THE L2C VIETNAM SCOPING PAPER: THE INDUSTRIAL POLICY Content: 1. VIETNAM GROWTH PATTERN 2. THE INDUSTRIAL POLICY 3. MAJOR RESULTS AND ISSUES OF THE INDUSTRIAL POLICY 4. LESSONS LEARNT FROM VIETNAM Nguyen Thi Tue Anh Helsinki, 24-25 June, 2013
1. GROWTH PATTERN GDP growth rate (%) 12.00 10.00 8.00 6.00 4.00 2.00 0.00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: GSO.
The growth of the Industry and construction experienced the highest rate from 1992 to 2007 when Vietnam jointed the WTO, but went down afterwards. Growth rate by sector (%) 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012 Agriculture Industry and construction Service Source: GSO.
Contribution of each sector to GDP (at constant price 1994) 2011 2010 2009 2008 Agriculture 2007 2006 2005 2004 2003 2002 Industry and construction 2001 2000 1999 1998 1997 1996 Service 1995 1994 1993 1992 1991 1990 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: GSO.
Contribution of each sector to GDP growth rate Agriculture Industry and Construction Service 2012 8.7 37.6 53.7 2011 11.2 39.4 49.4 2010 6.9 47.2 45.9 2009 6.0 43.0 50.9 2008 14.3 37.6 48.2 2001 10.1 53.4 36.5 1995 13.8 41.2 45.0 1991 11.9 33.4 54.7 Source: GSO.
2. THE INDUSTRIAL POLICY The institutional and regulatory framework for the industrial policy are governed and implemented in the three levels: • Ten- year socio-economic development strategy (SEDS: 1991-2000; 2001-2010 and 2011-2020) approved by the National Party Congress. • Five- year socio-economic development plan (SEDP), approved by the National Assembly. • Sectoral strategies and master plans approved by the Government.
Vietnam Industrial Policy from 1991- now Objectives of the Industrial policy 1991-1995: Development of the key sectors, including: + Heavy industry (cement, steel, automobile), mainly for domestic consumption and natural resource –based industries (oil exploitation and mining). + Foodstuff industries, mainly for domestic consumption. + Gradually encouraging export of manufactured labour- intensive products. 1996-2000 : continued the objectives in the previous period, but more export-oriented: + Expanding the manufacturing and processing labour- intensive industries, mostly for export (textiles and garments, shoes and leather products, and seafood etc).
Objectives of the Industrial policy 2001-2005 : Following the objectives in the previous period, but more export-oriented and with an expansion of manufacturing sector towards high-tech industries such as electronics etc. while still maintaining the labour-intensive sectors. 2006-2010 : continued by the previous, but with the prioritty of boosting the economic structural change towards industrialisation and modernisation; more export-oriented to take advantage of the WTO accession in 2007.
Key instruments of the industrial policy 1991-1995: + Protectionism for the key industries through import/export duties and export subsidies. + Implementation of the Law on Foreign Investment enacted in 1988 to attract FDI and the Law on company and private enterprises enacted in 1992. 1996-2000: + 5 years Public Investment Program to attract investment for development of physical infrastructure; + Equitization of State-owned enterprises (SOEs) and building of State General Corporations to enhance the competitiveness of the SOE sector which were the main beneficiaries of the protectionism policy. + Development of IZs, EPZs; ..to provide production estates and simplify investment-related administration procedures for doing business; attract FDI and private investment for industrial and export production. + Loosening conditions for export activities after entering ASEAN and implementing AFTA commitments.
2001-2005: Following the same instruments in the previous period, but: + Stronger trade liberalisation, mostly driven by Vietnam-USA BTA since 2001. + Specify many manufacturing key industries + Acceleration of equitization of State-owned enterprises (SOEs) to cope with the WTO accession. 2006-2010: + Trade liberalisation, mostly driven by the accession to WTO and stronger Investment liberalisation, mostly driven by the unified Law on Investment and Law on Enterprise passed in 2005. + Building of State Economic Groups to enhance the competitiveness of the SOE sector. + Build high-Tech zones; Economic Zones/open ecoconomic zones to provide more prioritized incentives to attract investment; + Provide tax Incentives, Investment allowance etc. for technology renovation, developement of high technologies, promotion of technology transfer via foreign investment (Law on Technology transfer; Law on high technology).
