As the industrial sector assumes a crucial position in the process of economic development, the results generated by the political line of renovation of the industrial sector are highly important. In particular:
1. In spite of various difficulties, many advances the industrial sector created preconditions for its further development.
During the years 1990-1994 the average annual growth rate of industrial production was 12.3 percent (Figure 1). This gain lead to a shift in the economic structure as the proportion of industry and construction in GDP increased from 22.6 percent in 1990 to 29.6 percent in 1994 (Figure 2). The technological and technical composition of different economic sectors and branches has also recorded significant changes, though not as profound as the shift in composition of GDP. Technological innovation has become a pressing requirement for the national economy. Some advanced technologies have been introduced and applied, such as information technology and electronics.
Some economically meaningful industrial products have shown high growth rates. Electricity, crude oil, cement, fertilizers, as well as some exportable consumer goods and products of food industry, are included among these.
The industrial enterprises and production establishments have paid more attention to the quality and design of their products. They have shown more initiative and flexibility in adjusting to the market requirements. This is just due to the fact that the previous support in form of state subsidies was abolished and all the businesses then faced a more competitive environment.
2. In the industrial sector, various economic components have been assisted to develop in conformity with the interests of the nation and of the businessmen themselves.
The state-owned industrial enterprises have been rearranged and consolidated in the spirit of rationalization and effectiveness so that the public sector would in fact maintain a leading role in the development process. Many enterprises that found themselves in trouble in the first months under the new management mechanism have now "risen up" and recorded better results.
The non-state industries have been promoted, particularly in processing agro-products, and in producing consumer goods and handicrafts.
By the end of 1994, in the processing industry alone, there were already 8,866 establishments licensed. Among them, 58 percent were registered as private enterprises and another 17 percent as companies of limited liability. Additionally, as for the small and handicraft industries, there were 5,287 cooperatives and more than 450,000 private households involved in production activities.
Figure 1: AVERAGE ANNUAL GROWTH RATE OF INDUSTRIES
IN 1990 - 1994 (%, IN PRICE OF 1994)
Figure 2: STRUCTURE OF INDUSTRY IN 1994 (%)
3. External economic relations have further developed. Foreign direct investments (FDI) in general and investments into the industrial sector in particular have shown a rapidly increasing trend.
In recent years, the export volume has recorded an average annual growth rate of 20 percent of which the industrial sector shares an important part, accounting for over 50 percent of the country's total export volume.
The registered capital of FDI projects so far licensed accounts for approximately 18 billion USD. If projects in the field of oil and gas are included the industrial sector share would account for more than 60 percent of FDI. The joint-ventures constitute the principal form, accounting for more than 65 percent of FDI projects. The investment activities are now territorially distributed through more regions.
Six export-processing zones (EPZ) have been granted licenses. Some of them have already been put into operation, absorbing several industrial enterprises, whose products are destined for export. An integral process of elaborating master plans for industrial estates is just being undertaken, conformably with the infrastructure facilities development and urbanization plans. Some industrial estates are now already under construction. These measures aim at generating a favorable environment to attract investments, both domestic and foreign, into the industrial sector, particularly into export-oriented industrial branches.
There are several problems to be addressed in industrial development:
a/ The industrial sector still has only small productive capacity, incapable of generating by itself the necessary resources for re-investment. It's ability to re-equip the national economy, in particular, its ability to support agricultural production and the rural economy, still appears to be negligible.
The manpower engaged in the industrial sector accounts for only about 11 percent of the total labour force, whilst agriculture still absorbs the largest part of the labor force, i.e., more than 72 percent.
b/ The industrial structure has slowly changed. In the recent period, the growth in industrial production has principally resulted from mining, while the proportion of growth from manufacturing branches has been small. Industrial products for export mainly composed raw materials with little preliminary processing. Machinery engineering and electronics were only at the beginning of their evolution and primarily consist of assembling in the CKD mode. The development scope of industrial branches serving agriculture, both for its input and for its output, was still limited: the value of processed agro-products accounted only for about 30 percent, and the level of mechanization in agricultural production was still low.
c/ Though the economy began to generate its internal capital resources, such resources are still small and scattered, hence the investments for development still depend on various external sources. In this context, for the immediate years, there still remain difficulties that hinder an active and innovative restructuring of the industrial sector.
d/ The low technological level of manufacturing usually implies high norms of material spending in production units, low productivity of labor, and low quality of manufactured products. This fact requires large investments in order to undertake technological innovation to improve the competitiveness of industrial products on the market; and at the same time, to generate close linkages between different economic sectors, especially between industry and agriculture aimed at positively restructuring the agricultural production and rural economy in the direction of industrialization and modernization.
e/ The infrastructure is still weak, which inhibits investment, both domestic and FDI, for industrial development.
g/ There are still some state-owned industrial establishments that have not successfully adapted themselves to the new mechanism. They still show poor efficiency. The development of non-state industrial sector still seems to be sluggish.
