What should the construction industry - construction materials do to avoid being damaged by the Covid-19 pandemic?

Persevere through adversity

In 2021, many localities, including Hanoi and Ho Chi Minh City, had to implement social distancing due to the fourth outbreak of the Covid-19 pandemic, causing projects located in these provinces and cities to stop construction.

Projects located outside the isolation area were also delayed due to disruptions in the supply of materials and human resources. 37.9 percent of businesses surveyed by Vietnam Report said that over 20 percent of their projects/contracts were delayed or affected in terms of costs due to the Covid-19 pandemic.

Material price fluctuations were also a "nightmare" for construction contractors. The price index of raw materials, fuel and construction materials increased by 6.4% over the same period last year due to high demand for construction materials while the supply chain has not been interrupted since 2020. The most important materials are steel and cement whose prices increased by 40 percent and 8.4 percent, respectively.

Profit and revenue growth of the construction - building materials industry in 2021 compared to 2020. Source Vietnam Report

Because the cost of construction materials accounts for about 65-70 percent of the estimated cost of construction, many industry experts believe that the "price storm" has eroded the profit margin of the business, pushing many businesses to suffer losses.

However, in that context, enterprises in the construction – building materials industry still persevered through difficulties and adapted as soon as the Government changed from “fighting the pandemic like fighting the enemy” to “living together safely and adapting to the pandemic”, quickly restarting stalled projects.

In the first six months of 2021, thanks to the experience gained from 2020 and the good adaptation of businesses, the growth of the construction - building materials industry reached 5.59 percent, higher than the growth rate of the same period last year.

The survey by Vietnam Report also shows that 53.3 percent of enterprises in the industry still recorded growth in revenue, although the growth rate was mainly below 25 percent. The revenue volatility of most businesses is in the range of 25 percent increase or decrease, while the profit margin is larger, in the range of 50 percent increase/decrease.

The key to accelerate

Despite losing its growth momentum before the pandemic, the construction - building materials market is still a bright spot in the Asia-Pacific region, valued at about US$60 billion in 2021 and forecast to reach a growth rate of more than 8.71 percent in the 2022-2027 period. The reason is that businesses in the construction - building materials industry in particular and the real estate - construction - building materials industry ecosystem, in general, have prepared for shocks; especially as the experience in crisis management dates back more than ten years, when the market was frozen.

Assessing the business environment of the construction - building materials sector. Source Vietnam Report

A survey by Vietnam Report shows that 86.7 percent of enterprises in the industry have prepared carefully, reacted immediately, adapted well and suffered little impact; 6.7 percent of businesses were not prepared but reacted quickly and decisively to recover.

However, objective factors show that the economic picture still has many challenges for the industry. These are inflation (+17.2%) and the impact of economic recession (+6.9%).

Last year, Vietnam successfully controlled inflation when the average consumer price index (CPI) in 2021 of Vietnam only increased by 1.84% compared to the previous year, the lowest in the past 6 years.

However, in 2022, according to most businesses and industry experts, inflation pressure is great because consumer demand increases again when the pandemic is gradually controlled. World commodity prices increased rapidly for some essential commodities and raw materials, fuel and materials used in production due to supply chain disruptions or increased transport costs.

Dragon Capital forecasts Vietnam's 2022 inflation at 3.58% to 4.18%. In addition, the political tension between Russia and Ukraine has had many impacts on the global market, thereby indirectly affecting the construction-building materials industry in Vietnam through many channels such as oil price movements and world steel prices.

Experts say that, in that context, in order to be able to take advantage of opportunities and speed up, construction - building materials enterprises need to focus on six priorities in business strategy including strengthening work financial management, risk management; job security, wages and benefits for employees; strengthen investment cooperation; step up investment and technology development; strengthen training and improve the quality of human resources to adapt to the digital age; increase capital mobilization, build strong financial resources.

In addition, businesses also need to focus on building brand reputation because 96.6% of businesses in the survey believe that brand reputation is the driving force for businesses to persevere through challenges in the past.