Policy challenge – linking local firms to global value chains

Source: Pano feed

Đăng ký: VietNam News

(CPV) – The gradual opening of Viet Nam’s economy over the past 30 years, including through trade pacts that culminated in membership of the World Trade Organisation in 2007, has spurred FDI, exports, and economic development.

FDI inflows averaged USD7.3 billion annually from 2007 to 2014. Rising international trade has lifted the ratio of trade to GDP to 170%. Exports of manufactures have surged in the past 5 years as multinational companies built factories to assemble products such as mobile telephones and electronics, or to fabricate parts, as part of their global production chains.

However, Viet Nam’s main contribution to these production chains is low-skilled labor. The cost of imported materials and components is estimated to equal 90% of the value of Viet Nam’s exports of manufactures goods. Future economic prosperity will depend in large on involving more domestic firrms in global value chains so they can benefit from foreign funding and technology and gain access to global markets, as well as generate spillover to benefit the whole economy.

At this stage, small and medium-sized enterprises (SMEs) in Viet Nam generally lack the capacity to participate in supply chains for foreign-invested factories. Only 36% of all Vietnamese firms are integrated into export-oriented production networks, compared with nearly 60% in Malaysia and Thai Land. Just 21% of Vietnamese SMEs participate in significantly less than in other countries.

While the government supports industrial deepening and the development of SMEs, insufficient interagency coordination often fragments policies and weakens implementation.

A proposed new law on SMEs provides an oportunity to correct some of these shortcomings. Moreover, greater consultation with the private sector would better inform the government about constraints that inhibit links with production networks.

The private sector needs to be closely involved as well in initiatives intended for its own development. For example, the success of the proposed Institute of Directors, which aims to imrpove coporate governance, will depend on atracting funding and support from the private sector.

Industry-specific strategies are also needed. For manufacturers, encouraging the development of more industry clusters could allow for economies of scale, shared learning, and lowered transaction and transportation costs. Agribusinesses would benefit from improved product certification standards and better regulation of aquatic resources.

Early in 2015, the Prime Minister endorsed the selection of five industries as priorities for developing industry clusters and value-chain products: electronics, texttiles, food processing, agricultural machinery and tourism.

Action plans, should now be drawn up for these industries with the aim of targeting support to those supply chains with maximum potential for FDI spillover into the domestic private sector, as measured by domestic value added, job creation, and tax revenue./.