Vietnam's Southern Economic Region: Three Challenges, One Risk during Int'l Integration

The key southern economic region, Ho Chi Minh City, on the verge of in-depth international economic integration. Vietnam’s accession to the World Trade Organisation (WTO) will certainly impact the country’s economic life. How will the key southern region alone, the most economically dynamic region in the country, be impacted by the country’s international integration? On the occasion of this New Year of the Pig, director of the Ho Chi Minh City Economic Institute PhD Tran Du Lich, talked to Vietnam Business Forum about the issue.

 

Before talking about the region’s opportunities, it is necessary to understand its features, The region has an area of more than 30,000 square kilometres, accounting for 9.2 per cent of the whole country’s area, and a population of 14.7 million, equal to 17.7 per cent of the whole country’s population. Its GDP accounts for around 40 per cent of national GDP, and its per capita GDP is VND 22 million per annum, or 2.4 times the average figure of the whole country. Export turnover of the region accounts for 74 per cent of the whole country’s export value, with an average annual increase of 21.4 per cent over the last five years. Therefore, the region plays an important role as a driving force for the country’s economic development.

 

During the country’s international integration, the region will have opportunities to attract foreign direct investment (FDI) and expand its export activities based on Vietnam’s WTO membership. Even during the period when Vietnam was not yet a WTO member, the key southern economic region was a leader in Vietnam in terms of FDI attraction and export market development. From 2001 to 2005, the region’s investment capital accounted for 31.4 per cent of the whole country’s figure. In terms of FDI alone, from 1988 to 2005, the region attracted 4,650 projects with a total registered investment capital of around US$37 billion, equal to 65 per cent of the whole country’s number of projects, and 56 per cent of national investment capital. Within the region, localities such as Ho Chi Minh City, Binh Duong, Dong Nai and Ba Ria-Vung Tau provinces are outstanding in FDI attraction. The key southern economic region has per capita export value 5.5 times the whole country’s average figure, reaching US$1,633. Its non-oil export value is 3.8 times higher than the country’s average figure. We predict that, with a GDP growth rate of between 12 and 13 per cent per year in the next 15 years, the region will gain an export turnover growth rate of more than 20 per cent per year.

 

The opening of the Vietnamese financial market, as committed by the country for WTO accession, will facilitate FDI and foreign indirect investment capital inflow for the region, especially in the region’s financial centre, Ho Chi Minh City. At the same time, a roadmap for lifting the cap for foreign investor stakes will boost foreign investment inflow. This, in turn, will encourage expanded domestic investment in the coming years. The role of the capital market has become more evident in the Vietnamese economy.

 

The region now faces three challenges, and one risk. The first challenge is in the region’s technical infrastructure facilities. So far, internal road systems, in particular the system linking the seaport complex N⁰ 5 and industrial parks and residential areas, remain poor. Even though the region now has 66 industrial parks and export processing zones, 46 of which are operational - accounting for around 71 per cent of total area of industrial parks in three key economic regions with an occupancy of 73 per cent - the planning of road systems linking the industrial parks has yet to meet the development of the region.

 

The second challenge is in human resource development. Most localities have not combined the development of industrial parks and economic restructuring with plans and programmes on human resources development or labour restructuring. As a result, up to 70 to 80 per cent of workers in local industrial parks and export processing zones come from other localities. Local people have yet to receive the training to successfully transition from an agricultural to a non-agricultural economy. The region’s labour market is always imbalanced, as demand and supply do not match. This is a challenge for local enterprises, especially those wanting to increase added value and technological concentration in their products and services.

 

The third challenge is in the opening of the service market, especially the financial market, where value added services in telecommunication and local commerce will create difficulties for local enterprises. This is because most enterprises operate with low added value, assembling or implementing subcontracts without having mastered the high added value components, including research, design, accessories manufacturing, production management and distribution. As a result, Vietnamese enterprises are dependent on foreign groups.

 

At the same time, a high economic growth rate will create a risk for damaging the environment. The price for rapid growth is high if environmental issues are not given proper attention. 

 

So far, the development of industrial parks in the region has resulted from dynamism and creativity in each locality, without a general co-ordinating mechanism. Consequently, emerging issues have not been settled comprehensively for the region to tap its general potential. It, therefore, is necessary for the region to have a co-ordination mechanism for its general development, in particular a master plan for a regional industrial corridor in combination with the Ho Chi Minh City service centre.

Another issue is the planning of human resources, in particular high quality human resources will be given careful attention. Accordingly, the education and training system should be adjusted coordination with socio-economic development master plans of the region as a whole and each locality in particular. At the same time, experts should be trained for the region, with a focus on post-graduate training. Also, there should be plans for boosting education and training, thus helping improve the knowledge and skills of local entrepreneurs. It is necessary to promote co-operation between Ho Chi Minh City National University and localities to provide training programmes meeting local demand. Furthermore, the region should have a national centre for scientific and technological research and transfer. A system for information exchange among local scientists should be developed to avoid overlapping. To overcome the challenge, various resources should be mobilised for investment in education.

 

Localities should co-operate to cope with the risk of environmental pollution. Accordingly, a regional master plan for water supply and drainage, especially urban areas and areas with industrial parks and export processing zones, should be developed and reviewed. Water drainage and waste water treatment facilities should be upgraded to help urban areas, Ho Chi Minh City in particular, avoid flooding. It is necessary to study the building of waste treatment plants in suitable locations within the region. Co-operation should be promoted between Ho Chi Minh City and Dong Nai, Binh Duong and Binh Phuoc provinces, as well as the management boards of Tri An and Dau Tieng lakes, in regulating water supply for plants using water from the Saigon and Dong Nai rivers, and preventing floods and environmental pollution in nearby areas. Mechanisms and resources for supervising and improving awareness of the community about waste management, in particular pollution causing units and waste treatment facilities, should be boosted. A system of environmental fees should be applied to encourage organisations to minimise the disposal of dangerous wastes. Localities within the region should co-operate with each other when considering projects which may produce impacts on the environment.