Vietnam’s year 2021 was by far among the most difficult to date. While Vietnam was praised around the world for managing the pandemic in 2020, the Delta variant proved to be too much to handle, resulting in severe lockdowns, production interruptions, and supply chain disruptions.
While most Western countries had a painful 2020, Vietnam’s 2021 was much worse, with the pandemic wreaking havoc on the country’s GDP. Vietnam’s first-ever negative GDP was recorded in the third quarter of 2021, which has had a substantial impact on enterprises and the Vietnamese people since 2000.
However, Vietnam forecasts a positive GDP, and as the government adopts a “living with the pandemic” strategy, more economic gains are possible. While most banks and foreign organizations have cut their GDP forecasts for Vietnam, they still expect strong business sentiment and positive GDP growth in the near future.
Vietnam’s government expects GDP growth of 6 to 6.5 percent in 2022.
As we draw the end of 2021, we take a look back at the major events of 2020 that are likely to affect Vietnam’s business environment in 2022.
Supply chains affected by COVID-19
The pandemic’s fourth wave had a tremendous impact on businesses and individuals. The majority of the country was placed on strict lockdown, with individuals only being able to leave their homes in an emergency. Businesses and factories that wished to stay open had to adopt either a three-on-site work model, in which employees eat, sleep, and work on-site, or a one-road-two-destinations model, in which employees stay in dorms or hotels and are transported to and from work in corporate vehicles.
Businesses had a tough time doing this on short notice, which resulted in higher prices as they had to arrange accommodations and offer food on-site. Several factories were forced to close as a result of this. Despite this model, numerous employees became infected with COVID-19, causing factories to close.
Several worldwide brands, including Nike, Abercrombie & Fitch, Adidas, and Everlane, have suffered large losses as a result of manufacturing closures. Everland, a clothing firm, claimed it was facing four to eight weeks of delays, while Nike said it had lost ten weeks of production.
This occurred at a time when western markets, such as the United States and Europe, were experiencing greater product demand during the busy holiday season. The situation was exacerbated by increased testing of truck drivers, as well as commodities stuck in ports, factories, and warehouses. Businesses have also claimed that even after the reopening, supply chain difficulties may take another five to six months to resolve.
Fortunately, things appear to be improving. Nike is optimistic that factory production will resume, boosting the company’s comeback. In addition, Vietnam has increased its vaccine efforts. It has gone from having less than 3% of its population fully immunized in July 2021 to having more than 69 percent of its population fully vaccinated currently.
However, because the situation is not unique to Vietnam, firms will need to adapt, diversify, and look for ways to cut costs in order to secure the resilience of their supply networks. While the supply chain is a problem, ports in the United States and others are overloaded with containers that are unable to reach their destinations.
Businesses must consider alternative locations based on the type of industry and raw materials in order to maintain contingency plans. With vaccine supplies improving and global air travel gradually returning, businesses should seize the opportunity to build a stable supply chain with fail-safe strategies in place for the future.
The Regional Comprehensive Economic Partnership (RCEP) and free trade agreements
Free trade agreements (FTAs) with Vietnam are another attractive feature for investors. Vietnam has utilized free trade agreements as a tool to boost its economic power and financial stability. This will ensure that Vietnam’s economy continues to migrate away from low-tech manufacturing products and primary goods and toward more complex hi-tech goods such as electronics, machinery, cars, and medical gadgets. An example of this is the implementation of the EU-Vietnam free trade agreement (EVFTA) last year.
On January 1, 2022, the forthcoming Regional Comprehensive Economic Partnership (RCEP) will go into effect. The RCEP will lower tariffs, establish trade rules, and assist in the linking of supply chains, especially as countries cope with the implications of COVID-19. Trade, services, e-commerce, telecommunications, and copyright are all expected to be covered under the FTA.
Within the next 20 years, tariffs are likely to be decreased. The RCEP covers a market of 2.3 billion people with a global output of $26.2 trillion dollars. This region is home to over 30% of the world’s population and over a quarter of global exports. According to World Bank documents, nations participating in the RCEP will enjoy a 1.5 percent gain in GDP. Economists estimate that the agreement will boost the world economy by about $200 billion by 2030.
