Vietnam has been wise to switch from a ‘zero Covid’ strategy to one of living with the coronavirus. But it needs a clear plan to maintain business activity as the economy reopens.
Since late April 2021, Ho Chi Minh City has become the epicentre of Covid-19 infections in Vietnam, with more than 309,787 cases and 12,287 deaths recorded as of 15 September. Facing a persistently high number of new infections, the Vietnamese government deployed military troops on 23 August to enforce a tight lockdown on the city, with a view to bringing its outbreak under control by 15 September.
However, as the deadline approached, hopes of being able to bring the virus back under control faded. By 13 September, the city decided to extend the lockdown for another two weeks after 15 September. Phan Van Mai, the city’s new chairman, indicated that despite “several positive results” that the city has achieved, it has not been able to meet all the criteria set by the Ministry of Health to ease restrictions. Other provinces, including the key manufacturing hub Binh Duong, still need to “drastically carry out anti-COVID-19 measures”, while the capital of the country, Hanoi, continued to adopt some strict restrictions.
The extended lockdown is causing much concern in the business community. The Business Climate Index compiled by the European Chamber of Commerce in Vietnam (EuroCham), which measures European companies’ business leader sentiment quarterly, fell to the lowest level since 2010 in the third quarter of 2021. The movement restrictions have seriously constrained the manufacturing capacity of the country, disrupting business and supply chains of global brands. There are signals that foreign investors are shifting some manufacturing orders elsewhere. For example, according to a EuroCham survey of 193 respondents, 18 per cent have already shifted some production to other countries, and 16 per cent are considering their options.
Facing economic slowdown pressures while still unable to control the pandemic, Vietnam is currently at a crossroads regarding its pandemic fighting strategy.
The results of the survey are consistent with statistics reported by the General Statistics Office of Vietnam, which also show a less than rosy outlook for the economy. In August, for example, the exports of leather and footwear products have seen an extended drop since June, with the exports of footwear and handbags falling 38.5 and 37.9 per cent year-on-year, respectively. Eighty per cent of leather and footwear factories in top manufacturing hubs, such as Ho Chi Minh City, Dong Nai, Binh Duong, An Giang, and Kien Giang, have been forced to stop production due to prolonged social distancing measures. The World Bank has lowered its growth forecast for Vietnam in 2021 by two percentage points, from 6.8 per cent to 4.8 per cent, citing the negative impacts of the ongoing Covid-19 wave on economic activities. Vietnam managed to achieve a 2.9 per cent increase in GDP in 2020, despite the global impacts of the pandemic.
Extending the lockdown until end-September (and possibly beyond) has only exacerbated concerns among foreign investors. In a recent meeting with Prime Minister Pham Minh Chinh, EuroCham Chairman Alain Cany noted that companies might consider ‘relocating elsewhere in the region’ if Vietnam’s “lockdowns, social distancing and travel restrictions are extended ‘for much longer’”.
Facing economic slowdown pressures while still unable to control the pandemic, Vietnam is currently at a crossroads regarding its pandemic fighting strategy. While Prime Minister Chinh has suggested that Vietnam is shifting away from a ‘zero Covid’ strategy and preparing to ‘live with it’, the delay in reopening Ho Chi Minh City implies that some Vietnamese leaders are still embracing the idea of completely suppressing the pandemic, out of both public health concerns and possibly considerations about their political prospects. Their decision was also based on concerns that reopening the economy prematurely may be counter-productive.
Although businesses want a clear strategy to exit extreme Covid-19 restrictions, the government has so far failed to provide a clear plan for removing restrictions on commercial operations to facilitate economic recovery. On 9 September, the government issued Resolution 105 aimed at supporting businesses during the pandemic, but it does not offer any clear roadmap to economic reopening. There is also an absence of a clear plan for businesses to maintain operations, especially given that the pandemic is likely to persist.
Even after some restrictions are removed, it may take businesses a lot of time and effort to restore their operations. For example, food and beverage companies are worried about higher raw material prices and lower demand after reopening. Experience from European countries suggests that labour shortage is another problem, and it has already been a concern of some factories in Vietnam. Workers, who have left manufacturing hubs for their hometowns, will find it difficult to get back to work after restrictions are relaxed.
Although these challenges point to a not so positive short-term economic outlook, Vietnam may still be able to recover quickly if it can speed up its vaccination drive. HSBC has recently forecast that Vietnam’s GDP growth in 2022 will reach 6.8 per cent, with a fairly good outlook for the mid and long term. Among ASEAN countries, which are also struggling with the Delta variant, Vietnam is still considered one of the most attractive manufacturing hubs. Increased infrastructure investments and expected economic reforms under Prime Minister Chinh may also induce a strong economic rebound once the current outbreak abates.
However, Vietnam needs to make a bold move forward to pass the crossroads. Speeding up its vaccination drive is key. Only 4.9 per cent of Vietnam’s population is fully vaccinated, much lower than Cambodia’s 57.3 per cent and Singapore’s 81.0 per cent. Vietnam also needs to clarify its stance on the fight against the pandemic. Shifting away from a ‘zero Covid’ strategy is the right approach given the widespread of the Delta variant. But as even a less ambitious strategy primed for “living with the virus” requires tremendous resources, Vietnam still needs a clear plan to maintain economic activities to support the people’s livelihoods and generate revenues for businesses as well as the government. Otherwise, Vietnam’s fight against the pandemic will be unsustainable in the long run and even leave lasting damage to its economy.