As the Russia-Ukraine conflict unfolds and completes a month, Vietnam Briefing looks at the impact of the conflict on Vietnam as well as businesses in the country. While it’s still early to determine long-term effects, we examine the short-term effects that will play a key role in how the economy moves forward.

The Russia-Ukraine conflict which began on February 24, sent shockwaves to global markets and led to an unprecedented response from countries around the world in the form of economic sanctions and other restrictive measures. In doing so, western countries and allies are sending a clear signal that they want to cut off Russia from the global financial system and isolate Putin politically.

Russia-Ukraine likely to have limited direct consequences on Vietnam

While analysts state the impact of the Russia-Ukraine conflict is likely to have limited direct consequences on Vietnam, the fallout of the conflict is likely to have significant consequences on trade and businesses in Vietnam. From disrupting trade and global supply chains to causing tensions geopolitically, we discuss the impact that is likely to be felt by businesses operating in Vietnam.

Vietnam’s neutral stance

Vietnam has maintained a neutral stance, refusing to either directly condemn or condone Russia’s actions and calling for a peaceful and diplomatic resolution to the conflict.

Nevertheless, it’s inevitable that businesses in Vietnam will be caught in the crosshairs due to sanctions imposed on Russia and subsequent indirect consequences.

Businesses directly engaged in trade with Russia, Ukraine and Belarus will feel the most immediate impact of the conflict. Ukraine is now essentially closed to trade and business, and only essential goods and supplies are entering the country through the Polish border.

Rising transport costs

Vietnam-based businesses are already facing challenges regarding trade with Russia and Ukraine. Several businesses have complained about rising transport costs as Russian banks have been cut from SWIFT, the leading international payment system.

In addition, businesses are also facing supply chains issues caused by the pandemic. Vietnam is a major manufacturer of smartphones. While the US has not imposed restrictions as yet on imports and exports between Vietnam and Russia (except for high-tech goods using US machinery and technology), disruption to raw materials used to make smartphones may affect Vietnam’s smartphone manufacturing industry if alternate plans are not implemented.

In particular, wood processing industries that rely on imported timber from Russia and Ukraine are finding it increasingly difficult to obtain inputs.

Vietnam has been also facing inflation which is only likely to be further exacerbated due to an increase in oil and gas prices. Vietnam imported just around US$1.5 billion of fertilizer, iron, steel, coal, and agricultural products from Russia and Ukraine in recent years as per Dragon Capital. While Vietnam’s exports have totaled nearly US$2.4 billion for mobile phones, garments and textiles, and electronic equipment.

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This article was first published by VietnamBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected]

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