Vietnam which was seen as a success story in terms of countering COVID-19 is facing challenges with regard to re-invigorating its economy given the fact that the constraints related to international travel, trade and investment are still looming large on the horizon. As part of the initiative to provide the necessary support to the economy, Vietnam is opening its borders for international travel from the January 1st of next year. The primary aim is to showcase that Vietnam is a safe country and is willing to support its economy through tourism and travel. Invariably, Vietnam is also hard pressed to promote it exports while at the same time protecting its citizens from the newer variants of COVID-19. Under the new economic policy, the unnecessary expenditures have been curtailed by the government while provisions have been made for emergency expenditures. The top leadership of Vietnam has been visiting countries in Asia, Europe, Latin America, and North America. In most of these visits the common agenda is to procure vaccines for the Vietnamese people, and seek agreements to promote trade and investment opportunities with the other country. Vietnam is slowly emerging as an alternate destination and manufacturing hub for those companies which want to shift base from China. Countries like Japan have already given stimulus and support packages to companies which want to move out of China.
Vietnam is preparing itself for Industrial Revolution 4.0 and for that it has made structural changes in terms of productivity, efficiency, quality controls and promoting competitiveness of the economy. The 35 years of reforms which has been undertaken under the Doi Moi reform process have gained momentum. Vietnam is increasingly seen as a modern middle-income country which is sustaining innovation and research in futuristic technologies. Increasing globalisation and interconnectedness with the global supply chain has also exposed Vietnam to the vagaries of global geopolitics and economic pressures. Vietnam is aspiring to be a upper middle income country by the year 2035 with the per capita GDP of more than US dollars 10,000. In terms of average per capita GDP, it has always aspired for an annual GDP growth of 6 to 7 per cent.
Right since the year 2018 it has embarked on ambitious programme of economic reforms. This includes multiple facets of economic modernisation and promotion of private equity in development of infrastructure. Other aspects related to promotion of innovation, organisation and geospatial planning, environmental sustenance and resilience towards climate change, social equity and inclusiveness along with development of modern institutions and better integrated market.
In terms of economic modernisation and liberalisation process, it has proposed structural reforms in the state-owned enterprises (SOEs) and promotion of private sector in the larger economics. It has also been working with regard to promotion of scientific acumen and skill sets among labour force which can help in promotion of its services sector and building technology capital within the country. This required mobilisation of resources for experts and scientific community. In certain urban spaces there is a lack of development initiative and also land resources. As a result of which there is an effective plan to bring about development of smart cities and interconnected satellite cities along with marked improvement in public services which includes transportation and maintenance of good road networks.
Along with all of these there has been effective controls with regard to green production facilities and developing mechanisms for adaptation to climate change. The problem of equal distribution of financial and economic resources is also one of the challenges for growing countries such as Vietnam. In such a context it has become imperative for the Vietnamese government to efficiently utilise state institutions and distribution of public services.
Vietnam has been working with regard to lifting restrictions and removal of government oversight for promotion of businesses, providing land rights and intellectual property rights to private sector, provision of resources such as land and capital to private sector and effective promotion of FDI in sectors which are promising. In terms of state-owned enterprises, the remarkable progress that the Vietnam has made is in terms of liquidity of 137 state-owned enterprises and now the government will hold equity 100 per cent equity in about 103 state-owned enterprises only. This will promote good governance and market liberalisation in a time bound manner.
Few of the sectors which the Vietnamese government is effectively looking for international support includes space, cyber, high-tech and artificial intelligence. In pursuit of building capital and human skill sets, Vietnam has been promoting to send its students and scientist abroad for training and developing necessary knowledge in that field.
For the purpose of developing human capital it has already embarked on a programme for national innovation networks, smart agriculture, green cities and promoting tourism in certain promises. For promoting education in English language, it has brought about structural reforms in the field of knowledge and education in higher educational institutions. Taking cue from other developing economies, Vietnam has already embarked on collecting start of proposals and supported nearly hundred joint-venture start-ups. The institutionalising of national innovation and Start-up Centre is one of the manifestations of a serious approach for promoting new Economy.
In terms of developing necessary infrastructure it is already upgrading highway projects such as North-South highway, new airports such as Long Thanh airport, developing network of smaller ports and upgrading transport systems in major cities. The power supply and uninterrupted power to the new manufacturing hubs is the core concern for the government and is also making efforts that the energy requirements for the country will be met by renewable energy up to the level of 10% of total energy requirements. Vietnam government have also taken efforts to develop the information technology draw structure and innovation centres to promote IT innovation and set up for the government systems.
In the context of coronavirus there is increased concerns that all these objectives will be met by the year 2035 when will be celebrating 90 years of its existence as a free and independent country. From the point of view of Vietnam’s Ministry of Planning and Investment, it has already date taken serious look into engaging the international community and developing a more modern and internationally integrated market economy. The discussions within the ASEAN organisation is with regard to integrating old manufacturing practises with a new digital revolution and the industrial revolution 4.0 which requires development of acumen, skill set and new entrepreneurial qualities. The coronavirus and the increase in cases have pushed the government for make structural reforms so that provisions could be met with regard to healthcare, research in medicines and general drugs, and developing alternate medicine with collaboration with international partners.
