Vietnam Slowly Moves up in High Tech Manufacturing Value Chain

Nhat Trung

10:30 12/08/2019

BizLIVE -

Vietnam is becoming highly integrated into the global supply chain—both forward and backward linkages—while moving up the value chain, mainly in high-tech manufacturing.

Vietnam Slowly Moves up in High Tech Manufacturing Value Chain

Photo Courtesy: Bloomberg

The current account position reflects a dual and segmented economy. A competitive FDI manufacturing sector generates a large trade surplus (15 percent of GDP), dominated by electronics multinationals and apparel producers engaged in processing and final assembly, according to the latest estimates by International Monetary Fund.
Vietnam is becoming highly integrated into the global supply chain—both forward and backward linkages—while moving up the value chain, mainly in high-tech manufacturing. The domestic non-FDI sector (many SMEs, agriculture, tradable goods producers, including SOEs and domestic private firms) runs a trade deficit of 8.3 percent of GDP.
Productivity in this sector is low (20 percent of that of the FDI sector), and exports are dominated by agricultural commodities and oil. Slow SOE reform progress, barriers faced by SMEs to reach economies of scale and credit misallocation and weaknesses in financial intermediation impede the development of a productive and vibrant economy outside the FDI sector despite rapid growth.
Investment has declined during the last decade while saving has remained high. Gross capital formation has been below most countries in the region. Excluding the FDI sector, investment has fallen by 10 percentage points, to 25 percent of GDP. 
This partly reflects cutbacks in SOE capital formation in heavy industries and barriers to the development of private manufacturing firms and SMEs, as well as declining public investment. Saving has remained at about 35 percent of GDP, which is high relative to peers, reflecting ineffective financial intermediation of high profits in the FDI sector into productive investment opportunities in the domestic economy because of foreign ownership limits and weaknesses in the banking system.
The real effective exchange rate (REER) appreciated in 2018. The real effective exchange rate appreciated from the low levels of 2005 until 2016 by 4 percent on average every year. In 2017, the REER depreciated by 4.4 percent, as the Dong remained pegged to a weakening U.S. dollar. The trend reversed in 2018 and the REER appreciated by 3.5 percent through the year.
The financial account balance is expected to decline in 2018. FDI and FII inflows have been robust (US$15 and 3 billion) while private external disbursements continued to rise. In mid-2018, increased pressure on the Dong led to a temporary reversal of foreign equity flows and an increase in US dollar currency holdings by residents outside the formal financial sector.

NHAT TRUNG

Tin liên quan

Cùng dòng sự kiện