GDP growth increasingly dependent on labour productivity

According to Dr Nguyen Dinh Cung, director of the Central Institute for Economic Management (CIEM), while Vietnam has achieved its annual growth targets, the growth rate has clearly declined. If the GDP growth remains the same, it will be difficult to narrow the development gap with other countries in the region. GDP growth is becoming increasingly dependent on labour productivity.

Data of the General Statistics Office shows that Vietnam's labour productivity is still low compared to other countries in the region, reaching $9,894 in 2016, equaling 7 per cent of Singapore, 17.6 per cent of Malaysia, 36.5 per cent of Thailand, 42.3 per cent of Indonesia, 56.7 per cent of the Philippines and 87.4 per cent of Laos.

"It should increase by at least 6 per cent per year to reach the growth target. Labour productivity has increased mainly due to economic structural adjustments, while the increase in sectoral productivity is lower than in previous periods," Cung said.

The increasing rate of added value in the private sector is relatively high and has been continuously improving in recent years. However, it has not attracted more labour or created more jobs. The state economic sector's efficiency is lower, but its size has not been significantly reduced, according to Cung.

Investment efficiency in agriculture is high, but the volume of investment capital has not been growing accordingly. Vietnamese enterprises have high capital intensity, but capital productivity is the lowest in the region, as capital is not channelled into technological innovation. The concentration of capital is not linked with labour productivity, mainly due to the low-performing SOE sector.

In order to help Vietnam overcome the challenges in terms of the productivity and increase the competitiveness of the economy, the Australian government pledged to provide $5 million to support the Vietnamese government to achieve its targets for improving the business environment and move Vietnam towards becoming a more market-oriented economy.

This programme that will last for four years (Aus4Reform) will assist the development and implementation of economic policies, laws, and institutions critical to helping the Vietnamese economy to meet its potential. The initiative will also build linkages between Australian and Vietnamese institutions to share expertise and experiences.

“Vietnam has a long history of pursuing economic reform and Australia is proud to have offered our support throughout this process,” Australian ambassador Craig Chittick said at the Launching Workshop of the $5-million Aus4Reform held on December 13. “Economic reform is tough, but Australia will continue to support Vietnam on this journey.”

Australia’s support will help Vietnam register one million new formal private enterprises by 2020, increase the percentage of women-led enterprises and accelerating growth in private sector employment.

Aus4Reform brings together Vietnam’s leading think-tanks and government agencies responsible for economic policies, including CIEM, the Vietnam Competition Agency (VCA), the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD), and the Vietnam Chamber of Commerce and Industry (VCCI), and the Economic Committee of the National Assembly (ECNA).

Aus4Reform builds on the reform momentum achieved through previous Australian support programmes, including “Beyond WTO” and “Restructuring for a more competitive Vietnam.”