Productivity Growth Needs to Play Vital Role in Vietnam's Economic Development

Vietnam is a success story in the last 25 years, the second fastest growing country in the world after China. However, given the current context, Vietnam needs to have a policy to develop not only faster, but also better.

A productivity and innovation model

The “Vibrant Vietnam: Forging the Foundation of a High-Income Economy” report, launched recently by the World Bank (WB), comes as the Government of Vietnam is preparing its 10-year socioeconomic development strategy for 2021-2030 and the 5-year socioeconomic development plan for 2021-2025. A productivity-driven development model - combining innovation with balanced development and allocation of private, public, human and natural capital - will be key for Vietnam to achieve its goal of becoming a high-income economy by 204

According to Mr. Ousmane Dione, World Bank Country Director for Vietnam, Vietnam’s development strategy for next decade must put productivity growth front and center. Based on assessments in the Vietnam 2035 Report, Vietnam’s own development experience and lessons from other countries, Vietnam needs to balance between effective and efficient accumulation and distribution of four capital categories: Private capital, state capital, human capital and natural capital. This balance is highly dependent on the country's innovation and market and institutional reforms.

“Vietnam is one of the greatest development success stories of our time. The country, however, is now at a turning point where some of its traditional drivers of growth are gradually weakening. To achieve its ambition to become a high-income economy by 2045, Vietnam must put productivity growth front and center of its economic model in the next decade. In other words, it needs to grow not only faster but also better”.

With the GDP per capita of US$2,566 in 2018, Vietnam only ranked No. 141 in the world. Given the recent pace, Vietnam will need 11 and 28 years to catch up with China and South Korea (in 2017), respectively.

Some of the forces that have propelled Vietnam’s growth are now slowing. The country’s demographic dividend is fading, and global trade is declining, while other challenges - such as pollution and the rise of automation, are growing. The ongoing Covid-19 crisis could be an accelerator of these trends.

Dynamic business and efficient infrastructure

The growth model is renovated towards improving quality, accumulating more and using effectively all types of capital that are recommended by WB experts to Vietnam. According to the report, to thrive in such a changing environment, Vietnam needs to strengthen its productive assets, with priority given to four areas.

Encouraging competition and easing firm entry and exit ensures the flow of resources to the most innovative and productive firms. Vietnam has built up a large stock of infrastructure. It now needs to improve the efficiency and sustainability of infrastructure services, including financing, and operations and maintenance. Another important priority is skilled workers and opportunities for all. Sustainable development requires more effective management of renewable natural resources such as land, forest and water; stricter pollution controls, including in major urban centers; and mitigation of and adaptation to the inevitable growing impacts of climate change.

“To achieve its ambition to become a upper middle income economy by 2030 and high-income economy by 2045, Vietnam must renovate its economic model it adopted in the past three decades because the world and Vietnam are changing a lot, and will continue to change, even at a faster pace, over the next decade,” said Mr. Ousmane Dione.

By Quynh Anh, Vietnam Business Forum