Viet Nam’s Government has demonstrated its willpower to develop special economic zones (SEZs) which it hopes will spearhead the country’s growth. This issue has been high on the agenda in the face of the Fourth Industrial Revolution (Industry 4.0), at a time when Viet Nam is at a point where breakthrough institutional reform is necessary.

Vo Tri Thanh

The three SEZs will be located in the coastal districts of Van Don in the northern province of Quang Ninh; Bac Van Phong in the central province of Khanh Hoa, and Phu Quoc Island.

The idea of establishing prominent economic zones is not a new one in Viet Nam. It was first put on the table in the early stages of the country’s economic opening.

The country planned to develop Cai Bau and Con Dao islands into special economic zones in early 1990s, Phu Quoc Island in the mid-1990s and the city of Hai Phong in 1997-98, but all of these plans fell through.

In early 2000s, the Chu Lai Open Economic Zone was established in the south of Quang Nam Province, becoming Viet Nam’s first coastal economic zone with the Government’s support and preferential mechanisms.

Though it has somehow proved successful in boosting regional economic development, creating jobs and attracting investors, it has yet to bring about a prominent effect on economic and social mindsets across the country.

The project came about through the application of the most favourable conditions in the framework of existing law, not through an introduction of a breakthrough new development.

Better late than never

Viet Nam has been late in putting the SEZ concept into practice and let slip the chance to do so in the previous two decades. Thousands of SEZs have been established around the world since then, a skyrocketing growth compared with about 400 in late 1980s.

Over time, institutions, management structures, the level of openness and liberalisation, as well as incentives and state support for SEZs have seen substantial changes.

Although being late and facing many challenges, Viet Nam must dare to play and bet on the success of SEZs.

The purpose of developing SEZs is to create a leading edge for the country’s growth in the face of a scarcity of resources, and political and social complexities.

The development strategy should consider SEZs as a framework for testing and catalyzing economic reforms in the economy as a whole, and experiences must be taken from the zones to increase the effectiveness of the country’s institutions.

This project carries certain risks and we cannot ask for perfection right from the start, rather we must gradually move forwards with a pragmatic and experimental approach and reform-oriented mindset.

Even China, one of the most successful countries in terms of leveraging SEZs to achieve far-reaching economic transformations, has not achieved success with all projects.

China started with four zones in the early 1980s, including Shenzen, Zhuhai, Shantou and Xiamen, where experiments with special investment and trade privileges were implemented. They have experienced varying levels of success, of which Shenzen is the most excellent achievement.

Since then, China has established around 500 special economic zones (1,000 if taking account into industrial zones). It has been creating a new-generation of SEZs, focusing on economic and technological development which is highly adaptable to the hottest trends, especially in the face of Industry 4.0 and high levels of global liberalisation.

Challenges

Viet Nam’s draft law on Special Administrative-Economic Zones is rather scrupulous and comprehensive with reference to other countries’ experiences.

The objectives are to create a breakthrough development for these regions and the whole country, build outstanding institutions in order to be internationally competitive as well as ensure benefits for people and enterprises.

Amid rapid changes in the global trends of finance, technology, and economic policy, the development of Viet Nam’s SEZs will face challenges which require the Government’s willpower to take bold action to guarantee its success.

Three most important issues which we should consider when developing SEZs include the openness, institutional structure, and the incentives and privileges designed for these special economic units.

The openness and liberalisation measures the level of freedom of movement for not just goods and services, but also labour, capital, technology, information and other resources.

Viet Nam has been involved in a number of FTAs, including high profile ones such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Viet Nam-EU Free Trade Agreement, but even these accords have not addressed comprehensively the issues related to the movement of skilled labour, data transactions, and financial resources.

Regarding SEZs, Viet Nam needs to think more about its openness in two areas – the movement of skilled labour and capital to be able to attract talented people, as well as drawing in more efficient foreign investors.

Institutional structures must be built to ensure transparency, accountability, determination, and prompt action in handling disputes and problems of people and businesses. This requires high-quality human resources (where the country may consider the employment of foreign specialists), public-private partnership (PPP) schemes in some areas of providing public services, and an effective digital government. As they are basically major dimensions of the whole public administration reform, the experiment of these SEZs can be good examples to learn from.

Concerning incentives, the draft law on Special Administrative-Economic Zones has introduced detailed incentives which seem to be internationally competitive and closely linked with the sectors SEZs hope to boost development in, such as high technology, tourism, and transport, but these may be not enough.

Viet Nam’s incentives still focuses on traditional issues such as taxation, but investors pay higher attention to non-financial supports, especially in terms of the openness and institutional structure. Even in taxation, we should offer incentives based on performance rather than on profit.

Another important thing is that the incentive procedures should be designed simply to have the most positive result. For example, Viet Nam is offering many incentives for startups, but the current approval process is too complex for many of them to obtain licences.

In the initial process of building SEZs in Viet Nam, the lack of transparency and preventive measures in dealing with troubles prior to the project implementation has caused some social disorder, such as land fever in the areas of special economic zones.

Meanwhile, the handling measures in some cases are quite administrative, and therefore, may not be appropriate; for instance banning land transactions in the involved provinces in an effort to cool down the market.

The establishment and development of SEZs engages many factors, but the most crucial issue is still the human resources which ensure the implementation and success of the project.

* Vo Tri Thanh is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. The holder of a doctorate in economics from the Australian National University, Thanh mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems.