Covid-19 halts three-decade economic boom in Vietnam

For the past three decades, Vietnam has known only good – or great – economic news. Its growth as an exporter, propelled by communist leaders who embraced market-oriented policies in the late 1980s, pushed many into the middle class. The Covid-19 pandemic changed all that.

With garment companies seeing orders slashed and other sectors hit with sudden export declines, Vietnam’s workers are enduring the downside of being tethered to the global economy.

The slowdown in the United States and other export markets is being felt on the streets of Ho Chi Minh City and Hanoi, as well as in villages and tourist centres.

Ms Le Thi Hoa, who sells fruit slices outside Ho Chi Minh City’s Ben Thanh Market in the commercial hub, said: « Now, people don’t go out. I can sell only about a third of what I did before the epidemic. »

Vietnam has been one of globalisation’s stars, transforming itself from a largely agricultural economy into a manufacturing powerhouse within a few decades.

The economy expanded 7.02 per cent last year, but now it is bracing itself for the slowest growth in two decades – 2.4 per cent this year.

Mr Ralf Matthaes, managing director of Infocus Mekong Research, who has lived in the country since 1994, noted: « This is the first time since joining the global economic community two decades ago that Vietnam is experiencing a significant economic downturn. »

Vietnam’s abrupt slump highlights how even countries that have been relatively successful in containing the virus that causes Covid-19 are unable to avoid its economic afflictions.

« Countries that are export-oriented will remain vulnerable, » said Ms Sian Fenner, a Singapore-based economist at Oxford Economics, which forecasts an 8 per cent contraction in global trade for this year.

Vietnam’s exports plummeted 14 per cent in April from a year earlier, followed by a drop of 12.4 per cent in May as global commerce came to a standstill.

Exports rose just 1.5 per cent in the seven months to last month compared with 8 per cent last year.

The government, grappling with an outbreak in Danang that has spread to 14 provinces and cities, has won international respect for its virus containment.

Until July 31, it had not reported a single death. It confirmed 1,029 virus cases and 27 deaths as at Tuesday as officials employ tough anti-virus measures, while allowing manufacturing to operate.

Though Vietnam is in better shape than other Asian economies, its reliance on foreign markets and tourism have given its residents a lesson in global volatility.

Vietnam has become a key cog in the global supply chain.

It has opened factories for firms that include Intel, Samsung Electronics and LG Electronics, as well as solar panel makers and garment producers.

Exports last year reached US$264.3 billion (S$361.4 billion) – a fourfold jump since 2008. Average annual pay rose from US$1,154 to about US$2,800 in that period, according to government data.

The pace of Vietnam’s shipments to the US, which represented about 23 per cent of exports last year, slowed in the first half of this year over the same period last year.

Hard-hit sectors such as garments and textiles employ millions of low-skilled workers. Samsung’s Vietnam unit, whose electronics products represented about 20 per cent of total exports last year, revised its forecast for this year to US$45.5 billion, a US$13.5 billion drop from last year.

TOURISM WOES

The tourism industry, which represents about 9 per cent of the economy, had a 55.4 per cent revenue drop during the first seven months of the year. Given the pounding to manufacturing and hospitality industries, almost a third of the population – 31 million workers – took a hit in the second quarter.

The pain has been exacerbated by the virtual lockdown for much of April amid the new outbreak.

With millions of employees out of work, local governments worry about the potential for social unrest, said Mr Fred Burke, managing partner at the Baker McKenzie law firm in Ho Chi Minh City, noting that the government recently pleaded with firms not to fire their workers but to keep them as long as they could.

Consumer confidence is at its lowest point in 25 years, said Infocus Mekong Research. Two-thirds of residents are deferring or deciding not to make big purchases. And 63 per cent are considering taking out loans as they seek financial lifeboats, the research firm said.

Garment firm executive Bui Viet Nam, 34, noted: « Incomes are going down and people are thinking about ways to earn through selling things online or getting a part-time job. It’s a new world. »

By John Boudreau & Nguyen Dieu Tu Uyen – Bloomberg – August 26, 2020