Vietnam Should Prioritise Industrial Development Policy

Last year, Vietnam became a medium-income country in the World Bank ranking as its GDP per capita reached more than US$1,000. This was an important milestone to open many economic development opportunities for Vietnam. The country has obtained an encouraging economic growth for over the past 15 years. Whether the country can continue maintaining its fast and sustainable growth and is listed among high-income groups along with South Korea and Taiwan or follow the way of some neighbouring countries which have been remained medium-income ones? It is essential for Vietnam to boost industrial development for economic growth.

 

At an international seminar entitled “Escaping medium-income trap: opportunities and challenges for Vietnam” held recently by the National Economics University and the Vietnam Development Forum (VDF) in Hanoi, VDF General Director Pro.Dr. Kenichi Ohno said Thailand and Malaysia are typical examples for getting stuck in the medium-income trap. Malaysia had a GDP per capita of US$7,750 (according to the national statistics in 2009) and Thailand’s was estimated at US$3,973 (according to the International Monetary Fund’s figure in 2009). However, the two countries have not yet gained strong growth for many years to become high-income ones.

 

Currently, Vietnamese development is considered to be much similar to these nations. Lessons learnt from nations escaping from the trap are good policies and strong development of the private economic sector.

 

Prof. Kenichi said, for Vietnam, renovating policy making method is a crucial factor to escape from being a medium-income nation. Vietnam has come to a development stage that the economic growth can become slow if the policy making process is not reformed comprehensively to take full advantages of the national potentials. “Economic growth what only bases on natural resources, foreign direct investment or geographical advantages is not sustainable. Therefore, it is necessary to work out a proactive industrial development policy to ease the situation”, Kenichi noted.

 

Vietnam targets to become an industrialised country by 2020. Thus, Kenichi said Vietnam should build a special industrialisation roadmap, announce and instruct local people, investors and policy makers on this. It is the private sector, not state-owned firms, that is the driving force for the economic development. Vietnam should also have policies for financial development and use foreign resources to narrow the income gap and deal with social issues.

 

At present, Vietnam has not yet worked out a master plan for industrial development. The five-year plan and the ten-year strategy do not draw a consistent vision for industrial sector. As a result, the country has not yet dealt with many problems, including one related to the function of state-owned, private and foreign-invested enterprises in the future; the selection between export orientation and the replacement of import on the integration way and the scope and scale of official assistances and emerging and degrading industries.

 

Prof. Kenichi added that Vietnam’s failure in the policy making process is mainly attributed to structural weaknesses. The process in Vietnam is consequences of the centrally-planned economy; therefore, it is impossible to cope with consequences of the global competition. After the growth period in the 1990s and early 2000s, thanks to economic liberlisation and a big foreign inflow, Vietnam reached the stage that makes it to face more difficulties to become a higher-income country if the nation does not have improvements in the policy making process.

 

Many problems appear in Vietnam’s industrial development. The most important thing arising in the design and implementation of strategies and action plans is the weak cooperation of the business community and inter-ministries, causing ineffectiveness of policies.

 

The Vietnamese policy-making process belongs to the government with the limited participation of concerned sides. If a domestic company or a foreign one wants to show their viewpoints, they have to seek ways to get access to officials because the current mechanism does not allow the community to join the policy-making process. Although seeking opinions from enterprises have become popular for recent years, contents of detail drafts have not yet been announced at meetings for business opinions. Thus, companies can only express their common requirements, not every matters of concern.

 

In addition, agencies and ministries do not cooperate with one another in the policy-making process.

To defeat the medium-income trap, Kenichi suggested that Vietnam should use a “pioneer industrial development policy” which accepts the market mechanism and globalisation and the inuring spirit of the government and the private sector. The state needs to keep the active role in building orientations and development support although all production activities are carried out by the private sector in principle. Besides, the country should raise capacity of policies and the private sector and both factors should be focused on more.

 

Base methods to make the industrialisation successful are developing human resources. To avoid wrong assessments on policies and political influences, the government has to gather knowledge of industries. Initial knowledge can be learnt from experts, donors, scholars, but only when policy makes acquire this, industrial development policies can be ensured.