Pacific money | Business | South East Asia
Vietnamese companies are already seeing the consequences of the conflict in Eastern Europe, and the impact will only increase.
Fruit and vegetables for sale at a street market in Vietnam.
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On February 24, Russian President Vladimir Putin ordered his troops to invade Ukraine. Most western countries, including the United States, the European Union, the United Kingdom, Australia and Canada, were quick to impose sanctions on Russia in response. These sanctions were unusually harsh, and some analysts believe they are designed to shake Russia’s economy and punish Putin, his top officials and wealthy oligarchs who are seen as close to the Kremlin.
These sanctions against Russia will have a significant impact on the global economy, and Vietnam’s economy will not be spared the consequences. Russia has been locked out of the SWIFT international payment system, Western countries have effectively frozen $630 billion in Russian foreign exchange reserves, and many major banks and financial institutions have frozen Russia’s foreign assets totaling around $3 billion.
In particular, the removal of Russia from the SWIFT system has created a nightmare for Vietnamese companies exporting goods and products to Russia, as there are now difficulties in making and receiving payments from Russian companies. Before the Russia-Ukraine conflict, bilateral trade between Vietnam and Russia was growing steadily despite the negative impact of the COVID-19 pandemic. Vietnam exports a diverse range of products to Russia, and bilateral trade between the two countries has reached US$7.2 billion in 2021. Of these, Vietnam’s total export value was US$4.9 billion, up 25.9 percent from 2020.
Vietnam’s agriculture is one of the sectors that has suffered the most from the Ukraine conflict and has been forced to find new ways to survive. Truong Dinh Hoe, secretary-general of the Vietnam Association of Seafood Exporters and Producers, said Vietnamese business owners trading with Russia are concerned about collecting payments after Russia’s exclusion from the SWIFT system. For example, the Phuc Sinh Group, a Vietnamese export company that does around $10 million in trade with Russia each year, has said it is losing significant revenue due to Western sanctions.
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The war has also caused gasoline prices to rise around the world, struggling Vietnam’s agricultural production and the import and export of agricultural, forestry and fisheries products. In addition, due to sanctions, some Vietnamese shipping companies have refused to accept orders to transport goods from Vietnam to Russia. In particular, companies that rely on raw materials from Russia or Ukraine are at risk of direct war-related supply shortages, while the Vietnamese aviation industry could also suffer as rising oil prices feed through to consumers.
Vietnam’s tourism industry will also be affected. Russia was the sixth-biggest source of international tourists before the COVID-19 pandemic, but the sanctions have left many Russians concerned about not having access to funds when traveling abroad. This will have a significant impact on Vietnam’s reopening to international tourists last month.
The conflict will eventually create shortages and raise prices for many commodities such as oil, gas and grain, of which Ukraine is one of the world’s largest exporters. As a result, inflation will rise and Vietnamese companies that rely on imported materials but are unable to raise their selling prices to offset rising material costs will find themselves in trouble. The risk of inflation also has the potential to slow consumption and capital investment in Vietnam’s economy, including government public investment.
There is no doubt that the conflict between Russia and Ukraine has exacerbated inflation and disrupted supply chains. This conflict will also cause delays and increased costs in many industries and lead to shortages of many basic commodities, directly raising input prices for businesses. On the other hand, the global economy will stagnate and make the international investment environment more difficult for many companies.
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It is still too early to assess the impact of the Russo-Ukrainian war on the Vietnamese economy. However, it can be seen that this has already had a negative impact on many Vietnamese companies and has increased macro risks to the Vietnamese economy.
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