To develop the Vietnamese auto industry, the government has incentives for foreign automakers like tax breaks and encourages auto assemblers to incorporate more locally made parts in their vehicles. Is this an effective strategy? When will Viet Nam have a mature auto industry?
|Producing cars in Ford Viet Nam Company|
In 1995, several major car manufacturers like Mercedes-Benz, Ford and Toyota set up shop in Viet Nam by forming joint ventures with local companies. Five years later, the 11 joint ventures formed the Vietnam Automobile Manufacturer’s Association (Vama), whose membership now numbers 18.
To get them off to a good start, the government reduced their corporate tax rate, and the import tax on vehicle parts and on machines for their assembly plants.
Since then, Viet Nam’s automakers have contributed much to the economy. In the six years from 2000 to 2006, Vama’s members paid US$1.2 billion in taxes, and gave stable jobs to 8,500 skilled workers and 35,000 unskilled people.
On the local scene, everyone knows names like Samco, Truonghai and Vinaxuki these days.
The problem for the government now, given its two-pronged strategy for the industry, is to increase the proportion of local content in the vehicles assembled in Viet Nam and encourage the construction of factories for making the components.
Question: How much has the Vietnamese government achieved in this respect?