Setting up for decades of economic advances

November 26, 2021 | 15:00
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Vietnam is embarking upon its next development stage as a higher middle-income country pursuing innovation to achieve further sustainable development, thus creating a new growth model based on higher productivity.
Setting up for decades of economic advances
Vietnam is rolling out plans to enhance the capacity of its human resources, photo Le Toan

In his call for more investment from the international community, Prime Minister Pham Minh Chinh has underlined Vietnam’s great efforts to improve the quality of human resources – one of the key factors receiving attention from investors.

“To bring into full play the potential of the Vietnamese people, who constitute Vietnam’s most important resource, and serve both as the subject and highest goal of development, we have been stepping up capacity building, with a focus on the development of digital human resources and a skilled workforce to make the most of the shift in supply chains,” PM Chinh stated at the recent strategic dialogue between Vietnam and the World Economic Forum (WEF) held online.

“We are also improving technological development, innovation, and digital transformation. We are also restructuring our economy, in tandem with transforming our growth model and improving productivity, quality, efficiency, and self-reliance of our economy.”

According to Minister of Planning and Investment Nguyen Chi Dung, if labour productivity is further improved, it can help Vietnam’s innovative economy to grow at an impressive rate of 29-30 per cent a year.

Under the country’s 2021-2025 Economic Restructuring Plan just adopted by the National Assembly (NA), Vietnam is expected to annually grow by 6.5-7 per cent, with better growth quality and Vietnam to become a higher middle-income nation by 2025. One of the prime priorities to materialise this dream is to further improve productivity, which has been on the rise over the past five years.

A study by the Central Institute for Economic Management (CIEM) – one of the most important think-tanks of the government – on Vietnam’s economic restructuring and growth model change for 2016-2020, showed that the country’s growth model has significantly changed, with the economy’s quality and labour productivity increasing strongly in all sectors of the economy.

In early 2016, the government enacted a series of solutions on improving the economy’s productivity, quality, and competitiveness to materialise the Party’s directions to boost economic growth sustainably.

The government reported that in 2016-2020, the total factor productivity (TFP) ratio hit an estimated 45.42 per cent of average GDP, up from 33.6 per cent in 2011-2015 and far exceeding the initial target of 30-35 per cent.

TFP is a measure of the efficiency of all inputs in a production process. Increases in TFP usually result from technological innovations or improvements.

Labour productivity during 2016-2020 increased 5.8 per cent annually, up from an average of 4.3 per cent a year in 2011-2015.

Moreover, the incremental capital-output ratio (ICOR), which is the additional capital required to increase one unit of output, was estimated to be 6.1 in 2016-2019, down from 6.3 in the 2011-2015 period. Last year, due to consequences of COVID-19, GDP grew only 2.92 per cent, leading to an ICOR of 18.0, meaning an ICOR of 8.5 in 2016-2020.

Further improvements required

The CIEM’s former general director Nguyen Dinh Cung said that for Vietnam to achieve higher growth, it is critical that labour productivity is further improved.

“But how long does Vietnam need to fully close the gaps with other ASEAN countries?” he questioned.

Vietnam has been gradually narrowing down the differences in regional labour productivity over the years. In 2011, the values for Singapore, Malaysia, Thailand, and Indonesia were 17.6, 6.3, 2.9, and 2.4 times, higher than Vietnam’s figures respectively.

However, the difference decreased to 13.7, 5.3, 2.7, and 2.2 times, respectively, in 2018, according to the Ministry of Planning and Investment.

The United Nations Development Programme (UNDP) said Vietnam must prepare better for, and adapt to, the impact of Industry 4.0 on drivers of growth and job creation.

“Accelerating Industry 4.0 offers both opportunities and risks in terms of future employment creation, as Vietnam embarks on new pathways. It is anticipated that automation and AI will displace jobs in several sectors that have been driving Vietnam’s growth,” said a UNDP report on Industry 4.0 impacting Vietnam.

The International Labour Organization suggested that 70 per cent of jobs in Vietnam were at risk of automation. Sectors with a very high proportion of jobs at risk include agriculture, forestry, and fisheries (83.3 per cent at risk); manufacturing (74.4 per cent); food and beverage (68 per cent); garments (85 per cent); electronics (75 per cent); wholesale, retail and repair of motor vehicles (84.1 per cent); services (32 per cent); retail (70 per cent); and hotel and banking (40 per cent).

The Oxford Economics and Cisco report “Technology and the future of ASEAN jobs: The impact of AI on workers in ASEAN’s six largest economies” released in 2018 also forecast that in Vietnam, 7.5 million jobs – largely in agriculture, manufacturing, wholesale and retail – would be displaced by AI in the next 10 years.

At the same time, the report anticipated that millions of new jobs with different functions would be created through what the report called the ‘income effect’. Thus, the net job loss could be about 1.7 million, 90 per cent of which would be in the agricultural sector.

“In the past two decades, Vietnam has inserted itself into selected global value chains while achieving a remarkable poverty reduction. In the years ahead, disruptive technologies will present both challenges and opportunities for remaining on this successful trajectory,” said Ousmane Dione, former country director for Vietnam of the World Bank.

Meanwhile, about 1.6 million new people enter the local labour market annually, which is a big burden for the government to provide sufficient employment for its citizens. This burden is expected to grow further when Industry 4.0 is rising, with robots and high technologies believed to replace many labourers.

Ambitious goals

Under Vietnam’s 2021-2025 Economic Restructuring Plan, the first solution to achieve higher economic growth with better quality is to increase labour productivity.

“This must increase over 6.5 per cent a year in 2021-2025, [especially] in manufacturing and processing sector [which creates 80 per cent of industrial growth, where it] must annually climb 6-7 per cent – up from 5 per cent during 2016-2019,” stated a plan report.

It added, “The ratio of TFP in GDP must be 45 per cent, while the gap in national competitiveness with Indonesia, Malaysia, Thailand, and the Philippines must be filled, especially in terms of institution, infrastructure, and human resources.”

The NA has also set a target of an average annual raise of 6-7 per cent in labour productivity in the 2021-2025 period, up from an average of 5 per cent in the 2016-2020 period.

To this end, the NA will revise the Law on Employment in a manner suitable to the digital era in which there will be a plan to reduce informal employment to below 50 per cent by 2025 from 56 per cent in 2021.

Enterprises are meanwhile facilitating to further engage in Vietnam’s education and training sector, in which universities and institutes are encouraged to cooperate with them to establish scientific and technological businesses.

It is expected that by 2025, Vietnam’s vocational training index in the Global Competitiveness Index by the WEF will rise by 40-50 places as compared to 2019, and the country’s student skill index will also ascend by 45 places against 2019.

In addition, the government will also invest more in research and development. According to the Ministry of Science and Technology, only 0.5 per cent of GDP is used for this annually so far.

“The government will enact special incentives to encourage enterprises to invest into innovation, and engage in global value chains,” stated PM Pham Minh Chinh. “We will also develop and connect technology exchanges at all localities nationwide.”

By Thanh Dat

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