II. INDUSTRIAL DEVELOPMENT ORIENTATIONS TO THE YEAR 2000.
The long run objective is to develop a relatively comprehensive industrial sector, in order to transform Vietnam from a backward agriculture-based country into an industrialized one. It is hoped to obtain this objective within a period of two decades. This requires creation of an environment in which the industrial sector may develop at a high rate during successive years, so that the national economy can be rapidly restructured in the sense of industrialization and modernization, and early integration into the regional and world economy.
It is important to use the five-year period 1996-2000 to generate preconditions for stronger development in the next decades. During 1996-2000, conditions should be created for the industrial sector to develop at an annual rate of 14-15 percent; meanwhile to keep this rate or to promote a higher rate for after the year 2000.
In this regard, the value added of the industrial sector is expected to reach a figure of 34-35 percent of GDP by the year 2000, and hence, the share of industrial production in GDP will exceed that of the agriculture.
Efforts should be made to advance the process of technical innovation, thus improving the competitiveness of the existing industrial establishments. At the same time, it is desirable to strongly attract domestic and foreign investments to develop the processing and manufacturing industries and natural resources, following a clear orientation to exports or industrial development. Priorities will be given to:
a/ The food processing industry, which is to both satisfy the domestic demand and to meet quality requirements for export promotions. The scales of production and levels of technology should correspond to each locality and each product so that a majority of agro-forestry-fisheries products would be processed, first of all, rice, rubber, coffee, tea, sea products, sugar cane, vegetables and fruits, as well as meats of different kinds.
b/ The consumer goods industry, which is to respond to the internal demand, in substituting for imports, and to effectively serve exports, making full use of comparative advantages in manpower. These branches are principally textiles, garments, leather processing, shoes producing, building materials, fine-arts articles, toys, and household appliances.
c/ Further investigation, exploration, and exploitation of oil and gas. Constructing of a complex for collecting and transporting off-shore gas to borders will be completed. Making an effective use of gas for producing electric power, liquidized gas, nitrogenous fertilizer and to create favorable conditions to early develop an industrial branch producing gas-based chemicals will also be a priority. Construction of the first refinery should be accelerated, and preparations for successive construction of the second refinery should be made.
Forms of cooperation and joint-ventures will be broadened in order to improve the capabilities of the national oil-gas industry in investigation, exploitation, processing and services provision.
d/ It is desirable to reorganize and further consolidate the mechanical engineering industry so that it will become a key branch, capable of providing other production branches with a major part of necessary equipment and instruments.
Domestic production and importation should be combined to assure the supply of equipment, firstly equipment for the agro-processing industry, transport means, and spare parts. Efforts should be made to develop branches for building and repairing marine vessels, assembling and manufacturing cars, motorbikes, electrical appliances, etc.
e/ The electronics and information technology industry should be promoted. For the immediate time it should produce selected accessories, and assemble equipment for civil and industrial electronics, informatics, and communications equipment. Steps should be taken to widen computer-based services, especially to develop application software packages for different domains of scientific research, production, and daily life.
g/ Bases of heavy industry should be built in targeted fields, where there are urgent requirements and where there exist adequate conditions on capital, technology, and consumption markets in the sense that the establishments in question would rapidly show their effectiveness and positive influence.
h/ Strong development of the export-led industries is desirable, particularly manufacturing branches, thus facilitating a fast, sustainable, and effective growth of the national economy. At the same time, it is indispensable to adequately stress manufacturing for the internal market. The Government should only introduce measures of protection that have a suitable degree of protection and a time limit so that prospective domestic industrial products gradually improve their competitiveness.
