Vietnam's productivity lags behind Laos

By Ngan Anh   December 29, 2017 | 04:29 pm GMT+7
Vietnam's productivity lags behind Laos
Laborers work at a garments factory in Vinh Phuc Province north of Hanoi. Photo by Reuters

The productivity gap between Vietnam and its neighbors is widening due to outdated technology and a low-skilled workforce.

Vietnam’s average labor productivity reached VND93.2 million ($4,259) in 2017, up 6 percent from the previous year, according to the General Statistics Office (GSO).

Despite this increase, the country's productivity continues to lag behind many of its Southeast Asian neighbors, and the gap is widening, the GSO said.

The Central Institute for Economic Management (CIEM) explained that low-quality labor, outdated technology and an uncompetitive business environment are to blame for the relatively poor performance. In addition, most workers are employed by the agricultural sector, which is an area of low productivity.

Dang Duc Anh, head of Analysis and Forecasting at the Ministry of Planning and Investment, said inadequate education and training has resulted in low quality labor.

According to the International Labor Organization (ILO), in 2015, less than 20 percent of Vietnamese laborers were properly trained, and many local employees failed to meet the requirements of the labor market. In Vietnam’s rice basket, the Mekong Delta, only one in every 10 workers had proper training.

An ILO survey of more than 200 businesses in central Vietnam found that most vocational school graduates did not meet their requirements.

Low investment is the main reason for outdated technology. Statistics compiled by the Ministry of Science and Technology show that half of the country’s enterprises are still using technology that dates back to the 1960s, and only 9 percent have adopted modern technological advancements. As a result, Vietnamese companies are weak in both the domestic and international markets.

For instance, in the rice processing sector, Vietnamese firms only use automatic processing lines to polish the grain, while the rest of the process, including packaging and delivery, is done manually. The World Bank estimated that the value of Vietnam’s agricultural exports could increase by up to 150 percent if automated processing is adopted.

Nghiem Vu Khai, vice president of the Vietnam Union of Science and Technology Associations, said that investment in the development of science and technology in Vietnam is below 1 percent of the country’s gross domestic product (GDP), much lower than the 3-4 percent of GDP used in developed countries.

Low productivity could hinder Vietnam's economic momentum. Head of CIEM Nguyen Dinh Cung said the country will only reach its annual economic expansion target of 6.8-7 percent if average productivity growth rate is 6 percent or more each year. “This is a big challenge to Vietnam,” he said. From 2011-2017 period, Vietnam's average productivity growth was only 4.7 percent.

"Productivity is key to helping businesses improve their capability and effectively participate in the global supply chain while also improving incomes and working conditions for workers," said Vo Tan Thanh, vice chairman of Vietnam Chamber of Commerce and Industry (VCCI). 

Vietnam might miss out on the chance to become an upper-middle income country by 2035 due mainly to declining productivity growth, said Victoria Kwakwa, regional vice president of the World Bank for East Asia and Pacific.

The Vietnamese government should focus on empowering the private sector to boost economy-wide productivity and speed up its long-running privatization of state-owned enterprises, she said.

According to the World Bank, Vietnam currently has more than 3,000 state owned enterprises which account for nearly 40 percent of total investment but contribute only a third of the country's 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 Kwakwa.

Echoing Kwakwa, Cung said the country should introduce polices to enhance labor quality, shift employees from the agricultural sector to the industrial and service sectors, and spur the development of small and medium enterprises.  

Such a transition "may negatively impact on those that currently benefit from the lack of transparent competition via preferrential access to decision makers, land, capital and markets," according to the Australia - Viet Nam Economic Reform (Aus4Reform) program, which is currently working with the Vietnamese government to enhance productivity. "The groups can be expected to resist reforms," Aus4Reform said in a statement, adding that it should be tackled with policy dialogues to build support for reform and "counteract potential resistance from vested interests."

 
 
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