Reform and Industrialization in Vietnam

Transcription

1 Reform and Industrialization in Vietnam Le Dang Doanh PhD Member of the UN Committee for Development Policy ECONOMIC SOCIETY OF TANZANIA ANNUAL CONGRESS INDUSTRIALIZATION FOR INCLUSIVE DEVELOPMENT IN TANZANIA Dar es Salaam, 7 December 2018

2 The Soviet-Style Central Planning Economy - The central planning economy in Vietnam has been applied during the time of war until 1975 as an appropriate mean for this period, as Vietnam had to mobilize all resources for the fight but it has been continued after the national reunification and was clearly inappropriate. Emphasizing State-owned economy, restriction the private sector, lacking incentives for farmer, inefficient public investment were the main causes for negative growth rate. - The extend and scope of the central planning was not comprehensive ( only 105 indicators and 338 products and services). - Vietnam has early recognized the weaknesses of the model of central planning economy and started to elaborate a reform concept and applied experiences from other East European socialist countries since 1971 but hasn t reached sufficient results. - Industrialization by investing into state-owned enterprises, aiming to build an autarkic economic structure, emphasizing heavy industries. The attempt was highly inefficient, costly on time and money.

3 Socialist Reconstruction: Ownership Structure in North Vietnam, (%) Source: Tran Van Tho (2000) Year Socialist sector Private Total State owned Cooperatives sector

4 Socialist Reconstruction in South Vietnam: Ownership Structure in Reunited Vietnam, (%) Source: Tran Van Tho (2000) Year State-owned sector Non-state sector

5 Unsuccessful Attempt of Central Planning and Collectivization Sectoral GDP Growth Rates chain-linked index, base year 1975 Year Total GDP Agriculture Industries Services Source: Dang Phong (ed.), Vietnam s Economic History

6 Combination between grass-root initiatives and renovation at the top level The long fight of Vietnam emphasized the importance of initiatives at the grass-root level. Grass-root experiments in agriculture in 1960s and 1980s provided practical experiences for new political decision at the Political Bureau. Fence-breaking movement in the SOEs leaded to acceptance of market elements in planning.

7 The Doi Moi Process started in 1986 but strongly implemented The collapse of the Soviet Union in 1990 has pressed Vietnam for reform. Limited shock-therapy in 1989: price liberalization, introduction of positive interest rate, canceling the dual price-system, compulsory procurement of agrarian products to low prices and stable supplying of foods according to coupons in urban regions. Immediate increase of rice production, export the very first tons of rice in Liberalization of crop trading for the private sector. The market incentives system could unfold the dynamism, creativeness and the saving of Vietnamese people. Financial autonomy and hard budget constraints for the SOEs. Some thousand small SOEs have been merged or dissolved in the period between

8 Start of the Đổi mới Textile-Agreement with EU AFTA, ASEAN Free Trade Agreement Start the negotiation to join WTO Framework Agreement with EU Bilateral Trade Agreement with US Agreement on Market Opening with EU Free Trade Agreement China- ASEAN WTO-membership FTA Korea-ASEAN FTA Vietnam-Japan - ASEAN- FTA ASEAN-Australia-New Zealand FTA India - ASEAN Vietnam-EU; Vietnam- Chile FTAs; TPP Vietnam s Integration Process

9 Diversifying International Relations and Seeking Geopolitical Balance

10 Integration s Process in Asia-Pacific APEC (FTAAP?) India Cambodia Laos Myanmar REGIONAL CEP ASEAN Indonesia Philippines Thailand China Japan Korea? Singapore Brunei Vietnam Malaysia Australia New Zealand CPTPP Chile Peru Canada Mexico Hong Kong China Chinese Taipei Russia Papua New Guinea 10

11 World Bank forecast for Vietnam by implementing CPTPP

12 Forecast for Products and Services

13 (ASC) (AEC) (ASCC) ASEAN Peace, Prosperity, People Regional Production Regional Market Ref. Think ASEAN, by P. Kotler, H. Kartajaya, H.D. Huan 13

14 A review of Vietnam industrial policy Before 1989: Soviet-Style central planning economy. The collapse of the Soviet Union deprived Vietnam huge material assistance and financial credit. Vietnam had to reform and diversify its international economic relations : Market reform - a more diversified industrial structure and integrated economy Imported private sector by FDI with strong incentives. SOE - high cost and not competitive internationally Some selective industrial policy the car manufacturing, motorbike industry, textile and garment (with some limited success).

