COVID surge in Southeast Asia disrupts global supply chains
The COVID-19 pandemic and the resulting massive production disruptions in Southeast Asia will lead to greater diversification and a major reshaping of global supply chains, according to experts.
Southeast Asia has emerged as a key player in global supply chains over the past few decades, with countries like Vietnam, Thailand and Malaysia becoming major manufacturing hubs. The region now is a key production zone for cars, computers, electronics and garments, among other products.
But the massive production disruptions wrought by the COVID pandemic now threaten to cause a shift in value chains.
The region has been hit by a resurgence in coronavirus infections in recent months, blamed largely on the highly contagious delta variant. Lockdown measures and tighter restrictions to control the virus’ spread have also shut down factories in many countries.
Manufacturing across the region has been badly affected and “remained in a downturn during August,” according to a survey of around 2,100 factories.
The month’s Purchasing Managers’ Index (PMI) “remained firmly in contraction territory” at 44.5 due to “rising COVID-19 cases and lockdown measures,” according to London-based information provider IHS Markit. August was the third consecutive month that the index for the region was below 50, which means a slowdown.
“The fastest rates of decline were recorded in Myanmar, Vietnam and Malaysia,” IHS Markit economist Lewis Cooper told the dpa news agency.
Factory closures affect production
The drop in manufacturing capacity, particularly in countries like Thailand and Vietnam, has affected the global value chains.
Many companies sourcing goods from the region say they have faced unprecedented disruptions this year due to COVID outbreaks and container shortages.
“Given Vietnam’s increased role in global manufacturing supply chains, notably in the final assembly stage of electronics, in recent years, the surge in infections is being felt in telecommunication-related goods,” Sian Fenner, lead Asia economist at Oxford Economics, told DW.
Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said the impact of Vietnamese factory closures had become increasingly widespread. “Over 100 seafood processing factories were closed in southern Vietnam during periods in August, while over one-third of textile and garment factories are also reported to have been temporarily closed in recent weeks due to the pandemic,” he said.
The expert also pointed out that conglomerates like Samsung and Toyota had faced production challenges. He said Samsung had managed to mitigate the disruptions by shifting production to other parts of their global manufacturing supply chain, but Toyota was forced to temporarily halt several auto assembly lines due to the disruption to supply chains in Southeast Asian manufacturing hubs.
To avoid disruptions to production, Vietnamese authorities have been allowing factories to remain open if they adopt strict containment measures, including offering on-site accommodation or direct transport for employees to avoid catching and spreading the virus.
Despite the leeway, Fenner said, many factories “have been forced to close, in part, due to the costs associated with providing adequate accommodation.” Unable to bear the isolation and spend all the time at the workplace, some workers also quit and leave for home.
In the case of Thailand, an exodus of migrant workers since the beginning of the pandemic is leading to labor shortages. “This is impacting the labor-intensive manufacturing sector, notably food, textiles and some rubber producers,” said Fenner.
What’s the COVID situation in the region’s manufacturing hubs?
While many countries in the region had successfully contained the coronavirus for most of last year, they have failed to prevent large outbreaks driven by the delta variant over the past few months.
Low immunization levels and a shortage of vaccines have further exacerbated the problem. Vietnam, for instance, has fully inoculated less than 3% of its around 98 million people. The country, which originally opted for containment policy and did not rush to procure vaccines, is now scrambling to secure more jabs.