The RCEP can assist local enterprises in increasing exports and attracting high-quality items for Vietnam’s consumers as the country strives to become a high-tech producer. Vietnam will also profit from increased demand for its exports, such as agriculture and fisheries items
Mergers and acquisitions
In 2022, mergers and acquisitions (M&A) are expected to continue to play a significant role in the Vietnamese economy. While the pandemic interrupted M&A activity in 2020, in the first nine months of 2021, M&A deals with a total declared value of US$3 billion have already been completed. Masan Group and Vingroup have recently acquired businesses in the hi-tech and retail industries, putting them at the top of the M&A industry. In 2021, the top three industries for M&A activity by number of deals were industrials and chemicals, consumer products, and real estate.
Investors, on the other hand, are cautious of pandemic-related risks. To assist M&A deals, the government has also reduced some criteria in the investment and enterprise regulations. In order for Vietnam’s economy to revive, more substantial M&A activity is expected in 2022.
Assisting packages of government
As a result of the pandemic, the government has announced a number of support packages for businesses and individuals in order to help the economy recover. Businesses should plan for 2022 by taking advantage of these government initiatives to boost cash flow.
Vietnam, for example, passed Resolution 406, which includes a 30 percent reduction in corporate income tax (CIT). All firms with revenue of less than VND 200 billion (US$8.8 million) in 2021 qualified for the CIT reduction. This means that regardless of the number of employees or the real financial loss caused by the epidemic, all firms, even SMEs, are eligible. Land rent reductions, social insurance, unemployment insurance benefits, and one-time payments were among the other support measures announced.
Work licenses for foreign workers
Following Decree 152, which tightened criteria for foreign employees earlier this year, the government published Resolution 105, which eased the requirements for issuing and renewing work permits. Specifically, the resolution states that the education degree does not need to be connected to the job position in Vietnam, and that work experience gained in Vietnam can be counted instead of work experience gained in the home country.
Furthermore, notarization of passports is no longer required; instead, a copy of the passport is sufficient. The latest developments suggest that the government is paying attention to company complaints over Decree 152 regulations. With the easing of entry processes beginning next year, firms and employees should be able to enter Vietnam for job opportunities.
Tourism
COVID-19 has had a substantial impact on the tourism business in Vietnam, as well as related jobs. Prior to the pandemic, Vietnam hosted an all-time high of 18 million tourists in 2019. In comparison, only 140,100 tourists visited in the first 11 months of 2020, a 96.3 percent decrease from the previous year.
This statistic is based on the government’s approval of a pilot program that allows international tourists to visit approved tourist areas. Despite this, the government is working on a plan to fully open the country to international visitors by June 2022. The strategy is already being executed, with fully vaccinated international tourists arriving on packaged tours in Phu Quoc, Hoi An, and Nha Trang.
From 2022, the government plans to enable fully vaccinated international visitors to self-quarantine at home or at their place of accommodation as long as they test negative. However, due to the new Omicron variant, this could all change, but the government remains committed to reopening tourism. The Ministry of Culture, Sports, and Tourism has asked the Prime Minister to reconsider restoring visa exemption for visitors staying in Vietnam for fewer than 15 days. Furthermore, nine international flight routes, including those to the United States, Thailand, South Korea, China, and Taiwan, have been authorized to restart commercial service.
Outlook for 2022
Many firms in Vietnam faced substantial challenges in 2021, as they dealt with local market dynamics as well as global supply chain concerns caused by the pandemic. Several challenges that affected Vietnam in 2021 are likely to continue in 2022. Nevertheless, more targeted and focused development in important areas of the economy will open up more growth potential, particularly in areas that support Vietnam’s bottom line of economic stability and people’s livelihoods.
The National Assembly approved Vietnam’s economic restraint plan for the period 2021-2025, which focuses on the digital economy, high-tech industries, urban development, regional connectivity, the role of key economic zones, and restructuring to achieve a green and sustainable economy, among other things.
Understanding Vietnam’s regulations and development goals will be crucial to make timely adjustments to corporate development strategies and prevent compliance risks, given the dynamic business climate.
While Vietnam has suffered, the country’s economy is on track to expand in 2022. Vietnam remains a good candidate for investment from ASEAN and beyond in the coming year. Vietnam is expected to continue benefiting from supply chain restructuring in Asia, as well as drawing a new range of investors in terms of location and sectors, due to its investor-friendly regulations, relative economic and political stability, cost efficiency, and consumer demand prospects.
