A mostly maskless crowd celebrates the new year countdown in the city of Hanoi, Vietnam
A mostly maskless crowd celebrates the new year countdown in the city of Hanoi, Vietnam © Getty Images

On a recent Friday in Ho Chi Minh City, Vietnam, friends kissed hello as they entered the Racha Room, a tunnel-shaped bar lit by warm, ochre lamps. Inside, patrons shouted over booming classic rock and sipped from each other’s Old-Fashioneds.

It was a scene to strike a chill into the hearts of the Covid-conscious. A standing-room-only venue, windows clamped shut against the night air, and not a mask in sight. It might have been a glimpse into an eerie alternative reality — a 2021 that could have existed had the coronavirus never broken out.

But the scene is a reality for Vietnam. The country was spared a year of lockdowns, horrific body counts, besieged hospitals and corrosive national bickering about Covid-19 mistakes and trade-offs. While some criticised a harsh initial government coronavirus response, today, Covid-19 cases total 1,539 with 35 deaths — a figure among the world’s lowest, and especially astounding given the country’s shared border with China. The economy, bars and all, has stayed open, propelling it to one of 2020’s highest growth rates even while neighbouring countries wrestled with recession.

Despite the decimation of health systems and economies abroad, 2020 was the year Vietnam introduced three trade deals, lured billboard investors like Apple suppliers, launched another airline, and rose to sixth place from seventh in south-east Asia by per capita income.

The contrast between life inside and outside Vietnam’s borders could hardly be starker. Outside, hospitals are deluged and families hole up indoors for the better part of a year. Inside, people share entrées, go to school, fly on weekly business trips, hit the gym, and cram into buses and elevators. The same dynamic is reflected in the economy.

Morning rush hour after the government eased the nationwide lockdown in May 2020
Morning rush hour after the government eased the nationwide lockdown in May 2020 © Getty Images

“Recall that when the Covid-19 epidemic first emerged, [the World Trade Organization] and others forecast a plunge in global trade,” Don Lam, VinaCapital chief executive, told Nikkei Asia, adding that some suggested that “Vietnam was among the countries at the greatest risk because exports play such an important role in its economic growth.”

But, he said: “Instead, the opposite has come true. Vietnam’s openness to trade is playing a key part in its quick economic recovery.”

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.


Subscribe | Group subscriptions

As work-from-home shopping boomed in the US and Europe, for example, Vietnam’s electronics and furniture exporters rode the demand wave. Manufacturers siphoned orders from nearby countries where Covid-19 shutdowns rendered rival factories idle.

Eateries and bars like Racha Room continued to operate, generating business for domestic companies like TradingFoe, which imports goods to Vietnam from Scandinavia. Last year it fielded an unexpected demand for seafood imports, said Linh Le, marketing manager.

“I’m very surprised,” she told Nikkei at a business forum, surrounded by 100-plus maskless investors and entrepreneurs in a windowless conference hall. “I didn’t know that with Covid-19, there’d be people who want to import so much.”

Her young company reached profitability as of August, and made plans to expand to other parts of south-east Asia and Europe.

Pupils wear masks in a classroom on their first day of the new school year at Phuc Dien elementary school in Hanoi, Vietnam
Pupils wear masks in a classroom on their first day of the new school year at Phuc Dien elementary school in Hanoi, Vietnam © EPA

Grabbing market share has itself become a national preoccupation. The minimal lockdown meant that domestic companies bounced back sooner and gained an edge in the region. More foreigners have singled out the communist country for investment, thanks to the recovered economy and the absence of a real coronavirus resurgence. At the same time, government officials say they will be more discerning in the investors they seek, with a focus on technology transfers that advance Vietnam up the value chain.

“Vietnam will actively and selectively attract foreign investments, taking high quality, efficiency, modern technology and environmental protection as the key benchmarks,” Tran Quoc Phuong, deputy minister of planning and investment, said in October, when his ministry struck a deal with consulting company EY to secure investments, according to an EY press release.