15 A review of Vietnam industrial policy (continued) Since 2000: international integration combined with domestic reform. Bilateral Trade Agreement Vietnam-USA (2001), WTO (2007) Enterprise Law 1999 and amended 2005 encouraging the private sector, Investment law 2005 WTO accession in 2007 changed the rules for industrial policy: Before: Export subsidies, tariff and non-tariff barriers to trade, compulsory localization, credit subsidies Now: Focus on supply-side support. Domestic industry must be competitive on the Vietnamese market.

16 A review of Vietnam industrial policy (continued) Policies for FDI Special Economic Zones (EZ) since 1991 (EPZ, IZ ): 325 EZs with ha land. Tax holidays and other privileges (land rent reduction) to be reduced after WTO accession End of export subsidies But WTO accession greatly increased attractiveness for FDI HCMC: EPZ now only for high value products, no more garment Two Hi-Tech Parks to attract knowledge-intensive FDI, integrated concept incl. university linkages etc.; limited success as for now Poor spillover effect on technological upgrading (no evidence) Licensing & localization strategies: Automobile industry: Licenses for 11 carmakers + Localization policy to encourage local content Unlikely to succeed (economies of scale, too many producers for a limited domestic market, supply-side constraints) Motorbike industry: Low-tech, large market. Successful localization, industry gaining regional market share

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18 GDP Growth Rate of Regional Economies

19 Target and Vision Aiming to establish a basically industrialized and modernized economy in 2020, to reach a GDP/capita of 3000 USD/capita. In 2050 to reach the level of an advanced economy with GDP/capita by USD. Vietnam needs to conduct fundamental reforms in institution, applying meritocracy, developing democracy and human rights, restructuring its economy, enhancing science and technology.

20 World Bank : Different scenarios for Vietnam 2035

21 Economic Structure and Projection: Vietnam continues the industrialization by trade liberalization Share in Total Employment (%) Share in GDP (%) Agriculture Industry + Mining Services Agriculture Industry + Mining Services % 11% 16% % 12.1% 19.6% % 22.7% 28.5% % 30.9% 36.9% 12.4% 39.9% 47.7% % 37.2% 37.7% 8.9% 41.3% 49.8%

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25 FDI share over 70% of total Export

26 Slow Changes in Economic Structure

27 Structure of the Economy: slow growth of industry GDP (current prices) Agriculture, Forestry & fishery Industry and construction Manufacturing Services Agriculture - Products : paddy rice, corn, potatoes, rubber, soybeans, coffee, tea, bananas, sugar; poultry, pigs; fish Aquaculture, particularly shrimp and catfish farming, Industries : food processing, garments, shoes, machine-building, mining, cement, chemical fertilizer, glass, tires, oil, coal, steel, paper

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30 Major Economic Indicators, Viet Nam, , % Item GDP Growth 8.229% 8.48% % 5.32 GDP (Current Prices, US Dollars) GDP Per Capita (PPP), US Dollars Inflation (End of Year Change %) US$ Billion US$ Billion US$ Billion US$ 2, US$ 2, US$ 2, % % % 6-7 % Unemployment Rate 2.40% 2.00% 4.30% Budget Balance (% of GDP) Current Account Balance (% GDP) % % % -11.5% NA

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32 Vietnam industrial performance Manufacturing value added as percentage of GDP for Vietnam and comparators, %, 2000, 2005, Cambodia China H Kong Indonesia Korea Malaysia Philippines Singapore Taiw an Thailand Vietnam Source: UNIDO's INDSTAT

33 . GDP Structure and Growth by Type of Ownership in Vietnam Share of GDP (1994 prices) Annual Growth Rates / /2005 GDP (b. dongs) Per cent STATE NON-STATE Collective Private Households FDI Source: Elaborated by the authors from Statistical Yearbook of Vietnam 1998 (Table 13) and Statistical Yearbook of Vietnam 2011 (Tables 17, 31 and 162)

34 Number of Active Enterprises on 31 December in 2005 and Number Per cent Number Per cent TOTAL STATE NON-STATE Collective Private Limited Joint stock (with state) Joint stock(without state) FDI Source: Statistical Year of Vietnam 2011 (Table 94)

