Touted as Asia’s rising star, Delta’s Covid-19 has sidelined Vietnam’s admired economy, leaving outside investors wondering if this is the beginning of the end of its once-booming economy.
Will Vietnam be able to recover and get back on its feet?
Vietnam rising
Vietnam has been gaining attention as an economic miracle – and for good reason. Lurking in China’s shadow, this Southeast Asian nation of 98 million has been Asia’s economic standout recording 7% annual GDP growth, attracting record foreign direct investment (FDI) and joining a slew of global trade pacts in recent years. Vietnam has convinced major players such as Samsung, Nike, Intel, Foxconn (iPhone manufacturer) to relocate their operations here, while establishing itself as one of the most hyped go-to manufacturing destinations. Operating a decades-long hot economy has some economists making claims that Vietnam could be the next China.
The country has been gaining so much attention that on October 13, 2020 emerging markets specialist, Ruchir Sharma penned a New York Times opinion piece titled, Is Vietnam the next ‘Asian miracle.’ Mr. Sharma gives Vietnam credit for its reliance on exports, investment in roads and infrastructure, and building schools to train workers. In a protectionist world of decreasing trade, Sharma attributes Vietnam’s economic rise which has been largely modeled on the Asian success stories of South Korea, Taiwan, Hong Kong, Singapore, China and Japan before it.
Also read: Will Vietnam become the Next ‘Asian Miracle’?
Vietnam’s economic success can be directly related to its open trade policy, starting by its 2007 admission to the World Trade Organization (WTO). As recently as June 2019 it signed an EU-Vietnam trade agreement and followed up in November 2020 by joining RCEP (Regional Cooperation Economic Partnership), the world’s largest trade agreement including Asean (The Association for Southeast Asian Nations), East Asia, Australia and New Zealand. Contrast this with America’s latest penchant for trade wars and “containment” policies and the United Kingdom’s Brexit, a formal withdrawal from the European Union. While the West is embracing protectionism, Vietnam is opening its doors to global trade.
Vietnam’s darling economy didn’t stop there. As Covid-19 devastated all economies in 2020, Vietnam seemed to defy logic by posting 2.9% positive economic growth. Praised by the world over for implementing low-cost, preventive measures, Vietnam, like its neighbor New Zealand, were the envy of the world reporting the lowest Covid-19 transmissions and deaths. Vietnam’s initial Covid response and its economic success were admired throughout the world.
Enter the Delta variant: Bringing Vietnam to its knees
Vietnam’s seeming invincibility came crashing down in April 2021. Following a national holiday which saw a record number of domestic tourists, the Delta variant took hold. Slowly, Vietnam’s capital city of Hanoi and neighboring Hai Duong, Quang Ninh, and Bac Giang provinces started to see Delta cases skyrocket, temporarily forcing the closures of key manufacturing plants.
By May it’s southern economic hub, Ho Chi Minh City, traced a cluster of new Covid-19 cases to a church. By June and July, the Delta variant devastated much of the city and its surrounding industrial parks forcing city-wide lockdowns, resulting in the implementation of the “stay where you are” policy in full force. To enforce lockdowns, traffic barriers at major intersections were erected, all food and drink establishments were prohibited to operate, public transportation, planes, and trains were no longer in service and all citizens were required to stay and work from home. One could only venture out for essentials such as food, medical emergencies, and medicine.
After nearly four months of lockdown, Ho Chi Minh City reopened on October 1. While the vaccinated can traverse the streets without being fined, much of the city’s businesses remain closed; only a limited number of restaurants are open for take out and street traffic is about 30% pre-Covid levels. The city continues to be uncharacteristically quiet as most people, scared of Covid-19, remain home.
Looking ahead
While the city’s reopening has been met with great fanfare, it is yet to be seen if the city and country can recover economically and continue to attract FDI as it once did. A four-month long lockdown has financially devastated most families, resulting in a great exodus of factory workers leaving the city for their hometowns and their industrial jobs behind. The lockdown has forced foreign companies, already full of anxiety for missing crucial fourth quarter deadlines, to reconsider moving their supply chains elsewhere. A combination of the four-month closure, skyrocketing shipping costs, a shortage of factory workers, and a low vaccination rate are starting to cast a shadow over Vietnam’s once bright-shining star.
Contributed by Vinh Ho.
Vinh Ho has been based in Ho Chi Minh City since 2019 and runs a blog called Focus Asia-Pacific. Opinions expressed by contributors are their own
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Source: Vietnam Insider