This lays a foundation to improve the capacity of local suppliers, as well as that of local talent, who have received more training because travel bans prevent multinational companies from flying in foreign managers. Vietnam also increased public spending, a move to stimulate the economy that could have knock-on benefits for infrastructure, which has long been in need of upgrades.

But success has come at a cost. Many cannot find work amid strict border closures, while others have been victims of sweeping police powers used to both control Covid and muzzle criticism.

Much will hinge on which lessons are learned, if any, by the ruling Communist Party. Freedom of expression has suffered in the past year, in response to the pandemic but also in the lead-up to the Party Congress that kicked off January 25 to elect the leadership for the next five years. “I have no doubt the leaders will use the result of their success in managing the pandemic to help them get more votes in the [party] central committee,” said Nguyen Phuong Linh, associate director in Singapore of Control Risks, the London-based risk consultancy.

Virus vanquished?

For all its optimism, Vietnam started off 2020 as panicked as anyone else. Initially, citizens hoarded food, masks and hand gel, isolating at home once schools and offices closed in April. Anxiety persisted in June, even after authorities had curbed the spread, reported a total of zero Covid-19 deaths and reopened the economy. With a trade-to-GDP ratio of 210 per cent, Vietnam’s businesses worried about the financial fallout as they watched the Covid-19 crunch in the US and Europe, their two biggest customers.

Vietnam was able to exit lockdown by the end of April, because of experience in handling tropical diseases, including the Sars outbreak in 2003. Officials swiftly isolated patients, traced their contacts, did targeted testing, and were among the first to scrap international flights.

No officials strayed from the dogged public messaging on handwashing and social distancing, conveyed through mass texts, communist-style street posters, announcements over speakers, and even a viral TikTok skit. As the world’s understanding of the novel coronavirus evolved, Vietnam evolved with it: next to handwashing posters, city governments later strung up banners exhorting people to keep rooms well ventilated.

At the height of infections, the authorities banned taxis and sealed off any apartment blocks where tenants tested positive, barring thousands from even stepping outdoors. In 2021, some buildings still require masks for entry.

As uncertainty swirled, the one-party state also battled fake conspiracies with a blunt instrument, extinguishing online rumours about bleach remedies and bat soup, but also blocking criticism of the pandemic response. Some who aired their criticism on social media wound up facing arrest, according to the human rights monitoring organisation Amnesty International.

Other aspects of the coronavirus response uniquely highlighted the capabilities of an authoritarian state. It published patients’ details, such as addresses, to aid in contact tracing; deployed security officers to knock on doors to find infected people; and tried to hack Chinese agencies to collect virus intelligence in January 2020, according to FireEye. The US cyber security company said Vietnamese actors probably sent emails with malicious code to China’s ministry of emergency management and the Wuhan government, but did not say if the phishing attack succeeded.

It is hard to verify Vietnam’s data because it does not disclose excess death figures, and domestic media are controlled by the state. But Hanoi is mindful that it cannot afford to lose control of the virus, as a surge of just a few thousand cases could overwhelm the health system. After questions early in the crisis about how many cases may have gone unreported, Vietnam overcame most scepticism.

“The numbers are credible,” Todd Pollack, Harvard Medical School infectious diseases specialist, said, noting that hospitals are not overrun and Vietnam has a high ratio of coronavirus tests per positive case. “We don’t see any evidence of widespread infection.”

The country is acutely aware, too, that the virus could come roaring back. For those who were complacent, for example, the summer brought an especially harsh smack of reality. After three months without reported local transmission, an unexplained cluster of cases emerged in July, forcing Vietnam to record its first casualty linked to Covid-19 and enforce city-level shutdowns. An even smaller cluster surfaced in November, leading to a criminal probe of a flight attendant who broke quarantine rules.

