Getting old before getting rich: Thailand’s story and lessons for Vietnam
Thailand's "golden population" period is expected to end in 2025. The country is likely to become the first in Southeast Asia to have an aging population before it becomes prosperous. This is a warning for Vietnam.
Photo: Thailand’s "golden population" period will end by 2025.
According to data from the Thai Ministry of Finance, with 14.5 million people over 60 years old, accounting for 20.7% of the total population, Thailand will move to an aging stage in 2025.
Thailand's per capita income is currently only about 7,000 USD/year. According to the World Bank’s standards, low-middle-income economies have GDP per capita of between 1,036-4,045 USD; middle-income economies have GDP per capita between 4,046 and 12,535 USD; and high-income economies have GDP per capita of 12,536 USD. Thailand, which reached per capita income of 1,000 USD/person in 1988 is at present only 7,000 USD/person, which means that it is still a long way to the threshold of 12,536 USD/person.
Thailand had a period of high economic growth, averaging 7.5%/year before 1990, but the growth rate has gradually slowed down, to 5.3%/year and then 4.3%/year for the past two decades and about 3%/year at present.
The country is facing a ratio of labor force to total population that is decreasing. The number of elderly is rising and the number in the labor force is dropping, leading to an increase in a dependency ratio of elderly.
Currently, this ratio is 28.4 per 100 people, which is forecast to increase to 56.2/100 people by 2040. Changes in the population structure of Thailand will lead to reduced productivity, reduced growth, and higher health care costs, while per capita income is low. It is said that Thailand will become the first large country in the region to have an aging population before it has a chance to become prosperous.
This is a lesson for developing countries: if they do not make a break-through in the "golden population" period, it will be difficult to overcome the "middle income trap" and will never become a developed country.
The model of "miracle development" in the world is Japan. In 1950, Japan entered the "golden population" period, as a country with a dominant agriculture, low labor productivity, and a per capita GDP of $1,000 per year. However, with the miraculous development in the 1955-1973 period (18 years), and average annual GDP growth of about 10%, this country completely changed. After 6,500 "miracle" days, Japan became a developed, high-income country.
Vietnam has entered a period of "golden population" since 2007, with the proportion of people of working age accounting for nearly 70% of the population, of which about half are young people under 34 years old. However, the census in 2019 showed that Vietnam's population was aging at an unprecedented rate.
Photo: It is forecast that the number of people aged 65 and over in Vietnam will reach over 10% of the population by 2026.
In 2019 Vietnam had 11.4 million people aged 60 and over, accounting for 11.86% of the total population and the aging index increased from 35.9% in 2009 to 48.8% in 2019. It is forecast that the number of people aged 65 and over will reach over 10% of the population in 2026 and exceed 15% in 2039. This is also the end of the golden population period in Vietnam.
Warning for Vietnam
Vietnam currently has higher annual GDP growth rate than Thailand, but labor productivity is far lower. In 2018, Vietnam's labor productivity was only 37% of that of Thailand.
To achieve the same level of labor productivity as Thailand today, it will take Vietnam more than 10 years. Vietnam's recent growth has mainly relied on increasing capital, less on increasing labor efficiency and applying scientific and technological advances. The Incremental Capital-Output Ratio (ICOR) was high, at 6.25% in the 2011-2015 period, 6.14% in the 2016-2019 period, a slight decrease. The figure of Thailand is only 3-4%.
It means that Vietnam has relied too much on capital for growth. This results in increased credit, high lending rates, high inflation, large budget and trade deficits.
Data from the General Statistics Office shows that Vietnam's Human Development Index (HDI) in 2016 reached 0.682 and increased to 0.706 in 2020, far behind Thailand with 0.8 points, ranking 7/11 countries in Southeast Asia, and 119/180 countries and territories in the world.
Of which, the education index only increased from 0.618 points in 2016 to 0.640 points in 2020, which shows that, during the past five years, Vietnam did not have any special policies to improve the field of education and training.
According to the Ministry of Labor, Invalids and Social Affairs, the economy still retains the structure of using cheap labor. Vietnam seriously lacks skilled workers, workers with technical expertise, managers, and innovators. These are the groups capable of leading the economy.
Currently, Vietnam is in the group of low-middle-income economies with GDP per capita of more than 3,000 USD/year. It has set a goal of becoming a high-middle-income country by 2030 and a high-income developed country by 2045.
The period of "golden population" of Vietnam is forecast to continue to take place within the next 20 years. Thus, the period from 2020-2030 will be the optimal time, an extremely important opportunity for Vietnam’s economic development. Without creating “miracle development,” it will be difficult for Vietnam to overcome the “middle income trap” and will never become a developed country.
In the current context of the 4th industrial revolution, accelerating digital transformation of the economy is one of the important solutions to boost labor productivity.
National Economics University has released important research results, that in the period 2020-2030, the digital economy alone will contribute 7-16.5% of the annual growth rate of labor productivity. The contribution of the digital economy is very important to the productivity and efficiency of the economy and is a new driving force for rapidly improving labor productivity.
During this period, it is necessary to train a skilled workforce, associated with digitization in all fields.
In fact, the "golden population" opportunity does not automatically bring positive effects but it must be "brought into full play" for a "golden labor force", bringing the country to fast and sustainable development. It is necessary to have a good labor market management policy with specific regulations to link between training and vocational institutions and the labor market. The education system must provide knowledge and professional skills for workers in the new period, to create motivation to take Vietnam to a higher position.
Population aging could slow down Vietnam's long-term growth in the 2020–2050 period by 0.9 percentage points compared with the last 15 years, a new World Bank (WB) report finds.
The rebound in domestic consumption demand and strong export growth will be the driving force for Vietnam’s economic growth in 2022. Another important driver is the recovery of the service and tourism sectors.