Informal Exchange by Japanese Industrial Experts No.6

The Possibility of Improving the Drafting Process of Industrial Master Plans

Hanoi, January 18, 2006

On Jan.18, 2006, a number of Japanese industrial experts stationed in Hanoi had an informal discussion at the Vietnam Development Forum (VDF). This meeting followed and expanded the discussion at the previous fifth meeting held on Dec.2, 2005.

<Participants> Mr. Ichikawa (expert, MPI), Mr. Takahashi (electronics master plan, MPT), Mr. Karasawa (JBIC representative), Mr. Ojima (JBIC), and Mr. Ohno (VDF).

Free and frank discussion was held over the current status of the electronics master plan, under the Ministry of Post and Telematics (MPT), as well as other master plans. Problems and their possible solutions were debated. We also argued how Japanese assistance could contribute to the improvement.

1. Difficulties in assisting the drafting of master plans (omitted)

2. One proposal for improvement

One expert proposed the following revision to the master plan drafting process, in light of the exchanges we had at the previous expert meeting.

Unlike in other countries where master plans announce policies to the private sector, Vietnam's master plans, written for the prime minister's approval, are a means to propose policy measures within the government. Unlike Thailand or Malaysia, inter-ministerial communication is weak in Vietnam, and MOI and MPT cannot decide on the issues under the authority of other ministries, such as tax incentives, technology standards, or education reform. For this reason, Vietnamese master plans remain a mixture of numerical targets and abstract statements.

Taking this fact as a starting point, we should formally introduce steps to the existing drafting process in order to strengthen listening to the business community and inter-ministerial coordination. More concretely, the following seven steps are proposed.

(1) The relevant ministry produces the initial draft.

(2) Listen to the opinions from the business community.

(3) Draft the "policy plan" to reflect business opinions. Policies here remain at the broad level such as tariff revision, upgrading training centers, tax deduction on re-investment, etc.

(4) Discuss the "policy plan" with other ministries for specific measures. If agreed, the "concrete policy plan" should be produced. If not, policy proposals remain at the level of (3).

(5) The final draft is produced, and explained to the private sector. Unagreed measures should be explicitly listed.

(6) Submit the final draft to the prime minister.

(7) If approved, begin to draft the implementation plan.

As to content, Vietnamese master plans should contain the following: (1) information to deepen the central government's knowledge of the industry in question; (2) arguments to persuade the government in response to foreseeable objections; and (3) proposals that require the government to order revision of policies and institutions under various ministries.

3. The possibility of a comprehensive reform of master plan drafting

The proposal above is realistic in the sense that it adds a few steps for improvement without denying the current procedure. However, the possibility of a bolder reform was also discussed.

The current method of compiling individual master plans separately does not clarify overall industrial objectives, prioritization and relations among industries, or relationship between individual industries and common issues (supporting industries, tax incentives, human resource development, etc). Assisting drafting teams one by one does not lead to the change in basic drafting style of the entire government. New knowledge and method do not spread among ministries. To overcome this difficulty, a new mechanism should be introduced at a higher level than current drafting teams.

Specifically, produce only one master plan for the entire manufacturing industries. Malaysia's Industrial Master Plans (IMPs) can be a useful model. The first few chapters set general strategy and the remaining ten or so chapters describe individual industries and common issues. Existing master plans should be absorbed into this comprehensive master plan as inputs.

[For reference, Malaysia's IMP2 (1996-2005) has the following 12 chapters: overview, presentation of cluster-based development, electronics, textiles, chemicals, resource-based industries, food processing, transport equipment, materials, machinery, strategic orientation, and institutional framework. The content of IMP3 (2006-2020), which is under preparation, has not been revealed, but judging from the list of executing teams, it will have the following chapters: overview, macro framework, external trade, investments, SME, HRD, technology and ICT, marketing and branding, logistics, sector development, and services. IMP2 emphasized sectors, while IMP3 is likely to discuss functions more clearly.]

The drafting organization will have three layers. At the top, there is a highest body (A) with authority to order the drafting with certain general orientation, and receive the final draft. In the middle, a secretariat organization (B) actively coordinates design, drafting, adjustment etc. Below, there are a number of executing teams (C) responsible for actual writing chapters. Each executing team can freely arrange writers, research assistants, local consultants, subgroups, etc and budget for these is allocated if necessary. In preparing IMP3, the Malaysian Ministry of International Trade and Industry (MITI) is the authority in charge, and a few hundred people are mobilized in all. (A) is called the Industrial Planning Committee, (B) is called the Steering Committee, and (C) is called the Technical Resource Group. These names can of course be changed to suit the Vietnamese situation.

To introduce this mechanism in Vietnam would require many changes. It cannot be accomplished from bottom up, but may be feasible if a proper top-down approach is taken. Since it is clear that the current method of drafting master plans individually has come to a deadlock, adopting an entirely new way may even expedite needed changes. However, the details of this mechanism must be designed carefully. Malaysia already enjoys active communication among ministries and with businesses. In Vietnam, such communication must be built from a scratch. The proposal for introducing the new mechanism should be construed as a way to promote such communication channels. Some argued for care in giving (A) a proper political and diplomatic position. However, others thought that how (C) actually drafted was more important.

To further consider this proposal, several developments must be taken into account. VDF has received multiple requests from MOI, through different channels, for cooperation in policy making. One of such requests even suggests a new way of drafting master plans with outsiders on a pilot basis, apart from IIPS which is currently responsible for drafting. On the Japanese side, an industrial policy group is being formed in the second phase of the Vietnam-Japan Joint Initiative. However, this group cannot be either (A) (B) or (C) above since it consists of member companies of the Japanese Business Association. The Japanese Ministry of Economy, Trade and Industry (METI) is also approaching MOI for possible cooperation, and a joint workshop is being planned. In addition, Japan already implements many cooperation schemes including the dispatch of JICA experts.

It is essential that these schemes, on both Japanese and Vietnamese sides, must work cooperatively and complementarily toward the same goal of producing high-quality master plans, rather than proceeding independently from each other.

4. Other issues

There was another proposal on the study of tax incentives. It proposed research aimed at making a rough calculation on the net effect of tax incentives on fiscal revenue, to anticipate an objection that too many tax incentives reduce the tax revenue. The proposed content includes justification for this study, international comparison of tax incentives, the pros and cons of tax incentives on the national economy, and simulations of national interest brought by increased FDI. Due to time limit, this proposal was not discussed today. It will be reviewed on another opportunity.

Mr. Otani, a JICA expert who supported MOI's IIPS in preparing the motorcycle master plan for four months, will return to Japan on Jan.25. He is not expected to come back to Vietnam after Tet. Due to short assignment, not much result was produced. Nonetheless, Mr. Otani prepared a document on the vision of development of the motorcycle industry, slides on the recommendations of the motorcycle master plan, a detailed list of companies visited, and a collection of brochures on motorcycle companies (copies available at VDF). He is scheduled to meet Dr. Tuat (IIPS general director) on Jan.18 and Mr. Nghia (his counterpart at IIPS) on Jan.19 prior to his departure.

[By Ohno]