Vietnam Industry – 80 years looking back and looking towards the future

Producing garment products for export at Vietnam Textile and Garment Group. *Photo: Kieu Giang*

Rising to become a pillar of growth

In 1945, Vietnam's economy was extremely poor and backward. There was almost no industry except for a few power and water plants in large cities serving the needs of the French colonialists, and some mineral mines were brought back to France.

In 1946, the country entered a 9-year resistance war. The main industries serving the resistance war included a number of factories producing rudimentary weapons, basic medicines, and people's lives.

From 1955 to 1975, when the country was divided into two regions, the industry in the North was developed according to the socialist model, prioritizing heavy industry. With the help of socialist countries, the North built heavy industrial facilities such as Thai Nguyen iron and steel, Hanoi mechanical, Uong Bi electricity, Viet Tri chemical... and light industrial facilities such as 8/3 textile, rubber, soap, cigarettes, light bulbs, Rang Dong thermos... The US war of destruction in the period of 1964-1972 destroyed almost all industrial facilities.

Meanwhile, during this period in the South, industry was mainly agricultural processing and consumer goods serving the war machine of the Saigon government, the US army and its allies.

After national reunification, from 1976 to 1982, the South carried out industrial and commercial reforms to transform the private sector into state and collective ownership.

Next, the whole country restored the economy devastated by two wars. Heavy industry was the priority sector for development (mechanics, metallurgy, energy, chemicals). Large industrial facilities were built with foreign assistance such as Hoa Binh hydropower plant, Bim Son cement plant, Pha Lai thermal power plant, Bai Bang paper plant, etc.

Faced with a 17-year economic embargo and blockade (1979-1995), in addition to the planning mechanism that caused the economy to fall into crisis in the mid-1980s. Industrial production stagnated, products were poor, and supply could not meet demand.

The 6th Party Congress (1986) initiated innovation and integration, shifting to a socialist-oriented market economy. Industry began to grow strongly, especially light industry and export processing.

Attracting foreign direct investment (FDI) flows began to increase sharply from the early 1990s, helping to form FDI-funded industrial production facilities and industrial parks and export processing zones.

Vietnam joined ASEAN (1995) and the ASEAN Free Market Area AFTA (1996), APEC (1998) to help expand export markets and promote the development of industries such as textiles, footwear, seafood processing, and construction materials.

Since 2000, the industry has grown strongly under the influence of many factors. It is a strong integration process when Vietnam signed the Vietnam-US Bilateral Trade Agreement (2001), joined the World Trade Organization (2006), participated in 17 bilateral and multilateral free trade agreements (FTA) with 60 economies accounting for nearly 90% of the world's GDP. Currently, Vietnam has trade relations with 230/240 economies in the world, ranked in the group of 20 largest exporting countries in the world.

Besides, there is an explosion of FDI capital flowing into Vietnam, especially in high-tech industries.

These factors have promoted the development of many industries such as oil and gas exploitation and processing; electronics, computers, mobile phones; metallurgy, iron and steel; cement, construction materials; textiles, footwear; mechanical processing and manufacturing, automobiles, motorbikes...

Over the past 80 years, despite experiencing many major events such as war, national division, embargo, and subsidy period crisis, from a poor colonial economy, we have built a formidable industry.

Our country has become one of the industrial production centers of the region and the world, and a country with a high industrial competitiveness index (ranked 43/150 countries ranked in 2017). Industrial products account for nearly 90% of total export turnover. Industry has become the main driving force of economic growth.

However, it can be frankly acknowledged that industry still depends on FDI, a sector that accounts for 60% of industrial output value, including almost the entire electronics, computer, and mobile phone sectors.

The added value of industrial production is low, mainly due to processing and assembly; the basic industries have not been mastered. In addition, the supporting industry sector is weak, not to mention that industry still pollutes the environment...

Automobile assembly and production at Truong Hai Group Joint Stock Company. *Photo: Can Dung*

Which way to achieve the "hundred year" goal?

In 2021, the 13th National Party Congress set the goal of Vietnam becoming a high-income developed country by 2045. In the same year 2021, Vietnam pledged to bring net emissions to zero by 2050. To achieve these two goals, industry will have to play a driving role in economic growth and needs to be developed in the direction of green transformation, digital transformation, mastering fundamental industries...

Green transition means that the energy sector must gradually close coal power plants (currently accounting for 42% of total electricity output) to switch to clean energy (wind, solar, hydrogen, nuclear power) while ensuring electricity output grows by 12-15% per year to serve socio-economic development.

Light industry (textiles, footwear) must switch to using recycled materials to continue to grow. Heavy industry (steel, cement, chemicals) must decarbonize. Agriculture, forestry and fisheries must switch to zero-emission production. All of this requires enormous resources.

The World Bank estimates that in the period 2022-2040, Vietnam needs 700 billion USD (an average of 37 billion USD/year) for green transformation; creating appropriate mechanisms to mobilize capital from budget, private and foreign sources.

At the same time, the industry must develop based on digital transformation and achievements of the Industrial Revolution 4.0 (AI, blockchain, IOT, robots, automation, etc.) to create high efficiency and labor productivity. This task requires large investment capital while creating unemployment, especially in labor-intensive industries. Therefore, digital transformation must be associated with labor transformation and the creation of new fields to absorb surplus labor.

It must be affirmed that Vietnam cannot develop rapidly and sustainably on the basis of internal strength without basic industries. It is necessary to develop a number of key industries (semiconductors, renewable energy, new materials, metallurgy, mechanical engineering, dual-use defense industry), creating a foundation for the development of the entire industry.

In particular, industry cannot develop based on FDI alone, but must rely on domestic enterprises with sufficient potential and high competitiveness, which can play a leading role in industrialization. Industries from processing and assembly must be shifted to high value-added stages in the production chain such as design and manufacturing of important components.

Developing supporting industries, ensuring adequate supply of raw materials, components and accessories to increase the localization rate and added value of industrial products.

Ahead is a hundred-year journey, where the industry must "transform" with green transformation, digital transformation, mastering core technology and building domestic "eagles", to turn Vietnam into a developed, high-income country and realize the Net Zero commitment.

Source: https://hanoimoi.vn/cong-nghiep-viet-nam-80-nam-nhin-lai-va-huong-toi-tuong-lai-714916.html