Vietnam needs a plan, report finds

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Vietnam needs to figure out where it wants to go and how it's going to get there before it loses its economic edge

A worker at a textile factory in Ho Chi Minh City. Vietnam needs to move beyond the current economic growth model which is based on low labor cost, a Harvard guru said.

Experts have attributed Vietnam's meteoric growth to its rich untapped endowments including abundant natural resources, favorable geographic location, and its young, cheap workforce.

But during a recent symposium, a Harvard economic guru said it's high time for Vietnam to start developing a sustainable growth plan.

Speaking at the launch ceremony of the Vietnam Competitiveness Report in Hanoi on Tuesday, Michael Porter charged that Vietnam needs to get smart about its future.

"Vietnam needs to move beyond the current economic growth model which is based on low labor cost and intensive capital investment toward productivity and competitiveness as the core of growth," he said.

"Vietnam's future growth has to move beyond providing access to and leveraging existing economic fundamentals. It needs to be based on a consistent upgrading of the fundamentals and creating new advantages."

Much of the focus remains on short-term growth rates rather than on sustainable productivity, said the report, co-organized by the Central Institute for Economic Management a government economic think tank and Singapore's Asia Competitiveness Institute.

The opening of the market that has enabled Vietnam and others to capitalize on existing competitive advantages, such as cheap labor. These fundamental advantages are still there, according to the report's authors, but a relatively low level of prosperity has been achieved to date.

The key driver for Vietnam's growth has been an improvement in labor productivity. Despite recent gains, however, Vietnam remains behind many other countries in this regard.

The advances in productivity were the result of a rise in the ratio of capital to labor, which experts associate with a structural shift from agriculture to manufacturing.

"While this process has been effective and still has some room to continue, its potential is ultimately limited," according to the report, which was co-authored by Porter, a Harvard Professor who achieved notoriety for his value chain theory.

Foreign direct investment inflows have been a central engine of structural changes, according to the report, and exports have grown significantly. Despite increased exports, the report noted that little value has been added to goods that pass through the country.

"Vietnam is trying to upgrade too many things at the same time, without a clear strategy that could align and sequence the activities toward a coherent new goal," the report concluded.

Environment of equality

Vietnam needs to provide an environment with a more balanced mix of state-owned, private, and foreign companies, the report claims. Competition between the groups needs to be on equal terms. Moreover, the fiscal position of both the government and state-owned enterprises needs to become more transparent.

Additionally, a consistent and predictable monetary policy should be put forward.

The report further recommended that Vietnam strengthen education and workforce skills, upgrade infrastructure, and work on attracting more foreign direct investment (FDI). A new approach needs to focus on actual FDI, not mere pledges and more effective monitoring and follow up, said the report.

Based on international experience, Vietnam needs to make individual policy choices based on where the country wants to go, and what is critical to get there. The country should also systematically integrate policy planning with implementation and follow-up, according to the report.

Michael Porter said Vietnam should create a national competitiveness council to oversee the initiative.

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