Latest News 20-12-2011

Industrial zones to shift strategies

The Government plans to tighten management and increase the economic effectiveness of economic zones (EZs), industrial zones (IZs) and industrial clusters (ICs). Legislators hope the new decree would also reduce pollution. Deputy head of the Central Institute for Economic Management (CIEM) Vo Tri Thanh talks about the issue.

The number of enterprises based in IZs, EZs and ICs is still relatively small. Why is that?

I don’t think that’s a major problem. The filling rate is noteworthy but does not necessarily reflect effectiveness. We should pay attention to the relative geographical advantages of each zone. Production networks and value chains including input, output and markets are obviously also important. The association is not only concerned with competition but also production, business efficiency and education and training. IZ, EZ and IC development will not be effective unless we connect all these factors. This is more important than the filling rate. We cannot be effective if we do not make use of our comparative advantages.

The Ministry of Planning and Investment has proposed that the Government suspend granting licences for IZs, EZs and ICs under the old model. What would a new model look like?

This is a provisional solution. It shows that we have recognised the problem of rampant development, a lack of association with production networks, value chains and suitable Government intervention policies. We must review and rethink what we want from these zones. However, there are a number of mechanics IZs that were built under the new model and which take into account production, business performance and education and training, such as electronics IZs in northern Bac Ninh Province and mechanics IZs in Ha Noi and northern Hai Duong Province.

Do you mean that we have to convert gradually from the old to the new?

It is not difficult to establish IZs under the new model. As I’ve said, we have already set up a number of IZs like this. We need to continue to minimise waste to help the new model develop. We should design policies on training, technology transfer and financial incentives. However, how these policies are applied depends on what level of development the IZ, EZ and IC is at. Support policies applied in the initial period will be different from those applied to a developed zone. In addition, these policies will also depend on governance and interaction between policymakers and those who implement these polices at central and local levels. The design of the new IZ model should also focus on competition.

Support industries in Viet Nam have not been adequaely developed, which has affected export turnover. Why is that?

I don’t think the situation is so desperate. In reality, countries which are in the early stages of development and integration typically take advantage of their cheap labour costs and natural resources. So it is perfectly normal during the development stages for support industries to lag behind. That said, we should now develop policies that encourage the development of support industries. During our integration into the world economy we have focussed on our cheap labour costs and abundant natural resources. We should now pay attention to production networks, value chains, the role of the market and State governance when developing support industries. This will be a decisive factor when moving from the old model to the new one.

We used to think that an IZ should focus on attracting businesses. However, if they focus on production networks, value chains and support industries, firms will come. The Government should also establish policies on education and training, technology transfer, taxation and finance to help this development.

Competitive edge needs sharpening

Vietnam’s industrial competitiveness is improved but the country is still too reliant on labour intensive sectors.

The findings were released last week by the Ministry of Industry and Trade (MoIT) and the United Nations Industrial Development Organization (UNIDO) in the Vietnam Industrial Competitiveness Report 2011 (VICR2011).

The report indicated that Vietnam jumped 14 places in just four years to rank 58th among the 118 countries in the UNIDO’s Competitive Industrial Index, “thus becoming one of the most rapidly improving countries in the world”. The country has also overtaken strong competitors with a long industrialisation tradition such as Egypt, Morocco and Russian, according to the report.

“This is a clear indication that Vietnam is turning into a rising star in the global manufacturing scene and a threat to competitors around the world,” the report noted. It also pointed out that both manufacturing value added (MVA) performance and manufactured export performance in Vietnam had been “impressive”.

MVA skyrocketed from $5.8 billion to $15.4 billion between 2000 and 2009, representing double-digit growth rates in the first and second half of the decade, “a feat that has only been achieved by China and Cambodia in the region”, while manufactured export growth in Vietnam in the last decade even outshined China.

However, whether Vietnam can keep up such impressive MVA growth rates as the absolute value increases remains a question, especially if the country maintains its manufacturing focus on labour intensive goods. The report pointed out that as countries expanded their industrial base, they were unlikely to experience less consistent growth rates.

“Industrial expansion calls for structural change towards more sophisticated industries and not juts a shift from agriculture to manufacturing as has been the case in both Cambodia and Vietnam,” the report suggested.

Vietnam’s trade pattern also raises concerns given the country’s heavy reliance on imports and limited domestic technological content.

Vietnam also has 28 border EZs covering 605,000ha but housing only about 70 foreign-invested projects with total registered capital of $700 million and 500 Vietnamese-backed projects capitalised at $1.93 billion.

A recent inspection conducted by the NA into EZs’ operations showed that investors were facing cumbersome investment procedures, slow site clearance, and underdeveloped infrastructure.

The MPI said the government would call for a halt in the establishment of new industrial zones (IZs) and industrial clusters (ICs) to focus on developing established zones over the next few years. The government would also review all approved IZs, ICs and EZs. Inefficient zones will be shut down.

The government’s move is a response to the public concerns over the massive establishment of IPs and ICs. The NA’s Economic Committee reported that Vietnam had 267 IZs covering 72,000 hectares with an occupancy rate of 45.6 per cent. Nearly 7,000 projects have registered in the zones but only 32 per cent of their commited capital had been disbursed.

Vietnam plans to raise the number of IPs to 547 with a total combined size of 200,000ha by 2020. “This issue needs to be re-considered seriously, because 90 of the existing 267 IPs are now either under site clearance or remain on paper,” said Le Ba Lich, an NA deputy and head of Ho Chi Minh City Economics Institute.

The MPI said the government would amend Decree 29/2008/ND-CP dated March 14, 2008 on establishing and managing IZs, export processing zones (EPZs) and EZs. The plan is to place more stringent regulations on conditions and procedures for planning and establishing IZs and EZs.