Economy - October 6, 2022 | 05:06 pm PT

HCMC economic revival begins sooner than expected, engenders optimism

A year after HCMC ended its Covid-19 lockdowns, its bustle is back, and many economic indicators have recovered faster than expected though, admittedly, some aftereffects linger.

On the evening of Sept. 30, one year after HCMC decided to lift what was its final lockdown, cafes and restaurants on Bui Vien Street in District 1 were crowded with foreign customers. They were in fact packed like sardines as they ate, talked and laughed.

The atmosphere could not have been more different from a year earlier when cafes and restaurants were closed and tables and chairs were piled up and covered in a patina of dust as the city hunkered down to combat the pandemic.

"Over the past 12 months, we have really come back to life," the owner of one restaurant on the street says.

Many other places such as Ben Thanh Market and major commercial centers in the downtown are also bustling and commercial activities are in full swing.

Doan Hao Hiep, CEO of Eurostone, a distributor of high-end artificial paving stone brands, says: "The decision to lift social distancing has helped us feel reborn, relieving concerns about the situation of our company, personnel and customers. It is a motivation to continue to fight."

Luong Van Vinh, general director of My Hao Cosmetics Company, recalls Sept. 30, 2021, when HCMC announced the lifting of social distancing and the gradual reopening of its economy got under way.

"We were very happy at that time."

In his 30-year career, the four months of social distancing stands out as the single most unforgettable experience.

During the time he was also hospitalized with Covid-19, and witnessed workers’ hardships as they stayed at the workplace since travel was prohibited.

Now things are back to normal, hundreds of My Hao’s workers no longer have to work, eat and sleep together in a confined space far from home, and its nearly 500 sales staff can travel freely without having to get a travel permit or work remotely.

"It feels very happy to go around on the streets, to freely do business," Vinh says.

Covid, especially its attendant social distancing for months, had been a big drag on Vietnam’s economic locomotive.

For the quarter ending September 2021, the city economy achieved negative growth of 24% year-on-year, which dragged down full-year growth to minus 6.78%.

It was the first time in its history that the city economy shrank.

The pandemic caused the city losses of around VND273 trillion (US$11.9 billion) in the 2020-21.

But it is already shrugging that off and eyes growth of 6-6.5% this year even as it continues to battle the vestiges of Covid.

With its resilience and inherent dynamism asserting themselves, the speed of recovery is faster than expected, and it has taken only nine months for the economic growth chart to complete a V-shape.

"The city’s economy has basically recovered" a group of economists led by Pham Thi Thanh Xuan said in "HCMC Macroeconomic Report - Third Quarter of 2022" commissioned by the University of Economics and Law, Vietnam National University, Ho Chi Minh City.

In the first nine months of this year the economy grew at 9.71% as against minus 6.78% a year earlier.

The city government has said: "The economy continues to have a strong recovery momentum, making people and businesses feel secure."

Uu Viet Solution Company, which imports and distributes bathroom fixtures, says over the past year it has renewed its showroom in District 7 and upgraded the one in District 2 and is developing two new product lines.

Eurostone’s Hiep says though his company does business nationwide, it prioritizes HCMC, and plans to sell high-quality artificial quartz products it makes itself.

"This is a place that is always dynamic, open and ready to accept new things. I see the city’s economy has recovered spectacularly with the strong growth of retailers, especially in the consumer goods segment."

According to the HCMC Statistics Office, in the first nine months of this year retail sales of consumer goods and services grew by nearly 26% year-on-year to VND800 trillion.

Over 26,000 consumer and service businesses were established in the period, a 46% increase and indicating a strong revival in demand.

Landlords are again leasing their premises to restaurants and stores.

Tran Kim Nga, director of external relations, MM Mega Market supermarkets, says sales increased sharply in the first eight months of the year.

"After reopening, our HoReCa system (hotels, restaurants, canteens) saw sales increase by about 40% from the same period last year. With household customers, sales grew about 10% because MM remained open during the pandemic."

Even for retailers without a physical presence in HCMC like Sakuko Vietnam, the revival of demand is palpable through online channels.

Cao Thi Dung, its CEO, says: "This is an exciting market for retailers of consumer goods. We are extremely optimistic about the road map to expand our business network and increase our coverage here."

HCMC’s index of industrial production (IIP) has also been rising consistently: up 11.5% in June compared to the same period last year, and 104% and 90% in August and September.

In the year to date the IIP is up 19.6%, with the city’s four key industries -- electronics; pharmaceutical chemicals, rubber and plastic; food processing and beverages; and mechanical engineering – growing at 24.4%.

‘King of garden eggs’ Nguyen Le Quoc Tuan, general director of Song Huong Foods, says his company’s packaged foods, whose sales grew strongly during the pandemic, saw acceleration in momentum after social distancing was lifted. "Customers have come back to buy again. As a result, sales growth has been high."

