Challenges of Supporting Industry

Vietnam’s current policies can hardly help develop supporting industry in general, and six priority sectors in particular including electronics, automotive, agricultural machinery, agricultural and fishery processing, shipbuilding, environment and energy savings, said economic expert Dr Vu Dinh Anh.

 

For years, there have been many conferences on the development of supporting industries, but very few changes have been made. According to Dr Anh, general policies are regarded as "not enough impetus". While the Prime Minister has prescribed special incentives (granted on the basis of results of the Council's evaluation); so far, it is unclear that there is any mechanism submitted and approved by the Prime Minister for implementation.

 

Developing a supporting industry and promoting linkage among domestic enterprises and foreign-invested enterprises pose a real challenge for countries, even ones with stronger financial resources and higher level of development than Vietnam.

 

Each industry needs different support. The supports for the shipbuilding industry may not be like those for agro-forestry and fisheries.

 

According to Ms Nguyen Thi Tue Anh, Deputy Director of the Central Institute for Economic Management (CIEM), through research on experiences of three countries in ASEAN including Singapore, Malaysia and Thailand, only Singapore succeeded in implementing effective policies for supporting industry. In terms of finance, each business under the programme is allowed to borrow up to SGD$15 million, buy machinery and equipment at preferential interest rates and get financial assistance to hire experts and consultants.

 

Malaysia launched similar programmes in 1988, 2 years after the programme of Singapore; getting started with the automotive industry, and then expanding to other industries like electronics, construction materials and ship-building, but the results are not as expected. Specifically, the domestic suppliers of the country are only capable of providing low-tech intermediate products. After 7 years of implementation, only 18 enterprises signed sales contracts with foreign corporations under the supporting programmes. The localisation rate after 10 years of implementation of automotive and electronics was only 30 percent and 10 percent, respectively.

 

In Thailand, the situation is not satisfactory, either. The linkage between domestic enterprises and major foreign corporations is still weak; the development agencies tend to create linkage in the services sector rather than encouraging linkages.

 

Many policies expose weaknesses; however, the researchers point out that each industry needs different supports. The supports for shipbuilding are surely different from the development of agro-forestry and fisheries.

 

What do enterprises need? On behalf of the electronics industry, Ms Do Thi Thuy Huong, member of the Executive Board of Vietnam Electronics Business Association, gave some specific preferences, along with general preferences, which should be proposed by the investors of the industry to the Evaluation Council and to the Prime Minister for approval. According to Ms Huong, so far, only Kyocera, a Japanese company, is eligible for this preference. The development of business incubators and clusters and industrial zones that reach out to targeted groups and supports for training of human resources are very important for electronic enterprises.

 

Sharing similar proposals with Ms Huong, Vu Minh Phu, a representative of the Shipbuilding Industry Corporation (SBIC), stressed the necessity for a national standard set of products in the shipbuilding industry; besides, the government should give grants to the corporation to do research and implement the projects.

 

According to Mr Vu Tan Cong, Secretary of Vietnam Automobile Manufacturers Association, also made a very specific proposal that the establishment of industrial clusters near the port will facilitate import and export activities and distribution of automotive components for domestic manufacturers; the clusters should be respectively located in Haiphong, Quang Nam and Da Nang, and in Dong Nai, Ho Chi Minh City and Binh Duong. Regarding the tax policy group, Mr Cong said that it is important to ensure fairness in calculating the excise tax between the domestic CKD automobile manufacturers and CBU auto importers, and support a part of costs for automobile manufacturers. Due to the low volume, the domestic automotive production costs 20 percent more than that of other ASEAN countries, said Mr Cong.

 

It sounds strange but this is perfectly reasonable as proposed by Nguyen Manh Dung, the representative of Department of Agro-forestry, Aquaculture and Salt Production under Ministry of Agriculture and Rural Development. According to Mr Dung, some industries such as engineering, high precision manufacturing, mechatronics, especially automated processing of agricultural products, industrial refrigeration and heat transfer, and industrial packaging are extremely important for agricultural and aquaculture processing. Besides, logistics has a major impact on the efficiency of processing agricultural and aquaculture products.

Mr Dung also added that the Government should encourage more investors to invest in this field.

 

Finally, it is necessary to enhance government management capacity to ensure that businesses could compete fairly and create driving force for the market.