Eight reasons behind gap in Vietnam’s productivity level and regional peers

GDP growth based on high productivity is the way forward for Vietnam to maintain rapid and sustainable economic growth, said head of Vietnam’s General Statistics Office.

Eight reasons behind gap in Vietnam’s productivity level and regional peers

Vietnam’s modest size of economy, slow progress in economic and labor force restructuring, obsolete technologies, and limited quality of human resources are factors leading to a gap between the country’s productivity level and regional peers, according to Nguyen Bich Lam, head of the government-run General Statistics Office (GSO). 

1. Modest economic size

With a low starting point and modest economic size, Vietnam has achieved significant results in narrowing the gap in GDP per capita and productivity level with other countries, but the efforts remain insufficient to narrow the absolute gap in terms of productivity value compared to regional peers.

2. Slow progress in economic restructuring

Sectors serving as driving forces for the economy such as the industry, service, finance-banking or tourism still contribute modest level to the GDP growth.

Additionally, changes in productivity level are based on three factors, including a shift in the structure of the labor force, productivity changes in each sector, and simultaneous impact from the two mentioned above.

For developing countries like Vietnam, shift in the structure of the labor force proves essential for higher productivity of the economy. In reality, such factor makes sizable contribution to the economy, but is on a declining trend, reaching 39% in the 2011 – 2017 period, lower than the rate of 54% in the 2000 - 2010.

GSO’s Head Nguyen Bich Lam said the trend is normal based on the growth cycle of economies in times of transition, as an increase in overall productivity has become more dependent on growth in sector productivity.

However, there have not been significant changes in productivity in sectors, while growth in productivity mainly based on production expansion in labor-intensive sectors with low technological level.

Meanwhile, the manufacturing and processing – key for higher productivity – are relying on low to medium technological levels, Lam added.

High technologies application are brought about by FDI companies, concentrating on assembling and importing parts with low added-value generated for domestic peers.

As of 2018, Vietnam still has 20.5 million people working in the agriculture – forestry – fishery sector, accounting for 37.7% total labor force and contributing 14.7% of the GDP, while productivity in this sector is worth VND39.8 million (US$1,700) per person, equivalent to 38.9% of the overall productivity level, 30.4% of that of the industrial and construction sector, and 33.7% of the service sector.

This is considered one of major factors leading to Vietnam’s low productivity, said Lam.

3. Obsolete technologies

Most companies in Vietnam, particularly business households, have low level of technology application and innovation, staying two to three generations behind the global average level.

Vietnam was ranked 77th out of 140 countries in the Global Competitiveness Report of the World Economic Forum in 2018, down three places from the 74th a year earlier. Of the 12 pillars that made up its final score, Vietnam stood at 94th in terms of institutions and 101st in business dynamism.

 

According to Lam, Vietnam should continue to focus on creating favorable business condition along with new legal framework supporting innovation efforts of the business community.

4. Limited quality of human resources

There remains a big gap between quality in vocational training and demand in labor market. In Vietnam, a total of 42.4 million in the working force have not been trained to reach certain level of technical expertise, while an aging population could have a negative impact on Vietnam’s productivity in the future.

5. Inefficient utilization of resources

The total factor productivity (TFP), which is determined by how efficiently and intensely the inputs are utilized in production, remains low at 4.3% in the 2001 – 2010.

In the 2011 – 2018 period, the contribution of TFP has been improved but stayed modest at 37.7%, while the contribution of capital and labors were 62.3%, indicating the lack of development in science and technologies.

Vietnam’s economic growth in the 2011 – 2018 period are mainly based on the contribution of capital and labors. The mobilization of large capital has been instrumental for the country’s growth, but the efficiency is still questionable, due to the high incremental capital-output ratio (ICOR) - used as a measure of the inefficiency with which capital is used. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital.

The ICOR increased from 3.5 in the 1991 – 1995 period to 6.15 in 2007 – 2008. The ratio once soared to 8 in 2009 and declined to 6.21 in 2018, however, is still higher than the World Bank’s recommendable level.

6. Slow industrial accumulation and urbanization.

The rate of urban residents in 2018 accounted for 35.7% of the total in the 2011 – 2018 period, up 3.1% in average, leading to the lack of supply in labor forces for the industrial and services sector.

7. Inefficient legal frameworks.

There remain bottlenecks in legal frameworks during the process of economic transformation towards market-based economy, particularly in the labor, technological market and property markets.

Vietnam currently ranks 68th out ot 190 countries and territories in terms of business environment, according to the World Bank’s Doing Business report.

8. Private sector has not been key driving force for greater productivity

Most enterprises in Vietnam, or 98% of the total, are of small and medium size, with limited financial capability, low level of competitiveness and corporate governance.

Moreover, expenditure for research and development (R&D) among those enterprises are still low, with only 15.7% of the total spending for R&D, according to World Bank’s report in 2015.

Lam also added Vietnamese enterprises have not been able to integrate into the global supply chain, which could have been a major benefit in taking advantage of the knowhow, technologies and high productivity from multinationals operating in Vietnam. Hanoitimes

 
 

Other News

.
Chubb Life Vietnam honored 'Top Insurance Workplaces 2020'
Chubb Life Vietnam honored 'Top Insurance Workplaces 2020'
BUSINESSicon  14/09/2020 

Insurance Business Asia, a world-renowned insurance publication, has just named Chubb Life Insurance Vietnam Company Limited (Chubb Life Vietnam) among the “Top Insurance Workplaces 2020” in Asia.

