HCM City's Industrialisation and Modernisation

HCM City's Industrialisation and Modernisation

On the 30^th anniversary of national reunification, VIB Forum reporter Truong Cong Ly discussed with Dr. Tran Du Lich, Head of HCM City Institute of Economic, on achievements, opportunities and challenges of the city’s economy.

Could you outline the landmarks of the city’s economic development over the past 30 years?

Though the economy of the city was up and down in the past 30 years it recorded some important developments. In the first 10 years (1975-1985), the city was in the same difficulty of the centrally planned economy of Vietnam. The most important problem was how to ensure enough food for people and materials for production. Ho Chi Minh City drew lessons from those difficult years and contributed to the policy of renovation at the 6^th Party Congress, a turning point in the economic development of Vietnam. On the basis of the Resolution of the 6^th Party Congress in 1979, the city continued the development of five economic sectors. However difficulties remained in the development of the State-owned sector. The city initiated mutual-aid teams, agricultural co-operatives and increased the supply of materials to State-owned enterprises. With three-party planning mechanisms, the city contributed to Resolution 55 of January 21, 1981 which led to the government upgrading the autonomy of State-owned enterprises. It was the foundation for the establishment of small and medium size enterprises in later years. In this period, the economic growth rate of the city was only 3-4 per cent but still leading the country.

The next period was from 1986 to the early 90s. It was the stage of emerging elements and factors of market economy in the form of multi-sector economy. Ho Chi Minh City was leading the country in attracting foreign investment and abolishing the centrally planned economy. The city had in fact developed models of companies prior to 1990, before the enforcement of corporate law. More importantly, the city was the first to develop models of export processing zones and industrial zones, paving the way for the rest of the country. In 1980 the city made up 13 per cent of the GDP of Vietnam and in 2004 this increased to 21 per cent. The economic growth rate of the city is always 1.5 times that of Vietnam’s average. The city accounts for 30 per cent of industrial value, 25 per cent of service turnover, 40 per cent of export value and one third of State revenue. The city has always played its role in the national economy and in the development of neighbouring provinces with supporting services, ports and communications. The city is also leading in poverty reduction and social welfare.

What lessons have been learned?

We have drawn important lessons from economic development in the past 30 years. The city has a large business community and conditions for a market economy. If the conditions are fully exploited, the city and the country can make a big stride forward. The economy of the city is highly dynamic, forging ahead through difficulties and finding suitable forms for development. The private sector continues the lead in the socialisation of health service, education, sports. As the city both produces and consumes, the cycle of money must be accelerated to attain high economic growth rates. In the development of mechanisms for the socialist oriented market economy, most of the experiments in Ho Chi Minh City have been applied nationwide.

What advantages and challenges does the city face during economic integration?

The city takes economic integration as a natural course and has basic advantages especially in human resources with high standards of science and technology and a skilled workforce. The city is the economic centre of South Vietnam and strong in processing industry and services. The business community continues to grow and remains dynamic in business activities. As a matter of fact, in the AFTA process, tax reduction has been applied to 700 products, the city’s business community not only retains market share at home but is also expanding to foreign markets. The local authorities continue to improve the business environment and will soon support training free of charge for managers of small and medium enterprises of all economic sectors.

There remain, however, certain difficulties.  Education and training fail to match the economic restructuring causing a serious shortage of skilled workers in such sectors as electronics, information technology, telecommunications, and garments. Weak management and poor infrastructure have increased the production cost and reduced competitiveness. The economic structure is developing horizontally with low added value. For instance, the agricultural processing industry could not reduce production costs as the materials account for most of its input. While the industrial sector mainly relies on contractual production, the advantages of which are diminishing.

And what is the orientation for the coming years?

The city will focus on developing high quality services for the economy.  Industry will manufacture products of high added value such as machines, electronics, IT, pharmaceuticals and supporting materials for contractual production. The service sector will develop financial, monetary, insurance, accounting and auditing markets. Trade relations will be expanded in the region and around the world. Services will also be upgraded regarding ports, storage, medical treatment, real estate, and training and cooperation with foreign universities. The city will become a major financial centre with head offices of several economic groups of Asia and the world over.

In short, with the pressure of economic integration, the city is focusing its economic restructuring on two goals: high efficiency and competitiveness.