In the first edition "From Success to Hardship" of our series of publications “C-19 Chronicles Life & Business in Vietnam”, we depicted the hardships Vietnam has been facing since late May 2021 as a result of a fast-spreading outbreak of COVID-19 cases in the country.
This second edition “Living with the Virus - Preserving the Economy” provides further insights into the impact of the pandemic by focusing on the country’s key economic sectors: the industrial and export sectors.
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Over the past decades, Vietnam has emerged as part of the new generation of Asian Dragons, relying upon its industrial and export sectors that have proven to be the engines for its rapid development and continuous economic growth, particularly since its accession to the WTO in 2007, as demonstrated by the following impressive figures:
Vietnam’s GPD growth averaged 6.4% during the 1985-2020 period, with a 10-year high of 7.1% in 2019.
Since Vietnam’s accession to the WTO in 2007, the country had an average 12% annual increase of its exports from 46 billion USD in in 2007 to 270 billion USD in 2020, making Vietnam the largest exporter in Southeast Asia to both the U.S. and the E.U.
The volume of committed FDI has increased fourfold from USD 6,7 billion in 2007 to over USD 20 billion in 2021, representing a total of USD 174 billion over this period.
Between 2007-2021, the country went from having 154 to 400 industrial zones, accounting for a total land area that has quadrupled, from 32,807 ha in 2007 to 121,900 ha in 2021.
Increasing exports to the US, supply chain relocations from China (resulting from the US-China tariff war), a foreign investment attraction policy and a pro-trade stance with FTAs recently concluded with the European Union (EVFTA), the United Kingdom (UKVFTA) and ASEAN+5 (RCEP), were some of the main factors behind high expectations for this momentum to continue in the coming years.
Since June 2021, however, the severity of the current outbreak has led Vietnam to face a challenge: maintaining economic activities and preserving the economic gains of the last two decades while at the same time ensuring effective nationwide healthcare and safety policies.
This has proved to be particularly difficult due to the highly contagious Delta variant, the country’s high population density of over 308.143 per square kilometer (much higher than most European countries), and its densely crowded industrial zones.
The country’s Prime Minister has issued two main sets of rules thus far:
DIRECTIVE 15/CT-TTG (“DIRECTIVE 15”) which imposed social distancing, including suspension of social events, ban of gatherings of 20 people or more, closing of schools, and a minimum distance of two meters between people in public places.
DIRECTIVE 16/CT-TTG (“DIRECTIVE 16”): which imposed closure of non-essential businesses, complete ban of public gatherings, strict stay-at-home policy and severely limited transportation services.
Provincial People’s Committees are to then issue their respective official letters to implement the said directives locally.
With the now nationwide implementation of the strict people mobility restrictions under Directive 16, the Vietnamese authorities have directed their efforts to maintain industrial production activities by giving vaccination priority to factory workers and allowing them to be present on worksites. As of June 2021, industrial businesses have been offered to implement the following models as a condition to operate:
“3T” or “three on the spot”, in which employees must work, eat and sleep on-site.
“One route, two destinations”, in which transportation must be arranged for employees to take only one route between the work site ·and a centralized accommodation (i.e. hotel or dormitory).
The implementation of these models is subject to prior approval by the competent authorities on a case-by-case basis and the strict observance of pandemic prevention and control measures.
While such models have been successfully applied in the northern industrial regions of Bac Giang and Bac Ninh, where major multinationals have funded projects to build electronics (including Samsung, Foxconn, Luxshare), several sites in Ho Chi Minh City and other southern provinces have been forced to shut down after detecting COVID-19 cases.
The enforcement of these strict restrictions has inevitably led to severe disruptions of supply and production chains, an overall decline of production and rising costs resulting from labour and raw material shortages.
The Purchasing Managers' Index for Vietnam, made by economic data provider IHS Markit from responses to monthly questionnaires sent to a panel of purchasing managers, fell to 40.2 points in August 2021, a 5.5 year-on-year decrease (45.7 points in August 2020). Nonetheless, confidence in August 2021 is still higher than during the initial lockdown in April last year (32.70 points), which could be attributed to the following:
Many production sites have in fact successfully maintained their production uninterrupted, lessening the overall impact of the outbreak on the country’s supply chain.
So as not to fail the trust of foreign companies that have invested massively in these sectors (including Samsung, Schneider, Foxconn, Intel, LG, Microsoft, Panasonic), the Vietnamese Government has renewed its commitment to prioritize the industrial and export sectors (in contrast to other small and medium-sized businesses) by ensuring that anti-pandemic measures would facilitate production and circulation of goods across the country and by placing transportation and industrial parks workers in the priority list for COVID-19 vaccination. These measures have already been proven effective. For instance, Samsung, the biggest foreign investor in Vietnam with a total investment of over $17.7 billion, six plants and a new R&D center in construction in Hanoi and 110,000 employees in the country, has recently announced an expansion of its plant in the northern province of Bac Ninh this year to increase production capacity. The Korean company had already exported over $56 billion worth of products in 2020.
As an essential link of the global supply chain, Vietnam has also been in the receiving end of vaccine diplomacy from US, China and European countries, which have considerable economic interests in the recovery of Vietnam’s industrial and export sectors.
Moreover, in Ho Chi Minh City and its neighboring provinces, Vietnam's coronavirus epicenter, many businesses remain optimistic about prospects of a gradual reopening of economic activities by mid-September, as the region has deployed a massive vaccination campaign that has already resulted, after just two months, in 90.9% of the city's population (over 18 years old) having received at least one dose of vaccine and 12.9% fully vaccinated (as of 10 September 2021).
Shifting from a "zero-COVID-19" policy toward a “Living with the Virus” strategy, similar to the model adopted by Singapore in June 2021, Prime Minister Pham Minh Chinh has recently declared that the country is preparing to adapt life to the pandemic once the country’s vaccination goal is achieved.
