Skip to Content

Roundup: Vietnam's key structural policy challenges pinpointed

by June 19, 2016 General

HO CHI MINH CITY, June 19 (Xinhua) — The Organization for Economic Cooperation and Development (OECD) as well as foreign and Vietnamese officials have just pinpointed three key structural policy challenges, including infrastructure, state-owned enterprises and job creation.

Senior policymakers from members of the ASEAN and the OECD, an international economic organization of 34 countries established in 1961 to foster economic progress and world trade, in mid-June gathered in Vietnam for the first time to touch upon various issues, including economic outlook for Vietnam in 2016.

Regarding key structural policy challenges Vietnam is facing this year, the OECD listed infrastructure gap, sluggish reform of state-owned enterprises (SOEs), and imbalance between job creation and job improvement.

“A significant infrastructure gap is expected to arise as Vietnam’s growth continues and financing will be a challenge,” the OECD said in its latest report introduced in Vietnam on June 15 and discussed for days later.

According to the OECD, Vietnam’s recent restructuring of public investment to improve the efficiency of investment allocation and to strengthen monitoring and assessment frameworks have helped to lay a better foundation for future infrastructure investment. Domestic and foreign private investors are being encouraged to participate in pilot public-private partnership projects. “More could also be done to mobilize private savings in Vietnam, for example, through the issuance of government-guaranteed bonds for infrastructure development,” the OECD recommended.

According to the World Economic Forum, Vietnam’s infrastructure quality index has gone up 24 rankings in the last five years, from the 123rd out of 139 economies in 2010 to the 99th out of 140 economies in 2015.

“However, investment in infrastructure still has many shortcomings; many projects have been planned in an inadequate way. The allocation of projects is scattered, so capital allocation is scattered, too. The insufficient financing has led to sluggish implementation, causing big losses and wastefulness,” a senior official from the Vietnamese Ministry of Planning and Investment told Xinhua on Sunday.

The OECD stated that in 2016 the reform of Vietnamese SOEs will be another important challenge to improve competition and competitiveness. Reforms have been gradual and have mainly been implemented through the transformation of SOEs into joint stock companies and through mergers and consolidation. However, challenges remain as SOEs retain preferential access to finance, state budget capital, land and other resources.

“Further reforms should seek to ensure that SOEs compete fairly with the private sector and that SOE performance is monitored and evaluated. For example, the agency responsible for the state ownership function of SOEs must be independent from the agency that implements the SOE management function and the market regulation function,” said the OECD.

SOEs contributed to 34.81 percent of Vietnam’s GDP between 2006 and 2010, and the rate dropped to 32.26 percent in the 2011-2015 period, mainly due to SOE equitization, according to the country’s General Statistics Office. “The economic restructure has been on right track but at slow pace. Production and business efficiency of many SOEs has not caught up with big assets and resources allocated to them. The proportion of privatized capital is still low,” the local official commented.

“To have a bright future, Vietnam should take actions on its commitments for regulatory and SOE reforms, and take actions that enable and facilitate, rather than restrict business opportunities,” Adam Sitkoff, Executive Director of American Chamber of Commerce in Hanoi, told Xinhua.

Regarding job creation, unemployment in Vietnam has been low despite a large increase in the size of the labor force brought on by population growth. “Labor productivity has remained relatively low, however, as a result of the low quality of human and physical capital, the small scale of production and misallocation of resources,” the OECD stated.

Any effort to improve employment prospects and productivity is complicated by the large informal sector. As of 2012, nearly 80% of the total workforce was employed in the informal sector. To promote job growth, Vietnam has allowed employers in the informal sector to avoid paying value-added taxes, and social security and welfare contributions.

“The country needs to strike a balance between job creation and job improvement by encouraging businesses in the informal sector to formalize through initiatives such as tax holidays, tax reductions or credit subsidies,” the OECD recommended.

According to statistics from the Vietnamese Ministry of Labor, Invalids and Social Affairs, in the 2010-2015 period, around one million people in the working age became unemployed each year, while 1.3 million others became underemployed. Vietnam set a target of creating 8 million jobs in the period, but created only 7.8 million jobs in reality.

Specifically, Vietnam’s labor productivity in 2013 stood at only 5,440 U.S. dollars, or 5.55 percent of Singapore, 15.22 percent of Malaysia, 36.87 percent of Thailand, 55.26 percent of the Philippines and 55.24 percent of Indonesia.

Vietnam should move forward on necessary reforms to create a more competitive environment where decisions are made faster, procedures are less complicated, rules are fairly enforced, and companies compete on their merits, including for access to capital, land and opportunities, Adam Sitkoff recommended. Enditem