Warm welcome to eagles, not to tigers or snakes
Warm welcome to eagles, not to tigers or snakes
BUSINESSicon  13/09/2020 

The author of this article received a request to write about his contributions to policies on foreign direct investment (FDI) attraction.

How to attract high-quality foreign direct investment
How to attract high-quality foreign direct investment
BUSINESSicon  13/09/2020 

Industrialization requires high-quality foreign direct investment (FDI). Many issues must be addressed, including how to developed a skilled workforce.

Lam Dong halts agricultural tourism projects
Lam Dong halts agricultural tourism projects
TRAVELicon  13/09/2020 

Despite keen interest from businesses to invest in agricultural tourism in the Central Highlands province of Lam Dong, the provincial government is not granting an approval to such projects for the time being.

Vingroup rejects rumour about selling stake in Vinmec and Vinschool
Vingroup rejects rumour about selling stake in Vinmec and Vinschool
BUSINESSicon  13/09/2020 

Vingroup rejects rumour about selling its stake in Vinmec and Vinschool, reiterating that these two systems play a crucial role in the group’s ecosystem.

Hotel rates down steeply as COVID-19 keeps away tourists
Hotel rates down steeply as COVID-19 keeps away tourists
BUSINESSicon  12/09/2020 

The hotel industry is facing arguably its greatest challenge as the impacts of COVID-19 keep away foreign visitors from the country.

MPI prepares new decree on SOE information disclosure
MPI prepares new decree on SOE information disclosure
BUSINESSicon  12/09/2020 

The Ministry of Planning and Industry (MPI) is developing a new decree to guide State-owned enterprises (SOEs) on disclosing information, aiming to...

Vietnam likely to gain export target for timber and wooden products this year: experts
Vietnam likely to gain export target for timber and wooden products this year: experts
BUSINESSicon  12/09/2020 

 Experts believe Viet Nam this year will reach its export target for timber and wooden products at US$12 billion, despite the impact of the COVID-19...

VIETNAM'S BUSINESS NEWS HEADLINES SEPTEMBER 13
VIETNAM'S BUSINESS NEWS HEADLINES SEPTEMBER 13
BUSINESSicon  13/09/2020 

Vietnam home to nearly 50,000 rooftop solar projects

Vietnam's energy sector a magnet for foreign investors
Vietnam's energy sector a magnet for foreign investors
BUSINESSicon  11/09/2020 

National electricity demand is expected to increase by 8.5 per cent a year until 2025 and 7 per cent until 2030, making Vietnam an attractive market for foreign energy investors.

Ministry asks for tightened management on condotels, officetels, shophouses
Ministry asks for tightened management on condotels, officetels, shophouses
BUSINESSicon  12/09/2020 

The Ministry of Construction has asked provincial and municipal people’s committees to tighten management on condotels, officetels, resort villas and shophouses 

Auto industry steers strategy towards wider supply chains
Auto industry steers strategy towards wider supply chains
BUSINESSicon  11/09/2020 

Vietnam’s automobile industry is transforming drastically but it still lacks scenarios to join the global supply chains after the COVID-19 pandemic.

VIETNAM'S BUSINESS NEWS HEADLINES SEPTEMBER 12
VIETNAM'S BUSINESS NEWS HEADLINES SEPTEMBER 12
BUSINESSicon  12/09/2020 

Vietnam recovery prospects brightest in Southeast Asia: ICAEW

Versatility letting retail grow anew
Versatility letting retail grow anew
BUSINESSicon  10/09/2020 

The local retail sector is set to maintain its encouraging growth towards the end of the year, with new drivers coming online.

Anxious carmakers hoping losses remain in rear mirror
Anxious carmakers hoping losses remain in rear mirror
BUSINESSicon  10/09/2020 

Despite efforts in converting part of their facilities to produce ventilators and face masks for fighting the coronavirus pandemic, global carmakers are still reporting losses 

Vietnam's current account forecast at 3.7% in 2020
Vietnam's current account forecast at 3.7% in 2020
BUSINESSicon  10/09/2020 

Vietnam’s current account surplus could narrow to 3.7 per cent in 2020 from 4.9 per cent last year due to the impacts of the COVID-19 pandemic, according to Fitch Solutions.

Trade plummets at HCM City’s wholesale markets after second COVID-19 outbreak
Trade plummets at HCM City’s wholesale markets after second COVID-19 outbreak
BUSINESSicon  10/09/2020 

Wholesale markets in HCM City are facing a serious crisis due to the second COVID-19 outbreak. 

Businesses race against the clock to issue bonds
Businesses race against the clock to issue bonds
BUSINESSicon  11/09/2020 

Large corporations are rushing to seek capital through bond issuances before a new regulation, with stricter requirements, takes effect.

VN farm produce prices plummet amid oversupply, impact of Covid-19
VN farm produce prices plummet amid oversupply, impact of Covid-19
BUSINESSicon  11/09/2020 

Booth avocado, the specialty of Dak Lak province, is now selling at VND10,000-20,000 per kilogram, and the price of passion fruit has also fallen dramatically.

Fruit exports to China fall, but are offset by more exports to Thailand
Fruit exports to China fall, but are offset by more exports to Thailand
BUSINESSicon  10/09/2020 

China has reduced fruit imports, but Thailand has been buying more from Vietnam.

 
 
 
Leave your comment on an article

OR QUICK LOGIN