Boosting strengths of manufacturing and processing sector

Driver for economic growth

According to the Ministry of Industry and Trade (MoIT), the 10-month Index of Industrial Production (IIP) was estimated to rise by 9.5% compared with the same period in 2018, of which, the manufacturing and processing industry increased by 10.8%, contributing 8.3 percentage points to the IIP growth. The manufacturing and processing sector continues to be the driver of Vietnam’s industry and always accounts for the highest proportion of the entire growth of the industry sector.

In the 10-month period, the production of leather footwear incresed by 8.6% and the sector is estimated to grow by over 10% in 2019. The domestic automobile sector has also expanded rapidly as the Vietnamese VinFast automobile plant has turned out its first products while Truong Hai Auto Corporation (THACO) and Thanh Cong Auto Company have consolidated their leading roles with a series of domestically assembled automobile products at reasonable prices.

The production and assembly of automobile products reported a total of 284,200 units in the first 10 months of 2019, up 8.6% compared to the same period last year.

The production of electronic products, computers and optical products began to recover from the middle of the second quarter of 2019. The sector went up by 20.1% and 14.6% in August and September, respectively, and expanded by 7.5% over the 10-month period.

The manufacturing and processing sector also attracted the largest amount of Foreign Direct Investment (FDI) capital, having attracted over US$9.1 billion worth of newly registered capital in the past 10 months, accounting for 71.2% of the total newly registered FDI in the country. The sector also attracted nearly US$13.8 billion worth of newly registered and supplemented capital during the 10-month period, comprising 75.8% of Vietnam’s total newly registered and supplemented FDI capital.

The wave of investment from Japanese, Chinese and the Republic of Korean businesses has continuously poured into Vietnam, particularly in manufacturing and processing sector, demonstrating the improvements to Vietnam’s business and production environment.

The steady growth of the manufacturing and processing is also conformable to Party and State’s policy on the restructuring of the industry sector towards reducing the proportion of raw goods and increasing the proportion of high-tech manufacturing and processing.

Making efforts to overcome challenges

The manufacturing and processing sector is facing challenges, with its 10-month growth rate of 10.8% being lower than that of the same period last year, at 12.5%. The inventory index of the sector also increased by 17.2% by September 30 of this year while the index of the same period last year was 13.8%.

According to the MoIT, the slowdown was due to effects of the global economic and political tensions. The garment and textile sector, one of Vietnam’s key export sectors, is encountering many difficulties, including unstable input, shortage of orders, stricter demand from the market with lowered prices, fiercer competition and a number of trade barriers.

China – US trade tensions have also created impacts on the exchange rates between currencies, causing the price of processed goods from Vietnam to be higher than some countries in the region, affecting export orders, especially the garment and textile sector.

The production of steel is also affected by the quiet domestic construction steel market. Unfavourable weather conditions such as tides and heavy rains in several areas have impacted the consumption of civil construction steel and the launch of new construction projects. The domestic steel industry also has to compete fiercely with imported steel products and is faced with many cases of anti-dumping investigations from importing countries.

The automobile market is also in a cruel competition, with price falls in all market segments due to plentiful supply from imported as well as domestic automobile production. The removal of import tariff on cars will not only come from ASEAN countries, as currently, but also from members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Vietnam - EU Free Trade Agreement (EVFTA) in the next seven to ten years. The fierce competition from imported cars is increasing and will certainly affect the domestic automobile industry.

In 2020 and following years, the MoIT will concentrate on developing manufacturing and processing sectors with export advantages such as garment and textile, footwear, and wood and wood products. The ministry will also boost intensive processing of agricultural, forestry and fishery products to increase the added value of products, promote consumption and increase export value.

In addition, the ministry will foster the development of mechanical products while giving priority to the development of automobile sector, agricultural machinery, construction equipment, shipbuilding, and others.

It is also necessary to enhance the competitiveness of the private sector and encourage them to pour long-term investment into building strong brands in the manufacturing and processing sector.