Vietnam urged to shield economy from Russia-Ukraine conflict: Expert

Vice-Rector of the University of Economics and Business under the Vietnam National University Nguyen Anh Thu told The Hanoi Times how the ongoing conflict in Europe could impact Vietnam’s economy.

Vice-Rector of the University of Economics and Business under the Vietnam National University Nguyen Anh Thu.

From your view, how do the outbreak of the Russia-Ukraine conflict and subsequent economic sanctions, and retaliations each side has taken impact Vietnam’s economy?

The Russia-Ukraine conflict has a profound impact on the global economy, and Vietnam, given its high level of economic openness, is no exception.

In February, Vietnam’s exports to Russia suffered a sharp decline of 44.46% against the previous month to US$180 million,  and 12.45% year-on-year.

During the same period, the country’s export turnover to Ukraine stood at only $13 million, down 60.3% from January and 32.8% year-on-year. Nevertheless, such declines were significant to Vietnam’s trade performance.

It is worth noting Vietnam’s trade turnover with Russia as of February stood at $1 billion, less than 1% of the combined revenue, and with Ukraine at $100 million, or 0.1%.

Russia and Ukraine are not major trading partners of Vietnam, but the conflict has impacted other aspects of the economy, especially on the prices of petroleum products and the inflation issue.

Since late February, global prices of crude oil had been on the rise and reached an all-time high in recent years. This had exerted huge pressure on the economy and lifted the domestic fuel price to nearly VND30,000 per liter.

It is estimated that a 10% increase in fuel prices would lead to the rise of the consumer price index by 0.36%. In Vietnam, expenditure for fuel and gas makes up 1.5% of the total consumption of households.

A higher fuel price, therefore, has severely impacted the aggregate demand, and a 10% increase in fuel prices may imply a 0.5% decline in GDP growth.

In terms of inflation, the global oil prices of over $100 per barrel may lift the rate higher. Vietnam is still struggling with the Covid-19 impacts and has put in place many stimulus packages to support the economy.

High inflationary pressure in this context would undermine the effectiveness of these supporting policies significantly.

This is not to mention the Russia-Ukraine conflict may disrupt the global supply chains of key commodities, such as gas, oil, wheat, nickel, or corn.

How would the West’s decision to write off Russia from SWIFT affect Vietnam’s economic prospects?

The removal of Russia from SWIFT  as well as economic sanctions imposed on the country in the long term would disrupt the global supply chains and hinder payment, making it more difficult for Vietnamese and Russian companies to conduct transactions.

A report from the Bao Viet Securities Company (BVSC) suggested before the Covid-19 pandemic, the number of Russian tourists to Vietnam accounted for only 2-3% of the total.

However, during the first two months of 2022 when Vietnam gradually lifted travel restrictions, Russian tourists coming to Vietnam rose by 7-8% and ranked third among countries sending travelers tourists to Vietnam.

The long-drawn conflict, therefore, will reduce the number of tourists from Russia to Vietnam in the coming time.

What should Vietnam do to navigate this crisis?

The Russia-Ukraine conflict has forced international investors to turn to new investment destinations, and Vietnam with political and macro-economic stability is among the attractive options.

Investors getting out of Russia to operate in the fields of automobile, technology, or aviation, and Vietnam is capable of attracting them.

Other advantages of Vietnam come from positive economic growth and the vast network of free trade agreements that the country is a part of. This, in combination with Vietnam’s socio-economic stability, may turn the country into a key link in the global supply chains.

Meanwhile, Vietnam’s products, especially food and fertilizer, could be in hot demand in the coming time, as the conflict is disrupting supplies from major exporters in Russia and Ukraine.

The difficult economic environment has, however, motivated the reforms and changes in business strategy in both state and private sectors, which in turn further aid socio-economic recovery.

What are the priorities for the Government in the coming time?

Vietnam is expected to soon contain the inflation by stabilizing prices of necessities and preventing a shortage of input materials to prices upward trend.

The Government is expected to take greater attention to the soon implementation of the upcoming socio-economic recovery program.

In the short term, the Government would ensure sufficient supplies of petrol products, but in the long term, a strategy to promote economic self-reliance, including the development of renewable energy and higher capability of analyzing data to respond to future economic shocks is expected to be promoted.

The Ministry of Industry and Trade has warned businesses of the possibility of delay in delivery due to disruption of payment transactions. Therefore, local traders should take precautionary measures to avoid risks in engaging with foreign partners.

Meanwhile, it is also necessary for the authorities to reduce costs for businesses, especially in market access, logistics, and administrative compliance.

An early warning system is essential for businesses to better cope with trade protection measures, especially in the current turbulent economic environment.

Given Vietnam’s deep integration into the global economy, I expect more measures would be adopted for Vietnam to effectively take advantage of FTAs, including market diversification to avoid being directly impacted by the Russia-Ukraine conflicts, that is,  to the markets of India, China, or Turkey.

Since March 15, the Government has reopened borders to foreign tourists, so the low number of Russian travelers may not be significant to Vietnam’s tourism sector. And the country remains on track to realize the goal of welcoming five to six million foreign tourists in 2022.

Thank you for your time!