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Vietnam Needs Supply Chain Upgrade for Economic Growth

If Vietnam wants to be a successful trade partner, it’s going to have to make some major changes to its manufacturing model.

Vietnam Supply Chain opened its third annual Congress in Ho Chi Minh City to discuss ways to improve the country’s supply chain competitiveness. The three-day international business conference is focused on discussing Vietnam’s industrial environment and market opportunities, finding new ways to boost business and offering best practices for reducing costs and improving the bottom line.

World Bank Vietnam country director, Victoria Kwakwa, a panelist for one of the workshops, presented a report titled, “Trade Facilitation, Value Creation, and Competitiveness: Policy Implications for Viet Nam’s Economic Growth.” The report, a joint effort by World Bank and National Committee for International Economic Cooperation (NCIEC), notes that while Vietnam has seen growth in exports over the last two years, the country has been less successful in diversifying those exports and ascending the global supply chain.

Exports in the country rose 34 percent in 2011, 18 percent in 2012 and nearly 20 percent in the first quarter of 2013, according to World Bank.

“Vietnam has implemented a number of trade liberalization measures and signed several trade agreements in the past two decades,” Kwakwa said. But “to fully benefit from these policies, Vietnam needs to enhance trade competitiveness through complementary reforms that will help among other things strengthen domestic and export-related infrastructure and logistics.”

According to the report, there are three pillars of international competitiveness: Transport infrastructure and logistics services, regulatory procedures for exports and imports and supply chain organization and Vietnam will need to concentrate on improving in these areas in order to sustain economic growth.

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With regard to trade, Vietnam’s infrastructure isn’t doing well to keep up with the growth of exports, the report says, but the money to fund upgrades cannot only come from public investment, the country will need private sector financing too. In addition, exports are mostly made up of products with low technology and little value added and manufactured exports have high import content.

“With these challenges and trade liberalization offering limited opportunities for future export growth, the costs associated with trade logistics and trade facilitation have emerged as a significant factor affecting competitiveness in Vietnam,” the report says.

The recommended remedies for Vietnam’s economy are to develop infrastructure and transport services, simplify regulatory procedures to reduce time and cost of trading goods and to restructure manufacturing supply chains to capture value. Vietnam will also need to proactively participate in global value chains.

In the report’s foreword, Deputy Prime Minister Vu Van Ninh said, “The advantages of trade liberalization in contributing to the growth of trade are reaching their limits. It is time to have a new approach to improve trade competitiveness and export growth.”