In spite of continuous improvements, in recent years, productivity in Vietnam remains amongst the lowest in East Asia. The Vietnam Institute for Economic and Policy Research (“VEPR”) has also stressed the need to improve labour productivity.
In a report in early 2019 they noted that whilst labour productivity had improved over22% in the period 2008 to 2016 that was just a minor part of the story. The major problem is that every year between 2008 and 2017 wage increases were higher than productivity increases. In 2018, we saw an increase in productivity, which was higher than the minimum wage increase, a significant step in the right direction and the first time I can remember in my 30 years here.
In an article in the Government online paper baochinhphu.vn cited statistics from Asian Productivity Organisation showing that per hour labour productivity, in Vietnam was US$ 5.2 per hour, higher than Cambodia and Myanmar but lower than Laos. Based on that report Vietnam’s labour productivity was 8% of Singapore and 35.86% of Thailand[1]
Part of the problem is the make-up of the private sector, in Vietnam, where the large majority of private companies (over 90%) are SME’s with low labour intensity, limited finance and technology and low product quality. Another reason, coupled with the large number of SME’s, is the low level of investment in research and development with many firms using outdated technology. Although there are signs of a changing trend indemnified in Grant Thornton’s International Business Survey[2], where the number of firms planning to increase investment in research and development rose from 45% in 2018 to 76% in first half 2020.
Improving productivity, improving product quality and improving competitiveness is vital for Vietnamese companies and hence the push from the Government for FDI companies to help by working with local companies and helping them join the global supply chain.
Of course there are concerns over industry 4.0 and the impact of automation on employment but it has been proven in Industry 1, 2 and 3, that innovation and automation increases the overall supply of jobs. New technologies drive higher productivity, the foundation for better-paid jobs and economic growth. While new technologies displace jobs, they also unleash countervailing forces that generate more jobs. As some workers may be left behind, the Government should respond to this challenge by ensuring that workers are protected from the downside of new technologies and prepared to harness the new opportunities they provide. This will require coordinated action on skills development, labor regulation, social protection, and income redistribution.
Kenneth M Atkinson
Founder, Senior Board Adviser
Grant Thornton Vietnam
[1] Vietnam News January 30th 2020.
[2] The Grant Thornton International Business Report (IBR) is the world’s leading survey of midmarket companies. The research takes place twice a year and involves online and telephone interviews with around 10,000 businesses across more than 30 economies.
The data for this release is from interviews conducted in October and November 2019 with chief executive officers, managing directors, chairperson or other senior executives from all industry sectors.
Reference: Grant Thornton International Business Report
The Grant Thornton International Business Report (IBR) is the world’s leading survey of midmarket companies. The research takes place twice a year and involves online and telephone interviews with around 10,000 businesses across more than 30 economies.
The data for this release is from interviews conducted in October and November 2019 with chief executive officers, managing directors, chairperson or other senior executives from all industry sectors.
