The Asset webinar: Will Covid-19 pave the way for better infrastructure in Vietnam?
With its coronavirus success, the hope is that Vietnam could leverage on it to become the destination of the decade for multinationals and investors
8 Jul 2020 | The Asset

At the height of Covid-19, Nguyen Khắc Hưng, a music composer in Vietnam, partnered with the country’s health ministry and produced a music video encouraging handwashing and social distancing, which became a global sensation. Now, investors are hoping that the government’s collaborative efforts to combat Covid-19 could also be translated to addressing the challenges faced by global businesses who are keen to invest in the country.

Indeed, inadequate infrastructure was cited as one of the major hurdles to the country’s sustained economic growth during a live audience poll conducted at The Asset Events+ Fitch on Vietnam webinar this week. With many firms re-evaluating the fortitude of their respective supply chains in the face of the US-China trade war, and amid the Covid-19 pandemic, 2021 could be the dawn of accelerated infrastructure development in Vietnam to enhance its supply chain connectivity especially with the passage of the unified Private-Public Partnership law, which was passed in June 2020.

Compared with peers in Southeast Asia, Vietnam stands out in 2020 as one of a small number of countries able to report a positive GDP growth. Fitch Ratings expects Vietnam to grow 2.8%, and rebound to 7.5% in 2021. Fitch upgraded the country's credit rating in 2018, and until Covid-19, it had a positive outlook that has since been revised.

“We entered the year with a lot of positive outlooks, including on Vietnam,” shares Stephen Schwartz, senior director, head of Asia-Pacific sovereigns at Fitch Ratings during the webinar. “We revised that outlook to stable because of the impact of the pandemic, and revised our growth rate for the year after originally expecting 6.8%.”

Echoing Schwartz’s comments, Sagarika Chandra, associate director, Asia-Pacific sovereign ratings, at Fitch Ratings, states: “Our expectation is that Vietnamese exports will take some time to recover. It will be driven by how key trading partners like the US and China perform. Right now, we still see that export numbers are quite weak. Tourism, which is another important driver for the economy, will take some time to recover.”

Despite the revised growth numbers and closed borders, Vietnam, according to the webinar’s panelists, is poised to fair better than other markets due to its effective and proactive efforts in controlling the spread of the coronavirus within the country. With a population of around 95 million, the country has to date recorded no deaths and only 369 cases of people contracting the deadly virus.

“Vietnam’s handling of the Covid-19 situation has placed the country in a better starting position to capture opportunities and stimulate the economy,” observes Bang Trinh, chief financial officer at Techcombank. “The government is now shifting its efforts to actively stimulate the economy in phases. And, given that the world is on lockdown from a travel perspective, the initial focus is now on how we can open up the domestic economy.”

The Covid-19 pandemic has also been seen as the latest wakeup call for manufacturers to shift operations out of China and take a closer look at Vietnam as a manufacturing hub. Over the past several years, some companies have already moved their production facilities to Vietnam due to cheaper labour costs compared with China.

“People thought they had a global supply chain, but what they found out was that they had a China supply chain,” points out Michael Kokalari, chief economist at VinaCapital. “You are going to see about 20% of China’s manufacturing relocating over the next 5 to 10 years. Vietnam can probably absorb 3% or 4% of that, resulting in a tremendous boost to its growth.”

“People thought they had a global supply chain, but what they found out was that they had a China supply chain”


As in previous years, the Vietnamese banking sector was cited as one of the main economic risks facing the country. A poll of the webinar audience cited rising non-performing loans as the most imminent risk facing the country’s banks.

However, according to Tania Gold, senior director, head of South and Southeast Asia banks, at Fitch Ratings, the Vietnamese banks they rate are not expected to have too much pressure since the banks have remained profitable and there is an expectation of slower loan growth. “Half our Vietnamese bank ratings are driven by sovereign support, so the change in outlook or any change in ratings depends on what the sovereign team does.”

Though Vietnam appears at least to have withstood the first wave of the Covid-19 pandemic, there is cautious optimism for its economic growth going forward. “We need to see confidence that Vietnam is back on with its macro stability story,” Chandra says. “Macro stability is a key-rating driver for us when we upgraded Vietnam previously.”

The Asset Events+ Fitch on Vietnam, part 2 on Credit and the Capital Markets Through the Pandemic, is scheduled on 09 July 2020 at 11am to 12pm HKT/10am to 11am VNT. Join the discussion. Click here to find out more information about the Vietnam virtual sessions.

 

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