Low added-value
According to the report by the Steering Committee 35 under the Ministry of Industry and Trade (MoIT), the supporting industry has a significant meaning to economic restructuring towards industrialization and modernization, helping to increase labor productivity and competitiveness, creating added-value for the general production activity.
However, because the supporting industry remains underdeveloped, the manufacturing and processing industries of Vietnam have to largely rely on the foreign sources of supply of input raw, auxiliary materials, and components. Especially, key industries, including electronics, garment and textile, leather, footwear and handbag, and automobile manufacturing and assembly.
Therefore, when the Covid-19 pandemic broke out in some countries that mainly provide components and accessories for Vietnam, such as China, South Korea, and Japan, the domestic industries faced many difficulties in ensuring raw materials and components for production in early 2020. Not until these above countries have passed the pandemic peak, can the supply of imported raw and auxiliary materials for the manufacturing industries of Vietnam recover.
In fact, in recent years, the proportion of manufacturing and processing industries in the economy was fairly high, accounting for 40 percent of the total net revenue of production and business of the economy, but only contributing about nearly 14 percent of gross domestic product (GDP) because the added-value was extremely low compared to other industries.
In the past five years, in the value-added structure of Vietnam's export products, raw and auxiliary materials contributed to the imported added-value from foreign countries still accounted for a large proportion, especially from China and South Korea.
Meanwhile, the rate of domestic value-added content remains low and has not had many significant changes. For instance, the two main export products of Vietnam – garments and textiles, and electronics - have domestic value-added rates of above 50 percent and above 37 percent, respectively. Or as in the automobile sector, up to now, there have been large enterprises, namely Thaco, Hyundai Thanh Cong, and VinFast, but most of them are merely capable of assembling.
Particularly, by 2019, the localization rate for the automobile industry only reached an average of 7-10 percent, while in the strategy and master plan for the development of Vietnam's automobile industry to 2010, with a vision to 2020, the localization rate set out for the automobile industry was to reach 40 percent in 2005, and 60 percent in 2010.
Noticeably, at present, Vietnam has about 300 supporting industry enterprises for the automobile manufacturing and assembly industry, but up to 80 percent of them are foreign enterprises. The rest are Vietnamese ones, but most of them have a small scale. A car has about 30,000 components, but Vietnamese enterprises can only produce no more than a dozen types of them.
Incentive and supportive policies needed
To solve the problem of autonomy of supporting industries and reduce dependence on imported components, Ms. Truong Thi Chi Binh from the Vietnam Institute of Industrial and Trade Policy and Strategy, Vice President of Vietnam Association of Supporting Industries (VASI), said that Vietnam needs to learn from industrial countries.
“Although they have a developed manufacturing industry, the governments of these countries continue to support supporting industry enterprises. For example, a start-up producing spare parts in Korea will receive support in investment in machinery without having to pay interest on bank loans. Land rental in industrial zones will also be exempted within three years. The governments of these countries believe that the fact that enterprises dare to invest in this field deserves recognition, so they will support them to develop,” said Ms. Truong Thi Chi Binh.
According to the report by the Steering Committee 35 under the Ministry of Industry and Trade (MoIT), the supporting industry has a significant meaning to economic restructuring towards industrialization and modernization, helping to increase labor productivity and competitiveness, creating added-value for the general production activity.
However, because the supporting industry remains underdeveloped, the manufacturing and processing industries of Vietnam have to largely rely on the foreign sources of supply of input raw, auxiliary materials, and components. Especially, key industries, including electronics, garment and textile, leather, footwear and handbag, and automobile manufacturing and assembly.
Therefore, when the Covid-19 pandemic broke out in some countries that mainly provide components and accessories for Vietnam, such as China, South Korea, and Japan, the domestic industries faced many difficulties in ensuring raw materials and components for production in early 2020. Not until these above countries have passed the pandemic peak, can the supply of imported raw and auxiliary materials for the manufacturing industries of Vietnam recover.
In fact, in recent years, the proportion of manufacturing and processing industries in the economy was fairly high, accounting for 40 percent of the total net revenue of production and business of the economy, but only contributing about nearly 14 percent of gross domestic product (GDP) because the added-value was extremely low compared to other industries.
In the past five years, in the value-added structure of Vietnam's export products, raw and auxiliary materials contributed to the imported added-value from foreign countries still accounted for a large proportion, especially from China and South Korea.