Pandemic profits

Because of its performance on the public-health front, Vietnam has been given its biggest economic opportunity in decades. The country claimed one of the fastest rates of GDP growth in the world, at 2.9 per cent, according to Vietnam’s General Statistics Office, while aiming for 6.5 per cent in 2021.

Consumer demand rose domestically and internationally. Americans and Europeans spent months of isolation on gardening, home improvement, and remote work, using products made in Vietnam. The country also gained market share from the lockdown of Asian neighbours. With their factories on pause, Vietnam picked up the slack.

Shipments of wood products and furniture totalled $1.05bn in January 2020, before global lockdowns, but had jumped 47 per cent by November when lockdowns were well under way, according to the latest statistics office data. In the same period, exports of phones, computers and other electronics swelled 56 per cent. For example, Samsung, by far the biggest exporter in Vietnam, reported its highest-ever global revenues in the third quarter, at $61bn.

This has boosted the fortunes of businesses like Viego Global, a sourcing company based in Ho Chi Minh City. Clients ordered garments and personal protective equipment because supply chain disruptions were making it harder to buy from India and China, says founder Jewel Nguyen.

“For a new company like us, it’s a good opportunity,” she said. “This is a time for companies to search out new, efficient supply chains.”

She is taking coffee orders, too. Vietnam is the world’s biggest exporter of robusta, commonly used for instant coffee. Cafés tend to serve the more-expensive arabica, but as consumers stay at home, they are turning to the cheaper bean.

“People are being locked down everywhere. They need to use instant coffee,” Ms Nguyen said.

Investors also see Vietnam as one of the few prospects right now. The country ranked second in the world, behind the US, in a Euromonitor list of the most likely M&A destinations for 2021, based on criteria like industrial production and technology use.

“Vietnam is the only market where you can do deals,” Truong Quang, YKVN managing partner, said in an interview at his law office, overlooking the colonial French cathedral and post office in Ho Chi Minh City.

Vietnam’s biggest private conglomerate, Vingroup, sold a $203m stake in its hospital business to a group led by Singapore state investor GIC in December, as well as a $650m stake in its property unit to investors, including KKR and Temasek Holdings, in June. Domestic private equity kept the powder dry, too, as managers reported several oversubscribed funds heading into 2021.

Rather than pit public health against the economy, Hanoi’s mantra has been that protecting the former would safeguard the latter, which it calls “dual goals”.

Last year, Vietnam joined three trade accords. In November, it hosted an online signing ceremony for the Regional Comprehensive Economic Partnership, a pact among 15 countries in Asia-Pacific. It enacted a long-awaited deal with the European Union in August, followed by a separate agreement in December with the UK, one of its first after Brexit.

Because of the economic growth, Vietnam ticked off a small milestone. GDP per capita squeezed past that of the Philippines, according to projections from the IMF in October. And in absolute terms, Vietnam’s GDP overtook Singapore’s and Malaysia’s, giving it the fourth-biggest economy in south-east Asia for the first time.

Tech spillover

Covid-19 should bring more lasting change to Vietnam than just a bump to exports, according to the government. It says the local pandemic response demonstrates to foreigners that this is a safe place to invest.

“The success story in [the] Covid-19 fight could be the key for Vietnam to win trust from the international community, including foreign investors,” said a post this month on the official government website.

With less of a virus threat to fight, officials have concentrated their bandwidth on the economy.

The communist party’s economic tool of choice, the five-year plan, puts the technology sector at the centre of Vietnam’s ambition to become an upper-middle-income country by 2025. To that end, Vietnam notched a handful of high-profile investments in 2020, from Pegatron, a supplier for Apple and Samsung, to LG Electronics, which relies on Vietnam for its vehicle and smartphone businesses.

By the end of the year, nearly all of Apple’s major suppliers in the region had set up shop in Vietnam or planned to do so. The relocations continue a “China Plus One” trend among companies that have reduced their reliance on Asia’s biggest economy because of rising costs, the risks from a trade war with the US, and Covid-19 disruptions to the supply chain.

