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After COVID-19 Success: Vietnam's Economic Opportunities and Challenges

Article · July 2020

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After Covid-19 Success: Vietnam’s Economic Opportunities and Challenges | Page 1 of 6

ECONOMY

AFTER COVID-19 SUCCESS: VIETNAM’S

ECONOMIC OPPORTUNITIES AND CHALLENGES
Thursday, July 16, 2020

V
ietnam’s rapid success in containing the coronavirus
pandemic has attracted global attention and the regime is
looking to capitalize on its efficiency further to attract
multinational corporations and foreign investment, according to
Quan V Le, Jason Q Nguyen, and Jasmine T Ha, professors at
VinUniversity. Hanoi, however, will have to improve in a number of
areas – including sustainability and infrastructure – to maintain
any kind of post-pandemic economic momentum.

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After Covid-19 Success: Vietnam’s Economic Opportunities and Challenges | Page 2 of 6

Dawn in Danang: To boost its competitiveness, Vietnam will have to tackle the challenges of poor infrastructure and
sustainable development (Credit: shutter_o / Shutterstock.com)

Vietnam has recently gained international accolades for what appears to be a

successful campaign against Covid-19. As of July 15, the country had recorded
only 381 confirmed cases with no deaths and 353 recovered. Since April 16,
Vietnam has recorded no new cases in the community for more than 90
consecutive days, while foreign visitors were banned and new cases among
returning overseas Vietnamese were detected and quarantined on arrival. The
country’s effective handling of the pandemic was due to the government’s early
understanding of the situation and decisive implementation of a three-week period
of social distancing period from April 1 to 22. Its swift action was part of a
transparent response system strongly supported by the public.

With the worst of the pandemic now apparently behind it, Vietnam is looking to
carry the success over to economic development, riding on the momentum of
being one the earliest countries to have begun reopening its economy.
Multinational corporations from the U.S. and European countries have been
considering leaving China due to the increasing costs of doing business and
uncertainties caused by the ongoing US-China trade war. For many firms, the
recent global supply chain disruptions caused by the Covid-19 pandemic have all
but sped up the relocation process to Southeast Asia as they started adopting a
China-plus-one strategy, which some companies had already been pursuing.

Vietnam’s success in the containment of Covid-19 has significantly enhanced its

attractiveness as a low-risk destination for long-term investment in the post-
pandemic era. Compared to many of its competitors, the business costs in
Vietnam remain relatively low. As reported by the General Statistics Office, the
average monthly salary in 2018 was only US$290. In addition, with about 60
million workers, Vietnam has an abundant labor supply, of which 22 percent are
skilled and 35 percent belong to generation Y, those born in the 1980s and 1990s.
Since 2008, labor productivity in Vietnam has increased by 22.5 percent, reaching
US$4,400 per worker in 2018, still low by ASEAN standards, however. 

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Pandemic precautions in Nghe An: Hanoi's swift action to contain the coronavirus has paid off
(Credit: Le Manh Thang / Shutterstock.com)
These advantages have enabled Vietnam to reach the top 20 foreign direct
investment (FDI) destinations in the world and to be among the top three in ASEAN
in 2018. In 2019, the total foreign capital disbursements exceeded US$20 billion
for the first time, even with global FDI trending downwards. In 2020, Vietnam
continued as an attractive destination for FDI, reaching US$5.15 billion in
implemented capital and US$12.33 billion in registered capital between January
and May, despite the Covid-19 pandemic. 

Although the International Monetary Fund (IMF) recently projected a modest

growth rate of 2.7 percent, Vietnamese Prime Minister Nguyễn Xuân Phúc vowed
to reach 5 percent growth in a pitch for post-outbreak FDI at a business
conference in May. Investors from South Korea, Japan, the US and the EU appear
to be responding favorably to the appeal. The recent relocation of a Panasonic
manufacturing plant from Thailand and reports that Apple suppliers are shifting
assembly of certain products to Vietnam are indicators of potential post-pandemic
success.

