Vietnam Sets Ambitious Goals in New National Industrial Policy but Can It Stay Competitive?
In September 2020, the Vietnamese government issued an action plan implementing Resolution No 23/NQ/TW, which sets out a national industrial policy until 2030 with a vision towards 2045. The resolution was first signed in March 2018.
What are the goals outlined in the policy, and how does Vietnam intend to accomplish these goals? We assess the current status of industrialization in the country, take a closer look at the contents of the national policy and action plan, and identify future opportunities and challenges.
What’s in the new industrial policy?
The action plan to implement the national industrial development policy contains six main goals:
By 2030, the industrial sector will make up over 40 percent of GDP, in which manufacturing and processing industries will account for 30 percent and the manufacturing industry alone account for 20 percent.
The value proportion of high-tech products from the manufacturing and processing industries will reach at least 45 percent.
The added value of industries will increase by over 8.5 percent annually on average, in which the growth rate of added value of manufacturing and processing will be 10 percent.
The average growth rate of labor productivity in the industrial sector will be 7.5 percent.
The Competitiveness Industrial Performance index will be among the top three ASEAN countries.
The workforce in industrial and service sectors will surpass 70 percent.
The action plan also outlines some solutions to achieve the above goals, including the introduction of policies to develop priority industries, create favorable environment for industries, develop businesses and a workforce for the industrial sector, leverage science, technology, and natural resources for industrial development, and clarifying responsibilities and improve the effectiveness of the State and local authorities.
To that regard, the action plan also designates specific responsibilities to different ministries.
With these specific targets, the Vietnamese government aims to speed up the country’s industrialization process.
But where does Vietnam currently stand, and what are its prospects of achieving these objectives?
Assessment of industrialization in Vietnam
From the period of 2006 to 2016, Vietnam climbed 27 positions in the United Nations Industrial Development Organization’s (UNIDO) Competitive Industrial Performance (CIP) Index, which tracks the progress of countries’ manufacturing sector. This significantly narrowed the gap between Vietnam and the top countries in the region:
Singapore, Malaysia, Thailand, Indonesia, and the Philippines.
As such, Vietnam seems well on track to achieve its goal of being among the top three ASEAN countries by 2030.
The targets of Resolution No. 23-NQ/TW focus on three key factors: value-added, exports, and job creation. Thus, subsectors that can contribute the most to the aforementioned factors should be prioritized. Food, textile and footwear, electronics, and automobile are the industries that have the highest competitive advantage, and can immensely benefit from greater research and development (R&D), technical innovation, SME, and start-up support, among many other possible interventions to help the country attain its goals.
However, while the UNIDO’s CIP shows a country’s current manufacturing competitiveness, it does not show their readiness to produce in the future. There are several methods to assess the future trajectory of Vietnam’s industrial development.
Vietnam’s increasing dependence on foreign inputs and services (such as R&D and marketing) for its exports has decreased its trade in value-added (TiVA), which is created locally. According to the Ministry of Industry and Trade (MoIT), Vietnam imports nearly 8 percent of raw materials, spare parts, and components needed for production. Without supporting industries, dependence on material imports will weaken Vietnam’s competitiveness and make it difficult to sustain economic growth.
Local manufacturers have stepped up to become suppliers of multinational corporations in Vietnam, joining their global supply chains. The government has already introduced decisions that prioritize the development of supporting industries in key sectors: electronics and mechanical engineering, garment and textile, leather and footwear, high-tech, and automotive. Tax incentives and other incentives are also available for manufacturers in the aforementioned sectors.
In terms of job creation, Vietnam’s manufacturing boom added millions of jobs in that industry but when compared with the total number of employees in the country, this represents only a 3 percent increase for the share of manufacturing employment.
Low productivity is one of Vietnam’s main challenges. The majority of the workforce is concentrated in labor-intensive industries such as textile and footwear, which are the first sectors to absorb former agricultural workers.
These industries are also highly dependent on FDI and have the high value-added to final stages of production located outside the country at times – thus contributing to a decline in productivity.
The future: Fourth industrial revolution
Though focusing on these tried and true sectors will accelerate industrialization in Vietnam, the country will also need to prepare itself for the advent of Industry 4.0 to stay competitive. Industry 4.0 introduces technologies such as big data, cloud, Internet of Things (IoT), and many more technologies that promise to optimize production processes so that productivity and profits are increased.
The first steps of Vietnam’s “digital revolution” are already underway. Polices on the development of enabling infrastructure, creative capacities, human resources, and priority sectors and technologies are already in place to achieve the country’s ambitions to be among the top Southeast Asian Nations in the Global Innovation Index (GII) ranking. In 2019, the Ministry of Planning and Investment (MPI) released the draft national strategy on Industry 4.0 and developed a national program to transform Vietnam into a digital society by the next decade.
There is a consensus among government, industry players, and intellectuals on the benefits and opportunities of Industry 4.0. Experts stress the importance of having a coherent strategy and the need for collaboration in order to create an ecosystem that supports the creation of advanced technologies.
Coordination across ministries and between private and public sectors is especially crucial when dealing with the inevitable challenges that will arise with Industry 4.0 adoption, such as labor displacement and cybersecurity issues.
This article was first published by Vietnam Briefing, which is produced by Dezan Shira & Associates.
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