There are only five years left for Vietnam to implement its target of becoming an industrialized country by the end of the decade.
However, the goal seems improbable with the country lagging far behind even members of the regional bloc ASEAN like Malaysia and Thailand in terms of technology, infrastructure and living standards.
The 9th National Congress of the Communist Party of Vietnam in 2001 unveiled plans to accelerate industrialization and modernization in order to turn the country into a modern industrialized state by 2020.
However, it did not spell out the specific criteria for industrialization, economist Nguyen Duc Thanh, head of the Vietnam Center for Economic and Research at the Hanoi National University, said, lamenting there has been too little progress toward achieving the target.
The country's industrial growth was already low before the crisis hit in 2010, and it has been slowing down ever since.
The contribution of the industrial sector to GDP decreased to 38.3 percent in 2013 from 38.6 percent the previous year. Its growth slowed down to 5.4 percent in 2013 from 5.4 percent in 2012 and 6.7 percent in 2011.
Developed countries have key sectors that have played an important role in their economic development. For example, South Korea’s development is attributed mainly to its strong mechanical engineering sector. But Vietnam has not yet defined key industries to serve its industrialization.
Economist Bui Kien Thanh said Vietnam now is far behind developed countries in terms of GDP per capita as well as scientific and technological development.
“It is on the verge of falling behind even other ASEAN countries.”
Vietnam’s per capita GDP reached $1,908 a year in 2013, ranking it 7th behind Singapore, Malaysia, Thailand, Indonesia, the Philippines and Brunei, which have GDP per head of $2,707-55,182, according to a report issued by the ASEAN secretariat earlier this month.
Its average income was higher than only that of Cambodia, Laos and Myanmar.
Vietnam would need decades to catch up with developed ASEAN countries and much longer to do so with industrialized countries around the world, he said.
The country began planning its path to industrialization in the 1990s, but, more than 20 years on, has seen little improvement in science and technology.
Vietnamese companies rarely use technical innovation and industrial production has not really grown beyond excavating natural resources, Thanh said.
According to the 2014-2015 Global Competitiveness Report from the World Economic Forum, technological readiness remains low in Vietnam, which ranks 99th out of 144 economies.
The country’s businesses are especially slow in adopting the latest technologies, ranking 118th, thus forfeiting significant productivity gains through technology transfers, the report said.
Failed industrial policies
“The economy is now only in the early stages of industrialization,” Professor Nguyen Ke Tuan of the Hanoi Economics University said. “They mainly do subcontract and assembly work.”
The mechanical sector, which plays an important part in a country’s industrial development, has failed to meet its targets.
Under the mechanical industry development strategy for up to 2010, the sector should have met 40-50 percent of domestic demand in 2010. But the country still heavily relies on imported mechanical products since producers could meet only 34.5 percent of demand.
It imported $6.9 billion worth of machinery and equipment in the first quarter of this year, up 44.4 percent from the same period last year, according to the General Statistics Office.
With their low financial capacity and lack of experience and advanced technologies, local contractors fail to win big projects, especially in the thermal power and oil and gas sectors.
“Developed countries often have a strong mechanical industry that meets at least 60-70 percent of their demand for machinery,” Nguyen Van Thu, chairman of the Vietnam Association of Mechanical Industry, said.
“If the mechanical industry continues to develop at the current rate, it is impossible for Vietnam to become an industrialized country within the next five years,” Thu said.
Professor Tuan said the country has failed to implement the right policies to develop the manufacturing sector and this could be seen in the case of the automobile sector, where many incentives have failed to bring any significant development.
The usage rate of parts produced locally in a car is around 10 percent on average, compared to the government’s target of 50-90 percent by 2010. A few manufacturers have exceeded 30 percent.
Vietnam now has 18 foreign and 38 local companies producing some 460,000 cars a year, said Nguyen Manh Quan, head of the Ministry of Industry and Trade’s heavy industry department.
But they mainly focus on assembling, welding, painting, and cleaning, he said.
Around 210 businesses are in auto supporting industries, but are small and medium-sized firms that mainly produce a handful of simple components.
Private enterprises’ development
Economist Bui Kien Thanh said Vietnam's distribution of resources is ineffective, hindering economic development.
State-owned businesses get easy access to credit, land and other key resources, he said.
“Preferential treatment is given to state-owned enterprises. Domestic private companies are not treated the same.”
State-owned enterprises have received half of all government investment and 70 percent of official development assistance but contributed only 32 percent of the GDP and created only 10 percent of jobs, while local private firms have contributed to nearly 50 percent of GDP and created some 86 percent of jobs.
“The government should further facilitate the development of the private sector since its health is vital to Vietnam’s economic future and is the key factor in the country’s industrialization.”