Do the Vietnamese still have a chance?
If you want to get over the rapids, you must first get off the boat. Will the next decade reach the goal of industrialization without success?
If local enterprises are not strong enough, we will be still dependent, from the economy to defense. Photo: Le Anh Dung
Do Vietnamese people still have opportunities to develop their industries, especially the manufacturing industry, the foundation for all industries, after signing many free trade agreements (FTAs), widely opening its doors, and with the foreign-invested sector’s segment in the economy increasing?
There is no chance of adequate growth
Foreign investment has contributed to extensive reform, improving policy and behaviors in line with international standards and helping to improve the lives of Vietnamese people.
But it is important to point out concerns related to the door-opening and the domination of the FDI sector in the national economy to see that Vietnamese people and Vietnamese enterprises have not developed or have not had opportunities to develop commensurate with that process.
There are exceptions, for example, the motorcycle industry. Twenty years ago, the Japanese came to Vietnam to form motorcycle joint ventures, which actually import components and machines for assembly. Then, thanks to protectionist policies and tthe large market, they built domestic supply chains so that today, most parts of the motorcycle are manufactured in Vietnam.
But except for the motorbike industry, what industries have developed domestic supporting industries? The localization rate of 9-seat cars in the automotive industry - the industry that receives the most attention, and has the best protection policy - is far from expectations, while the target is 30-40% by 2020.
In 2019, the mechanical engineering industry only met 32.5% of domestic demand, much lower than the target of 45-50%. In the agricultural, forestry and aquatic processing industry, Vietnamese mainly exports raw or preliminary processed products. The shipbuilding industry faces many difficulties. The steel industry has low competitiveness and performs ineffectively.
Meanwhile, FDI is expanding. In 2019, of 19 industries having foreign investment, the processing and manufacturing sector received the highest amount of capital with $24.56 billion, accounting for 64.6% of total registered capital.
The processing and manufacturing industry accounted for a large proportion of the registered FDI capital in terms of both newly-invested projects to expanded ones. In this sector, investment by state-owned enterprises has been shrinking, giving way to FDI.
The FDI sector currently accounts for 50% of industrial production value, 70% of export value and 20% of GDP. This sector grew 9.4% a year, much higher than 6.6% of the private sector and 4.4% of state-owned enterprises in the past decade.
The household-based economy
The domestic private sector accounts for only 9-19% of GDP, the household economy 33% of GDP, the state-owned sector over 32% of GDP. This data shows that Vietnam’s economy is still mainly based on households, still very small and weak.
Vietnamese businesses are less interested in investing in the industrial sector. FDI enterprises’ contribution to industrial production is on the rise, while that of the state-owned sector is decreasing.
The efficiency of the majority of state-owned industrial enterprises is low, and many national investment programs and large-scale industrial projects suffer losses. The majority of domestic private industrial enterprises are small and medium enterprises with limited capacity.
If local enterprises are not strong enough, we will be still dependent, from the economy to defense.
Let’s have a look at the market to see what industrial products are made by Vietnamese? What are the Vietnamese-branded industrial products that are exported and can compete in the world market?
Let’s see how many Vietnamese businesses in many fields have been acquired through merger and acquisition (M&A) deals in recent years.
It is the law of the market when it has integrated and opened that the import of components and raw materials at cheaper prices is natural, and it is natural for business owners to sell their businesses to foreigners when they make profits.
But why do Vietnamese people not rise above the value chain? Why can't Vietnamese enterprises have M&As in foreign markets?
Businesses must be cherished to develop
Resolution 23-NQ/TW dated March 22, 2018 of the Politburo stated: “The development of our country's industry over the past years has not yet met the requirements of national industrialization and modernization, mainly developing under short-term goals, and lack of sustainability; internal strength of the local industry remains weak, heavily dependent on foreign invested enterprises; technology level is outdated, and slowly renovated; product quality and labor productivity in the industrial sector are still low, industrial development has not closely linked with other economic sectors; focus is too much on cheap labor, not making good use of the advantages in the period of the golden population structure...”.
This resolution shows that we must cherish each business to help them develop.
Prime Minister Nguyen Xuan Phuc said at the recent National Assembly session: “The biggest challenge right now is not escaping the middle-income trap andthe biggest risk is not lagging behind in terms of economic development; our biggest challenge is the lack of will to rise and the biggest danger is the lack of determination to take action."
If you want to get over the rapids, you must first get off the boat. Will the next decade achieve the goal of industrialization without success?
Vietnam’s industries, especially the processing and manufacturing industry, are developing.
When we only dominate the processes of assembly, we are lost at the most important stages of the value chain, from invention to design to distribution...