Vietnam's Bold Approaches to Become a Manufacturing Hub

Since Vietnamese Resolution No. 23/NQ/TW, Vietnam aims to become ASEAN's top three industrialized economies by focusing on three pillars of their leading industries; the industrial sector, processing industries, and the manufacturing industry.

Vietnam's officials forecasted the industrial sector to account for over 40% of the country's GDP by 2030, followed by the processing industries by 30% and the manufacturing industry by 20%. They also foresee a 7.5% average annual growth rate of labor productivity in the sectors, with the proportion of labor in the industrial and service industries by over 70%.

The Competitive Industrial Performance (CIP) Index 2020 has proven that Vietnam is on its way to becoming a vital manufacturing hub in the Asia Pacific.

The country has reached 38 out of the 152 countries registered and climbed significantly since its 41st position back in 2017. With manufactured goods as 90% of the nation's exports, the government seems highly optimistic about growing its manufacturing industries.

Building Blocks for Industry 4.0

Approaches in building Vietnamese Industry 4.0 include introducing big data, the Internet of Things (IoT), and numerous other technologies supporting production that would eventually increase profit.

In 2019, the Ministry of Planning and Investment (MPI) had released the national strategy on Industry 4.0 to transform Vietnam into a digital ecosystem by the end of this decade.

The action plan goes hand-in-hand with the EU-Vietnam Free Trade Agreement (EVFTA), which would directly increase trade traffics between the EU and Vietnam, eliminating significant customs duties between both ends. Vietnam Briefing has estimated the agreement to help improve Vietnam's GDP by 4.6% by 2025.

Moreover, as the model for other developing nations to contain the COVID-19 Pandemic, Vietnam has been a significant beneficiary of China's supply chain relocation during these past years, further adding to the Vietnamese export level's scope for growth in the upcoming years.

Challenges on Vietnam’s Path

However, in February 2021, industrial production fell 6.1% compared to last year's output in the same period, marking the first downturn since May 2020.

The decreasing output results in deterioration of the trend, dragging the annual average growth of industrial production at 3.1%, significantly dropped from January's 5.2% production level.

The shift towards market relocation to Vietnam still faces many difficulties, volatile market conditions, unequal infrastructures, lagging logistics services, and emerging labor prices contribute to the problems that the country needs to overcome if they want to achieve their visions.

Recent trade tensions between the nation and the US also impacted severely on their bilateral relationship. The launching of a Section 301 investigation against Vietnam that includes a probe into whether the country is manipulating its currency creates a downside to its future export forecasts. The government has denied any allegations regarding the issue.

Nevertheless, the Vietnamese industrial sectors are still notably prospective. As economic activities recover in the global market, Vietnam is an attractive, low-cost alternative for manufacturing firms seeking to relocate from China.

Albeit not yet an independent manufacturing hub, the Vietnamese market adjusts to each of the challenges heading their way.