Vietnam's declining productivity growth may counter benefits from TPP: World Bank

By    May 18, 2016 | 03:35 pm GMT+7

Vietnam might miss out on the chance to become an upper-middle income country by 2035 due mainly to declining productivity growth, said the World Bank at a workshop on Tuesday.

“Perhaps the biggest opportunity lies in completing the unfinished economic modernization agenda, led by the private sector and with a focus on boosting productivity,” said Victoria Kwaka, regional vice president for East Asia and Pacific.

Declining productivity growth could hinder Vietnam from maintaining economic momentum and outweigh the benefits from trade pacts including the Trans-Pacific Partnership, the ASEAN Economic Community and EU-Vietnam Free Trade Agreement, the World Bank senior official continued.

Empowerment of private sector

Victoria Kwaka said the Vietnamese government should focus on empowering the private sector to boost economy-wide productivity.

The government should speed up its long-running privatization of state-owned enterprises (SOEs).

According to the World Bank, Vietnam currently has more than 3,000 SOEs which take up nearly 40 percent of total investment but contribute only a third of Vietnam’s gross domestic product (GDP).

The state-owned sector is crowding out most of the funds which might have been effectively channeled into the private sector to improve its performance and productivity, said Victoria Kwaka.

The fact that Vietnamese companies still lag far behind their global competitors in the use of technology makes it harder for them to increase productivity.

Statistics compiled by the Ministry of Science and Technology show that half of the country’s enterprises are applying technology dated back to the 1960s, and only 9 percent of them are adopting modern technological advancements. As a result, Vietnamese companies are weak in both the domestic and international market.

A stronger private sector will greatly contribute to Vietnam’s economic development.

Vietnam's economic growth in the past 10 years has slowed down as its traditional competitive advantages such as low labor costs have worn out, said Kwaka, adding that the problem is worsening due to Vietnam’s rapidly ageing population.

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Vietnam can achieve development targets through (i) economic prosperity, balanced with environmental sustainability; (ii) equity and social inclusion; and (iii) state capacity and accountability, according to the World Bank

Pathway to maintain economic growth

Earlier this year in a report titled: "Vietnam 2035: Toward Prosperity, Creativity, Equity, and Democracy", the World Bank predicted that in the next two decades Vietnam could reach an annual income of $22,000 in terms of purchasing power parity per capita.

It also laid out a pathway for Vietnam to climb the economic ladder into a higher bracket by fostering private sector competitiveness, promoting social inclusion and bolstering the state’s effectiveness.

At the workshop, former Minister of Planning and Investment Bui Quang Vinh said Vietnam is integrating further into the global market, offering more business opportunities but creating mounting pressure on domestic companies to increase their competitiveness.

He also admitted that although the government has tried to improve the business environment, there still exists a gap between governance and implementation. For instance, lawmakers have eased business regulations to allow people freedom to do business, but businesses are still faced with cumbersome paperwork and bureaucracy.

He said recent regulations still enabled sub-licensing, which hinders creativity, negatively affects businesses and weakens competitiveness.

Vinh called on foreign direct invested companies to fulfill their promises to transfer technologies, develop human resources and enhance research and development activities through partnerships with local businesses.

In the latest move, the Vietnamese government has issued a resolution to support small and medium-sized enterprises and start-up companies. Under the resolution, all enterprises, irrespective of their size or sector, are treated equally so that they have equal access to resources such as funds, land and investment.

 
 
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