Chairman’s Insights – May 14th 2018
Vietnam’s Productivity Problem

Whilst the economy continues to achieve growth raters not seen for over a decade and exports exceeded US$ 200 billion in 2017 and whilst FDI continues again at record levels, with a significant volume of production moving into Vietnam from China, labour productivity is alarmingly low.

Whilst the Government wants to see annual increases in the minimum wage higher than inflation and GTP growth and for the last several years the gap has been putting an increasing burden on labour intensive industries. In addition Vietnam needs to see the growth of the middle class, in order to avoid the middle income trap and drive local consumption. This can only be achieved through increased productivity,

The reality is that Vietnam has one of the lowest, if not the lowest, in ASEAN plus Japan, South Korea and China. In fact in 2015, Vietnam recorded the lowest productivity amongst the above countries in manufacturing, construction and transportation storage and communications. In the sectors of agriculture, electricity, water and gas, and wholesale, retail and repair it ranked second from bottom only above Cambodia.[1]

If wage increases continue to outstrip productivity increases, which have been growing at under 4%, then over time Vietnam will be unattractive to manufacturers and we will lose a lot of the FDI we have seen into the manufacturing sector.

There is also a link that needs to be examined between the education system and the abilities of new workers to integrate into the work force and management to drive more efficient systems. Other inhibitors of productivity growth is infrastructure development and also ease of doing business.

Kenneth Atkinson

[1] Vietnam Economic Institute doe Economic Policy and Research (“VEPR”).

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