The city has attracted some $2.97 billion worth of FDI so far this year, a year-on-year increase of 26%.

According to experts, investment has shifted from processing to high-tech services.

Several other indicators have also done well. Exports have topped US$35 billion, up 10.4%, and nearly 33,000 new businesses have been licensed, up 47%.

Prof Nguyen Trong Hoai of the HCMC University of Economics thinks all areas of the economy are almost back to normal.

"The city has now recovered almost completely."

City Party Committee secretary Nguyen Van Nen says the economy "has recovered quickly and relatively comprehensively."

City People’s Council Chairwoman Nguyen Thi Le says the recovery has come "earlier than expected."

Weak pillars

But there are still some weaknesses.

In the manufacturing sector, some industries such as footwear, and garments and textiles continue to struggle.

The Handicraft and Wood Industry Association of HCMC says the shortage of orders and reduction in workers’ working hours persist.

Its chairman, Nguyen Quoc Khanh, says only foreign-owned firms have orders again while others are working at only 40-60% of capacity.

"The outsourcing production model makes businesses completely dependent on the health of international brands."

Pham Quang Anh, founder and CEO of Dony Garment Company, says since July the textile and garment industry has been struggling with a decline in orders, as is his company, which is trying to find new markets and orders.

Employees are back at Dony Garment Company in Tan Binh District, HCMC, after the lifting of social distancing orders. Photo by VnExpress/Quynh Tran

Prof Hoai points out that 90% of industrial parks in the city have returned to normal production though some industries such as textiles, footwear and furniture have not fully recovered.

Due to the impacts of the global economic situation, the services and tourism sectors, though reviving, are nowhere near their pre-pandemic levels yet.

Ngo Minh Duc, a member of the National Tourism Advisory Council and chairman of HG Holdings - owner of Gotadi BTM travel platform - says the small number of shoeshine boys and cyclos yet shows not many foreign visitors are coming to the city.

Tourism is suffering due to the weakening of the world economy partly caused by high inflation and the conflict in Ukraine.

Markets that used to send a large number of visitors have their own difficulties.

For instance, Chinese tourists are not back.

In Europe, the energy crisis has caused people to tighten their purse strings and put off discretionary spending like travel.

Another bottleneck to recovery is the slowdown in public spending. According to estimates by the city people’s committee, spending in the year to date has been only 26% of the outlay for the full year, which is below the national average.

Hoai says lower level officials need to be more proactive, and more mechanisms are needed to ensure flexibility and creativity for the city to address infrastructure bottlenecks.

Bumpy road ahead

Analysts and businesses are optimistic about the economic future, but also warn about emerging problems that need to be monitored.

According to a research team from the University of Economics and Law, the third quarter might have seen the economy peak and the outlook for the fourth is not too bright because of pressure on the manufacturing sector and export businesses are not very optimistic.

Raw material sources and major markets around the world remain unstable.

Hiep says: "Our products are mainly imported from European countries. Therefore, we are concerned that the hostilities and conflicts between countries will affect the import and transport of input materials."

Meanwhile, experts around the world are worried about the risk of a global recession.

Vinh says prices of inputs have increased by 30-40% after the pandemic, partly due to the armed conflicts.

"But we have not increased prices much, and so it is still difficult. Not to mention the fact that the USD rate now is too high. Some of my friends in other industries used to work all year round without rest, but now do so four or five days a week."

But the General Statistics Office expects the city economy to grow by 9.44% this year as against a target of 6-6.5% albeit that the 6.78% contraction last year means it is benefiting from the small-base effect.

The positive effects of consumption and services will possibly last through the fourth quarter to offset the difficulties faced by the industrial sector.

Retail is looking forward to the Tet (Lunar New Year) season while inbound travel operators are waiting for the year-end tourist season in November and December.

Prof Hoai says to sustain the recovery momentum and withstand shocks from the global economy, the city needs to focus on four factors.

First is social security for its residents, he says, calling for more investment in healthcare to create confidence and attract investors and labor.

Second, for all sectors from industry to services to develop, improving the governance ecosystem is imperative, he says. He wants the city to further digitization and "open, fast and friendly administrative corridors."

Third, to achieve sustainable growth, infrastructure bottlenecks should be removed, he points out, which requires speeding up projects for flood control, and urban beautification. Better infrastructure will smoothen the flow of goods and reduce logistics costs, he says.

Finally, he says, innovation should be regarded as a development pillar. HCMC cannot continue to focus on labor-intensive industries, and needs new economic models based on technology and innovation, and it is necessary to have policies to encourage the development of this ecosystem, he says.

But the gathering economic clouds will not slow down businesspeople like Vinh.

"I have been in production for a long time. I have to continue to work hard to survive and grow. I might make only a small profit now, but I have to plow on.

"A year or two from now the economy will be back to normal. After the rain comes sunshine."

Vien Thong