In the third quarter of 2021 Vietnam experienced the 4th and so far, largest Covid-Wave so far. It resulted in rapid increasing numbers of positive cases and caused pressure on the healthcare system. Subsequently Vietnam announced severe lockdown in HCMC, Hanoi, Danang and provinces like Binh Duong or Dong Nai.
These lockdowns caused closures of businesses, factories, and government offices, impacting Vietnam’s business life. In most places the lockdown was only eased at the beginning of Q4. As a result the subsequent economic data for Q3 did not offer any positive reading. And it severely impacted the economic growth of Vietnam for 2021.
With most of Vietnam’s economic hotspots locked down, the positive development Vietnam of 2020 with one of the highest GDP growths worldwide and a strong start to 2021 came to an end. The GDP for Q3 with -6.17% was the steepest fall recorded, with the service sector recording a drop of 10%.
B2C businesses were hit the hardest. The Retail sector experienced a minus of nearly 30%, and transportation showing a decline of nearly 70%. Consider shops closed in the three largest cities and only necessary items allowed to be delivered this was no surprise.
The lockdown of government offices and factories also impacted the development of Foreign Direct Investment (FDI), that declined by 20%. The inability of factories to produce goods added pressure on the already strained global supply chain. As a result nearly 20% of European businesses diverted their orders from Vietnam. One industry heavily hit by this was the fashion industries, with companies unable to fulfil their demand. For some companies in that industry this shortage from Vietnam had an impact on their share prices.
Unemployment was naturally hit as well, with the rate for Q3 hitting over 3.5%, which was a plus of nearly 1% to Q2.
The poor economic result of Q3 had obviously a severe impact of the overall data of the first 9-month 2021. The GDP is with now only 1.42%, far below the initially goal of over 6% for the year. With the large drop the FDI is now only slightly higher than 2020. This is a concern due to the capital Vietnam requires for future investment. However, a signed cooperation between a US investment firm and 2 Vietnamese companies for a FDI flow up to $30bn shows that Vietnam remains an interesting option for foreign investors.
For the domestic businesses the situation represented a large challenge, that increased during Q3. The numbers of businesses temporally closed and prepared for being dissolved in the first 9-month was even higher than 2020. With over 90,000 businesses closed (+13,000 to 2020) the number was higher than new businesses founded in the same period. Only in Q4 it will show how many businesses will re-open after lockdown and restrictions like for F&B businesses are fully lifted.
While the economic data for Q3 was not good, there were some interesting and positive development. Vietnam continued to be one of the most interesting investment locations for Start-Ups in Southeast Asia. During the lockdown more than a dozen of local Start-Up raised funding of over $1 million. In addition of the mix of sectors – e-commerce, Fintech and EdTech – the involvement of US investors is a good sign. It shows that the reputation of the Start-Up Scene in Vietnam continues to rise.
For many businesses planning a strategy to quickly recover after the re-opening is critically for the survival and future growth. This includes fully understanding the New Normal in Vietnam with new technology and changing demands of customers. For some businesses it might require selecting programmes increasing efficiency and reducing costs to guarantee a long-term survival. If any business does not assess the new situation and continues with status quo, competitors or new entrants might overtake them. The lockdown is one event that requires companies to re-assess their own business structures, their customers, competitors, markets & suppliers.
In this analysis companies should also consider trends that are not clear yet but might offer some unique opportunities. For example as a result of the lockdown in HCMC many people left the city to return to their hometowns. This actually continued after the lockdown. The main reasons were no income while having higher living costs in the city as well as concerns of their health. This actually led to a concern post-lockdown of having a shortage of labour force. The main question is if people will return to the cities? Or will people prefer WfH option used during lockdown by businesses throughout Vietnam while staying in the rural area? Vietnam already has a low Urbanisation rate (only 2 SEA countries have lower rate), but this could impact it even further.
This development represents an opportunity and a threat. If remote working becomes an option, it might be tempting for younger Vietnamese to stay with their families. They would earn good salary while avoiding high costs of places like HCMC or Hanoi. It would again increase the average salary of most provinces across Vietnam. This could create a new talent pool for companies that can offer flexible working, while reduce their labour costs. Such development could also create new market opportunities due to increased available income in different provinces. For companies keeping status quo, this could be an issue and threat.
Overall, there are positive signs for a recovery of Vietnam’s Economy and businesses. But it might mean that businesses move away from their current business models to benefit from the new opportunities appearing.
At the end of October RSP International joined Cekindo's Webinar “Business in Vietnam: Q4 Recovery & Beyond”. This session provided a summary of Vietnam's economic development during Q3 2021 and the impact of the lockdown in that period.
RSP's Stefan Roesner shared thoughts about key elements to consider as part of Strategic Planning. Chris Kruppa from semi Solutions also covered the requirement of Agile Management in these uncertain times. In the Q&A part of the event we also answered questions about Vietnam’s economy and how it can recover in Q4 and beyond. It was certainly an interesting event where we shared ideas and facts about Vietnam. We have added the recording of the session below.
The full presentation is available HERE as download.
RSP International can help assessing the current position of your business and work on Strategic Planning to future proof it. We can also assist with Business Process Management to increase efficiency and support a required restructuring program. For more information about our Services please feel free to Contact us.