Vietnam was one of the few countries in the world with an economy that grew in the 2020 pandemic year as a result of early and rigorous government action and a long-standing zero-Covid strategy. In the summer of 2021 – before the Omicron variant changed the rules of the pandemic – the situation was clearly out of control. The number of infections increased, factories of electronics companies such as Samsung and Apple, and the textile factories of Nike and Zara had to be closed for weeks. Workers returned to their native villages in chaotic conditions. According to the World Bank, economic growth has dropped to 2.58 percent.
Vietnam eventually changed its strategy and pushed forward the vaccination campaign that had previously been neglected. Hanoi took a pragmatic approach and, unlike China, also used Western vaccines. Daniel Müller of the East Asian Association (OAV) in Hamburg, the network of the German Asian economy, told DW in an interview: “Vietnam has taken the curve relatively quickly, and this shows the adaptability of the Vietnamese system.”
In October 2021, tens of thousands of Ho Chi Mih City employees returned to their home villages and towns.
Almost all measures relating to the crown have now been lifted. The risk of further blockages is low, Dang Duc Anh, director of the National Institute of Hygiene and Epidemiology in Vietnam, told Reuters. The Asian Development Bank forecasts an increase of 6.5 percent. in 2022 and 6.7 percent. in 2023
More investments also from China
There are clear signs that Vietnam is benefiting from a pandemic policy adjustment. Many companies, especially in the electronics industry, spend a lot of money. South Korean Samsung announced in February this year that it would invest a further $ 920 million in Vietnam.
Weeks of severe blockade with low disease rates halted not only economic life but also everyday life in Shanghai
The trend of relocating production from China to Vietnam is also continuing. Chinese electronics companies such as Luxshare Precision Industry, Goertek and Pegatron are going to Vietnam, reports the specialist magazine Elektronik Praxis. Raphael Mok of the consulting firm Fitch Solutions told Reuters: “Vietnam will be one of the main beneficiaries of the supply chain change.” OAV’s Müller adds with Germany in mind: “Vietnam has always been the center of attention for German companies. previously it did not exist. “With its zero-Covid policy and low-incidence weekly lockdowns, China is gaining more and more criticism, especially in the economic metropolis of Shanghai.
Challenge: Resilient supply chains
Despite the good outlook, there are also challenges to the Vietnamese economy. First, there is Vietnam’s deep integration into global supply chains, which is both a blessing and a curse. A blessing, because Vietnam’s open economic policy in recent years has made growth possible in the first place. Curse as Vietnam depends on a supply of raw materials and essential products that are missing or delayed due to the pandemic. Vietnam is also prone to rising geopolitical tensions between the US and China.
The key word for the solution is: resilient supply chains. According to Müller, Vietnam is not in a good position yet. For example, the topic of digital supply chains is not yet sufficiently focused in Vietnam. Digital supply chains mean the digital connection of all processes and steps in the supply chain to monitor them in real time and increase their efficiency.
But not only supply chains but the entire economy of Vietnam need to become more resilient. Resilience can only be increased if the production added value is increased and placed on a wider basis. “This requires further professionalisation at all levels,” says Müller. For example, the education and training system in Vietnam needs to be improved. At the moment, it is barely keeping up with the growing demand.
Vietnam is experiencing strong growth, especially in the electronics industry
Resilience also means strengthening domestic demand. When Covid-19 broke through in the late summer of 2021, it hit an economy that is dependent on foreign trade very hard. According to the World Bank, Vietnam’s foreign trade index in 2020 was 209 percent. A high value indicates a high economic dependency. Of course, Vietnam with almost 100 million inhabitants cannot pursue internal development like China. “At the beginning, you only need to balance it a little,” says Müller.
Although Vietnam has recognized the problem, it is trying to take the necessary steps towards balance. Most of the population would have to benefit from economic growth to boost domestic demand, but inequality is rising, as is the divide between town and country, according to a study published in March 2021 in the trade journal Economies.
Challenge: human and labor rights
Another challenge, especially with regard to investments from Germany and the EU, is the authoritarian policy of the country. The current federal government has declared in the coalition agreement that it will pursue a “values-based foreign policy” in which more attention should be paid to the human rights situation. The Due Diligence Act (also known as the Supply Chain Act), which has been in force since 2021, but must be implemented gradually only after 2023, and depending on the size of the company, places higher demands on companies in terms of environmental protection and human rights.
Vietnam is not a first-choice partner here, which is also reflected in the EU-Vietnam Free Trade Agreement (EVFTA). The latter has been in force since August 2020, but there are still crises in terms of implementation. Under the agreement, Vietnam undertook to admit independent trade unions. But the process is slow. Until now, no law has governed how and under what circumstances independent trade unions can be registered.
It is clear to OAV’s Müller that Vietnam cannot be counted among the narrowest circle of like-minded partners in a values-driven foreign and trade policy. But for an extended circle of trading partners who – unlike the People’s Republic of China or the US under Trump – cling to an open economy, “Vietnam is actually indispensable from a German as well as from a European point of view.” Namely as a site of labor-intensive production.
According to Müller, Vietnam has a special position in Southeast Asia in this respect. Vietnam’s Potential Competitors Thailand and Indonesia will not quickly become a threat to Vietnam for a variety of reasons. Thailand’s economy is already one step further in terms of developing and producing higher-value goods. On the other hand, Indonesia is only now starting to gradually move away from its traditional domestic orientation and integrate more and more into the world economy.