Post on 09-Aug-2020
ECONOMIC SOCIETY OF TANZANIAANNUAL CONGRESS
INDUSTRIALIZATION FOR INCLUSIVE DEVELOPMENT IN TANZANIADar es Salaam, 7 December 2018
Reform and Industrialization in Vietnam
Le Dang Doanh PhD
Member of the UN Committee for Development Policy
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.
Year Socialist sector Private
sectorTotal State owned Cooperatives
1957 18.1 17.9 0.2 71.9
1960 66.4 37.8 28.6 33.6
1965 90.0 44.6 45.4 10.0
1970 91.4 40.3 51.1 8.6
1975 91.6 51.7 39.9 8.4
Socialist Reconstruction:
Ownership Structure in North Vietnam, 1957-1975 (%)Source: Tran Van Tho (2000)
Year State-owned sector Non-state sector
1976 27.7 72.3
1980 19.8 80.2
1985 28.0 72.0
1990 31.8 68.2
1995 40.2 59.8
Socialist Reconstruction in South Vietnam:
Ownership Structure in Reunited Vietnam, 1976-1985 (%) Source: Tran Van Tho (2000)
Unsuccessful Attempt of Central Planning and Collectivization
Sectoral GDP Growth Rates
chain-linked index, base year 1975
Year Total GDP Agriculture Industries Services
1977 105.3 100.7 113.2 104.9
1978 101.1 93.6 107.5 109.0
1979 98.2 103.3 95.4 92.4
1980 96.4 105.6 88.7 87.8
1981 102.3 104.3 99.9 100.7
Source: Dang Phong (ed.), Vietnam’s Economic History 1975-2000.
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.
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 300000 tons of rice in 1989. 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 1990-92.
Vietnam’s Integration Process
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Diversifying International Relations and Seeking Geopolitical Balance
Singapore
Brunei
Vietnam
Malaysia
Australia
New Zealand
Peru
Chile
Canada
Mexico
Indonesia
Philippines
Thailand
Cambodia
Laos
Myanmar
India
Hong Kong China
Chinese Taipei
Russia
Papua New Guinea
China
Japan
Korea
ASEAN
APEC (FTAAP?)
CPTPPREGIONAL CEP
Integration’s Process in Asia-Pacific
?
10
World Bank forecast for Vietnam by implementing CPTPP
Forecast for Products and Services
13
(ASC) (AEC) (ASCC)
ASEANPeace, Prosperity, People
Regional Production
Regional Market
Ref. Think ASEAN, by P. Kotler, H.
Kartajaya, H.D. Huan
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.
• 1989-2000: 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) ….
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.
A review of Vietnam industrial policy (continued)
• Policies for FDI
• Special Economic Zones (EZ) since 1991 (EPZ, IZ …): 325 EZs with 95.000 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
GDP Growth Rate of Regional Economies
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 10.000 USD.
•Vietnam needs to conduct fundamental reforms in institution, applying meritocracy, developing democracy and human rights, restructuring its economy, enhancing science and technology.
World Bank : Different scenarios for Vietnam 2035
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
1990 73% 11% 16% 34.6 23.2 42.2
2000 68.2% 12.1% 19.6% 24.8 34.8 40.4
2013 48.8% 22.7% 28.5% 17.6 38.6 43.9
2025 32.1% 30.9% 36.9% 12.4% 39.9% 47.7%
2035 25.1% 37.2% 37.7% 8.9% 41.3% 49.8%
FDI share over 70% of total Export
Slow Changes in Economic Structure
Industries : food processing, garments, shoes, machine-building, mining,
cement, chemical fertilizer, glass, tires, oil, coal, steel, paper
Agriculture - Products : paddy rice, corn, potatoes, rubber, soybeans, coffee, tea,
bananas, sugar; poultry, pigs; fish Aquaculture, particularly
shrimp and catfish farming,
Structure of the Economy: slow growth of industry
1995 2001 2002 2003 2004 2005 2006 2007 2008
GDP (current prices) 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
Agriculture, Forestry &
fishery27.18 23.24 23.03 22.54 21.81 20.97 20.40 20.34 22.10
Industry and construction 28.76 38.13 38.49 39.47 40.21 41.02 41.54 41.48 39.73
Manufacturing 14.99 19.78 20.58 20.45 20.34 20.63 21.25 21.26 21.10
Services 44.06 38.63 38.48 37.99 37.98 38.01 38.06 38.18 38.17
Major Economic Indicators, Viet Nam, 2006-2009, %
Item 2006 2007 2008 2009
GDP Growth 8.229% 8.48% 6.152 % 5.32
GDP (Current Prices, US
Dollars)US$ 60.933 Billion
US$ 71.13 BillionUS$ 89.829 Billion
NA
GDP Per Capita (PPP),
US Dollars
US$ 2,357.02 US$ 2,602.48 US$ 2,783.75
Inflation (End of Year
Change %)
6.99% 12.631 % 19.891 % 6 -7 %
Unemployment Rate 2.40% 2.00% 4.30%
Budget Balance (% of
GDP) -3.8 -6.9 -5.1 -7.3
Current Account Balance
(% GDP)
-0.269 % -9.83 % -9.384 % -11.5%
http://www.economywatch.com/economic-statistics/country/Vietnam/
-
5
10
15
20
25
30
35
40
