Strengthening Connectivity, Forming Industry Clusters to Restructure the Economy

Economic restructuring has been one of the major policies of Vietnam in recent years to renew the growth pattern and sharpen economic competitiveness.

One of the important contents of economic restructuring is “restructuring industries and economic regions to reinforce connectivity, forming industry clusters, improving productivity, quality and efficiency, bolstering resilience and accelerating international economic integration”, with the goal of gradually shifting from input-driven growth to growth driven by productivity, labor quality, scientific and technological application, and innovation.

Insignificant changes in sectoral restructuring

According to a report by the Central Institute for Economic Management (CIEM), sectoral restructuring by forming sector clusters in 2016-2020 obtained important results. Linking industries, regions and economic zones was strongly fostered. The sectoral structure is positively changed by increasing the share of processing and manufacturing, and raising market and export diversity.

However, the country still has low technological innovations and has yet to form a dynamic economy and made no significant change in economic restructuring.

Dr. Dang Duc Anh, Deputy Director of CIEM, said the country’s link with developed countries and economic clusters is not strong enough. Labor productivity has not been significantly improved, the independence and resilience of many sectors remain low, and the market lacks diversity and connectivity, being heavily dependent on global market supply and demand and price fluctuations.

Regarding exports, the country has few new products and new industries, which cannot significantly contribute to sectoral restructuring.

Mr. Nguyen Van Tung, Deputy Director of the Sector Research Department - CIEM, said that there is currently no complete definition of a sector cluster and the understanding and perception of sector clusters is inconsistent. Lacking some regulations results in difficulty in policymaking and enforcement regarding sector clusters. Many policy groups are incomplete, particularly regarding investment attraction, technology transfer and strengthened connectivity between the FDI sector and the domestic sector.

Specifically, some incentive policies and supporting industries are governed by sector-specific laws (such as Law on Land, Law on Credit Institutions, Law on Bidding), giving rise to overlapping implementation. New policies on FDI attraction focus on quantity rather than quality, spread and link FDI enterprises to domestic production.

Regarding the development of supporting industries, current legal provisions are ineffectively enforced to create strong policies on accelerated development of supporting industries.

Regarding the group of international trade and integration policies, the process of international economic integration and domestic innovation, especially institutional reform and improvement, legal system, mechanisms and policies, is not carried out consistently, not closely linked with competitiveness improvement. International economic integration has not been closely and effectively coordinated with the integration of other fields, while competitive pressure is more intense on all three levels, namely product, company and nation.

In addition, industrial parks and economic zones are mainly designed for sectors, but have yet to establish core actors for cluster development, such as large-scale projects and strategic foreign investment partners. So, connectivity among tenants in industrial and economic zones in the production and supply of products and services has not yet developed. The recent COVID-19 pandemic outbreak has further exposed limitations of economic independence and self-reliance, and vulnerabilities of external dependence.

Furthermore, the spatial distribution of industries has yet to fully tap the advantages, geographical positions and potential of localities that have not yet formed industrial link chains.

It is necessary to regulate flows of economic resources appropriately and effectively

According to Dr. Le Xuan Ba, Former Director of CIEM, the connectivity of economic regions in Vietnam is weak and non-resilient, so sectoral restructuring by forming sectoral clusters to strengthen economic resilience is essential.

Given current circumstances, to strengthen economic connectivity by sector and region and enhance economic resilience, Vietnam needs to regulate flows of economic resources appropriately and effectively; and select and pilot the development of some cluster models in economic restructuring. It is necessary to find and expand markets for the development of economic clusters and reorganize value chain-driven production and develop clusters of connecting - processing - consuming agricultural products in large agricultural localities and regions.

Besides, according to economic experts, it is necessary to increase awareness about the role of industrial linkages in sectoral restructuring; and have solutions on market, capital and investment attraction for sector cluster development. At the same time, it is necessary to build a detailed map of industries and industry linkages, in which the strengths and weaknesses of each industry should be identified. The formation of clusters must be based on geographical locations to ensure the interconnectivity of supply chains and value chains, and review supporting ecosystems.

World economies are forecast to be facing an increasingly gloomy and uncertain outlook in the coming time, so reforming the growth model is becoming more urgent than ever. Along with the above solutions, according to experts, Vietnam also needs diversification and multilateralization to avoid dependence on a specific market or partner in import and export. To step up market development, improve domestic consumption and develop the Vietnamese brand, it is necessary to improve self-reliance in digital technology, information technology, electronics, telecommunications and network security.

Quynh Anh (Vietnam Business Forum)