Asia Times: Hanoi invests as free trade approaches


	June 20, 2001	atimes.com

Southeast Asia

Hanoi invests as free trade approaches

HANOI - The Vietnamese government will invest VND28,000 billion (US$1.9 billion) into getting Vietnamese industry ready for the challenge of free trade, highlighting the need for manufacturers to lower production costs, upgrade technology and improve management.

The investment, which is slated for this year, was reviewed at a recent Ministry of Industry workshop in Hanoi. The workshop reaffirmed the importance of bolstering domestic producers' competitiveness ahead of Vietnam's entry into the Asean (Association of Southeast Asian Nations) Free Trade Area (Afta) in 2006.

Senior ministry officials revealed that in the first quarter of this year an additional VND3,320 billion had been spent on industry-specific programs, which had benefited sectors such as rubber, paper, garments and textiles, sports footwear, nitrogenous fertilizer, vegetable oil, soft drinks, and rubber tyres.

Free trade will be a severe test for many industries, which will have to take on more efficient rivals from other Southeast Asian countries. The battle will be fought out both in the Vietnamese market and across the region, and local firms will either have to lift their games or lose market share.

Some industries - garment and textiles, footwear, diesel engines, steel, coal, chemicals, fertilizer, paper, milk, vegetable oil, beer, and soft drinks - are tipped to succeed. But the deputy director of the Ministry of Industry's Planning and Investment Department, Tran Manh Thu, said a World Economic Forum study on the competitiveness of industrial products in 58 developing countries had ranked Vietnam 50th in 1999 and 53rd last year. Some of the problems faced by local producers include small-scale production, obsolete technology, less attractive designs and the high cost of imported raw materials.

Thu said the priority for state investment and spending would be for technology upgrades, which would raise products' quality and lower their cost.

The ministry has asked the government to adjust export taxes and cut 100 categories out of the import levy system, accounting for a third of the categories which Vietnam must address before joining Afta.

Some industries are taking the initiative themselves. The garment and textile sector has devised an ambitious 10-year plan to spend $150 million on developing domestic supplies of raw materials, boosting technology and setting up 10 new textile factories. The aim of this plan is to narrow the gap between the Vietnamese industry and its overseas rivals. By 2010, the proportion of raw materials sourced locally will rise from 25 to 75 percent, cutting production costs. This will translate into more competitive prices. At present, Vietnamese garment prices are 10-15 percent higher than elsewhere in Southeast Asia.

The paper industry is also planning to expand production, increase quality, lower production costs and consolidate its domestic market share, presently at 60 percent. Like the garment industry, paper manufacturers are planning to lift output and cut their dependence on imported raw materials. The plan includes new areas of raw material cultivation. These will be developed in some northern mountainous provinces, in the Tay Nguyen (Central Highlands), and also in the south. The industry will expand and upgrade existing paper mills such as Bai Bang in the northern province of Phu Tho and Tan Mai in Ho Chi Minh City.

Another key industry, the engine and agricultural machinery manufacturing sector, is planning to expand and renew its technology. Some kinds of Vietnamese-made agricultural machinery are already succeeding in other Asean markets, and are often 40-50 percent cheaper than their rivals despite being of comparable quality.

Some 18,000 engines worth $15 million were exported in 1999-2000. Nguyen Thanh Giang, general director of Vietnam Engines and Agricultural Machinery Corporation said the government would direct provincial agricultural banks to lend capital to farmers with a three-year interest-free period, if the money was spent on buying locally-made engines and agricultural machinery. This would do little to ensure product quality, but would ward off the threat of import competition and give the industry time to prepare for regional free trade.

(Asia Pulse)

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