Industry: dynamo of Vietnam's economy

Vietnam's industries have been the driving force behind the country's dynamic economic growth during the past decade, with industrial output growth of 17 percent in 2006.

Total exports in 2006 reached $39.6 billion, up 22.1 percent from 2005, of which 76 percent were industrial products.

The Ministry of Industry is playing a crucial role in developing Vietnam's industries.

In addition to strategic development plans, the ministry has been overseeing new businesses, optimizing the capacity for development, and strengthening vital investment and construction activities.

"We are focused on improving our production capacity and competitiveness to be proactive for international economic integration," Vice Minister of Industry Do Huu Hao said.

"And we proactively propose policies and mechanisms for resolving problems and difficulties encountered by enterprises to help boost the high growth rate of industrial production."

The ministry is active in directing the restructuring and reforms of numerous state-owned enterprises, with an emphasis on supervision and inspection of businesses, personnel organization, international cooperation, science and technology, and public administration reforms.

Agriculture to industry

Vice Minister Hao described the four phases of Vietnam's modern foreign direct investment (FDI) attraction as the following:

"The first phase involved investment from members of the Association of Southeast Asian Nations (ASEAN), with rather small projects focused mainly on hotels, restaurants, and various tourist developments.

"The second phase involved the industrial sector - development of oil, gas, electricity, refineries, and heavy fertilizer plants.

"The third phase focused on 'line industries', such as production of textiles, garments, and footwear.

"The fourth and current phase is focusing on hi-tech investments - electronics, information technology, telecommunications equipment - and creating more value-added items.

"Recent large projects have included investments by Intel, Panasonic, and Sony, with the average project size between $500 million and $1 billion. All of this investment is helping to accelerate the shift from an agricultural to an industrial economy by 2020."

Investment opportunities

"We are calling for priority investment into the energy sector, specifically for the development of electricity plants," Hao said.

The augmentation of power generation, as well as oil and gas, is a key step in meeting the country's increasing development demand.

Vietnam will require an additional output of 12,000 megawatts (MW) until 2010, which will cost about $18 billion, in addition to $3-4 billion in investment per year for sector development.

The country's oil and gas market, including fuel distribution, will also be opened up to overseas firms, as well as investment into oil refineries, such as a planned project in Nghi Son District of Thanh Hoa Province.

"Meanwhile we are inviting investment for large fertilizer projects. For example, making fertilizer from coal is a great opportunity because we have large reserves of anthracite coal," Hao said.

"We are also calling for investment into the large mechanical network for the preparation and production of equipment to spur economic development.

"Specifically, we focus on construction of electricity plants and refinery plants, water supply, and the automobile and shipbuilding sectors.

"Furthermore, we are attracting investment into electronics and IT, especially for software and hardware production.

"Investment into high-tech industrial parks is also a priority," Hao said.

Additional projects include investment in textiles and leather.

Every year Vietnam exports nearly $6 billion in garments but has to import the required textiles from other countries.

It is in the nation's interest to develop a domestic textiles industry.

"The textile and garment industries collectively create about 500,000 new jobs every year, and hence they play a very important role in Vietnam's shift from an agricultural to an industrial country," Hao said.

"Currently 70 percent of Vietnamese people work in agriculture. The goal by the year 2010 is to lower the proportion to 50 percent. Therefore, textiles, leather, footwear, and garments play a very important role in the utilization of the labor force."

Key challenges

In order to achieve the goals of developing industries that will allow its population to reach middle-income status (per capita income of $1,000) by 2010, Vietnam is overcoming some key obstacles.

Reform and augmentation of the existing legal framework, geared towards creating a healthy and transparent environment for investors, and making full use of FDI capital, is underway.

The key question is how to carefully and effectively implement Vietnam's commitments to regional and global economic integration, such as WTO membership, while simultaneously making Vietnamese businesses more competitive.

Vietnam is maintaining and continuously developing the quality of its human resources.

"The rapid shift from a centrally-planned economy to a market-oriented economy has left us with a shortage of needed management skills," Hao said.

"We have a young, skilled, and cheap labor force, but we lack extensive management experience," he said, adding that the authorities are investing heavily in training of high-value skills and management capabilities.

Vietnam is also focused on renovating existing technologies and adopting foreign advanced technologies.

"In the past, technology transfer has been slow," Hao said.

"Therefore, we are now focused on maximizing the transfer of new technology from foreign investors, and consequently we have focused on attracting hi-tech investment, especially in IT."

Vietnam is also balancing its desire for rapid growth with sustainability - investing heavily into infrastructure (mainly energy, transportation, and ports) and strengthening institutions for environmental protection and natural resource management.

Competing globally

Against the backdrop of the booming economy, Vietnamese enterprises are firmly focused on moving up the value-chain.

"Enterprises are training people to work in fields where they need very skilled workers, such as hi-tech, electronic, and mechanical production," Hao said.

"Furthermore, Vietnamese enterprises are cooperating with other large companies to become the exporter of choice in the world market.

"Vietnamese enterprises are gradually becoming the spare parts producers and assemblers of prominent global companies.

"For example, we have numerous automobile companies in Vietnam, but spare parts are very limited - only 15-20 percent of demand. Therefore, we are creating more powerful brand names for spare parts in Vietnam."

Bright future

Hao said Vietnam possessed a young and well-educated human resources pool, generous endowment of natural resources, geo-strategic location, socio-political stability, an impressive growth record, and great potential for the future.

He noted that the investment bank Goldman Sachs had listed Vietnam among the 'Next Eleven' economies.

The world seems to have increasingly taken notice of Vietnam's success.

"FDI commitments in 2006 achieved a record-high level of $10.2 billion, and FDI in 2007 may reach as high as $20 billion," Hao said.

"We are sending more and more Vietnamese people to study and train abroad, and we have exchanged our opinions and concerns at numerous international organizations.

"In the process of equitization of thousands of enterprises, we can share our success with foreign investors.

"We are proud to have become a market economy, and will abide by all WTO commitments.

"We would like everyone to know more about Vietnam, and we would like to be a friend to all nations in the world for mutual benefit."

www.moi.gov.vn

(Shanghai Start 09/03/2007 page4)