Meanwhile, the rate of domestic value-added content remains low and has not had many significant changes. For instance, the two main export products of Vietnam – garments and textiles, and electronics - have domestic value-added rates of above 50 percent and above 37 percent, respectively. Or as in the automobile sector, up to now, there have been large enterprises, namely Thaco, Hyundai Thanh Cong, and VinFast, but most of them are merely capable of assembling.
Particularly, by 2019, the localization rate for the automobile industry only reached an average of 7-10 percent, while in the strategy and master plan for the development of Vietnam's automobile industry to 2010, with a vision to 2020, the localization rate set out for the automobile industry was to reach 40 percent in 2005, and 60 percent in 2010.
Noticeably, at present, Vietnam has about 300 supporting industry enterprises for the automobile manufacturing and assembly industry, but up to 80 percent of them are foreign enterprises. The rest are Vietnamese ones, but most of them have a small scale. A car has about 30,000 components, but Vietnamese enterprises can only produce no more than a dozen types of them.
Incentive and supportive policies needed
To solve the problem of autonomy of supporting industries and reduce dependence on imported components, Ms. Truong Thi Chi Binh from the Vietnam Institute of Industrial and Trade Policy and Strategy, Vice President of Vietnam Association of Supporting Industries (VASI), said that Vietnam needs to learn from industrial countries.
“Although they have a developed manufacturing industry, the governments of these countries continue to support supporting industry enterprises. For example, a start-up producing spare parts in Korea will receive support in investment in machinery without having to pay interest on bank loans. Land rental in industrial zones will also be exempted within three years. The governments of these countries believe that the fact that enterprises dare to invest in this field deserves recognition, so they will support them to develop,” said Ms. Truong Thi Chi Binh.
Producing garments for export at Nha Be Garment Corporation. (Photo: SGGP)
According to Ms. Binh, technology is increasingly innovative, requiring more elite enterprises. However, Vietnam currently lacks excellent companies because the country started much later than other countries.
On the other hand, although there are many mechanisms and policies, Vietnam still lacks industrial clusters that cooperate and support each other. Therefore, there was a case in which components manufactured in Vietnam had to be sent to Thailand to be able to process the final stage to meet the requirements of the customer.
And yet, according to Ms. Binh, amid the condition that the "health" of domestic enterprises is still weak, but they must suffer too high-interest rates compared to their competitors in China, South Korea, Japan, and Thailand. The lending interest rate for manufacturing enterprises of these countries is merely at 1 percent per annum, whereas the minimum lending interest rate for Vietnamese enterprises is about 5-6 percent per annum.
Therefore, the Government should have a reasonable credit package to encourage enterprises in the supporting industry to invest boldly and gradually autonomize the domestic supporting industries. Moreover, the Government also needs to improve and supplement synchronous policies and mechanisms, creating a favorable environment for supporting industry enterprises to develop.
As for enterprises, they must choose the production of products and components in large quantity to not only supply for domestic consumption but also export. At the same time, they need to strengthen cooperation and take advantage of the strengths of each other to come into specialization, making high-quality products and building a reputation for Vietnamese products.
On the other hand, although there are many mechanisms and policies, Vietnam still lacks industrial clusters that cooperate and support each other. Therefore, there was a case in which components manufactured in Vietnam had to be sent to Thailand to be able to process the final stage to meet the requirements of the customer.
And yet, according to Ms. Binh, amid the condition that the "health" of domestic enterprises is still weak, but they must suffer too high-interest rates compared to their competitors in China, South Korea, Japan, and Thailand. The lending interest rate for manufacturing enterprises of these countries is merely at 1 percent per annum, whereas the minimum lending interest rate for Vietnamese enterprises is about 5-6 percent per annum.
Therefore, the Government should have a reasonable credit package to encourage enterprises in the supporting industry to invest boldly and gradually autonomize the domestic supporting industries. Moreover, the Government also needs to improve and supplement synchronous policies and mechanisms, creating a favorable environment for supporting industry enterprises to develop.
As for enterprises, they must choose the production of products and components in large quantity to not only supply for domestic consumption but also export. At the same time, they need to strengthen cooperation and take advantage of the strengths of each other to come into specialization, making high-quality products and building a reputation for Vietnamese products.