Cambodia China H Kong Indonesia Korea Malaysia Philippines Singapore Taiw an Thailand Vietnam
2000 2005 2007
Source: UNIDO's INDSTAT
Manufacturing value added as percentage of GDP for Vietnam and comparators, %, 2000, 2005, 2007
Vietnam industrial performance
. GDP Structure and Growth by Type of
Ownership in Vietnam 1995-2011
Share of GDP (1994 prices) Annual Growth Rates
1995 2005 2011 2005/1995 2011/2005
GDP (b. dongs) 195 568 393 031 584 073 7.2 6.8
Per cent 100.0 100.0 100.0 - -
STATE 40.0 40.7 36.5 7.4 4.9
NON-STATE 53.2 47.3 49.9 6.0 7.8
Collective 9.7 6.4 5.8 4.0 3.1
Private 7.6 9.7 12.2 9.9 11.0
Households 35.9 30.4 31.8 5.1 7.7
FDI 6.7 12.0 13.6 13.7 9.0
Source: Elaborated by the authors from Statistical Yearbook of Vietnam 1998 (Table 13) and Statistical Yearbook of Vietnam 2011 (Tables 17, 31 and 162)
Number of Active Enterprises on 31 December in
2005 and 2010
2005 2010
Number Per cent Number Per cent
TOTAL 112 950 100.0 291 299 100.0
STATE 4 086 3.6 3 283 1.1
NON-STATE 105 167 93.1 280 762 96.4
Collective 6 371 5.6 12 003 4.1
Private 34 646 30.7 48 009 16.5
Limited 52 505 46.5 163 980 56.3
Joint stock (with state) 1 096 1.0 1 712 0.6
Joint stock(without state) 10 549 9.3 55 058 18.9
FDI 3 697 3.3 7 254 2.5Source: Statistical Year of Vietnam 2011 (Table 94)
2005 2006 2007 2008 2009 2010 2011 2015
Total 100 100 100 100 100 100 100 100
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
Shares of Economic Sectors in GDP (in% ):
High share of Household Sector Source:GSO
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008
Vietnam World East Asia
Source: UNComtrade
Trends in manufactured trade as percentage of total trade for Vietnam, East Asia and the World, %, 2000- 2008
Vietnam industrial performance
Vietnam industrial performance
Industrial capacity and growth... Manufacturing value added for and comparators, 2000-2007
Value of manufacturing value added
(US$ billion constant 2000)Global MVA share Annual growth rate
2000 2005 2007 2000 2005 20072000-
20052005-2007 2000-2007
Cambodia 0.6 1.1 1.4 0.01% 0.02% 0.02% 13.8% 13.1% 13.6%
China 382.7 641.2 788.0 6.63% 9.81% 11.89% 10.9% 10.9% 10.9%
Hongkong 8.7 6.4 6.4 0.15% 0.10% 0.10% -6.0% 0.1% -4.3%
Indonesia 44.6 56.9 60.8 0.77% 0.87% 0.92% 5.0% 3.3% 4.5%
South Korea 134.4 185.5 214.0 2.33% 2.84% 3.23% 6.7% 7.4% 6.9%
Malaysia 29.4 36.2 42.7 0.51% 0.55% 0.64% 4.2% 8.6% 5.5%
Phillipine 17.2 21.1 21.9 0.30% 0.32% 0.33% 4.2% 1.9% 3.5%
Singapore 23.9 28.9 33.2 0.41% 0.44% 0.50% 3.9% 7.2% 4.8%
Taiwan 76.5 95.5 113.2 1.33% 1.46% 1.71% 4.5% 8.9% 5.8%
Thailand 42.4 59.1 63.4 0.73% 0.90% 0.96% 6.9% 3.6% 5.9%
Vietnam 5.7 9.8 11.9 0.10% 0.15% 0.18% 11.6% 10.3% 11.2%
Source: UNIDO’s INDSTAT
Large Economic SOE-Groups as Major Component of Industrial Policy
Monopolies of State-Owned Enterprises
Industry Market Share (1999,%) Market Share (2003, %)
Electricity 94 92
Coal 97 98
Paper 50 70
Cigarettes 63 N/A
Cements 59 55
Steel 64 52
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 70 65
Exports 30 25.3
• Garment and Textile Group:Number of companies: 5,982
Private84%
FDI,15%
Stateowned,
1%
Textile andApparel Companies
Private FDI Stateowned
• " Capital Structure
• Comprehensively diversified with
involvement of multiple economic sectors;
• Only 1% of companies are state owned and
they are in the process of equitization;
• 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.
• Vinatex:Number of companies: 5,982
Spinning6%
Weaving17%
Dyeing4%
Apparel70%
SupportingIndustry3%
Spinning Weaving Dyeing Apparel SupportingIndustry
Textile &Apparel Companies ByCategories Companies by location:
" Northern provinces: 30%
" Central& highland provinces : 8%
" Southern provinces: 62%
About 3,500 SOEs represent 40% of GDP
2007: 82 SOEs were equitized (21% planned)
2008-2010: Planned to rearrange 1,535 SOEs
Of which, 948 will be equitized
2008: Most equitizations were delayed
Explanation: Decline in stock market
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.
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 2008.
Equitization of State - Owned Enterprises
High Internet Penetration (53%->90%)
• 53% of population use Internet, it should increase to 80-90% in the time to come.
Digital Evolution Index of Vietnam in 2017 (Tufts University)
Digital Evolution Index (DEI) 2017, Vietnam ranks at 48/60 economies, score 2.19/5 (Tufts University)
E. Government: Vietnam ranks at 89/193 economies UNPAN (2016)
Doing Business Ranking 2019 ranks at 69/190 economies
Thank you!