The ‘Covid dividend’ for Vietnam and Thailand

Countries hope stimulus and swift return to normal will let them get back to business faster than others

Bangkok, Hanoi and Ho Chi Minh City are roaring back to life after their coronavirus-related partial lockdowns.

Thanks to a disciplined public health response by their governments, companies and people, Thailand and Vietnam are now getting back to a “new normal” that looks suspiciously like the old one — traffic jams and all. 

The beaches nearest to Bangkok are heaving with visitors. Vietnam’s schools, restaurants, cinemas and nightclubs are open again, while football matches at stadiums packed with cheering spectators have been allowed to resume. Most Vietnamese have stopped wearing masks. 

While a second wave of infections is a risk here, as everywhere, the authorities in both countries have been encouraged by a drop in new local Covid-19 infections to zero in recent weeks. 

With other south-east Asian countries — not to mention the US and Europe — are still struggling to contain the pandemic, the question for two of the region’s biggest economies is not merely whether they can regain their footing. It is this: could a swift return to normal mean there will be a “Covid dividend” in the form of greater investment and orders? 

Thailand and Vietnam were among the first countries to be hit by the virus after China, and are now among the first after it to emerge from the worst of the crisis.

Following a shaky start, Thailand’s government took tough measures to stop vectors for the disease’s spread, closing restaurants, bars, parks and most other public places, banning alcohol sales and imposing a strict night-time curfew. 

But most non-retail companies were allowed to operate, observing social distancing guidelines. The government turned to the kingdom’s richest business families to ask for their help, and some stepped up with medical aid or pledges to preserve jobs. 

“Thailand has a very good healthcare system, and the government listened to two groups: doctors and the business chambers, bankers’ association, and the private sector to make the lockdown the least disruptive it could be,” said Harald Link, the Thai-German billionaire chairman of conglomerate B Grimm. “The factories kept on going; the supermarkets kept on going so people could eat and work.” 

Vietnam’s two biggest cities enforced strict social distancing for three weeks in April, but most companies there also kept working. The authorities undertook one of the world’s most rigorous contact-tracing regimes, locating not just primary but secondary contacts of infected people and forcing them into either state or home quarantine. 

Thailand has confirmed just over 3,100 and Vietnam just over 300 Covid-19 cases respectively. While these relatively low numbers may owe something to gaps in testing, there are no serious indications of a cover-up of infections. Both countries are now speaking of reopening their borders to some commercial flights, with safeguards in place. 

The prospects for recovery look relatively bright for Vietnam, whose communist planners are forecasting 5 per cent growth this year. Thailand, whose economy is more reliant on tourism, is forecasting a contraction of 5 per cent to 6 per cent, the worst year since 1998, during the Asian financial crisis.

Before the pandemic both countries were winning new investments in manufacturing by multinational companies, including Chinese groups, seeking to hedge their bets against a backdrop of US-China trade tensions. 

Coronavirus has accelerated this trend by exposing companies’ vulnerabilities if they are overly reliant on Chinese consumers or suppliers. 

“People anticipate the trade war between the US and China will intensify,” said Tuan Le Anh, deputy chief investment officer with Dragon Capital, a Ho Chi Minh City-based asset manager. “My sense is that Vietnam will benefit.” 

Apple, Nintendo and Google are among the manufacturers that have moved some of their production to Vietnam — decisions made before the pandemic, although its fallout may now prompt others to follow suit. 

The Vietnamese government, as part of its stimulus response, has fast-tracked plans for billions of dollars’ worth of infrastructure projects including a north-south highway, two metro lines and a new Ho Chi Minh City airport. These, said Mr Tuan, will “unlock the potential of Vietnam” and further boost growth by easing some of the logistics bottlenecks slowing business. Vietnam’s parliament this week ratified a long-awaited free trade agreement with the EU. 

Thailand has responded to Covid-19 with one of Asia’s largest stimulus packages, and Thai producers of goods ranging from rice and fruit to electronics have helped to sustain exports this spring, despite worldwide shutdowns. 

But because of its reliance on international visitors, more uncertainties lie ahead. Like Vietnam, Thailand is planning to allow international travel, probably initially with other countries with low current levels of Covid-19 infection through designated travel corridors or “bubbles”.

Post-pandemic, medical tourism — in which Thailand has a lucrative niche — is expected to be a growth area, and Chinese visitors are expected to return in their millions as soon as flights resume. But the kingdom’s Covid dividend will probably take longer to pay out. 

Copyright The Financial Times Limited .