ICAEW: Vietnam has highest productivity growth rate in ASEAN

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Vietnam workers have substantially improved their productivity levels in the last 15 years, according to ICAEW’s latest Economic Insight: South East Asia report. ‘Pure productivity[1]’ grew 2.3% and sectoral shifts accounted for 1.7% of productivity growth.

 

ASEAN workers overall have had an impressive track record, with productivity growing 3% per year between 2000 and 2015. This surpasses the per year growth rate of Latin America by 2% and Africa by 1.44%. Sectoral shifts (workers moving from agriculture to manufacturing and services), urbanisation and an increase of workers in the ‘prime age’ (25 – 54), have been the main drivers of productivity growth throughout the region, with the exception of Singapore.

 

Priyanka Kishore, ICAEW Economic Advisor & Oxford Economics Lead Economist, said: “Vietnam’s productivity grew at an impressive 4% per year in the last 15 years and should accelerate to 5% in the next five years, outpacing its neighbours. This will be powered by sectoral shifts, urbanisation and a growing number of workers in the prime working age. Pure productivity growth, however, ranks below its ASEAN-6 neighbours except Singapore. This highlights an opportunity for Vietnam to invest in productivity measures to improve output per worker.”

 

High household savings are also likely to have contributed to productivity improvements as sectoral shifts would not be possible without a stable supply of finance to invest in both physical and human capital. Though Foreign Direct Investments (FDI) have an important role in growing ASEAN’s economies, the bulk of financing for business investment – particularly among the job-rich small and medium-sized enterprises – comes from domestic savings and lending. This partly explains why ASEAN’s productivity has risen faster than other ‘middle income’ regions.

 

Rising domestic demand and booming Foreign Direct Investment (FDI) are driving economic growth of 6.5% despite the challenging regional and global environment. Continued diversification of export industries from oil and coffee to textile, electronics and other manufactures have also helped shield the economy from low commodity prices.

 

Mark Billington, Regional Director, ICAEW South East Asia, said: “Training, development and skills upgrading must play an essential role if Vietnam wants to maintain its growth path and improve the productivity and output of its workforce. As its economy continues to diversify, it will need a highly skilled workforce; one which has moved closer to a global standard of technical knowledge, business skills and innovation.”

 

Other findings in the report include:

 

·       Indonesia’s financial conditions have improved

 

The rupiah has outperformed most other Asian currencies this year. Bond yields have also fallen and the stock market is trending higher. However growth remains constrained by external factors in particular against the backdrop of sluggish demand in Indonesia’s major trading partners and the sustained fall in commodity prices.

 

·       Reforms needed to reignite growth in Malaysia

 

Slow employment growth, lower business confidence, higher borrowing costs and falling oil revenues are some of the issues affecting growth in Malaysia. Reforms are needed to help increase growth to achieve the country’s goal of becoming a developed economy by 2020.

 

·       GDP growth to accelerate in the Philippines

 

Latest indicators suggest that the solid momentum in domestic demand seen at the end of 2015 has continued into this year. GDP growth will be helped by a pickup in government spending and solid household consumption, along with an increase in net exports.

 

 

The full Economic Insight: South East Asia report is available at

www.icaew.com/en/about-icaew/where-we-are/south-east-asia/economic-insight-south-east-asia

 

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[1]   Pure productivity refers to the improvements in productivity levels within a sector as opposed to productivity contributions from sectoral shifts, ie from agriculture to manufacturing. For more details, please refer to figure 4 of the report.