Vietnam: COVID-19 comes for the economy

Vietnam is battling major Covid-19 outbreaks throughout the country as the Delta variant unleashes its havoc on a country that up until a few months ago had been mostly spared from the pandemic. Strict containment measures, mostly in the form of hard lock downs, have taken a major toll on the livelihoods of millions as economic activity shutters.  In this update, which is in  in collaboration with Vietnam Weekly, we are going to take a closer look at the economic impact of the current outbreak (Vietnam’s fourth wave which began in late April).

COVID-19 comes for the economy

In late April, Vietnam was sitting pretty in terms of overall economic indicators. GDP growth in the first half of 2021 hit 5.64%, a major improvement over H1 2020’s 1.82%.

This followed plenty of back-slapping over the country maintaining growth in 2020 – 2.91% – in the teeth of the global pandemic, an achievement that very few places managed.

However, through the month of May, COVID-19 case numbers exploded in Bac Ninh and Bac Giang, two key manufacturing provinces next to Hanoi that are home to massive Samsung facilities and factories operated by contractors for Apple and some of the world’s biggest tech companies.

However, after some disruptions, these localized outbreaks were stamped out through aggressive testing and contact tracing, as well as the new strategy of keeping workers at factories. (More on that later.)

This limited the overall economic impact, and through the first seven months of this year, Vietnam’s exports rose by 25.5% over the same period last year, worth US$185.3 billion.

Then, Ho Chi Minh City – along with the rest of southern Vietnam – began experiencing outbreaks on a scale that the country had never seen – and the economic/business picture changed dramatically.

On the ground

HCMC and the neighboring provinces of Binh Duong and Dong Nai make up the true economic engine of Vietnam, with the city alone accounting for about a quarter of the country’s GDP.

As the outbreak in HCMC turned into a full-blown crisis – one that remains extremely dangerous – and spread to those above provinces (along with all neighboring provinces, many of which also have substantial manufacturing bases), it became clear that serious economic damage was likely.

While we don’t yet have top-line data showing the impact of this severe outbreak, July’s industrial production index was the slowest this year, while the number of new enterprises created in that month fell by 22.5% from June.

The Asian Development Bank has lowered its 2021 GDP estimate from 6.7% to 5.8% – a forecast that will surely fall the longer this goes on.

Suppliers for everyone from Ikea and Netflix to Nike and Apple have had to stop or curtail production at various times due to COVID-19 clusters, while the ‘three-on-the-spot’ model first tested in Bac Giang/Bac Ninh has been difficult for businesses.

In this method, factories have to provide space for employees to sleep, eat and continue normal work. Pitched as a way to maintain both worker health and production, it worked – for a time. But if one COVID-19 case got in, these are perfect environments for rapid spread, especially of the Delta variant.

Now, over a month in to factories trying this out, many are tired of it. The cost is immense and the logistics are a nightmare, given how difficult transit is within provinces, let alone between provinces. (Normally there is an enormous amount of daily traffic among HCMC, Binh Duong and Dong Nai.)

And all of that cost is simply to maintain a reduced level of production: for example, this article highlights a company in District 7 that arranged areas for sleeping and eating, but only for 400 out of 1,300 employees.

HCMC’s leaders recently announced that they want 5-10% of businesses to resume operations in the near future through four ways, including the ‘three on the spot’ model (and another that only allows for transportation of workers from a company to where they live).

Obviously, that is a small percentage – and doesn’t include Binh Duong and Dong Nai, whose daily infection curves are still rising and vaccination rates are low. Just 21.8% of adults in the former have received at least one vaccine dose, while the figure for the latter is 15.1% – compared to 69.8% for HCMC.


The number of cases in Binh Duong over the last 14 days has risen by 92% compared to the previous two weeks. Data from VnExpress.
Dong Nai has had a couple of good days, but infections over the last two weeks are still up 135% over the previous 14 days.

Elsewhere in the region, things are no better: roughly 9,800 out of 10,000 businesses in Can Tho, the Mekong Delta’d largest city, are currently shuttered, leaving 150,000 people out of work.

The supply chain across all of these areas have been hit hard, and has also led to some fairly dramatic developments, perhaps most notably the week-long disruption of operations at Cat Lai, Vietnam’s largest port, due to worker shortages and a container backup.

Major state-owned or -affiliated corporations are racking up massive losses, including Vietnam Airlines, which lost US$475 million in the first of this year. Many privately owned groups, however, such as Vingroup, Masan Group and Mobile World Group, are reportedly fairing much better – all three of these companies posted relatively strong financial results for H1 2021 – yet under the current circumstances it is difficult to see how this can continue for H2.

Looking ahead

All of this has certainly muddied the waters of the country’s economic health for the rest of this year. Bac Ninh, in the north, is now working to stop a renewed outbreak after weeks of detecting no cases, and southern Vietnam will be in deep trouble for at least the next month (more likely two or three months.)

This has thrown off growth expectations, while planned expansion by the type of global giants the government strives to attract is on hold.

For example, Google will produce its new Pixel 6 smartphone in China, work it had planned for Vietnam, while Apple is keeping AirPod, iPad and MacBook production it had intended for the country in China for now.

This is without even getting into the challenges faced by the agricultural sector, especially in the delta, where millions of people rely on selling what they grow for their livelihood and transport disruptions have even threatened the vital rice trade.

These are the kinds of developments that the government had done so well to avoid in the first 18 months of the pandemic, when Vietnam became a global star for protecting both public and economic health. Tragically the Delta variant has turned this around.

And while the current situation is of course damaging to large domestic companies and multi-national corporations, ultimately the people who are hit the hardest are the people they employ, and we are seeing the worsening impact of that every day. Indeed, the socio-economic security of millions are at a risk level not seen for decades in Vietnam. This, ultimately, heightens the political risk level of Vietnam – which for decades has intertwined economic development with national security.

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