Explained: The Slow Recovery of Vietnam’s Tourism Industry

Posted by Written by Mark Barnes Reading Time: 7 minutes

While Vietnam’s regional tourism peers have rebounded to around 25 percent of their pre-pandemic tourist trade in 2022, Vietnam has fallen behind. This article explores the reasons why, what could happen next, and how foreign companies could potentially benefit.

As soon as it became clear that COVID-19 wasn’t just another cold but rather the makings of a devastating pandemic, Vietnam closed its borders. In fact, it was one of the first countries to make the move but was quickly followed by many others.

This was succeeded by a snap lockdown. Flights were grounded, restaurants were shut, and tourist hotspots like Hanoi’s Turtle Lake and Ho Chi Minh City’s Beer Street were closed for business.

But whereas that first initial lockdown was only brief for most businesses – in some places just a few weeks – for the tourism sector it was the start of a long period of layoffs, bankruptcies, and financial pain that has still not come to an end.

So what happened? How did it happen? What’s next? And where are the opportunities for foreign firms?

There was a pivot to domestic tourism

When the cities opened up again after that first, brief initial lockdown, the tourism landscape had changed considerably. With foreign tourists out of the equation, Vietnam’s tourism enterprises swiftly shifted their focus to domestic travelers.

But the Vietnamese do not travel like their foreign counterparts. Most notably, they have an average spend of about US$49 a day whereas foreign tourists typically spend more than double that – at an estimated US$117/day.

Furthermore, not only do Vietnamese tourists spend less, they also speak the native language and have an in-depth understanding of the locations they visit. This means that cultural traditions and practices that are a novelty for foreign tourists are just a normal part of everyday life.

As a result, the tourism sector had to pivot.

Specifically, with international arrivals more or less gone, foreign language skills, which had been a huge selling point for Vietnam’s tourism workers, were no longer needed.

This was, however, somewhat serendipitous. While tourism was in decline, cross-border digital services were on the way up. Technology companies in Vietnam were making bank selling video games, mobile phone applications, and a broad range of software online to people in lockdown all around the world. And, as their operations scaled up, so too did their customer service teams – and this meant hiring vast numbers of workers with foreign language skills.

At the time, this was somewhat fortuitous as it meant employers could avoid laying off workers, and workers were not out of work for too long. However, as the pandemic persisted and many tourism workers found new career paths, there was a risk of losing a generation of workers along with a huge volume of institutional memory.

Changes in immigration policy

But as the tourism sector was shrinking, another challenge was emerging.

An overhaul of Vietnam’s immigration policy was taking place and a number of key changes were being made affecting access and mobility.

Before COVID, most tourists passed through immigration either visa-free if they were from one of 25 countries that were permitted to do so, or with an e-visa valid for 30 to 90 days that they could get online.

During COVID-19, however, 90-day tourist visas were effectively done away with (except for people on package tours). Moving forward, tourists would need to apply to extend their visa if they wanted to stay for longer than the prescribed 30 days.

It is not exactly clear what the motivating factor was behind this change; ostensibly, it was a move to get foreigners in Vietnam onto the correct visas – before the pandemic it had been common for foreign workers to stay in the country on 90-day tourist visas, which they would renew by completing day-trips to Bangkok every three months.

With borders closed, however, it was difficult to ascertain the impact these changes would have. As a result, when they came into force in July of 2020, they passed by mostly unnoticed, hidden behind Vietnam’s border restrictions.

Attempts to open up in 2021

Early on in 2021, COVID-19, which had been remarkably contained for over a year, finally got its hooks into Vietnam, ravaging Vietnam’s cities, and sounding the death knell for many tourism businesses.

By the end of 2021, an estimated 90-95 percent of tourism businesses had closed their doors for good or had changed their core operations – the tourism sector was bleeding out.

But there was hope. Vaccinations rates were rising and a pilot program ‘travel bubble’ had been approved for the island of Phu Quoc off the south coast of Vietnam. In November, 209 Korean tourists would arrive at the island for a four-day, three-night package holiday – complete with COVID-19 safeguards.

But this was just a drop in the ocean when it came to the US$32 billion dollar tourism revenue hole created by the pandemic.

For the sector to be revived, travel restrictions would need to be done away with in their entirety.

That said, at the beginning of 2022, the dark clouds started to part for Vietnam’s tourism industry when on February 14, the decision was made to reopen Vietnam to tourism a month later, on March 15. The sigh of relief from the tourism industry was almost audible.

This optimism, however, was to be short-lived when just 10 days later Russia invaded Ukraine.

Russian sanctions hit Vietnam’s tourism industry

Vietnam’s tourism sector is heavily reliant on a few key locations, which are often frequented by specific nationalities. As a result, the absence of Russian travelers was expected to have a concentrated impact, rather than a significant one.