35 Shares of Economic Sectors in GDP (in% ): High share of Household Sector Source:GSO Total Share of Economic Sector State Sector 37,6 36,7 35,3 35,1 34,7 33,5 32,7 35,69 Non-State Sector 47,2 47,2 47,7 47,5 48,0 48,8 49,3 49,3 Collective Sector 6,6 6,3 6,1 5,9 5,8 5,3 5,2 5,0 Private Sector (registered) 8,5 9,0 9,7 10,2 10,5 10,7 10,9 7,88 Household Sector 32,1 31,9 31,9 31,4 31,7 32,8 33,2 31,33 FDI 15,2 16,1 17,0 17,4 17,3 17,7 18,0 20,1

36 Vietnam industrial performance Trends in manufactured trade as percentage of total trade for Vietnam, East Asia and the World, %, % Vietnam World East Asia 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: UNComtrade

37 Vietnam industrial performance Industrial capacity and growth... Manufacturing value added for and comparators, Value of manufacturing value added (US$ billion constant 2000) Global MVA share Annual growth rate Cambodia % 0.02% 0.02% 13.8% 13.1% 13.6% China % 9.81% 11.89% 10.9% 10.9% 10.9% Hongkong % 0.10% 0.10% -6.0% 0.1% -4.3% Indonesia % 0.87% 0.92% 5.0% 3.3% 4.5% South Korea % 2.84% 3.23% 6.7% 7.4% 6.9% Malaysia % 0.55% 0.64% 4.2% 8.6% 5.5% Phillipine % 0.32% 0.33% 4.2% 1.9% 3.5% Singapore % 0.44% 0.50% 3.9% 7.2% 4.8% Taiwan % 1.46% 1.71% 4.5% 8.9% 5.8% Thailand % 0.90% 0.96% 6.9% 3.6% 5.9% Vietnam % 0.15% 0.18% 11.6% 10.3% 11.2% Source: UNIDO s INDSTAT

38 Large Economic SOE-Groups as Major Component of Industrial Policy

39 Monopolies of State-Owned Enterprises Industry Market Share (1999,%) Market Share (2003, %) Electricity Coal Paper Cigarettes 63 N/A Cements Steel Chemical Fertilizers N/A 90 Rubber N/A 69 Petroleum Products N/A 100 Basic Chemicals N/A 99 Gasoline N/A 100 Rail Transportation N/A 100 Air Transportation N/A 90 Commercial bank credit Exports

40 Garment and Textile Group:Number of companies: 5,982 State owned, 1% Textile andapparel Companies Private FDI Stateowned FDI, 15% Private 84% " Capital Structure Comprehensively diversified with involvement of multiple economic sectors; Only 1% of companies are state owned they are in the process of equitization; and The mother holding company of Vinatex will also be equitized by the middle of 2013; About 60% of textile and garment export turnovers come from FDI companies.

41 Vinatex:Number of companies: 5,982 Textile &Apparel Companies ByCategories Spinning 6% Supporting Industry 3% Apparel 70% Weaving 17% Dyeing 4% Companies by location: " Northern provinces: 30% " Central& highland provinces : 8% " Southern provinces: 62% Spinning Weaving Dyeing Apparel SupportingIndustry

42 Equitization of State - Owned Enterprises About 3,500 SOEs represent 40% of GDP 2007: 82 SOEs were equitized (21% planned) : Planned to rearrange 1,535 SOEs Of which, 948 will be equitized 2008: Most equitizations were delayed Explanation: Decline in stock market According to the Ministry of Finance, the number of SOEs equitized decreased from 724 in 2005 to 640 in 2006, 150 in 2007, and 73 in June 2009: IPOs with reasonable starting price 2009: Plan to equitize some large banks, corp. The State will retain ownership in: 100% - Public utilities, power transmission, oil and gas, aviation and railways 50% - Energy, mining, telecoms, infrastructure, cement and steel production, sanitation and water supply, and banking and insurance.

43 High Internet Penetration (53%->90%) 53% of population use Internet, it should increase to 80-90% in the time to come.

44 Digital Evolution Index of Vietnam in 2017 (Tufts University)

45 Digital Evolution Index (DEI) 2017, Vietnam ranks at 48/60 economies, score 2.19/5 (Tufts University)

46 E. Government: Vietnam ranks at 89/193 economies UNPAN (2016)

47 Doing Business Ranking 2019 ranks at 69/190 economies

48 Thank you!