Last updated: Thursday, March 23, 2017
Supporting Industries: Reality and ExpectationsPosted: Monday, March 06, 2017
The Prime Minister’s Decision 12/2011/QD-TTg dated February 24, 2011 on policies on development of supporting industries is the first legal document on supporting industries of Vietnam. Supporting industries are to manufacture materials, components, parts and semi-finished products to feed industries that manufacture and assemble finished products which are input materials or consumer goods.
Supporting industries constitute the foundation of a modern industrial system, have important roles in supplying input materials for production, create nationally characteristic products with strong competitiveness, ensure economic autonomy, and reduce reliance on foreign countries and external economic developments. They facilitate FDI attraction, reduce deficit, raise labour productivity and increase the value of goods, thus helping efficiently tap domestic resources, develop small and medium-sized enterprise (SME) system, provide more jobs, create national innovation platform, drive rapid and effective economic growth in general and industrial growth in particular.
Vietnam currently has around 1,383 companies engaged in supporting industries (180 companies supply accessories to Samsung Group and 140 supply accessories to Honda Vietnam), mostly rated SMEs. They undertake jobs that require simple downstream processing technologies and produce low added values. They meet 20 - 25 per cent of domestic demand for supporting industries. Only about 20 per cent of companies can join global supply chains and 36 per cent engage in export-oriented production chains. Vietnamese supporting industries are strong in sewing, with the highest localisation ratio of approximately 60 per cent. Yarn, textile and dyeing fail to meet the demand because 80 per cent of fabrics are imported. In 2016, the sector’s input import value halved its export value. The motorcycle industry has a localisation rate of 96 - 97 per cent but steel used to make gear shaft and other items are imported.
The master plan for supporting industry development to 2020 initiated by the Ministry of Industry and Trade (issued on October 8, 2014) adjusted focused orientations on development of supporting industries in three major fields of mould manufacture, casting, metal punching, surface treatment (painting, plating, etc.) to serve parts production, supporting industries for garment and textile industry and supporting industries for high-tech industry, with the aim of raising the local content ratio from less than 50 per cent to 65 per cent in the garment and textile industry, from 40-45 per cent to 75-80 per cent in the leather and footwear industry, and 60 per cent of spare parts for domestic industrial sector.
Especially, on November 3, 2015, the Government promulgated Decree 111/2015/ND-CP on supporting industry development applicable to organisations and individuals in Vietnam, effective from January 1, 2016. The decree replaced the Prime Minister’s Decision 12/2011/QD-TTg dated February 24, 2011 on policy on development of some supporting industries and Decision 1483/QD-TTg dated August 26, 2011 on the list of prioritised supporting industrial products. With this decree, Vietnamese supporting industries developed in both legal status and support contents.
Accordingly, changing from supporting narrow supporting industrial products to supporting broad supporting industrial development activities: Assistance from authorities, organisations and individuals engaged in supporting industries, human resources training, research and development, technology transfer, international cooperation and market development; investing in supporting industrial production; providing supporting industrial services. Supported projects include new investment projects, expanded projects and technological renovation projects with new equipment applied, new production processes and production growth of at least 20 per cent.
Companies are given incentives in land access, land lease and land use according to land laws. In addition, they are granted preferential corporate income tax, import tax, credit access and value added tax. Furthermore, they can lend money from State investment credit funds and Vietnam Environmental Protection Fund for pollution treatment and environmental protection works in their projects and lend short-term loans in Vietnamese dong at foreign credit institutions and bank branches according to interest rate regulations stipulated by the State Bank of Vietnam (SBV). The Government provides State credits and other development policies for nearly 60 products in side supporting industries (seven types of products in the garment and textile industry; seven types of products in the leather and footwear industry; nine types of products in the electronics industry; 16 types of products in the automobile assembly industry; eight types of products of the mechanical engineering industry; eight types of products in the high-tech supporting industries. The Government also partially funds trademark registration, exhibition attendance in Vietnam and in foreign countries, market information approach and service fees from the Supporting Industry Development Programme. The funding is at most 50 per cent for test-production projects with products stated in the list of Development-prioritised Supporting Industrial Products, and at most 75 per cent for technology transfer used in material production projects which use more than 85 per cent of inputs deeply processed in the country. Human resource training facilities in service of supporting industrial production are funded and supported by science, technology and education funds and other funds. Individuals who undertake tasks of the Supporting Industrial Development Programme are prioritised to access higher training in Vietnam and other countries according to State-funded training programmes.
In addition to above preferences and incentives, small and medium-sized enterprises engaged in production of supporting industrial products stated in the list of Development-prioritised Supporting Industrial Products can borrow up to 70 per cent of investment value from credit institutions in the event that they have guarantee of credit guarantee organisations for SMEs if they have security assets for credit institutions equalling 15 per cent of loan value (after all security assets used for other loans are excluded); have at least 20 per cent of owner’s equity fund invested in investment projects after excluding owner’s equity used in other projects; and have no tax debts to the State Budget and no bad debts at credit institutions or other economic organisations.
Thus, with big changes in perception, legality and policy, supporting industries are expected to have a very bright future.
Dr Nguyen Minh Phong