22.10.2020, 23:03

Vietnam has ambitious goals in its new national industrial policy. Can it stay competitive?

The new Vietnamese industrial policy, Resolution No. 23-NQ /TW, outlines major goals and solutions to promote industrialization in Vietnam, particularly with the aim of being among the leading ASEAN economies in terms of industrial competitiveness.

If one looks at the currently most efficient industries, Vietnam is well on the way to achieving its goals.

However, more needs to be done if the country is to remain competitive in the future, especially with the advent of Industry 4.0.

In September 2020 the Vietnamese government issued an action plan for the implementation of Resolution No. 23 /NQ /TW, which provides for a national industrial policy by 2030 with a vision by 2045. The resolution was first signed in March 2018.

What are the goals outlined in the policy and how does Vietnam intend to achieve these goals? We assess the current state of industrialization in the country, take a closer look at the content of the national policy and the action plan and identify future opportunities and challenges.

What is in the new industrial policy?

The action plan for the implementation of the national industrial development policy contains six main objectives:

By 2030 the industrial sector will account for more than 40 percent of GDP, with manufacturing accounting for 30 percent and manufacturing alone for 20 percent.
The value share of high-tech products from the manufacturing industry will reach at least 45 percent.
The added value of the industries will increase annually by an average of over 8.5 percent, whereby the growth rate of the added value of the manufacturing and processing industry will amount to 10 percent.
The average labor productivity growth rate in the industrial sector will be 7.5 percent.
The Industrial Competitiveness Index will be among the top three ASEAN countries.
The workforce in the industrial and service sectors will exceed 70 percent.

The action plan also outlines some solutions to achieve the above goals, including the establishment of a policy to develop priority industries, create a favorable environment for industry, develop business and workforce for the industrial sector, harness science, technology and natural resources for industrial development and for clarifying responsibilities and improving the effectiveness of the state and local authorities.

In this regard, the action plan also defines specific responsibilities for different ministries.

With these specific goals, the Vietnamese government wants to accelerate the country's industrialization process

But where does Vietnam stand today and what are its prospects for achieving these goals?

Assessment of industrialization in Vietnam

From 2006 to 2016 Vietnam climbed 27 places on the United Nations Industrial Development Organization (UNIDO) Index of Competitive Industrial Performance (CIP), which tracks the progress of countries' manufacturing industries. This significantly narrowed the gap between Vietnam and the leading countries in the region: Singapore, Malaysia, Thailand, Indonesia and the Philippines.

Vietnam seems to be well on the way to achieving its goal of being one of the three leading ASEAN countries by 2030.

The objectives of Resolution No. 23-NQ /TW focus on three key factors: value creation, exports and job creation. Therefore, priority should be given to the subsectors that can most contribute to the above factors. Food, textiles and footwear, electronics and automotive are the industries with the highest competitive advantage and can benefit immensely from greater research and development (R&D), technical innovation, SMEs and start-up support, among many other possible measures to help the country able to achieve its goals.

The UNIDO CIP shows the current competitiveness of a country in the field of production, but not its willingness to continue producing in the future. There are various methods of assessing the future course of Vietnam's industrial development.

Vietnam's increasing reliance on foreign inputs and services (such as R&D and marketing) for its exports has reduced the value-added trade (TiVA) that is created locally. According to the Ministry of Industry and Trade (MoIT), Vietnam imports almost 8 percent of the raw materials, spare parts and components required for production. Without supporting industries, reliance on imported materials will weaken Vietnam's competitiveness and make it difficult to sustain economic growth.

Local manufacturers have developed into suppliers to multinational corporations in Vietnam who join their global supply chains. The government has already made decisions that prioritize the development of supporting industries in key sectors: electronics and engineering, clothing and textiles, 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, the Vietnamese manufacturing boom has created millions of jobs in the industry, but compared to the total number of employees in the country, that represents only a 3 percent increase in the share of manufacturing employment.

Low productivity is one of Vietnam's greatest challenges. The majority of the labor force is concentrated in labor-intensive industries such as textiles and footwear, which are the first sectors to take in former farm workers. These industries are also highly dependent on foreign direct investment and have high added value in the last stages of production, which are temporarily outside the country - which contributes to a decline in productivity.

The future: Industry 40

Although focusing on these proven and true sectors will accelerate industrialization in Vietnam, the country must also prepare for Industry 4.0 adoption in order to remain competitive. Industry 4.0 introduces technologies such as Big Data, Cloud, Internet of Things (IoT) and many other technologies that promise to optimize production processes so that productivity and profits are increased.

The first steps of the “digital revolution” in Vietnam are already underway. Measures have already been taken to develop high-performance infrastructure, creative capacities, human resources, and priority sectors and technologies in order to realize the country's ambitions to be among the leading Southeast Asian nations in the Global Innovation Index (GII) ranking. In 2019 the Ministry of Planning and Investment (MPI) published the draft national strategy for 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 about the advantages and possibilities of Industry 4.0. Experts stress the importance of a unified strategy and the need for collaboration to create an ecosystem that supports the creation of advanced technologies.

Coordination between ministries and between the private and public sectors is particularly important when it comes to the inevitable challenges that will arise with the introduction of Industry 4.0 such as Job relocations and cybersecurity issues.