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Vietnam warned strict lockdown forcing companies to move manufacturing

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Foreign investors in Vietnam have warned the government that its strict lockdown to control Covid-19 in the country’s south has forced some companies to move production to other markets. 

The message by four leading business chambers was delivered as one of the world’s toughest containment campaigns in and around Ho Chi Minh City has unsettled operations in one of Asia’s leading manufacturing hubs. 

“Businesses need a clear road map and date certain for reopening now,” the American, EU and South Korean chambers of commerce in Vietnam and the US-Asean Business Council said in a letter to Pham Minh Chinh, Vietnam’s prime minister.

“Surveys that our associations have conducted show that at least 20 per cent of our manufacturing members already have shifted some production to another country, with more discussions under way,” the groups wrote in letter, which was sent last week.

They said that many of their members were having “calls every night with regional and global headquarters deciding what customers to honour, which to turn away, and what production to shift”.

After containing the pandemic’s first wave last year, Vietnam has suffered a record surge of infections blamed on the Delta variant. That has prompted a belated rush by the government to procure and administer vaccines. 

Authorities in greater Ho Chi Minh City, the centre of the outbreak, restricted most movement and imposed tight rules on factory work from early July, effectively forcing companies to choose between housing and feeding workers in “manufacturing bubbles” or shutting down.

Some restrictions have been eased recently but the city remains largely under lockdown.

Vietnam is one of Asia’s leading manufacturing hubs, with attractive tax and other policies luring foreign companies to establish operations © Nguyen Huy Kham/Reuters

The curbs have particularly hurt operations in labour-intensive sectors. Companies whose suppliers or operations have been disrupted range from chipmaker Intel and carmaker Toyota to homeware retailer Ikea and sportswear brands Nike and Adidas. 

In addition to the bans on movement around Ho Chi Minh City, where the greater urban area sprawls into neighbouring provinces that have different rules, businesses have voiced frustration with restrictions on the entry to Vietnam of foreign professionals.

“Policies intended to control the spread of the virus have caused significant operational challenges for businesses in Vietnam, especially with the frequent changes in regulations that are announced and implemented on very short notice,” Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi, told the Financial Times. 

“Economy-crippling restrictions are not sustainable, and after months of severe restrictions on activities and movement, I am pleased to see economic activity gradually resume here,” he added.

The business backlash poses a challenge to Chinh’s government, which took power in April after a five-yearly shake-up of Vietnam’s ruling communist party. 

Before the pandemic, Vietnam had one of Asia’s fastest growing economies, thanks to investor-friendly tax and other policies, and its network of free trade agreements. The country is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and has a free trade deal with the EU. 

Vietnam, which before the pandemic was a leading destination for multinational companies looking to diversify operations away from China, was “missing out on investment opportunities that may not return”, the groups warned.

“Investment will not increase without a clear plan for reopening and recovery,” they said. “Even existing businesses have most investment plans on hold, given current uncertainties.” 

Chinh has in recent weeks held online meetings with US, European, Japanese and other investors, some of which lasted several hours, at which they vented their frustrations and concerns. 

Follow John Reed on Twitter: @JohnReedwrites

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