Industrial development needs State’s long-term vision

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To develop the processing and manufacturing industry, the State needs to have stronger policies that focus on domestic enterprises. To have strong policies, it needs strong resources.

A large corporation in Vietnam is speeding up its project to manufacture and assemble electronic boards in the central city of Da Nang.

A leader of the corporation said: “People usually think that production of electronic boards is something high-end, but that is not true.”

“Manufacturing electronic boards is like a sewing factory, no different from making a vest,” he said.

He continued: “The foreign partner gives us the design and ask us to obey security conditions. Then they supervise the production process until the finished products come out and bring them to their country. We don’t even know what to do or where to install the products we make.”

He said that the foreign partner is in charge of Design, Research & Development (R&D) and distribution, which are the two highest value-added parts. The Vietnamese partner only assumes the assembly stage, with modest added value, but it is labor-intensive.

“We will consider performing R&D, researching and designing our own products in the next 10-20 years. Foxconn also started from manufacturing and assembly like us, then they moved to produce simple chips. As for high-tech chips, the core value is still in the hands of American corporations,” he added.

The businessman’s description depicts the current picture of Vietnam’s processing and manufacturing industry in general and the electronics industry in particular. This situation has been known for a long time but Vietnam has not had solutions to deal with it.

Industrial development needs State’s long-term vision

A few months after assuming the position of Minister of Industry and Trade, Mr. Nguyen Hong Dien sent documents to leaders of provinces and cities with notes on industrial and trade development. In particular, when it comes to industrial development, this document points out that Vietnam’s economy is still heavily dependent on foreign investment. The industry is still mainly processing and assembling, the added value is not high, the supporting industry develops slowly, the localization rate is low, and the efficiency in participating in the global value chain is still limited.

In fact, after several decades carrying out the open-door policy, many industrial criteria for Vietnam to basically become a modern industrialized country by 2020 have not been met. Many other priotized industries did not reach the set targets, although they enjoyed great incentives and support from the State.

The Ministry of Industry and Trade’s report shows that the mechanical industry met only 32.5% of domestic demand in 2019, much lower than the goal of 45-50% set out in a document dated October 2003 of the Party Central Committee. Specifically, machine tools, movers and construction machines satisfied about 40% of domestic demand, much lower than the target of 60-70% set out in the development strategy of the mechanical industry. For the auto industry, the localization rate for personal vehicles up to nine seats reached about 10-15% in 2020 while the target is 30-40%.

The supporting industry has not yet developed, so the added value of the industry is not high. The supporting industry currently meets about 10% of domestic demand with simple components and details as major products, which have low value in the product value structure. The localization rate of most industries is low.

Changing the mindset

Industrial development needs State’s long-term vision

In order to change this situation, the involvement of the central and local governments is important, especially the local ones. The industrial development mindset of local leaders needs to change. Many officials just want to attract large-scale foreign investment projects to generate high revenue for the local budget. However, industrial development cannot follow that direction.

Experts said that it takes five years for planning and up to 30 years for implementation of the plan. Why must the local government get involved? Because Vietnam’s goal is to increase the added value of industrial products, it must rely on supporting industries. The supporting industries are small and medium enterprises. This force is directly associated with the locality.

“Vietnam has 112,000 processing and manufacturing enterprises, and all of them are small and medium enterprises that are located in 63 provinces and cities. If local governments do not have programs to support small and medium enterprises to develop supporting industries and processing agricultural and aquatic products, no one can do it. The Ministry of Industry and Trade cannot do it,” an expert said.

Therefore, the important solution is the coordination between the local and central governments. The Central Government sets out policies and ensures the development of industrial territory in the whole country. The provinces with abundant budget revenue can issue programs to support businesses in human resource training, technology transfer, land and other items.

Mr. Truong Thanh Hoai, Director of the Department of Industry of the Ministry of Industry and Trade, said that Japanese and Korean enterprises borrow only 2-3% of their total capital, while Vietnamese enterprises borrow 9-10%. With higher capital costs, Vietnamese products cannot compete with those of Japan and Korea. That is the reason Vietnam’s supporting industry is weak, not to mention the outdated machinery and technology.

To develop the processing and manufacturing industry, the State needs to have stronger policies that focus on domestic enterprises. To have strong policies, it needs strong resources.

In the case of South Korea, it established the Korea Supporting Industry Development Committee. This committee is chaired by the Korean Minister of Finance and Strategy, not the Ministry of Trade, Industry and Trade and Energy. Why? It is because they know that to support businesses, financial resources are the most important.

The history of many countries shows that the State always plays the role of initiating many developed industries.

For example, since the 1950s, the US economy has developed thanks to the combination of three core pillars: computers, microprocessors and the Internet. The research and development that underpins each of these pillars is rooted in a tripartite alliance between government, academia, and private businesses. The US government and its huge, long-term investments are the base for the development of Apple.

However, funding for research and development by the US federal government has been reduced in recent decades, from 1.2 percent of GDP in 1976 to less than 0.8 percent in 2016. One of the reasons is that the government is less involved, cuts taxes, and lets private enterprises freely exercise their creative abilities.

As a result, the United States is facing the risk of no longer maintaining the technological lead gap with its competitors, especially China, where the government invests heavily in science, technology and research and development.

That shows that no country can produce “big guys” in industry or technology without the support of the State. Therefore, Mr. Truong Thanh Hoai said it is necessary to have the Law on Industrial Development.

The core issue of the Law on Industrial Development that the Ministry of Industry and Trade is trying to build lies in the belief and ability to enforce. In Vietnam, many laws are promulgated but the enforcement is very poor, and many supportive policies are issued but only a very small part of businesses can benefit from them, not to mention the overlaps and conflicts between laws that make the implementation of the law poor.

In order to convince people, businesses, and legislators, the Law on Industrial Development must overcome those shortcomings.

Luong Bang

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