Innovation to aid production opportunities

With the country’s improved competitiveness thanks in part to a rise in labour productivity, Vietnam is boosting its support for innovative activities to achieve further sustainable development under a new growth model.

The ministries in Vietnam responsible for planning and investment, sci-tech, and industry and trade were last week assigned to devise more mechanisms and incentives for innovation-based activities in the country this year.

One of the focuses is on strongly renovating the quality and effectiveness of vocational education, in which high-quality human resources are to be produced in order to help improve the country’s labour productivity (LP) and economic competitiveness in the context of Industry 4.0 and increased international integration.

The government last week also urged the Ministry of Labour, Invalids, and Social Affairs to expedite the formulation of the revised Law on Employment in a manner suitable to the digital era, in which there will be a plan to reduce informal employment to below 50 per cent by 2025, from 56 per cent in 2021.

The amended law is set to be discussed by the National Assembly (NA) in May.

Businesses are being facilitated further to engage in Vietnam’s education and training sector, in which universities and institutes are encouraged to cooperate with enterprises to establish sci-tech businesses. It is expected that by 2025, Vietnam’s vocational training index in the Global Competitiveness Index by the World Economic Forum will climb by 40-50 places as compared to 2019, and the country’s student skill index will also ascend by 45 places.

Moreover, the government will also invest more in research and development (R&D). At present, merely 0.5 per cent of GDP is used for R&D annually.

“The government will enact special incentives to encourage businesses to invest into R&D and innovation, and engage in global value chains,” stated PM Pham Minh Chinh. “We will also develop and connect technology exchanges at all localities throughout the country.”

Under January’s Resolution No.01/NQ-CP on the nation’s socioeconomic development plan and state budget estimates for 2023, the government demands continued restructuring of all production and service activities pertaining to innovation and increased application of science and technology.

“The country will strongly develop industrial production intensively, with the economy’s structure to be shifted to an expansion of the manufacturing and processing industries. Efforts are to be made to accelerate the restructuring process of industrial industries, closely associated with digital transformation and deeper participation in global value chains. The ratio of the digital economy in GDP in 2023 will be about 15.5 per cent,” Resolution 01 stated.

The government will also focus on developing the national innovation system, and conducting on a pilot basis the development of sci-tech enterprises at institutes and universities under the new model of spin-off businesses.

Notably, the government will also accelerate the establishment of national startup hubs – firstly in Hanoi, the centrai city of Danang, and Ho Chi Minh City – in addition to the strengthened expansion of domestic and foreign innovation networks.

Making headways

The General Statistics Office (GSO) reported that Vietnam’s per capita GDP last year, calculated under the existing price developments, is estimated to be VND95.6 million ($4,156) – up by $393 compared to 2021.

“The LP of the whole economy in 2022 under the current price developments is estimated to stand at VND188.1 million ($8,178) – up by $622 against that in 2021. As per comparative prices, the LP recorded an on-year increase of 4.8 per cent in 2022, and 4.6 per cent in 2021. This is thanks to an improvement in labourers’ skills and qualifications, with a ratio of trained labourers having certificates and diplomas in 2022 hitting 26.2 per cent, which is 0.1 per cent higher than in 2021,” the GSO said.

According to the Global Innovation Index as updated by the World Intellectual Property Organization, last year Vietnam was placed in the group of nations recording the biggest progress in the past decade. The country increased by 20 ranks and standing at 48 out of 132 nations and third within Southeast Asia.

Under the government’s action plan to implement the economic restructuring plan to 2025, the LP will increase more than 6.5 per cent annually, in which the LP in the manufacturing and processing industry will be 6.5-7 per cent annually.

According to experts, if the LP is further improved, it can help Vietnam’s innovative economy to grow at an impressive rate of 29-30 per cent a year.

Under Vietnam’s 2021-2025 economic restructuring plan, the first solution to achieve higher economic growth with better quality is to increase LP.

“The LP must increase over 6.5 per cent a year in 2021-2025,” stated a plan report. “The ratio of total factor productivity in GDP must be 45 per cent, while the gap in national competitiveness with the ASEAN-4 countries (Indonesia, Malaysia, Thailand, and the Philippines) must be filled, especially in terms of institution, infrastructure, and human resources.”

The NA has also set a target of an average annual rise of 6-7 per cent in LP in the 2021-2025 period, up from an average 5 per cent in 2016-2020.

Further advances

The GSO’s report on Vietnam’s LP in the previous decade, released over a week ago, reported that despite some improvements, the country’s LP remains lower remarkably than that of many regional nations.

The GSO cited the World Bank’s data as stating that as compared to the GDP scale of ASEAN member states under the purchasing power parity of 2017, that of Vietnam over the past years have seen “positive improvements”.

Specifically, in 2020, Vietnam’s GDP of $346.6 billion ranked third within ASEAN, equivalent to 32.1 per cent of Indonesia’s and 83.6 per cent of Thailand’s. It was 1.2 times higher than the Philippines and Malaysia, 1.9 times higher than Singapore, and 3.8 times of Myanmar.

However, the GSO said, as calculated under the purchasing power parity of 2017, Vietnam’s LP in 2020 was equal to 11.3 per cent of Singapore, 23 per cent of South Korea, 24.4 per cent of Japan; 33.1 per cent of Malaysia, 59.1 per cent of Thailand, 60.3 per cent of China, 77 per cent of Indonesia, and 86.5 per cent of the Philippines.

“Vietnam’s LP is higher than that of Cambodia, Myanmar, and Laos,” the report read.

The United Nations Development Programme (UNDP) said Vietnam must better prepare for, and adapt to, the impact of Industry 4.0 on drivers of growth and job creation.

“Accelerating Industry 4.0 offers both opportunities and risks in terms of future employment creation, as Vietnam embarks on new growth pathways. It is anticipated that automation and AI will displace jobs in several sectors that have been driving Vietnam’s growth,” said a UNDP report on the issue.

The International Labour Organization also suggested that about 70 per cent of jobs in Vietnam were at risk of automation. Meanwhile, currently in Vietnam, about 1.6 million people enter the labour market annually, which is a burden that is expected to grow further with the rise of Industry 4.0.

Vietnam Investment Review