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Feature Articles : Sep 1, 2010 (Vol. 30, No. 15)

Vietnam on Path to Free Market Economy

Economic Liberalization Has Produced Some Results, but Much Work Remains to Be Done
  • Robert Yuan, Ph.D.

Ever since Vietnam launched its “doi moi” economic liberalization policies 15 years ago, many have predicted that the country will be the next Asian tiger. This presumption has been reinforced by the stunning success of China’s market-driven economy. Vietnam and China have many similarities including full political control by the Communist party and an economy that is moving toward the free market.

With a population of 86 million, Vietnam has a per capita GDP of $2,500,  and the GDP has grown an average of 6.4% annually over the past five years. The annual per capita pharmaceutical expense is just $16.13, although that number is projected to rise to $60.30 by 2019. The country’s large population and expanding economy will provide many commercial opportunities in the years to come, as will its proximity to China. 

R&D as a State Function

The Vietnamese government has placed a strong emphasis on biotechnology in order to modernize the country’s agricultural and biomedical sectors. The “General Plan for Developing and Applying Biotechnology in Vietnam until 2020” addresses the country’s economic development objectives.

The Ministry of Science and Technology will spend $15 million to fund R&D in several of the national laboratories, including the Institute of Biotechnology, the Vietnam Agricultural Science Institute, the Agricultural Genetic Institute, and the Institute of Tropical Biology.

Increasing the pool of scientific manpower is a priority in Vietnam and encompasses two phases: producing more than 8,000 graduates and postgraduates by 2010, and then training another 12,000 scientists by 2015. Strengthening the science and technology (S&T) infrastructure is another priority. This will be accomplished through regulations, new management practices, production development, and the importation of genetically modified organisms. Crops of particular importance include rice, sweet potatoes, papaya, cotton, and maize.

The S&T infrastructure shows the influence of the French and Soviet systems. In the Soviet S&T model, research is conducted at government institutes and instruction is the responsibility of the universities. A major flaw in such a system is the lack of technology transfer from the laboratory to industry and agriculture.

Two important institutes were established during French colonial rule— Pasteur Institute Ho Chi Minh City and the Pasteur Institute Nha Trang. Both are under the Ministry of Health. The Pasteur Institute pursues research in dengue fever, HIV, diarrheal diseases, leptospirosis, and poliomyelitis. The Nha Trang institute pursues research in microbiology, immunology, and environmental surveillance.

Vietnam hopes to fuel growth in the private sector by providing tax incentives, encouraging the creation of start-up companies based on technology developed at government institutes, and opening high-tech science parks.

Commercial Opportunities

The promulgated tax incentives include:

  • a 10% corporate income tax, tax exemption for the first four years of profit-making operations, and a 50% tax exemption for the following nine years,
  • exemption for duties on goods that will be fixed assets,
  • exemption of VAT for imported machinery needed for production, and
  • low rates for land rental.

Several Vietnam-headquartered biotech firms that are making names for themselves are affiliated with local institutes. Hanoi-based Vabiotech is affiliated with the National Institute of Hygiene and Epidemiology. It produces vaccines against hepatitis A and B, Japanese encephalitis, cholera, avian flu, and rabies. 

Mekostem, reportedly the country’s first stem cell bank, is located in Ho Chi Minh City. It is a collaboration between MekoPhar, which produces OTC products and antibiotics, and the Ministry of Science and Technology.

The Saigon Hi-Tech Park has managed to attract a number of foreign biotechnology firms.

  • NuGen is setting up a plant in Vietnam to manufacture diagnostic kits for pregnancy, HIV, hepatitis, cancer, and addictive drugs. 
  • Mamprotech Vietnam is a JV with Australia’s Mamprotech for the production of fully glycosylated recombinant human proteins and the creation of cell clones.
  • Novatek International and Teguh Pharma are collaborating to provide expertise in planning and engineering.
  • Quintiles opened an office in Hanoi in 2005 to work with the Ministry Health to increase the number of sites that will meet GCP standards.

Commercialization of biotechnology in Vietnam is still at an early stage. Government-sponsored agricultural and public health projects currently only address domestic needs. Nascent companies are unlikely to be profitable if their products are intended solely for the Vietnamese market.

In the short term, Vietnam is most attractive as a manufacturing site for diagnostics and certain pharmaceuticals (possibly vaccines). Its low cost structure, a motivated and cheap labor force, and a location close to China and other important southeast Asia markets are also advantageous.

Disadvantages are just as abundant and include the fact that the government is trying to combine tight Communist rule with a free market economy. In addition, both foreign residents and Vietnamese alike point to the lack of transparency of the political/economic system, which leads to a high level of corruption.

Equally detrimental are the Vietnamese leaders’ poor grasp of the characteristics of high technology development, the country’s limited R&D infrastructure, and the lack of technical expertise and investment capital. Although labor costs are low, skill levels are significantly lower than in neighboring Asian countries.

While university programs are being expanded, they are still mostly unable to meet the needs of modern biotech firms. This will not be remedied any time soon as the academic leadership in Vietnam does not seem to fully comprehend the extent of reforms necessary.

Another area where a broader perspective is necessary, and where China has excelled, is making effective use of expatriates. Chinese expats have been actively encouraged to return to China to share their technical expertise and investment capital. Unfortunately, there is little evidence that Vietnam is willing to do the same.

One cannot help but note a sense of pent-up energy in Vietnam and the desire to become part of the high-tech industrial world. This is particularly noticeable in Ho Chi Minh City and the south, which had been much more open to the outside world than the far more cloistered environment of Hanoi and the north.