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Supply Chains in Southeast Asia Are Less Vulnerable After Delta-Driven Disruptions
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Vaccinations have risen and Covid-19 strategies have shifted in some of the region’s major manufacturing countries.
The Delta-driven wave of infections wreaked havoc on supply-chains when it tore across Southeast Asia this summer, disrupting production of everything from semiconductors to sneakers and raising prices for Western consumers.
But countries like Vietnam and Malaysia have learned from that experience and are better prepared for fresh waves of the virus, economists and factory operators say, as the new Omicron variant spreads globally.
Some countries in the region, including Vietnam and Thailand, have shifted away from aggressive Covid-19 containment strategies to boost their economies. That move has been aided by a rapid rise in vaccinations.
Government calculations “have changed to tolerate a much higher level of cases,” said Trinh Nguyen, a senior economist at Natixis.
Still, economists and business owners are cautious. Scientists are still studying the new Omicron variant, including its contagiousness and virulence. They are also trying to determine whether it can evade existing vaccines, though some scientists believe those will still offer protection.
The new variant arrives as conditions within the global supply chain are improving but still face challenges. Even though factories have been reopened for months across Southeast Asia, reducing a major source of pressure for Western companies, continuing labor shortages are limiting production in countries like Vietnam and Malaysia. Factories in the region are also contending with elevated freight rates and raw material shortages. That all adds up to higher prices and longer wait times for Western consumers.
Still, companies are hopeful that Omicron won’t set things back too much. One factor that may lead to fewer disruptions in any future waves of the virus is Vietnam, which has shifted its approach toward managing the spread of Covid-19.
To contain a spike in cases over the summer, Vietnamese authorities ordered factories in its southern production hub to shut down or operate with far fewer workers than usual for around 2½ months, causing massive disruptions for clothing, furniture and footwear companies. That failed to eradicate Covid-19, however, and in late September Vietnam’s government formally abandoned its zero-Covid policy, saying authorities must avoid taking extreme measures. By early October, many factories had resumed normal operations.
So far, the government has stayed the course despite a recent rise in cases, to around 14,000 a day—roughly on par with its summer peak. During this latest wave, which isn’t linked with the Omicron variant, businesses say the government has generally allowed manufacturers to keep operating even when some workers test positive.
“The government does not seem to be doing anything rash with factories right now,” said Jonathan Moreno, head of the American Chamber of Commerce in Vietnam’s manufacturing and supply-chain task force.
Enabling Vietnam’s less restrictive policies has been a surge in vaccinations. In early August, the U.S. had fully vaccinated half of its population, while Vietnam had vaccinated less than 1%, according to Our World in Data. Vietnam’s situation was seen as so desperate that more than 80 shoe and apparel companies, including Nike Inc. and Gap Inc., wrote a letter to President Biden asking him to accelerate vaccine donations to Vietnam.
Today the vaccine gap between the U.S. and Vietnam has all but vanished. Around 55% of Vietnamese are fully vaccinated, compared with 59% of Americans. About 75% of Vietnamese are at least partly vaccinated, compared with 71% of Americans. Covid-19 deaths in Vietnam have been averaging around 150 a day in recent weeks, about half the level as early September.
Vietnam’s government has said it is closely monitoring the Omicron variant.
The variant could still cause problems for supply chains. New border restrictions could prolong the return of foreign laborers to Asian manufacturing countries, depressing factory output.
In Vietnam, businesses are worried that migrant workers who returned to their rural villages during the height of the summer pandemic will be less likely to return to their urban factory jobs if the new variant causes a further increase in cases, or that the government could tighten domestic travel restrictions.
Some factory operators say they have lost faith in local authorities. “They say that it’s during the challenging times that you learn who your real friends and partners are,” said one senior member of an Asian manufacturing company with operations in Vietnam. He said the government harmed businesses by offering no flexibility during the summer lockdown. On the prospect of the government reviving restrictions because of Omicron, he said, “I wouldn’t put it past them.”
Mr. Moreno, of the American Chamber of Commerce in Vietnam, said the new variant doesn’t seem to have yet pushed the government to take a harder-line approach. But that could change, he said, if there is a rise in the number of people in critical care or dying from Covid-19.
While no one discounts that possibility, many economists and analysts said they think governments like Vietnam and Malaysia would seek to avoid that outcome, so as not to further strain relationships with foreign companies.
“Both Vietnam and Malaysia have kind of decided to move towards a living with Covid stance,” said Louis Kuijs, head of Asia economics for Oxford Economics. “To my view it’s a bit less likely than last year that they would drastically close down factories.”
By Jon Emont @ wsj.com. Read full story here
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Source: Vietnam Insider