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Another key advantage is that Vietnam is part of the Comprehensive and

Progressive Agreement for Trans-Pacific Partnership (CPTPP), the cutting-edge
trade deal among 11 Asia-Pacific economies, which the National Assembly
approved in 2018. That Hanoi joined the CPTPP is widely seen by investors as an
indication of the government’s willingness to introduce reforms that would allow it
to meet commitments in such areas as the environment, labor standards and
government procurement.

But achieving a quick economic rebound by solidifying its position as an attractive

alternative to China may not be so easy for Vietnam. To bolster its
competitiveness and fully capitalize on post-pandemic opportunities, it will need to
address two key persistent challenges: under-developed infrastructure and
sustainable development.

In The Global Competitiveness Report 2019, published by the World Economic

Forum, Vietnam ranked 67th, up from 77th the year before, the biggest rise of any
of the 141 countries surveyed. In terms of overall quality of infrastructure, it ranked
77th, coming in at 103rd in the quality of roads, 103rd for the efficiency of air
transport services, and 83rd for the efficiency of seaport services. Only 25 percent
of the country’s highways are paved. According to the Asian Development Bank,
the country is spending 5.7 percent of its GDP on improving infrastructure – the
highest level in Southeast Asia. This includes a US$14-billion plan to build a 1,372-
km north-south highway by 2030 and various expressway projects to improve
connectivity between major cities.

A recent report on the Global Infrastructure Outlook platform, an initiative

supporting the G20, indicated that Vietnam would need to invest US$605 billion to
meet 83 percent of its infrastructure-development goals by 2040. As conventional
funding sources from state budget and official development assistance can cover
only about half of the total needed, Vietnam will have to rely on domestic and
foreign private investors under the public-private partnership (PPP) schemes.
Although there has been some success with about US120 billion in PPP projects,
the fact is that private investors still require more transparency from the
government to mitigate risk and provide the support required to ensure a
reasonable return on their investments. Some other concerns include foreign-

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currency exchange guarantees and the application of foreign laws to contracts.

The Vietnamese parliament’s approval in June of a new PPP law is a promising
signal .

Another pressing issue for Vietnam is to minimize the negative impact of

economic development on the environment. An environmental disaster in 2016, in
which toxins released from the Taiwan-owned Formosa Plastics facility
devastated marine life in four central provinces, demonstrated a need for stricter
regulations and enforcement to avoid turning Vietnam into a haven for polluting
companies. A portion of incoming FDI could be directed toward sustainable
development, including renewable energy, green transportation systems, and
clean-water projects. Nearly US$3.3 billion will be required for infrastructure
improvement and US$6.9 billion for urban waste-water treatment plants to meet
the government target that each resident of urban areas have access to at least
120 liters a day of clean water by 2025. To achieve that goal, Vietnam will need
foreign investment and robust, high-performing PPPs.

Further reading:

Govindarajan, Vijay; and Bagla, Gunjan. (May 25, 2020) “As Covid-19
Disrupts global Supply Chains, Will Companies Turn to India?” Harvard
Business Review, Harvard Business Publishing, Boston, MA, USA.

Ha, Lam Thanh; and Phuc, Nguyen Duc. (December 6, 2019) “The US-
China Trade War: Impact on Vietnam”, Perspective, ISEAS Yusof Ishak
Institute, issue 2019, no. 102, Singapore.

Symington, Philippa. (February 2013) “China Plus One”, FTI Journal, FTI

Consulting, Washington, DC, USA.

Tien, Nguyen Hoang; Vu, Nguyen Thanh; Dung, Ho Tien; and Duc; Le Doan
Minh. (June 15, 2019) “China-US trade war and risks for Vietnam’s
economy”, International Journal of Research in Finance and
Management, Integrated Publishers, Delhi, India.

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United Nations Conference on Trade and Development (UNCTAD). (2019)

World Investment Report 2019, United Nations, New York, NY, USA.

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