Economic Sector

Last updated: Tuesday, March 19, 2019


Taking Advantage of Shifting Trade Patterns

Posted: Tuesday, July 17, 2018

“Vietnam can harness shifting trade patterns to its advantage. For example, there will be an increasing demand for manufactured goods from an expanding consumer class in Asia.”

This is an affirmation by Mr Ousmane Dione, WB Country Director for Vietnam, at the Conference themed “Enhancing Competitiveness, Realising Sustainable Development Goals” held recently in Hanoi.

Megatrends affect Vietnam’s sustainable and competitive development
In the context of Vietnam’s sustainable and competitive development, there are four specific megatrends: Shifting trade patterns, rise of the knowledge economy, climate change, and an aging population. Megatrends present risks and opportunities, and the trick is to figure out how to leverage them to work in Vietnam’s advantage. According to Mr Ousmane Dione, megatrends are regional or global in nature, and they are sustained and transformational forces that can re-define our world by changing the rules of the game. The pace of change is usually steady, but at times can be fast and abrupt.

He said, the first megatrend is shifting trade patterns where trade is slowing, which generates greater competition for countries like Vietnam. Vietnam has benefited from a robust FDI sector that has directly employed about 2.4 million workers. Yet neighbouring countries, such as Cambodia and Myanmar, are emerging as competitors for low-skilled production jobs. In some cases, rapid technological change is even resulting in restoring of jobs back to home countries of FDI.

The rise of the knowledge economy and automation is the second megatrend. According to Ousmane Dione, there is no surprise that 21st century workers require a more complex set of skills than in the past. This is being driven by automation, where machines are taking over for manual and routine jobs, as well as an increase in demand for products and services driven by the expanding consumer class.

A critical challenge in Vietnam is that only 8 per cent of the labour force has a university education, which is insufficient to make the leap into the knowledge economy. Ethnic minorities, older workers, and pockets of youth in Vietnam are particularly vulnerable. While an economy that is more technology intensive has the potential to open up opportunities for better quality jobs, workers need to be equipped with the right skills mix to ride this wave.

The third megatrend poses a significant risk to Vietnam, and that is climate change. Temperature increases per decade in Vietnam since the 1960s is double that of the global average. Rising sea-levels expose a third of Vietnam’s population to the risk of flooding, growing to more than 80 per cent in the Mekong and Red River Deltas. Changing salinity threatens two-thirds of Vietnam’s fish from aquaculture. And land subsidence paired with increased salinity in the Mekong Delta, puts at risk the livelihood of 13.6 million rice farmers. These are sobering facts.

The fourth megatrend is Vietnam’s aging population. Vietnam is about to experience the fastest pace of population aging in history. The share of the population that is of working age peaked this year and will now start to decline. The share of the population aged 65 or over was 6.5 per cent in 2017, and that is expected to reach 21 per cent by 2050. That means one in every five people will be elderly. This has many negative implications for Vietnam’s labour supply, for long-term productivity growth, and for female workers who tend to be most burdened in elderly care.

Is Vietnam missing or embracing megatrends?
Vietnam’s sustainable and competitive development depends on achieving an economy that is resilient to shifting megatrends, and also develops and deploys different types of capital. Specifically, there are four types of capital that concern us: institutional, human, physical, and natural.

Institutional capital is the building block of creating an enabling environment for private sector growth. It concerns building macroeconomic resilience while encouraging structural reforms for productivity-led growth. For Vietnam, this entails identifying and supporting new drivers of growth, shifting to a lighter touch with respect to the role of the state, and putting in place sufficiently forward-thinking strategies for FDI and capital markets development.

Human capital is the sum total of a population’s health, skills, knowledge, and experience. Human capital can drive a country’s competitiveness, particularly at a time of rapid changes that requires increasing amounts of talent to sustain growth. “However, human capital does not materialise on its own; it must be nurtured by the state and society throughout the lifecycle. In an aging society where the labour supply shrinks, the importance of developing and deploying every person’s human capital to its full potential. Adding to the analogy of the human body, perhaps human capital can be considered the brain of a country’s sustainable and competitive development,” Ousmane Dione said.

Physical capital is the backbone of an economy and includes roads, bridges, ports, buildings, irrigation system, and urban land. The goal here is to efficiently develop and deploy the right types of physical capital, maximising the role of the private sector, and ensuring that services are well aligned with demand. The impact of technological change needs to be taken into consideration, including declining solar prices, contactless options for mass transit, smart grid, and emerging opportunities for circular and sharing economies.

Last but not least is natural capital, which includes agricultural land, forests and terrestrial protected areas, and also energy and extractives. Here, the aim is productive and sustainable use of natural capital, aligning prices and incentives for climate resilience, and putting the country on a path towards a dramatically lower carbon trajectory.

Mr Ousmane Dione said that as the four types of capital make a country to be resilient to megatrends, the four capitals must be developed and deployed efficiently, equitably, and effectively. Vietnam must lower the cost of developing all types of capital, must ensure that everyone has access to them, and must produce the highest quality possible. Some types of capital, particularly human capital, take more time to mature but it is huge profitable. “So, time is important and action must now be taken right now to mitigate risks or grasp opportunities that megatrends bring,” he said.

Quynh Chi

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