Vietnam’s economic policies has been manifesting in its approach regarding reinvigorating its economy, looking for possible trade destinations and promoting investment in those areas which have suffered the most during the corona pandemic. It has been also seen that given the fact that Vietnam economy has performed relatively well during the pandemic therefore it needs a new infusion of foreign direct investment and possible re-invigoration of important sectors which are lucrative for long term investments. It has been seen that because of the impact of the COVID-19, the Vietnam’s economic growth will be moderate of about 2.3% in the year 2021 which will be marginally lesser than the growth which was achieved closer to 3% in the year 2020. As it has been witnessed that in the year 2020, Vietnam was one of the most formidable and resilient economies and was a bright spot in Asia. There have been expressions from various multilateral organisations that Vietnam might be surging ahead in the first half of 2021 with an expected economic growth of 6.6% over the previous year. However, the resurgence of COVID-19 infections has led to slight decrease in the expected GDP growth. However, many of these international institutions have expressed that the manufacturing sector how shown promise in the third quarter of the year 2021. Much of the anticipated economic support was expected to come from the European market but given the fact that the Delta variant has also wrecked the European market and livelihoods so the exports from Vietnam are not going to get that kind of support which was expected.
If one evaluates the total foreign direct investment in Vietnam which came in the year 2019 it was U.S. dollars 20.4 billion which showed an increase of nearly 7% on a year-to-year basis. One of the primary companies which have been majorly investing in Vietnam has been Samsung and which has invested nearly $17 billion between the year 2008 to 2018. Many of the Samsung products particularly smartphones and tablets have been manufactured in Vietnam and even the company has built its largest research and development centre in Hanoi. In this context it has been seen that weather Vietnam will be able to regain the economic growth which was there during the pre-COVID times or it will have to make strong policy decisions so as to improve performance in industrial manufacturing as well as exports. The bright spot in the overall FDI inflows to Vietnam has been the fact that in half yearly analysis the Vietnam has received the foreign direct investment to the tune of U.S. dollars 9.2 billion.
Vietnam been showing signs of improvement with the decreasing impact of pandemic. However, the government authorities are trying to reduce unnecessary expenditure and boost funding for medical assistance and health care. There have been also apprehensions that in case there is a surge in the infections then the government might have to impose lock down restrictions in few select provinces. As a result of which there can be certain constraints in manufacturing because of limited supply of raw materials at industrial centres. As it has been seen that with sizable improvement in the pandemic infections and great efforts made by the government for vaccinating the people the supply side disruptions are taken care of. The efforts have been made with regard to restoring the supply lines and transportation networks all throughout Vietnam so that manufacturing doesn’t suffer. Because of supply side disruptions there has been increased in input costs and given the slowdown in the shipping industry, the freight rates have also been impacted. China has been also increasing the cost of the raw materials that it has been supplying to many of the manufacturing centres in Southeast Asia and also freight costs escalated in proportionality.
The Vietnamese government has made extra measures so that labour disruptions should not happen which could impede manufacturing sector. As a result of government efforts migrant workers have returned back to the city centres and manufacturing hubs, thereby protecting the economy from lockdown or factory closures because of shortage of labour. The government has also made efforts so that unemployment doesn’t increase do a certain level and the poor and marginalized sections of the society have been provided with monetary support so that they can take care of their families and livelihood. One of the major elements of Vietnam’s export is seafood and despite compelling situation the sectors such as seafood, textiles and garments which were temporarily closed in August and September, has been opened once again.
There has been a lot of talk with regard to supply side disruptions and the need for resilient supply chains across the globe. Companies such as Samsung, Apple and many others have tried to shift their production and increase their production capacities in those countries which were unaffected by the pandemic. Vietnam has done remarkably well in terms of exports because it has risen to more than 21% on a year-to-year basis analysis in the last quarter of 2021.
Vietnam is trying to provide support to its tourism services which have suffered a lot during the pandemic. The tourism economy requires the infusion of international tourists and that’s one of theirs in the year 2019 before the pandemic nearly 18 million people have visited Vietnam. Even during the pandemic despite the reduced number of international tourist arrivals, the domestic tourism has supported the hotel and hospitality industry as well also one of the important measures that the government has taken is that it has procured vaccines from more than seven different countries so as to protect its citizens from infections and severe health complications.
The total vaccination which has been conducted in Vietnam by the end of November 2021 husband showing remarkable progress and it’s nearing 70% in terms of those people who have been vaccinated at least once. Government is looking into long term strategy against the COVID-19 pandemic and therefore is seeking licensed production of few of the international vaccines such as Sputnik V. Countries such as Russia have supported Vietnam in endeavour and have given license to produce Sputnik V and Sputnik Light in Vietnam itself. Japanese government have also started to support Vietnam in terms of raw relocating Japanese companies to Vietnam which were earlier located in China. Vietnam being one of the preferred destinations for the Japanese multinational companies would benefit from the Japanese stimulus package of 220 billion yen for supply chain reassuring program earned additional 23.5 billion yen of the supply chains.
In terms of free trade agreements that the Vietnam has signed the Regional Comprehensive Economic Partnership would come into being from the 1st of January 2022 while the European treated agreement which is seen as an important boost for Vietnam’s export sector with the reduction of 79% of tariff between the two sides would provide impetus to the manufacturing sector. The European Vietnam free trade agreement which came into being on 1st of August 2020 is expected to provide support to Vietnam creating services, investment flows and government procurement. The bilateral investment protection agreement is also seen as a reassurance from Vietnam to protect the investment coming from European foreign direct investors and institutions.
It is expected that with decrease in COVID-19 cases Vietnam will be one bright spot in Asia showing community resilience and economic growth even during Covid times.