VietNamNet Bridge – Vietnam has taken advantage of a cheap labor force as “bait” to attract investment, but that advantage will not exist in the future, economists say.

Economists from the Central Institute of Economic Management (CIEM), who have completed a survey on Vietnamese productivity, said that instead of relying on a cheap labour force, the country needs to improve productivity.

The productivity in some industries such as mining, processing and construction has improved, but it is only a little higher than the average productivity in society.

Since productivity has been increasing more slowly than wage increases, the labor cost has not been lowered.

In 2012, for example, the average productivity rate was VND62.8 million per worker, while it was VND79 million in the manufacturing industry, and VND66.8 million in the vehicle repair industry and trade.

In 2001, the productivity of the manufacturing industry was 2.75 times higher than society’s average productivity. However, the gap narrowed to 1.25 times in 2012.

Dang Thi Thu Hoai, deputy head of the CIEM’s Public Service Policies Department, said this was a sign that the Vietnam’s advantage of cheap labor force has reached the “critical point”.

“As such, the low labor cost, which was once of the Vietnam’s advantages, has no longer existed,” she said.

According to CIEM, the society’s average productivity in 2013 was still low with each worker creating VND48.72 million in value, an increase of VND20 million from 2001, if calculating the 2010 comparative price.

CIEM cited The Conference Board Total Economy Database as saying that Vietnam’s productivity was low relative to the rest of the world.

It was $5,880 in 2010, based on the US dollar price in 1990. That figure was equal to 13.2 percent of Japan’s rate, 23.3 percent of Malaysia’s and 12 percent of Singapore’s.

A report from the International Labor Organization (ILO) and Asian Development Bank (ADB) released recently confirmed the low productivity rate of Vietnam.

With $5,440 (purchasing power parity in 2005), Vietnamese productivity in 2013 was higher than that of Laos, Cambodia and Myanmar, but much lower than other ASEAN countries like the Philippines and Thailand.

However, CIEM has seen considerable improvement in the 2007-2013 period.

The average productivity of ASEAN countries in 2007 was $9,173, 2.12 times higher than Vietnam. Meanwhile, the gap narrowed to 1.98 in 2013.

The gap between Vietnamese and Singaporean productivity also fell from 21.35 to 18.03, while the gap between Vietnamese and Thai productivity fell from 3 to 2.71.

TBKTSG