Leveraging productivity is key for sustainable growth

The Ministry of Planning and Investment is the focal point to summarise the opinions and recommendation of development partners and submit to Prime Minister Nguyen Xuan Phuc

2017 was a successful year for the Vietnamese economy. All 13 socioeconomic development targets set forth by the National Assembly have been reached or even exceeded. The economy has been growing well at an estimated 6.7 per cent.

On the other hand, the quality of growth is becoming an issue as the country has been dependent on investment capital, low-cost labour and natural resources mining. That growth model is no longer appropriate in the current context, as the global and domestic situation has changed.

Especially, Industry 4.0 has come and opened up many opportunities and challenges for the economy.

“Against this background, the economy cannot develop quickly and sustainably to improve living standards and narrow the development gap with other countries. Leveraging productivity is the key of sustainable growth, this is one of the core issues for the Vietnamese economy today," confirmed Nguyen Chi Dung, Minister of Planning and Investment, at VDF 2017.

Acknowledging the importance of increasing productivity, the Vietnamese government has been deploying many solutions to promote innovation and apply science and technology to improve productivity, quality, efficiency, and the competitiveness of the economy.

However, leveraging productivity is a challenge for Vietnam and the government needs the advisory of development partners, the business community, and experts to specify its goals.

According to the assessment of the World Bank (WB) at the forum, Vietnam’s average labour productivity growth rate is about 4 per cent, as compared to the 7 per cent of China and the 5 per cent of Korea when these countries were at similar levels of development.

Current productivity growth rates are unlikely to deliver the sustained rapid growth that could see Vietnam follow the development trajectory of these countries.

“Improvements in efficiency must take place both within individual sectors as well as across the whole economy, which requires effective market institutions and government support,” noted Ousmane Dione, WB country director in Vietnam.

Dione also highlighted four areas where there is ample room for efficiency gains within individual economic sectors. This could include enhancing industrial energy efficiency, enhancing agricultural transformation and agribusiness development, more efficient transport, logistics, and connectivity.

Going beyond efficiency gains and moving up the value chain is critical to improve productivity. Effective linkages between domestic and foreign invested firms are also critical for Vietnam to move up in the global value chain and ultimately improve its productivity.

Second, reforms to develop and enhance market institutions will need to be significantly stepped up to achieve higher productivity growth. This includes continued effort in improving the business environment with a focus on simplifying administrative procedures and reducing cost burdens, fostering more effective market mechanisms to improve resource allocation.

Third, education, skills, and innovation agendas are very important in the country’s quest for productivity growth. A new set of knowledge and skills are needed to contribute to productivity growth and to change the economy. As Vietnam integrates further into the global economy, industry and manufacturing as well as agriculture and services are expected to become increasingly sophisticated.

Fourth, it is important for Vietnam to find ways to mobilise and use its scarce public resources efficiently to finance its ambitious development agenda over the next five years. When concessional development assistance is phased out, Vietnam will need to increasingly rely on domestic resources. Efforts must be stepped up significantly to create an enabling environment for private sector participation in quality infrastructure development, a critical contribution to Vietnam’s needed productivity growth.

“Development partners stand ready to support Vietnam, including knowledge and access to international experience and best practices,” stated the WB country director.

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