Last updated: Tuesday, March 19, 2019


Enhancing Economic Competitiveness through National Productivity

Posted: Thursday, January 03, 2019

To step into a rapid and sustainable growth path and thus allow Vietnam to catch up with ASEAN 5 by 2040, Vietnam needs to accelerate the pace of State-owned enterprise (SOE) reform and strengthen marketing mechanisms to facilitate private sector development and SME growth. Besides, it is necessary to outline a comprehensive labour force development strategy and reduce regional disparities.

At the recent Scientific Workshop on “Enhancing economic competitiveness through national productivity” organised by the Vietnam Chamber of Commerce and Industry (VCCI) in Hanoi, Dr. Vu Tien Loc, President of VCCI, said, in the cooperation programme between VCCI and ACI Asia Institute, scientists from both sides conducted “Research on competitiveness improvement, development balance and sustainable development for Vietnam: Dialectical assessment of growth potential.” This study outlines a clear policy roadmap with specific recommendations for Vietnam to enter the path of rapid and sustainable growth, thereby allowing Vietnam to catch up with ASEAN 5 by 2040, including five policy proposals for Vietnam.

First of all, it is necessary to speed up SOE reform and strengthen market mechanisms to facilitate private sector development. This is considered an urgent priority policy for Vietnam. This proposal calls on the Government of Vietnam to accelerate SOE equitisation and divestment; streamline and centralise public asset management systems; eliminate market distortions as a result of favouring SOEs to create a level playing field and encourage the application of effective corporate governance principles in both the private and public sectors in a strong market economy.

Besides, it is necessary to strengthen domestic connectivity as a means to reduce regional disparities. More importantly, this proposal promotes Hanoi's development as a growth catalyst for a more northern development. Hanoi will become a business and financial centre where all businesses and multinational corporations operating in Vietnam will establish representative offices to benefit from business consulting activities and administrative support services from competent authorities. The city will be a gateway to connect northern provinces with a global economy, supported by modern airports, first-class urban transport systems and seamless infrastructure connectivity with northern industrial centres. It will be a tourist centre powered by advanced transportation and connection services to other northern tourist hotspots. This development will provide more economic opportunities for people living in northern provinces, help narrow the gap in life quality between the North and South, thus preventing the instance of “One country, two economies.”

Furthermore, according to VCCI President Loc, research results also suggest the need to nurture small and medium-sized enterprises (SMEs). Even though the Government was committed to supporting SMEs through the adoption of the Law on SME Support 2017, the research team still believes that Vietnam's SME support strategy requires a major change in support pattern. Direct interventions with documents and forms of tax reduction are no longer the only method of the Government although they are still important policy instruments. Instead, the Government should play a facilitating role and rely on market-oriented policies to promote SMEs. In the long term, such policy initiatives will bring more sustainable effects to financial interventions, especially when Vietnam's public debt is increasing.

VCCI was assigned by the Central Theories Council to carry out the “Competitiveness of Vietnam economy: Reality, issues and solutions” with the goal of adding theories and putting forward policy recommendations for the Government to achieve the goal of improving the business environment for better economic competitiveness.
Moreover, Vietnam needs to outline a comprehensive labour force development strategy, Dr. Loc said. Inappropriate and outdated worker skills as a result of technological breakthroughs are two of the main challenges for the workforce in the next phase of Vietnam's development. Therefore, the research team proposes launching the Future Skills Initiative as a national movement with action plans to encourage individuals to make informed decisions about education and training, linking education and technical training to industry needs, promoting skills-based career development; and enhancing studying culture in the workforce.

“Among the policies we propose to realise the goals of the Future Skills Initiative are the Industrial Internship Model with Placed Trained Employed Plan (IIM-PTE), an important solution. This is an industrial internship programme with a clear career pathway for graduates with a vocational training or other lower degrees. With the participation of three stakeholders - government, employers and employees, IIM-PTE will help increase productivity through on-the-job training, enhance the attractiveness of vocational schools such as is a feasible direction to ensure good work after graduation, and help reduce serious shortages of skilled labour in the Vietnamese economy,” Dr. Loc said.

Finally, according to Dr. Loc, the importance of a balanced, diversified economic structure where production and services are developed together and supported by a highly productive agriculture is essential. This represents Vietnam's vision to become the next manufacturing hub in Asia, a potential centre for service-based industries and a major agricultural producer in the world. In an effort to achieve these goals, the Government plays an important role in addressing obstacles to development process to accelerate industrialisation through a pioneering industrial policy.

“The deployment of these five policy proposals is a fundamental restructuring of Vietnam's growth model. This great task can only be achieved if the Government is committed to boosting economic reform and, more importantly, taking concrete steps to strengthen institutional capacity, ensuring that the State apparatus meets reform requirements. In order to achieve this, it is necessary to build a modern, professional and transparent public administration system where there are comprehensive training and development of Government officials based on talent levels,” he affirmed.

Dr. Kenichi Ohno, Japan National Policy Research Institute
Vietnam's labour productivity is still very low compared to other countries in the region. Based on PPP 2011, Vietnam's labour productivity in 2016 reached US$9,894, equal to only 7.0 per cent of Singapore's productivity, 17.6 per cent of Malaysia, 36.5 per cent of Thailand, 42.3 per cent of Indonesia and 56.7 per cent of the Philippines. And, the gap in labour productivity between Vietnam and other countries continues to widen.

In the context of Vietnam becoming a low-middle income country, traditional competitive advantages based on low labour costs and low material costs are gradually disappearing and low productivity problems will be a big drag investment attraction and international integration. This may cause Vietnam to fall into the so-called middle-income trap.

Therefore, productivity must become the main driving force for Vietnam's competitiveness and economic development. To avoid the middle-income trap and achieve high income in the future, Vietnam should aim for sustainable labour productivity growth of 7-8 per cent.

However, despite many years of close economic cooperation, Vietnam had not applied any of Japan's productivity tools to a full or even part. Therefore, the national productivity movement should be carried out for at least several years with clear objectives. The Party, Government and business community should work closely together to achieve this goal.

Mr. Nguyen Dinh Cung, Chairman of the Central Institute for Economic Management (CIEM)
In order to increase GDP in a sustainable way, it is necessary to increase productivity and, in other words, Vietnam should improve the economic supply but the incentive system that aims to make the supply quality is problematic. Vietnam's GDP growth may reach eight per cent or higher. Many other countries such as South Korea and Japan have already done it. Vietnam wants to catch up with the world and rise to top, there is no other way to increase productivity. If we set a goal like that, we will find out why we can't do it, then we will take into account what tool we need and who do it? If there is a strong message from leaders to employees, there is nothing we cannot do. What matters is whether we do it or not.

The will to rise must come from the highest leadership, though it is now late but it is rather late than never. We must set the goals high enough to seek other methods and thinking. This issue should be discussed extensively to find ways to overcome challenges from low productivity.

Quynh Chi

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