Focussed Investment in Supporting Industries of Strong Advantages

At the seminar on “Supporting industries for commodity production and export” recently held by the Ho Chi Minh City Investment and Trade Centre (IPTC), Professor Phan Dang Tuat, Director of the Research Institute for Industry Policy and Strategy under the Ministry of Industry and Trade, said: 10 years ago, we might not think of what the industry is now making for our economy. At present, many key products with an annual export turnover of more than US$1billion have made presence in many large markets. However, many figures are not impressive as they look.

 

In 1995, the VA/GO ratio (value added on gross output) of the Vietnamese industry was 42.5 % but the rate slumped to 38.45 % in 2000, 29.63 % in 2005, 26.3 % in 2007 and about 21 % in 2010. The growth of value added, also called industrial GDP, has declined continuously, from more than 15 % a year in the 1995 - 2000 period to about 11 % a year in the 2001 - 2005 period and 3.9 % in 2009. Indeed, the Vietnamese industry is being developed in dimension, with a growing proportion of outsourcing and assembling.

 

Mr Tran Hung, Deputy Director of the Light Industries Department under the Ministry of Industry and Trade, said: Vietnamese supporting industries are today successful in electrical appliance and motorcycle sectors. At present, leading companies from Japan and Taiwan invested or joined hands with Vietnamese partners to build parts factories in Vietnam and they can meet about 70 % of domestic demand. As regards mechanical industry, although Vietnam has many sources of raw materials such as copper, lead, iron and zinc, only State-owned Thai Nguyen Iron and Steel Company is capable of manufacturing finished steel from raw iron ores. The garment and textile industry, a top forex earner for Vietnam, is largely reliant on imported materials. According to the Ministry of Industry and Trade, the local content ratio of the textile industry is now about 45 %.

 

However, according to garment and textile companies, this figure is overoptimistic as the real ratio is lower. Even the paper industry has to spend US$300 - 400 million on imported materials, with two thirds being wasted papers, although local sources of raw materials are available, primarily because of poor exploitation. Paper producers dislike using local sources.

According to a research report, in the next 10 years, Vietnam should focus on developing two key supporting industries of its strengths. The Ministry of Trade and Industry said Vietnam can raise the local content ratio of garment, textile, leather, footwear, electronic, automobile and mechanical engineering. These sectors are calling for investment for the development of auxiliary industries but outcomes are disappointing because of ineffective investments. Besides, the country has not identified its key industries for parts investors to follow. Amongst potential industries, Vietnam should choose the most appropriate ones to concentrate investments on developing supportive industries.

 

Mr Matthias Duhn, Managing Director of European Chamber of Commerce in Vietnam (EuroCham), said Vietnam’s support industries still depend much on export goods and low-cost labour. Vietnam must choose solutions to develop supporting industries to increase added value. For automobile industry, it is great if Vietnam can meet a half of 400,000 components. However, this is a small market as Thailand, also in ASEAN bloc as Vietnam, has gone ahead and done it well. If Vietnam continues to do, it will certainly face numerous difficulties in competing and developing this industry. Vietnam should choose industries matching most its capabilities. The country holds great advantages and potentialities to develop garment, textile and footwear industries. Therefore, the Government of Vietnam should invest more to build industrial complexes for these two sectors to raise the industry value.

 

According to experiences in the world, Vietnam should focus on a few sectors in each period of development to avoid spreading its resources. It must identify industries of its strengths and most demand to focus investment on developing supporting industries for them.