return icon Vietnamnet.vn

Vietnam’s labor productivity and the role of SOEs

The question for Vietnam is how to become a high-income economy while increasing productivity and protecting its resources.

This is the issue addressed by Manuela V. Ferro, the World Bank’s Vice President for East Asia and Pacific, in an article “To prosper, Vietnam needs to increase efficiency”. “For Vietnam to achieve the desired transformation results, it is extremely important to accelerate the transition to productivity-based growth,” she wrote.

The answer for productivity growth is familiar to Vietnam because many international organizations and domestic economists have evaluated it for years.

The risk of falling behind 

The challenge regarding slow productivity growth and the widening productivity gap with other countries in the region leads to the risk that Vietnam will lag further behind in the long-distance race in terms of productivity and economic growth.

A recent study by the Central Institute for Economic Management (CIEM) said that Vietnam's labor productivity is very low compared to other countries in Southeast Asia.
 
Based on purchasing power parity in 2011, Vietnam’s labor productivity in 2018 reached US$11,142, equivalent to 7.3% of Singapore’s, 19% of Malaysia’s, 37% of Thailand’s, 44.8% of Indonesia’s and 55.9% of the Philippines. For the 2008-2017 period, Vietnam's labor productivity rose by an average of 4% per year.
 
This shows that, with the labor productivity growth rate of only 4%/year, Vietnam will lag further behind in productivity compared to that of other countries in the region, and the risk of falling into the middle-income trap is high. It is estimated that to catch up with labor productivity growth of neighboring countries and escape the middle-income trap, Vietnam’s labor productivity must grow 6.3-7.3%/year.

Meanwhile, the World Bank calculated that, after achieving the current per capita income of Vietnam in 1972, South Korea doubled its per capita income after only 10 years and increased it by 5 times after 20 years.

Such rapid achievement was the result of a combination of the increase of investment in physical and human resources, and above all the growth of operational efficiency, as evidenced by the growing contribution of productivity (measured by TFP) to GDP, from 16% in the 1970s to 43% in the 1980s and 56% in the 2000s. 

Therefore, it can be argued that South Korea succeeded in its transition from a middle-income economy to a high-income economy through more efficient management of existing resources rather than simply accumulating more resources.

Growth in state-owned enterprises

Meanwhile, in Vietnam, there are many fields that can increase productivity, and make the economy grow faster and more efficiently, of which the state-owned enterprise (SOE) sector is an example.

This sector had total assets of about VND 4 quadrillion in 2021. The average asset of an SOE is about VND4,100 billion, 10 times higher than that of foreign invested enterprises and 109 times higher than that of domestic private enterprises.

The performance of SOEs is not commensurate with its resources. The SOE sector tended to gradually decrease in size and contribution in all efficiency indicators in the period 2016-2021. SOEs in general have the highest debt ratio of all types of enterprises in Vietnam; they operate effectively in very few industries with natural advantages such as mineral exploitation, oil and gas, telecommunications and finance - banking.

Although SOEs hold great resources of the economy, they do not have large enough investment and development projects to create breakthroughs and improve the competitiveness of the economy. 

In the 2016-2020 period, SOEs did not launch many large-scale projects. They only continued implementing unfinished projects or dealing with inefficient projects kicked off in the previous period.

Particularly, for the 19 state-owned groups and corporations under the State Capital Management Committee and Viettel Group, which holds nearly 90% of the resources of the entire SOE sector, they only implemented three large projects, including two projects from the previous period and only one kicked off in 2016.

The failure to create additional capacity will result in the next five years, when the contribution of the SOE sector to the economy will be very limited as its current contribution to Vietnam’s GDP is about 29%.

Economists said that, with total assets of about VND4 quadrillion, the SOE sector only needed to grow by 10% to help the economy to grow rapidly. However, for many years, this economic sector has not been able to do so.

Recently, Vietnam's labor productivity has improved significantly year by year. According to CIEM, in 2016 labor productivity rose by 5.3% compared to 2015; up by 6% in 2017; 5.55% in 2018; and 6.28% in 2019. That of 2020 was about 1.5 times more than that in 2015. The average growth rate of the whole society in the 2016-2020 period reached 5.8%/year, compared to 4.3%/year in the 2011-2015 period.

