VIETNAM'S SOCIO-ECONOMIC DEVELOPMENT No.7

INDUSTRIAL RESTRUCTURING AND THE STRATEGY OF INDUSTRIALIZATION

PHAM QUANG HAM
* Dr. Pham Quang Ham is the Head of the Department of Industry at the Development Strategy Institute, Ministry of Planning and Investment, Hanoi.

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 led 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. 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. 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, due to the abolition of state subsidies and a more competitive environment.

Figure 1: Average annual growth rate of industries 1990-1994 (%, in 1994 prices)

Figure 2: Structure of industry in 1994 (%)

2. In the industrial sector, various economic components have been assisted to develop. The state-owned industrial enterprises have been rearranged and consolidated. 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, for small and handicraft industries, there were 5,287 cooperatives and more than 450,000 private households involved in production activities.

3. External economic relations have further developed. FDI in general and investments into the industrial sector in particular have shown a rapidly increasing trend. 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. Six export-processing zones (EPZ) have been granted licenses.

There are several problems to be addressed: (a) The industrial sector still has only small productive capacity; (b) The industrial structure has slowly changed—growth has principally resulted from mining, while manufacturing branches have contributed little; (c) Though the economy began to generate internal capital resources, such resources are still small and scattered; (d) The low technological level implies high norms of material spending, low productivity and low quality; (e) The infrastructure is still weak; (g) Some state-owned industrial establishments have not successfully adapted to the new mechanism.

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 within two decades. During 1996-2000, conditions should be created for the industrial sector to develop at an annual rate of 14-15 percent. The value added of the industrial sector is expected to reach 34-35 percent of GDP by the year 2000, exceeding that of agriculture. Priorities will be given to: (a) The food processing industry; (b) The consumer goods industry (textiles, garments, leather, shoes, building materials, etc.); (c) Oil and gas investigation, exploration and exploitation; (d) Reorganizing and consolidating the mechanical engineering industry; (e) Promoting the electronics and information technology industry; (g) Building bases of heavy industry in targeted fields; (h) Strong development of export-led industries.

Important policies include: bringing into full play combined forces of different economic components; renovating and consolidating state-owned enterprises; creating favorable conditions for the private sector; supporting small-and medium-scale enterprises; upgrading and constructing economic infrastructure; rehabilitating and consolidating industrial estates.

One of the most important issues is to pay special attention to equal development of different territorial regions. Concerning existing industrial estates: those in urban interior should receive in-depth investments for technological upgrading and environmental pollution resolution; those far from urban centers with adequate land should improve technical infrastructure and revise master plans. For new industrial estates: elaboration of a nation-wide overall master plan is required. In the immediate time, stress should be given to the 3 focal economic zones: Hanoi-Haiphong-Halong; Ho Chi Minh City-Bien Hoa-Vung Tau; and Lien Chieu-Dung Quat in the central region. For mountainous regions and Central highlands, special attention should be paid to infrastructure, and small-scale industrial formations linked with agriculture and forestry. To sum up, geographical allocation should be handled with clear awareness of targets and priorities, and attentively develop small-and medium-scale industries, particularly processing industries linked with agricultural raw materials, so that inter-regional development gaps will be gradually reduced.

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