Vietnam aims for high economic growth

  • Economy
  • Saturday, 23 May 2020

Optimistic: Vietnamese Prime Minister Nguyen Xuan Phuc says the country will try to keep economic growth over 5% this year. — AP

AMID the raging global coronavirus (Covid-19) pandemic that has hit over 200 countries, one country that has unexpectedly stood out in conquering the deadly disease is Vietnam.

This developing country has not only put to shame many governments from the developed world by reporting no death in the Covid-19 outbreak, it has also capped the cases of infections at around 300 – far lower than most virus-troubled countries.

Vietnam acted fast and decisively when the Covid-19 infection was first detected in January. As a result, it was among the first countries in the world to flatten coronavirus infection curve – thanks to its harsh but effective measures.

When two visitors from neighbouring China emerged as Vietnam’s first cases in late January, the Communist Party-led government began imposing controls that could be dubbed as “crackdown” in the Western democracies.

Hanoi reacted by stopping all flights to and from mainland China on Feb 1 (and later domestic and other international flights), ordered pharmacies to report customers buying flu medicine and quarantined over 100,000 people in military camps.

Bcck to the old ways: Motorists are pictured in morning rush hour traffic on a congested road in Hanoi on May 12. Vietnam. Things were as busy as usual in the city after the government had loosened the restrictions after Vietnam;s victory over Covid-19. - AFPBcck to the old ways: Motorists are pictured in morning rush hour traffic on a congested road in Hanoi on May 12. Vietnam. Things were as busy as usual in the city after the government had loosened the restrictions after Vietnam;s victory over Covid-19. - AFP

It also closed schools, monitored hotels and homes closely, shut down businesses and enforced tight contact tracing.

Vietnam has set its goal not to have any death from Covid-19 infections. Hence it ensures its healthcare system response is at its best.

Although there’s some scepticism over the low official infection numbers, still international recognition has been earned.

Vietnam’s report card on combating Covid-19 has won praise from the US Centre for Disease Control and Prevention and the World Health Organisation.

Within Asean, Vietnam’s medical facility is behind Singapore and Malaysia, yet it is able to curb the spike in infections better than these neighbours.

Apart from the harsh measures implemented, some commentators noted that Vietnam’s long history of going to war has helped.

After the Vietnam War in which the US conceded defeat in the mid-1970s, Hanoi took on two more wars. Its occupation of Cambodia ended in 1989. It engaged in brief border war with China in 1979.

The country’s rare skill in managing battlefields could have been useful in its response towards this current health disaster. In fact, it was also the first Asean country to get rid of the severe acute respiratory syndrome (SARS) in 2003.

But whatever analysis is made, it is important that Vietnam’s “crackdown” has paid off.

Vietnam became the first South-East Asian country to start lifting restrictions. Surprisingly, it was also the first Asean country to export anti-virus masks and protective gears to the West.

With no official virus-related deaths, this developing country has won another first – it was the first Asean country to ease its lockdown rules.

“Vietnam had to deal with SARS, the bird flu and various financial crises, ” said Fred Burke, managing partner at the Baker McKenzie law firm in Ho Chi Minh City, who advises the government on foreign investment rules. “They’ve learned they need to act fast and thoroughly.”

It's summer time: Local beachgoers enjoying a swim at the Bai Chay beach in Ha Long city of northeastern province of Quang Ninh on May 16. - AFPIt's summer time: Local beachgoers enjoying a swim at the Bai Chay beach in Ha Long city of northeastern province of Quang Ninh on May 16. - AFP

He added that Vietnam was also a favoured location for foreign investors looking for an alternative manufacturing hub to China following escalating trade tensions between the US and the world’s second-largest economy.

Looking at the success of the country containing the virus – social distancing restrictions were eased on April 23. It is reopening its economy far wider than all countries in the region (except China).

But like other countries, Vietnam is not spared of the ravages of Covid-19. All economic sectors have been hit hard.

Its gross domestic product (GDP) grew only 3.82% in the first quarter, down sharply from the 6.97% in October-December 2019.

The International Monetary Fund (IMF), on April 14, projected Vietnam’s economy would expand only 2.7% this year, after two consecutive years of 7% growth in 2018 and 2019. The IMF did not rule out an economic contraction for 2020.

The South-East Asian country’s strict measures to contain the virus, the global recession and weak domestic demand are expected to slow its economic growth this year from an average of about 7% in 2018 and 2019, the IMF representative in Vietnam, Francois Painchaud, said.

“Some sectors are expected to be severely impacted, especially the tourism, transportation and accommodation industries, ” he said.

But the government believes its severe moves to blunt the virus ultimately saved the economy from more pain.

“They’ve shown they’ve got a deep sophistication in how they handle problems, ” said Adam McCarty, chief economist with Mekong Economics in Hanoi.

Whatever it is, Vietnam has shown the world early decisive moves to contain and tackle the pandemic of country with a 96 million population was a good answer to handling the Covid-19.

And despite this gloomy projection, Vietnam – seen as the economic rising star in Asean – appears eager to bring the country’s economy back soon.

And it knows it needs the right strategies.

