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JICA and JETRO Reports Target Vietnam’s Growth

By: V V G Staff and standard sources
April 2002


Japan International Cooperation Agency (JICA), armed with the responsibility of reporting to Japanese government and large corporations on the appropriateness of ODA funding, seeks to set its goals while targeting Vietnam’s future.

 

Japan External Trade Organization (JETRO) is the small sister organization that helps provide investment advice to Japanese large and small businesses.

 

Japan is by far Vietnam’s largest Overseas Development Assistance (ODA) donor. Where the earlier task was for Vietnam to meet the requirements for accessing these important funds, today’s task is to insure that the donor nations continue their generous assistance until Foreign Direct Investment (FDI) grows to sufficient levels.  Targeting where foreign investors will want to put their funds 15 to 20 years out is always a challenge.

 

Traditionally ODA funds are received at the cost of FDI funds if their targets are the same.  Therefore, early ODA funds have been for infrastructure development, not a favored target of multi-national foreign investors. 

 

It has also been a traditional concept of ODA funding that the projects are open to bids from companies from all nations. While there are exceptions to most traditions (it does snow in Vietnam - one day a decade in Sapa), few projects funded by Japan’s ODA fail to include a healthy Japanese construction component.

 

Therefore, when JICA and JETRO write of their views of Vietnam’s growth opportunities, it is wise for all investors to pay attention. Other nations are wise to follow the guide set by JICA and JETRO for their own ODA and FDI funds, and their projections thus seem to become self-fulfilling prophesies.

 

Labor Projections

 

JETRO’s recent survey of labor costs in Vietnam increased by 25% in Ho Chi Minh City but by only 2% in Hanoi.

 

Long touted as a place for low-cost labor, Vietnam has sought to shun that reputation and grow in a higher tech, higher cost sector.  Progress can be seen but there is a long way to go. With over 81 million people and half of them under 25 years old, this labor market must be prepared for the long term if Vietnam is to sustain its compositeness.

 

Simply raising the wages without the level of skills can destroy growth.  Witness the Nam Con Son pipeline where Thai laborers were imported to work on the 400 km, US$ 1.5 billion project.

 

Intelligent, loyal, able and willing to learn quickly, and hard working are traits that often escape a description of the Thai labor force while they are attributes used to describe the Vietnamese labor force.  However, the need for speed and the absence of time to train with its resultant loss of productivity, both contributed to not hiring domestic Vietnamese for this important and very profitable work.

 

JETRO found that the year 2001 HCMC average worker’s salary increased from US$ 90/month to US$ 120/ month from the prior year (2000).  The increase for the average Hanoi worker went from US$ 93/month to US$ 95/month over the same time period. The minimum wage in both cities is US$ 45/month.

 

In Bangkok the minimum wage is US$ 120/month but the average wage for workers is US$ 141/month, while in KL the average monthly wage is US$ 198 for the same time period.  The average worker in Singapore receives over US$ 421 per month.

 

Clearly for the short term Vietnam will remain the low cost producer. In order to succeed in the mid and long term (10 to 20 years out), as the most competitive economies are also the best educated with the most modern plants and equipment, Vietnam must meet the competition that already demands highly educated and well trained workers and managers.

 

Manufacturing and Export Projections

 

JICA’s findings have a similar, near explosive potential to change Vietnam’s economy for the better. 

 

JICA found the per capita GDP to be US$ 350, contrasting Vietnam’s own GDP per capita proclamation of from US$ 400 to $2,000 (pursuant to a Parity Purchase Power method - see GDP at Economic Indicators). JICA projections are for this to rise to US$ 500 in 2005, to U$ 700 by year 2010, and to US$ 1,300 by year 2020.

 

In contrast, war torn Afghanistan has a reported per capita GDP of US$ 2,000 in case any should doubt the extent of the continuing challenge ahead of Vietnam to simply catch up. Vietnam cannot afford to fall further behind.

 

JICA reports that “Vietnam should be able to maintain compositeness in labor-intensive industries like garments and shoes manufacturing until 2010,” during which time “capital intensive industries such as chemical fibers will have difficulty developing… because Vietnam will lack any competitive advantage.”

 

The report concludes that “Vietnam will gradually loose its competitiveness in labor-intensive industries during the period 2014to 2020 … when Vietnam will need to facilitate the transition of export industries to more knowledge based ones.

 

It is possible if changes are implemented immediately to further encourage FDI that exports could reach US$ 120 billion.  Where JICA reports that Vietnam’s 2001 exports reached US$ 15.1 billion in year 2001, Vietnam’s own reports claim exports reached US$ 16.74 billion in the same period. 

 

Transparency in economic reporting will go a long way to improving the FDI climate in Vietnam so that such discrepancies in export earnings (over 8%) will not appear.

 

Expectations reported by JICA for the long-term period (2014to 2020) are that “Machinery manufacturing will not contribute significantly to Vietnam’s exports [after 2014but the present] development of this sector is essential to raising the competitiveness of Vietnam export industries as it constitutes a supportive industry” for long term growth.

 

For the long term period (2014to 2020], JICA “expects the electronics sector to account for the lions share” of Vietnamese exports “with US$ 40 billon to US$ 50 billion, with textile and garment manufacturing the second largest contributor at around US$ 15 billion to US$ 20 billion.”

 

Where Vietnam previously hoped that the crude oil sector would overtake garments and textiles to be the top exporter, fluctuations in the world oil prices have kept that merely a dream.

 

Four factors stressed by JICA that would shape Vietnam’s export future are:

1.      Information Technology

2.      China emerging as a major economic power

3.      A shift in Vietnam’s competitiveness factors, and

4.      Vietnam’s liberalization of international trade.

 

The clear emphasis is on IT, where JICA says the emerging Vietnamese Information Technology industry will create an opportunity for Vietnam to leapfrog more advanced countries that have a greater concentration on high-growth industries.

 

Vietnam’s leaders have watch as their nation missed other opportunities such as wasting 10 years of associate gas flared off shore, not more quickly seizing the BTA with the US, and not more quickly liberalizing the FDI sector when Southeast Asia first floundered in 1997.  Many hope that this window, if it in fact is open, will not close with a repetition of past lethargy or stubbornness.

  


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