problems. Firstly, the risk of a serious shortage of raw materials for shrimp and fish in early 2024, when the market is forecast to recover, but farmers have not been able to afford to continue stocking at this time; secondly, many businesses will suffer heavy losses, recession and even will not be able to overcome the current very difficult period.

Businesses all said the situation was more difficult than at the peak of the Covid-19 pandemic. The advantages of the market in the fourth quarter of 2022 have disappeared because inflation has deeply penetrated the consumption areas of the world market.

It is expected that exports in the first half of 2023 will sharply decline due to a large decrease in orders. The ability to recover must be until the end of 2023. At this time, businesses need more support from the Government and state management agencies so that businesses in the industry can survive this difficult period, creating favorable conditions for seafood exports to recover in late 2023 and early 2024.

Regarding capital difficulties, according to VASEP's analysis, seafood enterprises producing export products often borrow USD. However, from the third quarter of 2022, many banks announced and applied immediately after that the increase in USD loan interest rates from 2.1-2.8% to 3-3.3% and even to 4.5 %, and currently, most are at a high level of 4.1-4.9%, some businesses have to borrow at more than 5%.

Current interest rates are too high, while profits from production and business activities are shrinking due to the decline of the world economy and fierce international competition. Businesses said that if the Government does not take measures to reduce interest rates immediately, it will create great financial pressure on the business community, it is difficult to encourage businesses to invest and develop, and at the same time, some manufacturing industries, which are Vietnam's strengths, such as seafood exports, will have to reduce production, thereby giving up international market share to rivals Indonesia, India, and Ecuador.

Another concern is the credit tightening, limiting lending below the granted credit limit. New loans are only disbursed by banks in proportion to the old loans when they have to be repaid. This makes it even more difficult for businesses when financial costs are high, they are not proactive in purchasing raw materials for farmers and fishermen in the current period.

According to VASEP, with a high USD loan interest rate; if fees are included, such as money transfer fee from abroad (0.05%), L/C payment fee (0.1%), Bill endorsement fee (10 USD), document processing fee (10 USD), late payment L/C acceptance fee (50 USD), and the exchange rate difference between buying and selling, it is clear that short-term loan interest rates between VND and USD are not different. The management of fees by banks has not been implemented, leading to some banks charging high fees.

From the above fact, seafood enterprises proposed the State Bank continue to pay attention and consider having a stimulus package of VND 10,000 billion for aquaculture in the Mekong Delta. The stimulus package is for exporters who actually buy raw material reserves from now on for export in 3-6 months in 2023 and in the first quarter of 2024, responding to the situation that export orders are not in the current period. Implementing early stimulus will make aquaculture farmers feel secure to continue stocking instead of hanging ponds in the current period.

Regarding corporate income tax policy for enterprises in the seafood industry, after many years of problems related to the imposition of corporate income tax rates as high as 20% in many localities, because the tax authorities have identified seafood products as from "preliminary processing activities", after VASEP's recommendation and consultation with ministries and branches, the Ministry of Finance issued a document to the Ministry of Agriculture and Rural Development specifying "aquacultural processing activities" as a basis for tax departments to determine corporate income tax incentives according to current regulations.

However, VASEP recommends that this regulation should be included in legal documents by the Government and the Ministry of Finance for uniform implementation.

In addition, VASEP also suggested that the management agency create the most favorable conditions for businesses in VAT refund for exports because more than 90% of seafood enterprises' goods are for export.