Joining WTO and Globalisation: Challenges are Real, Opportunities are Potential

When Vietnam joins the WTO, most economic sectors will be impacted strongly, but on different levels. In agriculture, an advantage of Vietnam, according to analysis of WTO specialist of the Agriculture Policy Institute of the Ministry of Agriculture and Rural Development, Pham Quang Dieu, the reduction of import tax for some farm products in the short term will not impact much on the local processing industry. However, the market of high-end farm products may be occupied by imported goods.

 

However, according to an international specialist of Oxfam in Vietnam, traditional export items of Vietnam, such as tea, cashew nuts and coffee, will face challenges as their added value remains low and depends much on cheap labour. In the long term, the factor is unsustainable and Vietnam may face more anti-dumping court cases. Furthermore, other products, including maize and sugarcanes will have to cope with hugely subsidised products of the EU and the US. Vietnam will enter an unequal competition when the country’s production level of the products remains poor.

 

In industry, despite the successes in footwear, textile and garment export, Vietnam faces many weaknesses in other industries. Dependent on imported materials, local industries will be impacted in terms of price and partners. The technology and equipment renewal remains slow. The management apparatus of State-owned enterprises is ineffective, resulting in poor competitiveness. Also, anti-dumping court cases of basa catfish, gas lighters and footwear prove an urgent issue – international law-related trade disputes. This is the biggest weakness of Vietnamese enterprises when they further join the global economy.

In banking, the acquisition of stocks of Vietnamese commercial joint stock banks has developed strongly. Investors in the local banks are famous banking and financial groups including HSBC, Dragon Capital, Standard Chartered Bank, ANZ and OCBC... They have quickly become strategic shareholders of the Vietnamese banking and financial sector. At present, the strategic shareholders hold maximally ten per cent of stocks of a local bank. The figure, however, may double when the Government approves a proposal of the State Bank of Vietnam. Foreign investors then will have more opportunities to double their investment in such a potential sector.

 

Apart from small capital scale, some financial norms of local commercial banks are still weak: Assets of each of the State-owned commercial banks are just around VND 100,000 billion (approximately around US$6.5 billion). The figure is just US$40 million for the average total assets of the biggest commercial joint stock bank. Therefore, the safety proportion has yet to reach eight per cent, as stipulated by the international practice.

 

Revenues from services of local banks are very low. Their proportion of profitable assets is very high, but mainly from loans, so risks are big and profits are not high. Local banks are in vicious circle: with low profits, they do not have much money to invest in technology infrastructure, so they will face more difficulties in their activities and cannot attract many good customers and continue to earn low profits.

 

In telecommunication, Vietnamese enterprises are small-sized with constraints in capital and experience, so it will be difficult for them to be compared with strong companies and groups in the world when Vietnam has to open its market.

 

One major difficulty of Vietnam when the country joins WTO is human resources. At present, local enterprises find it hard to recruit good human resources. When Vietnam joins WTO, they will certainly face more difficulties as they cannot compete against foreign investors with attractive policies.

 

Another difficulty is in mechanism and policy. Technology has continuously changes in a modern and synchronous manner. Meanwhile, due to various reasons, local long standing enterprises have asynchronous technology.

 

Despite many disadvantages, Vietnam’s spearhead sectors are making efforts to find their development ways to further integrate into the global economy when the door to WTO opens.

The Ministry of Agriculture and Rural Development has worked out solutions. Accordingly, in the next five years, Vietnamese agriculture will concentrate on improving effectiveness and rural development alongside administrative reform. Rural enterprises and craft villages are also a focus of attention. Also, the investment environment in rural areas will be improved to boost the development of small and medium-sized enterprises.

 

In industry, those industries which have been found it difficult to compete during international integration, such as mechanics and metallurgy, have been ready for fierce challenges in local and foreign markets. Lam Chi Quang, president of the Vietnam Engine and Agricultural Machine Corporation (VEAM), said in a firm voice that VEAM’s mechanic products, including diesel engines, rubber rollers, and grillers had found a foothold in the market and competed fiercely against Chinese products of the same kind.

Evaluating competitiveness of local industrial products, Dr Pham Van Liem, deputy head of the Industrial Policy Research Institute, the Ministry of Industry, said that textile, garment, footwear and woodwork were items of the highest competitiveness of Vietnam as they had occupied some export markets, despite having quotas imposed.

 

Another advantage of Vietnamese industry is to manufacture metal structure and ships with the shipbuilding industry being an outstanding example. Thanks to ability to occupy parts of the market for ships of specific purposes and small sized ships, and large-sized ships with simple technology and many labourers, the shipbuilding industry still has a foot hold, winning many orders until 2008.

 

In an effort to build capacity during international integration in 2006, local commercial banks have increased their charter capital. VND 1,000 billion in charter capital is a target of many local commercial joint stock banks in their capital increase roadmap throughout 2010. ACB was the first bank to increase its charter capital from VND 948.32 billion to VND 1,100 billion. Recently, the Saigon Commercial Joint stock Bank (Sacombank) listed stocks in the stock market, which are valued at thousands of Vietnam dong.

 

Alongside the large scale of capital increase, local banks have upgraded and modernised technology. Four State-owned commercial banks have completed their modernisation programmes with the support of the World Bank. Local commercial joint stock banks, according to their capacity, have striven to meet the modernisation requirement, despite limited budgets.

 

The local telecommunication sector has witnessed a strong development with a removal of monopoly in supplying services and the creation of favourable conditions for new enterprises to be set up. Then, new enterprises have made other breakthrough: Viettel has invested in Cambodia while continuing to develop the local market. EVN Telecom has officially joined the market and is competing with established giants of VNPT.

 

Some other enterprises have concentrated on investing in and developing the new technology of CDMA. Especially, those enterprises have promoted the cut of charges of telephone and Internet services and the development and improvement of quality of value added services.

 

However, telecommunication enterprises will enjoy favourable conditions when Vietnam joins the WTO. At first, they have a motivation to renew their business and management. Also, they have opportunities to expand their markets and access financial and technological resources, as well as management experience from foreign partners.