As economic growth ebbs, Vietnam needs boost in productivity

Thursday, 2018-01-11 16:32:08
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A boost in productivity will help Vietnam sustain its strong economic growth.
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NDO - Although Vietnam’s economy has enjoyed relatively robust growth in the past ten years, the pace is slowing down as a result of modest rises in labour productivity, which requires greater improvement if the country is to sustain its rapid growth in the future.

Challenges

During the two decades previous to 2012, Vietnam posted impressive economic growth of more or less 7% thanks to moderate gains in labour productivity of more than 4% annually, coupled with an expanding workforce, the direct result of a young population.

But as productivity growth slowed to 3.8% in 2013, economic growth consequently slackened off to 5.4%, before picking up to 6.8% last year after labour productivity growth bounced back to 5.9%.

Head of the Central Institute of Economic Management Nguyen Dinh Cung stated that these figures reflect the ever increasing role of labour productivity in the expansion of the Vietnamese economy, which he says contributed about 89% to Vietnam's GDP growth last year.

In fact, labour productivity has come to the fore since 2010 when Vietnam designed its economic strategy for the next ten years. Boosting productivity continued to feature prominently as one of the priorities in the government’s economic reform plan for the 2016-2020 period.

As the matter received greater attention from the government, labour productivity growth jumped from 3.8% in 2013 to 5.3% in 2016 and 5.9% in 2017.

But such increases are rather low in comparison with other regional countries and the levels needed for Vietnam to maintain strong economic growth as witnessed in the previous period.

A 2016 report found that Vietnam’s productivity lags behind that of other regional countries, with Singapore’s productivity higher than Vietnam’s by a whopping 14 times.

Also in Southeast Asia, a worker from Thailand and Indonesia is equivalent to more than two Vietnamese counterparts, while a Malaysian worker is as productive as nearly six Vietnamese workers.

Cung said that if Vietnam’s economic growth continues at this rate, it will be impossible for the country to bridge the gap with other economies in the region.

It is estimated that Vietnam’s productivity needs to rise by 6% on average each year in order to meet the set economic growth targets of between 6.5% to 7% for the 2016-2020 period, which appears to be a tough goal for Vietnam especially when the drivers behind its previous dramatic economic growth are showing signs of stagnating.

In the past, Vietnam’s shift away from agriculture towards manufacturing contributed 59% to labour productivity growth but the ratio has now fallen to 30% and even lower at just 10% in certain years.

Furthermore, the advantage from the large output in the agricultural and fishery sector has now run its course.

Vietnam’s agricultural output is fairly high but the value added to its products remains relatively low and far from sustainable as the agricultural sector is not particularly concerned about growing high-grade products but is mostly focused on producing as much as possible.

New drivers

Analysts state that while the current drivers are losing steam, many other factors are emerging as new drivers that could boost labour productivity growth in Vietnam in the years ahead.

One of them is the dramatic rise of the private sector which has even outperformed state-owned enterprises in not only business results but also job creation and productivity growth.

In addition, accelerated global economic integration could become another driver of productivity growth if fully utilised, for example, by increasing productivity growth in foreign-invested enterprises and by adding more domestic value to exported goods.

Experts have also stressed the role of raising efficiency in sectors that are Vietnam’s strength, such as agriculture, food processing and tourism in bolstering the overall labour productivity growth.

Another way to improve efficiency is through better use of public resources.

Currently state-owned enterprises account for 40% of the total fixed assets and long-term investment of the economy, use 70% of land and expend more than two thirds of the official development assistance but their contribution to productivity growth remains rather limited.

Therefore pushing reform in this sector will help state enterprises to make use of the resources allocated to them more efficiently and modernise their corporate governance, which will eventually lead to greater labour productivity for the sector itself and the broader economy.