In a special e-mail interview with Star-Asean+, Hanoi-based Vietnam Economic Authority (VEA) says the government is now focusing on efforts to bring about an economic recovery while ensuring there is no second wave of the epidemic.

“We are on our path of recovery and we are confident we can push forward with more success, ” the government agency representative Ngo Xuan Thuy told the StarBizWeek.

The first strategy for economic recovery is selecting the right sectors to be given government support, he adds.

Sectors such as infrastructure, training, innovation, employment generation and medical equipment manufacturing have been given priority now.

“Secondly, the recovery process must be in line with the acceleration of structural reform while increasing the competitiveness of the whole economy, improving investment climate, the efficiency of state-owned enterprises and strengthening the financial system, ” says Ngo.

“Thirdly, this process must also be associated with new global trends that have emerged since the pandemic such as changes in supply chain establishments, technological advances, digital transformation, new demands in lifestyle and consumption towards a greener and safer future.

“In short, the VEA is confident, Vietnam has capability to recover from the effects of Covid-19.”

Tourism is another important sector for Vietnam.

With practically no international arrivals since March 25, tourism and related businesses have suffered significant losses.

Saigontourist – a travel company – reported a year-on-year drop of 80% in customer numbers in February and 90% in March, resulting in US$21.1mil fall in monthly revenues.

However, the sector is expected to rebound faster and emerge stronger as most people have emerged unscathed in the pandemic. Recent developments are providing some optimism.

Savills Vietnam, the only firm with the official local market research data, has noted that tourism will fully recover within six months after the pandemic is contained.

During Vietnam’s Labour Day holiday from April 30 to May 3, domestic tourism in Da Lat, Vung Tau, and Mui Ne recovered substantially with traffic choking roads leading out of Hanoi and Ho Chi Minh City.

Hotel occupancies were also higher with some transport operators fined for not maintaining social distancing guidelines inside coaches.

The pandemic is also pushing digital transformation to a new height in Vietnam.

Banks have slashed online transaction fees to encourage cashless payment while online grocery shopping and food delivery services jumped in demand. Retailers in Vietnam reported that orders by phone and apps increased ten-fold compared to normal days.

This allowed retailers to hire more delivery personnel to meet demand. Online shopping also ensures that while there is a dip in consumption, there will always be demand for products, allowing businesses to operate.

Experts forecast that online delivery courses will remain prevalent even after the pandemic as attitudes toward e-learning change. There is rising online need in Vietnam but opportunities due to the pandemic have accelerated this shift.

As Vietnam has scored high in its handling of the Covid-19 outbreak, the government is seeing opportunity to lure foreign direct investment.

Many multinational companies have expressed optimism on Vietnam’s economy in the medium and long term. Existing foreign direct investment (FDI) have plans to increase their involvement in the country.

According to a survey conducted by the German Business Association in Vietnam, 90% of German businesses surveyed do not intend to reduce investments in Vietnam and 50% even plan to increase their business in the country.

Nikkei reported that some multinationals have already moved in, notably South Korea’s Samsung Electronics that makes over half of the world’s smartphones in Vietnam and accounts for about 25% of the country’s total exports.

The incentive for local officials, who can lure in big investors, is promotion to higher office.

According to the Ministry of Planning and Investment on May 18, Vietnam attracted US$12.33bil in FDI in the first four months of 2020 (as of April 20), equivalent to 84.5% of investment in the same period last year.

This figure, though lower year-on-year, was much higher than those recorded during the same period in 2018,2017 and 2016; by 52.3%, 16.4% and 79%, respectively.

The World Bank, in its May updated report on Vietnam’s economy, shares similar optimism with the private sector. It noted that registered FDI surprisingly rebounded in April, by 81% month-on-month and 62% year-on-year.

One strong indicator that Vietnam is firmly on recovery path was that credit growth bounced back in March after being stagnant in January and February. Credit growth in March stood at 1.3%.

The State Bank of Vietnam has provided aid packages since early March to allow banks to restructure loans and cut rates for borrowers.

It has also given support to some commercial banks to improve liquidity so that these banks could increase loans for virus-hit businesses.

Apart from its strong management of the virus outbreak, Vietnam is also in a position to bring about quick recovery due to the advantage it enjoys amid the US-China trade war.

The government’s goal is now to build on that momentum.

The US-China trade conflict has led some investors to move their business to other Asian countries, and Vietnam has been a key beneficiary due to its low labour cost, investment friendly government and preferential treatment in trade with US.

As the heavy reliance on China in global supply chain – amplified by the pandemic – has caused a heavy toll on companies worldwide, Vietnam can be a huge beneficiary if some multinationals move out of China to other destinations.

In fact, Washington and Tokyo have announced incentives for their corporate giants in China to move back to their home countries or elsewhere.

Going forward, the Europe-Vietnam Free Trade Agreement, scheduled to be ratified soon, will also create momentum for investments from Europe.

At the political leadership level, striving hard for a strong economic recovery is the top goal now.

Vietnam’s Prime Minister Nguyen Xuan Phuc, on May 5, said Vietnam will try to keep economic growth over 5% this year.

“We have to focus on restarting the economy, aiming to achieve a GDP growth of above 5%, not just 2.7% as forecast by the IMF, ” Phuc said in a statement on the government’s official website.

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