In coastal towns like Nha Trang, most signage, including menus and price lists, is written in Russian followed by English. Russian tourists have been a significant source of revenue for Vietnam’s coastal tourist towns, especially during the winter months when they seek warmer climates. There are also long standing ties from Russia’s Soviet days.

However, due to the global banking system’s exclusion of Russia and the country’s struggling economy under sanctions, holidaying abroad was becoming increasingly difficult and costly for Russians. Flights between Vietnam and Russia were also suspended, forcing Russian tourists to transit through third countries, making travel to Vietnam more expensive.

China maintains COVID-zero policy for most of 2022

But while the missing Russian tourists undoubtedly had an impact, it was the absence of Chinese tourists that would really hold Vietnam’s tourism sector back.

For most of 2022, Vietnam’s neighbor to the north stubbornly refused to reopen its borders, cutting off Vietnam’s biggest source of foreign tourists – in 2019, Chinese visitors accounted for more than a quarter of Vietnam’s international arrivals.

As a result, when borders finally reopened on March 15, the festivities were somewhat muted – Vietnam’s tourism sector was not out of the woods yet and would continue to struggle for some time to come.

One year later…

The response to Vietnam’s reopening from the international traveling community was lackluster at best. Despite heavy discounts on accommodation and flights, the rising dragon struggled to breathe life back into its tourism industry.

In 2022, Vietnam welcomed just 3.6 million tourists, around 18 percent of its pre-pandemic 19 million. For contrast, Thailand received 10 million tourists, 25 percent of its 2019 traffic (which was 40 million), and Indonesia counted 4.6 million guests, just over 28 percent of the 16 million arrivals it received in 2019.

Visa reform has been touted as one way to give the sector a much-needed boost. This has been acknowledged by the authorities. The Vietnamese government, last week, announced it would submit to the National Assembly a draft law that would extend visa-free periods to 30 days and bring back three-month tourist visas. The logic being that the longer tourists stay in Vietnam, the more money they spend.

China has also reopened its borders to select countries and Vietnam has made the list.

Russia, however, is another kettle of fish. Vietnam welcomed less than 40,000 Russian tourists in 2022 well below the pre-pandemic 650,000 it received in 2019. When these numbers will return to normal will depend on external factors well beyond Vietnam’s control.

That said, Vietnam will still have to deal with internal factors, including deep-seeded sustainability issues, in order to future proof its tourism sector.

In 2021, Euromonitor International ranked the Southeast Asian nation 96th out of 99 on its tourism sustainability index. Litter on Vietnam’s beaches and water pollution are becoming increasingly off-putting to foreign visitors.

This may be partly why its rate of return among tourists is relatively low. Just 5 percent of tourists return to Vietnam; by comparison, in Thailand, that figure is around 50 percent. This will need to be addressed in the future to ensure the long-term survival of the sector.

For now, however, an air of optimism has returned once more, with the aforementioned visa changes and China’s reopening expected to give the sector the sorely needed leg-up it’s crying out for.

Opportunities for foreign investors

The economic cost of prolonged border closures is still weighing heavily on the tourism sector. The local media is filled with stories of hotels up for sale as owners struggle to make ends meet.

Famously, Vietnam’s ‘Gold Hotel’ (the Dolce by Wyndham) is up for grabs. Though it’s hoped that the hotel in Hanoi will bring its owners the hefty price of US$200 million, this is on the more expensive side and there are much lower priced options out there.

In coastal cities like Danang, almost finished construction projects stand dormant with developers out of money. Existing businesses are also cash starved and keen to restructure into joint-ventures. This may be a good opportunity for foreign hoteliers to enter the market at a discount.

Hospitality, restaurants, and bars have also gone in many places amid the dwindling demand. Investors who have the resources to wait could consider entering the market now and ride the wave of recovery when it inevitably comes.

Foreign tour operators might also consider this the ideal opportunity to try running tours to the Southeast Asian nation. With excess capacity in hotels and tourist services, heavy discounts may be on offer. They may also find the pre-COVID crowds vastly diminished offering visitors a somewhat calmer and more unique experience.

On that note, firms that wish to find out more about or gain access to these opportunities should contact industry advisors at Dezan Shira and Associates.

The future of Vietnam’s tourism sector

Vietnam’s tourism industry saw 2.69 million tourists in the first quarter of 2023, representing 33 percent of its targeted 8 million international arrivals by the end of the year. This has contributed around US$6.85 billion in revenue from accommodation and catering services.

While these numbers are still below pre-pandemic levels, the country is off to a promising start. The tourism sector appears to be responding well to global economic challenges, although it is starting from a relatively low point.

Moving forward, it is essential for the industry to continue its sustainable and resilient recovery. This will not only benefit the economy, but also ensure that foreign visitors can enjoy Vietnam’s tourist attractions for years to come.

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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at vietnam@dezshira.com or visit us at www.dezshira.com