Omicron Brings New Uncertainties To Vietnam’s Economic Landscape, Says Expert | Vietcetera
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Dec 09, 2021

Omicron Brings New Uncertainties To Vietnam’s Economic Landscape, Says Expert

Despite the monthslong lockdown, Vietnam remains an appealing investment destination. But the threat of the new Omicron variant looms.
Omicron Brings New Uncertainties To Vietnam’s Economic Landscape, Says Expert

Vietnam's strategy to recover from a devastating monthslong lockdown is now being tested by the new Omicron variant. | Source: Shutterstock

Vietnam’s long lockdown this year was a catastrophe for the national economy, and for all the local and foreign-owned businesses that used to applaud the country’s successful COVID-19 fight in 2020. The government’s Central Economic Commission said that Vietnam had already suffered an estimated economic loss of $37 billion, according to a report from VnExpress. This could pull the country’s expected economic growth down to 2.5% this year as the new Omicron variant starts to unleash global economic turmoil.

While Vietnam has yet to confirm any Omicron-related infections, given its cautious reopening to fully-vaccinated travelers from selected countries, the risk of Omicron surfacing in the country is “very high,” according to the Ministry of Health. The ministry this week sent out letters to all 63 cities and provinces advising local governments to stay alert, strengthen prevention and control measures and speed up vaccination for everyone from age 12 on.

But with the Omicron variant having been detected in Thailand, anxiety is building: Will Vietnam go into another lockdown? Will businesses survive a possible new virus wave? Will the economy take a further downturn?

Vietcetera spoke with Filippo Bortoletti, senior manager of the international business advisory with Dezan Shira & Associates, a pan-Asia business consulting firm, to better understand the immediate and long-term implications should Omicron enter Vietnam’s borders and push the country into another phase of economic uncertainty.

Filippo Bortoletti, senior manager of the international business advisory with Dezan Shira & Associates. | Source: Dezan Shira & Associates

Vietnam was relatively spared from the COVID-19 pandemic last year. But 2021 is different. Vietnam was forced to go into full lockdown for four months and stopped nearly all economic activities in major cities. What’s the real impact of the lockdown to Vietnam?

Surely the lockdown had a major impact in Vietnam. If we look at the local manufacturing, companies struggled dealing with local logistics due to substantial differences in requirements for transitioning goods within different areas of Vietnam. Apart from that, manufacturers had to implement appropriate safety and containment measures to continue producing. Such a complex environment heavily impacted the local industry, which struggled keeping up the production. Consequently, foreign customers withdrew their purchase orders, rerouting them into other countries that at that time were having an easier time than Vietnam in dealing with the COVID-19 emergency.

Overall, the lockdowns have an impact over the perception that foreign players have on Vietnam and its ability to effectively deal with the pandemic. In 2020, the government successfully isolated Vietnam and managed to limit the spread of the virus. But in 2021, the fourth COVID-19 outbreak was beyond the control of the local authorities and a very strict lockdown was enforced for months. From that time, Vietnam took huge steps forward in fighting the virus and successfully kickstarted a rapid vaccination campaign, which contributed to increase the reputation of the country after the lockdown. With this in mind, surely the lockdown had a negative effect on the local industry and also on people's lives but was an absolutely necessary action to stabilize and then bounce back.

How did the lockdown affect foreign investors’ perception of Vietnam as a thriving economy?

Surely the long lockdown had a negative impact on Vietnam’s reputation with foreign investors. Especially because of its duration. In general, Vietnam was, and it is still perceived as an appealing country and market for foreign investors. The lockdown has only temporarily hampered the inflow of investment in the country. From my privileged position as international business advisory, I can safely say that Vietnam is still an appealing investment destination.

Source: Vietcetera

Now that the Omicron variant is threatening to hamper global efforts to put an end to the pandemic, does this also bring new fears of another lockdown among businesses and investors?

The Omicron variant surely brings a lot more uncertainty over the next year, as it is almost impossible to predict its consequences. In general, the risk of lockdowns is commonly shared worldwide, therefore it isn’t an event only Vietnam should be prepared for. The Omicron variant surely poses additional challenges, and Vietnam’s government should do its best to continue conveying the right messages to the Vietnamese citizens to mitigate and minimize the risk of being forced into another lockdown, and to foreign investors to ensure that the country will continue its efforts in supporting local industries and reduce the bottlenecks in the local and international supply chains.

What would another lockdown in Vietnam look like, considering businesses are still reeling from the negative impact of the previous one?

I don’t think Vietnam should go on lockdown again, if not strictly necessary. Businesses right now need “oxygen” after months of serious restrictions, especially small local businesses such as restaurants, bars, gyms, cinemas, retail shops in general. If in the future another lockdown is inevitable, then I think the government should strive to ensure restrictions are enforced the same way in the different municipalities, to avoid paralyzing the logistic system. I also think that a strict lockdown like the one enforced following the fourth COVID-19 wave would be unbearable and therefore the government might look at enforcing softer restrictions, allowing businesses to thrive even during the pandemic emergency.

Source: Vietcetera

What specific industries would be most affected?

A lockdown is likely affecting a wide range of industries, as the main risk of a lockdown is paralyzing the logistics system. Of course, businesses not able to comply with safety and containment rules would shut down their operations. But with the experience from the previous lockdown, this should not be a serious issue provided industries and businesses in general are supported by local authorities and business associations and other relevant stakeholders — like it happened during the previous lockdown. In general, if we look at the local industrial system, the most affected industries will be the ones heavily reliant on purchase orders coming from overseas as part of an international supply chain, because the purchase orders might as well be transferred to other countries like what happened a few months ago.

How would this affect Vietnam’s economic growth?

A new lockdown in 2022 is going to negatively affect the growth of Vietnam, as it is likely to temporarily hamper the inflow of foreign investment — which is necessary for Vietnam’s infrastructure development plan — and would likely further exacerbate the current concentration process in the local market. Indeed, 2021 was the year when local players started to aggressively integrate both vertically and horizontally through mergers and acquisition. Then, the risk of a new lockdown is not only to hamper the inflow of foreign investment in the country, but it could also kill a lot of local SMEs, thus reducing the competition in the market. Therefore, if a new lockdown is going to happen, it is very important that the government put in place tax incentive measures and other supporting measures to help SMEs.

What can Vietnam do to minimize the impact of another possible lockdown, business-wise?

Vietnam should first make sure the restrictions are enforced equally in the different provinces and municipalities, making sure to not paralyze the national logistic system with several different and cumbersome procedures and requirements for the movement of goods and people. Apart from that, effective support to businesses through tax incentives and simplifications in procedures. In general, I trust that if a lockdown must be implemented, it should be a soft lockdown: allowing businesses to work while imposing curfews, enforcing maximum health and hygiene rules at the workplace.

What advice can you give to businesses and investors to survive the looming threat?

My advice to businesses and investors to survive the looming threat is to mitigate the risk of outbreak inside their premises by implementing strict health and hygiene policies, as well as communicating with business associations, which can convey concerns and proposed solutions to the local authorities. Also, businesses should have already in place a contingency plan to operate under lockdown conditions.