The current Industrial Policy • Context: – Full implementation of AFTA in 2018; After WTO accession: much smaller room for administrative policy intervention. – SEDS 2011-2020: aims to develop a modern industrialized economy by 2020 with some targets: + Industry and services shall account for 85% GDP; + Hi-tech products and those using high-tech products account for 45% GDP; + Manuf. shall contribute 40% to industrial output .
- Objectives: Improving the industrial competitiveness towards expanding high – tech industries and high – value added products ; improving the competitiveness of the domestic firms, incl. SOEs and private ones. + Export-oriented towards products with higher value-added - Key Instruments: + Restructuring industrial production towards increasing technology and local content; creating linkages in regional and global production network. + Restructuring SOEs, focusing on State economic Groups, started since 2011. + Give more incentives to build supporting industries; + Adjustment of FDI policy to attract investment with more technological content and to develop environment friendly industries. + Financial incentives; tax incentives etc. - Results: on-going process; some are not yet approved.
3. Major Results of the industrial policy + High growth rate of the industrial value added; + Rapid expansion of the manufacturing sector; + Important role in attracting FDI. + Important contribution to export performance. + Promote the shift of industrial production towards the non-state sector (FDI and private). + Promote the shift in export structure towards the manufactured goods.
Foreign Direct Investment in the period 1988-2012 (in Million USD) Source: GSO.
Export and Import (Bill. USD) 100,0 80,0 84,8 80,7 69,9 72,2 60,0 62,8 62,7 51,7 48,6 40,0 44,9 36,8 39,8 32,4 20,0 0,0 -4,4 -5,1 -12,6 -14,2 -12,8 -20,0 -18,0 2005 2006 2007 2008 2009 2010 Export Import Balance Source: GSO.
Shift in industrial output structure by ownership 100% 80% 35.3 35.4 35.8 36.0 37.3 38.3 39.2 40.3 40.9 42.0 60% 23.6 24.3 25.7 26.9 28.8 31.1 33.2 40% 34.9 35.7 35.9 20% 41.1 40.3 38.6 37.0 33.9 30.7 27.6 24.9 23.5 22.1 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 State Non-State FIEs Source: GSO.
Shift in export structure towards processed products 80.0 70.0 60.0 Primary or semi- 50.0 processed products 40.0 Processed 30.0 Others 20.0 10.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: GSO.
Shift in export structure 100% Others 90% 80% Sea food 70% 60% 50% Agricultural 40% 30% Light industries and handy 20% craft 10% Heavy and mining products 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: GSO.
Major Issues - The industry sector tends to grow with a declining rate since 2008, mostly due to the slowdown of the manufacturing sector. - The Industrial production depends increasingly on the Foreign Investment sector. - The shift into industries with higher technological content and product with higher value added has been in stagnation. - Export performance depends increasingly on the Foreign Investment sector. Key export products were still labour-intensive or natural resource- intensive (electronics and computer; textile; coal; crude oil; electric wire and cable..). - Inefficient SOE sector, incl. State Economic Groups in industrial production: currently under restructuring plan. Similarly, unclear improvement of the private sector is observed in terms of technology renovation, business scale and productivity.
4. Lessons learnt from Vietnam Industrial Policy - Ambitious objectives; too many leading/key industries picked up for the period 2010-2020; many sector specific strategies and master plans; but with unclear vision, insufficient instruments and lack of realizable action plans. - Lacks a well-coordinated framework for industrial policy ( trade policy, investment incentives; monetary and fiscal policy, technology-related policies etc.). - Lacks of a well-coordinated implementation between central and provincial level, leading to the late adjustment of the objectives and instruments of the IP (many IZs with low coverage rate; competition for FDI among provinces…).
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