Domestic private sector collects pittance from global supply chain: PM
Vietnam’s domestic private sector will be “collecting change” from the global value chain without quality and productivity breakthroughs, PM Nguyen Xuan Phuc says.
Only 21 percent of domestic private enterprises have integrated with the global supply chain, compared to Thailand’s 30 percent and Malaysia’s 46 percent, he said at an economic forum Friday.
Vietnam’s average localization rate of 33 percent, was a reason its private sector integration into the global supply chain was still low, he added.
According to the General Statistics Office (GSO), in the first 8 months of 2019 Vietnam exported $169.98 billion worth of goods and services, up 7.3 percent over the same period in 2018. Of this, the FDI sector accounted for almost 70 percent of the export turnover, leaving just 30 percent for the domestic private sector.
Vietnam needs breakthroughs in productivity and quality in the domestic private sector, failing which it will be "collecting change" from the global value chain, Phuc said.
Although Vietnam has been attracting high levels of FDI given its "relatively good rule of law" compared to other similar income countries, investment by the private sector remains below its peers because it is mainly comprised of small and medium-d enterprises, said David Dollar, senior researcher at Brookings Institution, American think tank.
"Global value chain research shows that direct exports are often done by multinational enterprises, but the domestic private sector is important for enhancing the depth of value chains and creating jobs on a large scale," he said.
"I have not seen a country that has grown prosperous on FDI alone. Vietnam needs to boost domestic investment instead of focusing on attracting FDI and developing state-owned enterprises," he added.
Vietnam needs to improve the environment of its private sector, especially policies to remove barriers in access to credit, land and imported production inputs. It also needs to create better bridges between the FDI and domestic private sector, so that the latter can absorb high technology and improve labor productivity, Dollar said.
Vietnam also has been exporting tangible goods such as agricultural and forestry products, while intangibles that bring high added value such as commerce and services have not been the country’s strengths, he noted.
"Two thirds of total global value now come from cross-border business, which mainly comes from commerce and services such as software, finance, telecommunications, or smart products. This is the direction the world is moving in."
According to GSO’s data for 2017, the latest year for which it is available, the domestic private sector’s per capita productivity was VND228.2 million ($9,800) - VND330.8 million ($14,200) for the foreign invested sector and VND678.1 million ($29,200) for the public sector.
Vietnam has been attracting FDI for more than three decades now, with total value reaching $334 billion as of August last year.