Spillover effects from the FDI sector to domestic enterprises are considered a long-term solution for sustainable productivity development.

Overview of the conference. 

Vietnam's low productivity growth remains one of the main challenges for Vietnam to achieve sustainable development, putting the country's economy at risk of being left behind by regional competitors, said Nguyen Duc Thanh, director of the Vietnam Institute for Economic and Policy Research (VEPR). 

Productivity as central issue

"Productivity should be the central issue of reform," Thanh said at a conference on September 26, adding that a high productivity growth rate would result in Vietnam becoming a middle-income country and moving up the global value chain. 

This is also the objective of the economic restructuring process and institutional reform that Vietnam has been undertaking for many years, Thanh added. 

Thanh referred to a statement made by economist Vu Duy Khuong that Vietnam's economy will soon head to the recession while the GDP per capita remains low. A decline in productivity is the main reason leading to low GDP growth in the 2005 - 2013 period. 

Peter Girke, country representative of Konrad Adenauer Stiftung (KAS) in Vietnam, pointed to the fact that Vietnam's economy has been constantly growing, but "not so much for the case of productivity."

Measures are needed for Vietnam to avoid stepping in the middle income trap and attain sustainable productivity development, Girke said. 

According to VEPR's statistics, the average annual growth rate of productivity in 2006 - 2012 and 2012 - 2017 was 3.29% and 5.3%, respectively. 

In the 2008 - 2016 period, Vietnam's productivity increased by 22.5%, which, according to Thanh, should have been at least double for Vietnam to stand a chance of catching up with other countries at higher development rate. 

Comparing to developed countries in Asia (Japan, South Korea and China) and in ASEAN (Singapore, Thailand, the Philippines, Malaysia, Indonesia, Cambodia) in 2015, the increase in Vietnam's sectoral productivity was the weakest in most of industries in spite of high economic growth rate. 

In 2017, Vietnam's productivity was two times higher than the average of group of low-income economies, over 50% of low-middle and 18.3% of high-income countries. 

In recent years, total factor productivity (TFP) has been gradually replacing capital intensity as the main driver of productivity in Vietnam, which is a positive sign, Thanh noted. 

However, the question should be how Vietnam can make this trend into long-term impact, he stressed. 

Economist Le Van Hung shared his view point that Vietnam's productivity growth rate in comparison to other countries is not too low. However, it would be a different story if compared to developed countries in their own time of high economic growth. 

If Vietnam manages to maintain high economic growth of nearly 7%, it would take the country half of a century to keep up with Japan, Hung said. 

Connection between FDI and productivity

According to Hung, FDI has been essential for Vietnam's economic development over the last 30 years. More importantly, FDI facilitate the shift and mobility of professions and trades in society. 

Structural changes, especially the reallocation of labor force, are the fastest ways to achieve higher productivity, Hung stressed.  However, spillover effects from the FDI sector to domestic enterprises through technologies and skills transfer are considered a long-term solution for sustainable productivity development. 

Meanwhile, productivity in the state sector is particularly low, for which "the privatization is an irreversible trend that could not be delayed any longer," he continued. 

Economist Nguyen Dang Minh from the University of Economics and Business drew from his own experience working with large domestic enterprises to improve productivity in the past that corporate governance and technologies are two key factors to improve productivity, which once again emphasized the important of spillover effect from the FDI sector.  

Hanoitimes