However, this growth is not enough to help Vietnam go ahead, and the World Bank’s suggestion is once again very correct for reform.

So, what are the conditions for Vietnam to become a modern industrial economy in 2035?

According to the Vietnam Report 2035 made by the World Bank and the Vietnamese Government, with GDP per capita of about $5,370 in 2014, within the next 20 years, the average per capita GDP growth rate of Vietnam must be at least 6%/year to reach $18,000 by 2035.

With a lower, more feasible (but still ambitious) growth rate of 5% per year, Vietnam’s GDP per capita would reach $15,000 by 2035 and bring Vietnam on par with Brazil in 2014, and reach $18,000 in 2040.

With a growth roadmap of over 7%/year, Vietnam’s GDP per capita would reach about $22,200, equivalent to that of South Korea in 2002 or Malaysia in 2013. That higher growth rate would help Vietnam catch up with Indonesia and the Philippines.

Lan Anh

MORE NEWS

A unique cave awaits explorers in Quang Binh Province

Va Cave in the core zone of the Phong Nha- Ke Bang National Park in Quang Binh Province, with its unique stalagmites and stalactites, is a natural beauty waiting to be discovered by explorers.

The most important 'economic corridors' for next 10-30 years

The national planning draft for 2021-2030 with a vision towards 2050 focuses on the formulation and development of economic corridors, dynamic zones, large cities and economic zones associated with the national infrastructure framework.

Artisans strive to keep traditional craft alive

Artisan Tran Van Ban is busy all day from early in the morning to the evening. He is carving out beautiful mooncake molds to serve people's demands for the Mid-Autumn Festival which is approaching in the next few weeks.

Goalkeeper Dang Van Lam returns home to join a V.league 1’s club

Goalkeeper Dang Van Lam is set for a return to V.League 1 after touching down in HCM City with his agent.

VN Aviation Business Association proposal raising domestic airfare ceiling

The president of the Vietnam Aviation Business Association (VABA) has proposed to adjust the ceiling fare for domestic airlines to promote the industry's recovery.

More than 251 million doses of COVID-19 vaccines administered in Vietnam

More than 251 million doses of COID-19 vaccines have been administered to Vietnamese people of all ages across the country, including nearly 100,000 doses given on August 14, according to the Ministry of Health.

Foreign experts learn from Vietnam’s biphasic in vitro maturation technology

A group of four Australian doctors and experts visited My Duc Hospital in Phu Nhuan district, Ho Chi Minh City, to learn from the Vietnamese side’s experience in biphasic in vitro maturation (CAPA-IVM) from August 13-14.

HCM City ready to reactivate COVID-19 treatment hospitals

The Department of Health of Ho Chi Minh City has recently requested its medical facilities to get plans readied for the acceptance and treatment of COVID-19 patients in the context of increases in the number of new cases.

How many supermarkets are in Hanoi, HCM City?

In some localities in the country, no new supermarket has been set up over the last seven years.

Can the Vietnamese metaverse classroom compete with Facebook and Google?

With beautiful graphics, colors and materials, Vietnam’s Elite Meta is dreaming of competing equally with giants Facebook and Google.

PM thanks Russian scientists for preservation of President Ho’s embalmed body

Russian experts have joined the preservation of President Ho Chi Minh’s body for over 50 years since he passed away in 1969.

Shares to keep upward trend this week: brokers

Vietnamese shares are forecast to continue their upward trend this week as profit-taking pressure is cooling down significantly.

Emulating the ambitions of Singapore’s high-tech vision

With its vibrant economic development, Vietnam offers an unparalleled investment destination for Singaporean corporations.

Entertainment and cultural events of the week (August 15-21)

Upcoming entertainment and cultural events in Vietnam's major cities on August 15-21.

My, Nghi represent Việt Nam at Simone Asia Pacific Cup

Nguyen Thao My and Ngo Bao Nghi will battle it out for personal and team glory at the inaugural Simone Asia Pacific Cup in Indonesia later this month.
back_to_top