There are different policies and measures should be taken in order to encourage the industrial development. Some important policies are as follow:
* To bring into full play combined forces of different economic components to promote the industrial development. To renovate and further consolidate state-owned enterprises in the direction of improving their efficiency so that they could properly deserve their leading role. To create favorable conditions and a legal environment in order that the private sector would feel assured to make long term investments in productive enterprises. To encourage the private capitalist economic component in making its investments into production activities. It is necessary to properly protect the legitimate property ownership and private interests. To widen forms of cooperation, integration and joint venturing between the public economic sector and the private sector, both domestic and foreign.
* Small-and medium-scale enterprises have played and will still play an increasingly important role in the national economic development. With their inherent advantages, enterprises of this kind are capable of resolving numerous problems that large-scale enterprises are hardly able to do, such as generating employment opportunities, promoting rural development, justice and stability, and the like. In this regard, the Government should adopt proper and effective supporting policy measures.
* It is crucial to upgrade, rehabilitate and newly construct (with suitable prioritization) the economic infrastructure, first tackling the most congested and weakest links that still impede the development course.
To rehabilitate and consolidate existing industrial estates in terms of infrastructure facilities and production technology. Resources should be mobilized to build several industrial estates, allocated largely to the different focal economic regions. The development of industrial estates should be kept in parallel with the development of infrastructure facilities and rational urbanization.
III. GEOGRAPHICAL ALLOCATION OF INDUSTRIAL PRODUCTION
One of the most important issues is to pay special attention to anequal development of different territorial regions. The objective of so allocating industrial production is to step-by-step bring about such equal development.
1. Concerning the currently existing industrial estates and complexes:
Based on the overall master plan, it is necessary to examine possibilities of expansion and/or improvement following the directions listed below:
- In case of complexes which are situated deeply in the urban interior, next to populous residential quarters, there will be mainly in-depth investments, aimed at technological upgrading and modernization, as well as resolving the problem of environmental pollution. It is necessary to move or even demolish those plants that prove to be too old, or to cause heavily poisonous pollution.
- As for the complexes which are placed far from the urban centers and have adequate land area, it is supposed to improve the technical infrastructure, to revise the master plan in terms to use their land more intensively, and setting out their investment direction so to effectively attract investments.
In any case, it is indispensable to attach a master plan of industrial estates and complexes to that of urbanization development.
2. Concerning new industrial estates:
Elaboration of the nation-wide overall master plan is required in order to specify alternatives for allocation of industrial production, while attaching a master plan of industrial development to these of infrastructure and urbanization development. Locations with better conditions for earlier development (during next 10-15 years) should be chosen in order to lay the foundation for more detailed programming. In these locations some integral conditions should be guaranteed, namely, electricity and water supply, drainage, and transportation.
In the immediate time, to promote a rapid general economic development, stress should be given to areas which have more convenient background in terms of infrastructure, material supply, consumption market, and which prove to be more attractive for investors, both domestic and foreign. These areas are currently the 3 focal economic zones: the triangle of Hanoi - Haiphong - Halong; the triangle of Ho Chi Minh City - Bien Hoa - Vung Tau; and the central region of Lien Chieu - Dung Quat.
As for non-focal zones, it is reasonable to consolidate the currently available industrial production units and complexes under the form of in-depth investments, technological rehabilitation and innovation. New industrial complexes could be established for those localities that have favorable conditions.
As for areas surrounding the focal zones, it is required to establish relations of cooperation, integration, and interaction with the latter within their process of industrial development. It is possible to create a kind of "supportive" industrial production, "satellite or peripheral" industrial complexes, in absorbing production units released from large cities.
As for mountainous regions, the Central highlands are now still facing numerous infrastructure difficulties, that obviously hinder their industrial development. In this regard, special attention should be paid to the problem of infrastructure facilities, particularly roads, hence facilitating an eventual growth of industrial production and complexes in the future. For the immediate time, it is desirable to develop small-scale industrial formations in different towns and townships; principally processing industries linked with agriculture and forestry, and to construct small-size hydro-power stations.
It is also necessary to prepare terrain and location for important projects, such as refineries, petro-chemical complexes, large-scale metallurgy, etc. Due to their requirements for large-scale transport, such projects should be better located near to sea-ports. In addition, they require large land areas and appropriate settlement of environmental problems.
To sum up, the question of geographical allocation of industrial production for the coming years, in our opinion, should be handled with a clear awareness of targets and priorities, in view of creating a favorable environment to attract financial sources for the industrial development. It is highly desirable to attentively develop small-and medium-scale industries, particularly processing industries, linked with sources of raw materials from the agricultural sectors, so that the inter-regional gaps in development will be gradually reduced.