Challenges for Vietnam’s support industry

(VOV) - Vietnam is still a potential market despite the fact that the underdevelopment of its support industry remains one of the barriers to foreign investors.

Speaking at a recent seminar on opportunities and challenges for Vietnam’s support industry, Reed Tradex Company’s Managing Director Chainarong Limpkittisin reviewed the trend of foreign direct investment (FDI) in Vietnam. He noted that the country attracted as much as US$64 billion to 1,171 projects in 2008, a threefold increase over 2007.

However, he said, the figure has dropped significantly to US$21.48 billion in 2009, US$18.1 billion in 2010, and US$14.69 billion in 2011. In the first two months of 2012 Vietnam attracted just US$1.23 billion, or 45 percent of the figure recorded in last year’s same period.

Limpkittisin put this down to investors’ concerns that they will have to import materials for production since Vietnam’s support industry is still underdeveloped.

Dao Thu Vinh, Deputy Director of the Hanoi Department of Industry and Trade, agreed that the city is mainly focused on supporting 20 basic production lines to create 122,000 jobs for labourers and contribute more than VND3 trillion to the State budget.

He said the development of the support industry has attracted more than 1,000 businesses, including many from Japan, the Republic of Korea, and Taiwan over the past five years. But most domestic businesses are not capable of joining high-tech supply chains.

What they can do is just manufacturing spare parts for FDI businesses in the country, Vinh added.

Nguyen Van Thu, Vice Chairman of the Vietnam Association of Mechanical Industry (VAMI), said export earnings from mechanical engineering products have increased considerably from US$1 billion in 2006 to US$2 billion by far.

Thu said foreign businesses involved in automobile and electrical equipment production have created a large market for Vietnam’s mechanical engineering industry. He proposed policy adjustments to attract more FDI inflows as many foreign businesses plan to move their factories to Vietnam to cut transport costs and minimize risks.