Employees pass a billboard advertisement for the Samsung Galaxy Note 7 on the way to work at the Samsung factory in Thai Nguyen province, north of Hanoi, Vietnam October 13, 2016
Samsung, by far the biggest exporter in Vietnam, reported its highest-ever global revenues in the third quarter, at $61bn © Reuters

The pandemic coincided with Hanoi’s decision, in June, to assemble a task force to attract higher-quality foreign investment, headed by Pham Binh Minh, deputy prime minister. Two months later, the ministry of industry and trade announced that South Korea’s Cammsys was in talks to partner with Vietnamese manufacturers, which would include transferring its electric-car components technology to them. Two months after that, in October, the planning ministry signed a deal with EY, which agreed to refer its multinational clients to Vietnam for investment. Ministry officials said at the time that they were interested especially in tech companies from Japan and South Korea.

The electronics sector already comprises Vietnam’s largest export category, but is dominated by basic production and assembly. Increasingly, officials say they will approve high-tech and eco-friendly investments with more added value.

“Up to now, Vietnam has not only become a successful country in controlling and repelling the pandemic, but also taking advantage of this opportunity to enact the digital transformation of the country,” Mr Minh said in October, addressing Vietnamese from abroad who had returned to work in the country.

He told the diaspora group that by opting to do business in Vietnam, they “contribute to creating jobs, vocational training for employees and promoting the process of technology transfer”.

Diaspora links helped Ho Chi Minh City-based Xelex advance its original design and equipment manufacturing business. Co-founder Nguyen Ai Huu said his company’s latest contract was to produce power distribution units for a buyer in the US, where Xelex has an office in Houston, Texas, run by his brother. The buyer will then supply the units to data centres run by Amazon, IBM and others.

Wearing rimless glasses and a smartwatch, Mr Huu said in an interview that he would license US technology to make the devices, gaining experience that he planned to adapt for data-server clients in Vietnam.

A propaganda poster on preventing the spread of the COVID-19 novel coronavirus is seen on a wall as a man smokes a cigarette along a street in Hanoi on April 29,2020
A poster warning about the dangers of Covid-19 in Hanoi in April 2020 © AFP via Getty Images

“The benefit for us is we can be a manufacturer for a high-tech company in the US, a demanding market,” he said. After that, he added: “We’ll serve the Vietnam market and, someday, the world market.”

If Taiwan and South Korea can graduate into roles vital to the tech supply chain, he said, “Why not Vietnam?”

Mr Huu reached for his rose-gold iPhone to pull up photos from another major order: tablets for the government. The Vietnam government asked Xelex to design it a tablet for official use, running on Intel’s 12th-generation chip.

Qualcomm, the world’s biggest supplier of phone chips, offers one sign of potential tech transfers to come.

In June, it debuted a research and development centre in Hanoi, its largest in south-east Asia outside Singapore. The centre will work with local partners from Viettel, a telecommunications firm, to Bkav, a smartphone maker, to patent and commercialise mobile technologies.

The news is part of a broader campaign from the government to stoke domestic tech champions. That is why it held a groundbreaking this month for the National Innovation Center, also in Hanoi, to bring together foreign and domestic companies to conduct research.

“This is a precious opportunity for Vietnam to enter a new era of innovation,” Nguyen Chi Dzung, minister of planning and investment, said this month in remarks carried on the national VTV station. He said that if the country was going to hit the targets mapped out at the twice-a-decade party congress, “we must rely on innovation, science, and technology”.

Local capacity remains limited. Harvard analysed eight Asian countries’ exports, calculating how much of their value came from domestic companies. Vietnam had the lowest value, at 55 per cent. It remains eclipsed by peers from Malaysia, which has a bigger ecosystem of electronics producers, to Thailand, a key source of outbound investment in south-east Asia.

