Government reports: economy sees quality improvements

Apart from spectacular growth rates, the quality of economic growth has been improved, with increased productivity figures

Prime Minister Nguyen Xuan Phuc told the National Assembly that, “Vietnam’s growth quality has seen big improvements, maintaining a good growth rate for a long time, with the annual 6.07 per cent in the 2011-2015 period. It is expected that the rate will be 6.7 per cent this year.”

He continued, “The most positive indicator is that labour productivity has risen, meaning that the quality of economic growth has improved. To illustrate, labour productivity rose by 5.29 per cent last year and 5.87 per cent this year, while the total-factor productivity (TFP) was 40.68 per cent last year and 44.13 per cent this year. The incremental capital-output ratio (ICOR) also decreased, at 6.41 per cent last year, and 6.27 per cent this year. This is quite remarkable.”

TFP is a measure of the efficiency of all inputs in a production process. Increases in TFP usually result from technological innovation or improvements. Meanwhile, ICOR tells how much additional capital would be required to produce the next unit of production.

The prime minister added that the country’s total export turnover this year will likely hit a record of $210 billion, up 21 per cent against last year, three times higher than the initial target.

“This also reflects the economy’s improved growth quality, because our products are in wider use by the local and international markets,” Phuc stressed. “I would say to you that we need to boost the quality of growth, though growth rate is also extremely important. Quality and quantity must go hand-in-hand for the Vietnamese economy.”

The National Assembly has adopted a resolution on Vietnam’s socioeconomic development for 2018, with the economy targeted to grow by 6.5-6.7 per cent (see box for other goals).

Vietnam’s improved growth quality has also received commendation from several international organisations.

Spain-based FocusEconomics, which provides economic data around the world, said in a report released last week that Vietnam’s GDP is expected to expand by 6.5 per cent in 2018 and 2019 alike.

“Recent data indicates the economy remains on a solid trajectory. The economy is projected to continue along this robust growth trajectory for the remainder of the year and into 2018, buoyed by resilient performance in exports, as new factories funded by foreign investment open, and a flourishing influx of foreign direct investment (FDI), fuelled by more attractive investment opportunities,” said the report.

In this year’s first ten months, total newly-registered FDI, expanded FDI, and FDI from capital contributions and stake purchases reached $28.24 billion, up 37.4 per cent year-on-year.

According to the World Bank, Vietnam is now one of the most dynamic emerging countries in the East Asia region and enjoys strong economic growth.

“The country’s medium-term outlook remains favourable, with GDP expanding by 6 per cent in 2016, while the country’s fundamental drivers of growth—resilient domestic demand and export-oriented manufacturing—remain in force,” the World Bank said.

The bank forecast that Vietnam will grow by 6.3 per cent this year and 6.4 per cent in 2018 and 2019.

In the bank’s “Doing Business 2018” report released earlier this month, Vietnam’s business climate index rose by 14 ranks, a marked improvement over recent years.

The country has “implemented the most reforms in the past 15 years, with 39 reforms. Today, an entrepreneur in Ho Chi Minh City spends 22 days and 6.5 per cent income per capita registering a new company, compared to 61 days and 31.9 per cent in 2003.”

Under the report, Vietnam’s business climate index rose to 68^th out of 190 economies surveyed, from last year’s 82^nd.

Eric Sidgwick, country director for the Asian Development Bank (ADB) in Vietnam, also stated that the Vietnamese economy “continues to perform well, driven by its twin engines of export-orientated manufacturing and rising domestic consumption.”

Manufacturing expanded by a record 22.3 per cent year-on-year in this year’s first ten months as new foreign-invested factories ramped up production, while the services sector continued to pick up speed as a result of rising retail trade, growing bank lending, and a 28.1-per-cent jump in tourism arrivals.

“Other economic indicators also point to strong growth next year. The manufacturing purchasing managers’ index continues on its rising trend. New orders have been continuously rising since December 2015 to signal improving business conditions for manufacturers,” an ADB report said.