How Vietnam weathers global health crisis and rises?

Bloomberg has listed Vietnam one of five economies that are expected to grow in 2020 despite a global collapse in trade, travel and investment caused by the Covid-19 pandemic.

GDP forecast for Vietnam and regional peers. Chart: ICAEW

The International Monetary Fund (IMF) predicted this week that Vietnam’s gross domestic product (GDP) to grow by 2.4% in 2020, following a 2.6% on-year growth rate in the third quarter.

International institutes have attributed the positive growth to early response against the pandemic, signing of some big trade pacts, internal strengths, and diplomatic influence.

Covid-19 response and diplomatic influence: The Lowy Institute’s Asia Power Index published last month found that Vietnam’s international image was one of the Asia-Pacific’s best improvers this year, with its score on diplomatic influence gaining six percentage points, according to Asia Times Financial.

“The country registered the largest improvement in relative power of any [Asian] country – gaining 1.3 points in 2020,” the report stated.

The Lowy Institute also found earlier this year that Vietnam had the third-highest improvement in international reputation because of its handling of the Covid-19 pandemic, trailing only Taiwan and New Zealand.

The IMF in its report this week noted that Hanoi’s “decisive steps to contain the health and economic fallout from Covid-19” were a primary reason for positive economic growth this year, a recognition of the Party’s quick and competent response, which has also been conducted with transparency.

The IMF expects that recovery to carry over strongly into 2021 with growth of 6.5% “as normalization of domestic and foreign economic activity continues.”

Containing Covid-19 is primary reason for Vietnam's growth. Photo: Bloomberg

So far, Vietnam has recorded more than 1,300 cases and 35 deaths after two waves of coronavirus outbreaks. Quick and aggressive precautionary measures namely massive testing, aggressive contact tracing, lockdown, and mass masking were taken together with social distancing period in April.

Free trade agreement: In June, Vietnam ratified a free trade agreement with the European Union (EVFTA), becoming the second Southeast Asian state to do so with the 27-country bloc. In mid-November, Hanoi played host to an ASEAN summit where the world’s largest trade pact the Regional Comprehensive Economic Partnership (RCEP) was signed and the country is a signatory.

In the year of ASEAN Chair 2020, Vietnam has really worked in the “cohesive and responsive” manner as the theme of the chairmanship’s year. It has helped ASEAN member states stay united in fight against the pandemic and in recovery plans that are partly revealed through the regional Covid-19 response fund and reserve of medical supplies.

In this regard, Vietnam has extended its disaster relief to many countries worldwide, including the US by sending them face masks and medical equipment.

Export-driven economy and foreign money inflows: Asia Times Financial also pointed out Vietnam’s advantages over its Southeast Asian neighbors.

Indeed, Vietnam’s GDP growth is driven by manufacturing and exports, which are easier to maintain during a pandemic than sectors reliant on domestic consumption. In 2019, the service sector accounted for 45% of Vietnam’s GDP.

Vietnam’s economy is also less dependent than other Southeast Asian states on tourism, which accounted for 9% of its GDP in 2018, compared with 32% for Cambodia and 20% for Thailand. It has thus faced less pressure due to the collapse of international travel.

Vietnam also went into 2020 on the back of two years of robust foreign direct investment flows after the US-China trade war prompted many foreign manufacturers to move their operations to Vietnam, where trade links to the US are more stable and less tariffed.

In the first nine months of 2020, Vietnam recorded US$21.2 billion in new foreign direct investment (FDI), down 20% from 2019, a bumper year for investment.

Many of the investments made this year won’t begin operations until 2021 or later, which also points to a healthy economic recovery.

As part of Hanoi’s ambition to shift from low-valued added manufacturing to higher-end tech production, Vietnam has also seen this year key investment projects from international electronics firms.

Japan’s Furukawa Automotive Systems invested in a new plant to manufacture electric wires for cars last month, while in September Apple’s local partner invested US$1 billion in three new manufacturing projects.

Earlier in the year, Apple announced that its new line of over-ear headphones will be produced in Vietnam.

Smartphones, electronics and computers topped Vietnam’s exports in value and share in the first six months of the year, according to a recent briefing from Dezan Shira & Associates. Electronics exports to the US were up more than quarter between January and September compared with the same period in 2019.

David Hutt said on Asia Times Financial that whether there is continuity or change to both US-Vietnam relations and Vietnam’s domestic politics is a matter of intrigue, but what is certain is that the country’s economy will likely again be the envy of the region in 2021.