Companies in Vietnam have used the pandemic pause to increase the capacity of local staff, as well. Multiple companies say that Vietnamese employees are stepping in while foreign colleagues cannot enter the country. More than half, 56 per cent, of personnel managers said they would prioritise reskilling or upskilling in the coming quarter, according to a survey that recruitment company Adecco released in August.

Infrastructure facelift

Not all Vietnamese escaped 2020 unscathed. Besides the record-setting storms that killed scores of people, millions more found themselves out of work.

Scarlet lettering on “for rent” signs is plastered on countless buildings across downtown Ho Chi Minh City and Hanoi, as well as in beach towns from Da Nang to Phu Quoc. These are the areas of Vietnam most reliant on foreign tourism, which was wiped out once the borders slammed shut. By September, nearly one-third of the population had suffered job losses, pay cuts or reduced hours, the statistics office said. Most of these workers were in hospitality, entertainment, food and beverage, construction, or export sectors like textiles.

Domestic travel resumed mostly unabated, clearing the runway for Vietravel Airlines, which took off in December and became the sixth Vietnamese carrier. But without cross-border flights, airlines saw revenues dive and sought bailouts from the state.

To speed up the overall recovery, Hanoi approved limited relief funding of $2.7bn, though polling showed that citizens with less income or education were less likely to know about it. The government also cut taxes and fees, offered loans, and ramped up public spending — including on much-needed infrastructure.

As with much of south-east Asia, Vietnam’s roads and ports have not kept pace with the buzz of an economy moving ever deeper into global trade. From 2009 to 2019, Vietnam made the biggest jump among 50 countries that the WTO ranked by merchandise trade volume, climbing 16 rungs to be ranked at number 23.

Banner projects are in the works to buttress this growth, from an airport outside Ho Chi Minh City that began construction this month, to a new national highway running along the spine of the country. Such projects got another cheerleader in 2020, when Nguyen Xuan Phuc, prime minister, directed local governments to shell out on public works, threatening penalties for those that dragged their feet. The result: state investment rose 14.5 per cent in 2020 versus 2019, far higher than the 1.6 per cent increase in private investment.

“One of the key drivers [of recovery] would be the government decision to prioritise investment in infrastructure,” Philippe Richart, chief executive of INSEE Vietnam, and group executive committee member of Siam City Cement, told Nikkei. “All players in the industry will benefit from this trend related to infrastructure.”

By the first half of 2020, Vietnam had fast-forwarded the timelines of more than a dozen massive projects. Mr Phuc’s order was meant to support a post-Covid-19 rebound. But, in addition to a short-term burst of economic activity, the spending push raises the prospect of a more enduring bonus, an infrastructure facelift that will accommodate future trade.

Other legacies may be non-financial. In fending off the coronavirus, Vietnam was transparent almost to a fault, according to observers who hope this approach will prevail in a country better known for the opacity of party reshuffles and land deals. The government shared constant updates about its Covid-19 response, minutiae of patients’ movement history like grocery trips and flight numbers, and how it ruled whether a death was linked to the disease.

“I believe that lessons learned from this success in terms of transparency, accountability and social cohesion will help the government in dealing with future crises,” Caitlin Wiesen, United Nations Development Program Vietnam representative, said in a speech in December.

From improved governance and infrastructure to better-equipped workers and suppliers, a range of outcomes is possible in Vietnam after the pandemic. But it’s not toasting victory over the virus yet.

Vy Le, co-founder of Do Ventures, said the country must capitalise on this moment. The lockdown, while brief, did alter consumer behaviour and propel ecommerce and digital payments, she said, while the subsequent lifting of the lockdown had allowed people back into stores, offices and factories. Both changes present an opening for companies.

“Vietnam has an advantage because we can walk about freely in the street, we can meet merchants,” she said in an interview at a tea shop, flanked by leafy plants and glass walls.

“Definitely,” Ms Le added, “this is an opportunity for Vietnam to move ahead.”

A version of this article was first published by Nikkei Asia on January 19. ©2021 Nikkei Inc. All rights reserved.

Related Stories

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments