Vietnam has shown that success is possible where will is present. The once backward country has become a classroom study for doctorate degree students of economics who wish to understand how a damaged economy could be transformed into one of the strongest manufacturing hubs in the world.
In an article entitled ‘Evolution of Vietnamese Industry’, researchers Nguyen Thi Tue Anh, Luu Minh Duc and Trinh Duc Chieu pointed out that the industrial sector in Vietnam contributes approximately 34 percent of Gross Domestic Product (GDP), with manufacturing being by far the most important industrial sub-sector, accounting for 87 per cent of total industrial gross output.
According to them, within manufacturing, the food and beverage industry stands out as the most important industry with around 19 per cent of total industrial output.
“One of the most important policy decisions for Vietnam during the Doi Moi process was the shift from a strategy of import substitution (IS) to one of export orientation,” they said.
“Obviously, Vietnamese policy makers wanted to avoid the failure of the Latin American economies and to learn from the successes of the industrialised nations and newly industrialised economies (NIEs) of East Asia, the renowned ‘flying geese’. As a result, during the past decade, Vietnam’s industrial output has grown at an average annual rate of 15.2 per cent and total annual exports have increased 18.1 per cent (GSO various years),” they added.
Explaining further, they said that key to the success was a creation of the right atmosphere for foreign direct investment (FDIs).
”Dynamic foreign direct investment (FDI) and the private sector played key roles in manufacturing and exporting activities, in contrast to the earlier monopolistic behaviour and inefficiency of the centrally planned state-owned enterprises (SOEs),” they disclosed.
Today, the remaining SOEs have become more active and competitive exporters, certainly a reflection of Vietnam’s continued learning process at both country and cross-sector levels, they stated.
With these steps, the results have become visible.
Today, it is possible that the clothes and footwear you are putting on right now are from Vietnam. In 2017, the Southeast Asian country earned $31 billion from exports of textile and garment industry alone, a year-on-year increase of over 10 percent, according to an online information platform Vietnam Briefing.
In 2018, the country made $16.24 billion from footwear, representing a 10.5 percent increase over 2017, according to Lefaso, the Vietnam Leather, Footwear and Handbag Association.
The country has gone from obscurity to fame in manufacturing, thanks to certain reforms done by the ruling class.
Nigeria and Vietnam have things in common. One is that half of the population in both are less than 35, which provide a ready labour force for industries and firms. But unlike Nigeria, Vietnam has well-trained skilled labour who fit into its industrial dream. This began with reforming the education system, paying attention to sciences and technical subjects, which are indispensable for industrial growth.
Two, agriculture employs more than half of the population in both Nigeria and Vietnam. Similarly, rice is the most important crop in both countries.
More so, both countries have comparative advantage in leather/shoes and have enormous raw materials in food and agro-allied sector.
But Vietnam took certain steps to get to where it is today.
One of the major steps taken by the country is market reforms. Vo Tri Thanh, a Vietnamese economist, said keys to the country’s growth were an acknowledgement of the private business right; the market-oriented reforms; macroeconomic and social stability, as well as the opening and the integrating of the economy into the regional and world economy, especially in the areas of trade and Foreign Direct Investment (FDI).
Vietnam sees trade as the most important part of its manufacturing sector. In an article entitled ‘Vietnam’s manufacturing miracle: Lessons for developing countries’, three economists Sebastian Eckardt, Deepak Mishra, and Viet Tuan Dinh said Vietnam has numerous bilateral and multilateral free trade agreements, which dramatically cut tariffs, anchored difficult domestic reforms, and opened up the economy to foreign investment.
“It is estimated that more than 10,000 foreign companies—including major global players such as Samsung, Intel, and LG—operate in Vietnam today, mostly in export-oriented, labour-intensive manufacturing,” they added.
Today a sizeable number of the phones are from the country.
Nigeria has over 50 trade agreements but many of them are not profiting local firms owing to lack of openness between Nigeria and the countries, and low capacity utilisation of most firms resulting from tough business environment. Cost of production is extremely high in Africa’s most populous country as firms provide their own alternative energy to power their businesses.
Vietnam reduced its cost of doing business for enterprises.
The World Bank said in its 2019 Doing Business report that Vietnam made paying taxes less costly for companies by reducing the corporate income and value added tax rates while eliminating the surtax on income from the transfer of land use rights. Taxes in Nigeria (state, federal and local governments) today are 54 and are rising as states become increasingly cash strapped.
As a serious country open to business, Vietnam made starting a business easier by publishing the notice of incorporation online and by reducing the cost of business registration. It equally made enforcing contracts easier by making judgments rendered at all levels in commercial cases available to the public online, the World Bank added.
It made exporting and importing easier by upgrading the automated cargo clearance system and extending the operating hours of the customs department.
Scanners at the Customs in Nigeria are barely working, with roads to Apapa and Tin Can ports nightmares.
“Of particular concern and importance to us (MAN) are the challenges we face in moving our raw materials and goods to and from the ports,” Seleem Adegunwa, chairman, Manufacturers Association of Nigeria (MAN), Ogun State chapter, said at a recent CEOs business luncheon at Agbara, Ogun State, when referring to challenges faced by Nigeria’s manufacturers at the ports.
But Vietnam strengthened access to credit by adopting a new civil code that broadens the scope of assets that can be used as collateral. Most banks in Vietnam, including VietcapitalBank, NamABank and ABBank, lend at between 8 and 8.6 percent, but almost all Nigerian banks lend at above 20 percent, and even up to 30 percent.
The country likewise increased the reliability of power supply by rolling out a Supervisory Control and Data Acquisition (SCADA) automatic energy management system for the monitoring of outages and the restoration of service. According to energypedia.info, 100 percent of Vietnamese have access to electricity.
However, things are different in Nigeria, with over half of Nigeria’s population without access to energy, and firms resorting to diesel or gas to fuel their generating sets.
“Vietnam invested in infrastructure, especially in the power sector and connectivity. To keep pace with rapidly growing container trade (which expanded at a staggering average annual rate of 12.4 percent between 2008 and 2016), Vietnam also developed its connective infrastructure, including seaports and marine terminals,” economists Eckardt, Mishra and Dinh said.
Nigeria’s infrastructure is broken, with a number of contracts abandoned by poorly paid contractors. The rail infrastructure is work in progress, making interconnectivity required for economic growth difficult.
Roads are becoming increasingly unsafe as insecurity hurts businesses and investors.
“Vietnam has leveraged its demographic dividend through effective investment in its people. In the latest 2015 OECD Programme for International Student Assessment (PISA)—which tests high school students in math, science, and other disciplines—Vietnam ranked 8th out of 72 participating countries, ahead of OECD countries such as Germany and Netherlands,” they added.
On the contrary, Nigeria is not exploiting its youthful population as many of them are jobless, with others in small business unable to access funds for growth and expansion.
Latest report by the National Bureau of Statistics and the Small and Medium Enterprises Development Agency (SMEDAN) says 2,877 medium scale firms shut down between 2013 and 2017. This shows why unemployment rate is 23.1 percent in the country.
In August 2016, the Manufacturers Association of Nigeria (MAN) and the NOI Polls reported that 222 small-scale businesses closed shops, leading to 180,000 job losses.
“When do we begin reforms in gas, electricity, industry and financial sectors?” a senior civil servant, who works in a government institution, asked.
“We need infrastructure renaissance. Government says it does not have money, but we have idle assets running into billions, including government assets. Why not sell them? This money can be used to build infrastructure to support businesses.
“Secondly, we need to have an industrial strategy that positions us as either an exporting country or import substitution one,” the civil servant, who would not want his name in print, said.
