MPI Minister: Without Reforms, Vietnam Risks Lagging Further Behind

At the launch of the Vietnam 2035 Report by the World Bank (WB), held in Hanoi on February 23, he delivered an impressive speech on reforms that Vietnam needs to take to avoid lagging farther behind.

 

At the start of this keynote, Minister Vinh frankly admitted that Vietnam is still a poor country and we are not satisfied with what we have achieved particularly relative to neighbouring countries with similar conditions.

 

In the 1820s, Vietnam claimed a very significant position in the region in views of its sizes of both population and economy, which was stronger than that of the Philippines and Myanmar combined, and 1.5 times that of Thailand. At that time, Vietnam’s per capita income was almost equal to the world’s average.

 

However, in 2014, Vietnam’s per capita income was a fifth of the world’s average, a third of Thailand and a fifth of Malaysia.

 

Comparisons are always unfair but it shows that it is imperative for Vietnam to boost its reform and development, Minister Vinh stressed.

 

Without strong reforms, it will be hard for Vietnam to avoid falling into the middle income trap and lagging behind.

 

Citing evidence for reform requirements, he noted that Vietnam is currently in a short timeframe of a golden population and we only have about maximum 10 years left to capitalise upon our country being full of working age people.

Vietnam’s growth catalysts such as investment capital, cheap labour, and exploitation of natural resources are also becoming less favourable.

 

“Vietnam has been increasingly integrating into the world’s economy. Integration means we have to accept competition. As such, improving the economy’s competitiveness is vital. Vietnam needs to continue its strong reform to avoid being left behind and falling into a so-called middle-income trap.

 

Elaborating three development pillars in the Vietnam 2035 Report, Minister Vinh said, to have high and stable growth for the next 20 years, with an average annual rate of 7 per cent in per capita income (equivalent to an 8 per cent GDP growth), a per capita income of US$15,000-18,000, the best way for Vietnam to reach these targets is to increase labour productivity, which is currently very low in Vietnam.

 

“The rate of labourers in non-official areas is much higher than that in the official area. Over 44 per cent of labourers are working in agriculture, which creates low added value. The market for production factors like capital, land, and natural resources is not allocated under the market mechanism but by administrative orders,” he pointed out.

 

In addition to raising labour productivity, high priority must be placed on enhancing competitiveness and performance of private businesses by strengthening the foundation of market economy as the health of domestic businesses is that of the economy. An impetus for enhancing the spirit of local business start-ups is needed. The State must create a favourable environment to inspire start-up wave.

Remarking on the second pillar - equality and social inclusion, he stressed that the rapid development in the market mechanism will widen the gap between the rich and the poor. Hence, in addition development policies, Vietnam must have policies in place to ensure equality for all in access to basic social services, especially for the vulnerable and the poor.

 

The third and most important pillar is improving the state’s capacity and accountability.

 

Current low labour productivity and an unfavourable environment for the private sector can be ascribed to the state’s lack of effective operations and public supervision.

Minister Vinh noted “Vietnam is at a turning point of reform and development. We face significant opportunities, but also big challenges. Our only choice is to implement the reforms based on these pillars. Without these reforms it will be hard for us to avoid falling into the middle income trap and lagging behind.