HCM City plans to provide special policies and incentives for businesses, especially small- and medium-sized enterprises (SMEs), which invest in support industries, the deputy director of the Department of Industry and Trade has said.

Speaking at a meeting on the role of SMEs in developing a support industry, Nguyen Phuong Dong said they played “a key role in completing the goal of making Viet Nam an industrialised country by 2020”.

“A strong support industry is needed to enhance the competitiveness of Vietnamese products. It is one of the city’s most important priorities,” he said.

In addition, support industries provide jobs and promote exports as well as prevent excessive dependence on imported goods and services, he added.

However, the development of support industries is very slow, especially in HCM City as there are not enough policies and incentives for investors. They are also not attractive to investors.

Viet Nam has achieved positive results in developing support enterprises, mostly SMEs, for the motorbike and electrical appliance industries.

Some major industries such as machinery, garments and textiles, and footwear are weak because of the lack of support industries.

The industries must depend heavily on imported feedstock and inputs, thus losing out on profits and competitiveness.

Challenges

One of the major challenges to attracting investment in support industries in HCM City is the lack of transparency and information about the field, said Tran Thi Do, of the HCM City Institute of Research and Development Studies.

A majority of support industry companies are SMEs, many of which do not have capital to invest in cutting-edge technologies and human resource training, she said.

Viet Nam has only some 650 companies that make parts compared to 58,000 businesses operating in the manufacturing sector, she added.

The slow development of the local support industry has resulted in increased production costs as well as a risk of larger trade deficits with foreign partners and low competitiveness of Vietnamese products compared with other countries.

In addition, the country has to depend heavily on imports of components and parts, mostly from China.

Tran Gia Trung Dinh, of the HCM City Institute for Research and Development Studies, said the number of Vietnamese businesses in the sector remained modest, with most of them SMEs. Only a few are part of the production chain of multinational companies.

“Poor production and trading capacity and lack of market information are the main reasons that prevent local enterprises from entering the global manufacturing chain,” Dinh said.

But with Free Trade Agreements the country has signed, more and more foreign investors will come to Viet Nam, providing many opportunities.

Pham Tuan Anh, deputy general director of Division of Heavy Industries, said:“A country’s industrial sector cannot develop without support industries as the latter determines production costs and value addition for finished products and thus their competitiveness.

“Although the Government has policies to enhance the development of support industries, the rate of locally sourced parts remains low at just 10 per cent.”

Raw materials, parts and components are the main factors in production costs, accounting for 80 per cent, while labour only accounts for 2 per cent, according to the HCM City Institute of Research and Development Studies.

New decree

The Ministry of Industry and Trade recently completed a draft decree on developing support industries with many incentives.

The ministry has stressed the need for incentives for companies operating in the support industry since the sector is in a beginning stage.

The top incentives include exemption of business income tax for organisations and individuals operating in the field and transfer of support industry technologies, according to the draft decree.

The state will support a maximum of 50 per cent of funding for the training costs of technical staff of businesses operating in support industries.

In addition, each employee will be trained only once with a training period lasting no more than six months.

The state budget will also support a part of the cost of advertising in mass media and registering trademarks for business operations.

The funding to participate in local and international trade fairs and access market information will also be partly covered by the state.

There will also be a pilot programme lasting until 2020 that will cut 50 per cent of personal income tax for people working as specialists or trainers in technology transfer in support industries for a maximum period of one year.

The incentives also include exemption from import duties for goods that are imported to create fixed assets for production of support industries.

The lending interest rate for projects in support industries will enjoy a preferential rate that will not exceed the maximum rate of 80 per cent of normal rates for loans with a maturity period of up to 10 years.

There will also be centres for the development of support industries to be established across the nation.

The ministry said the policies to support the sector needed to be implemented before 2018 when the regional free trade agreement takes full effect. — VNS