Without digital transformation, the increase in average labor productivity of Vietnam in the coming years will be only 5-6%/year, but thanks to digital transformation, Vietnam can increase labor productivity by 8-10%/year.
Dr. Nguyen Dinh Cung says that every 10 years, an economic crisis occurs in Vietnam. The economy has dropped to the bottom with GDP growth rate forecasted at only about 2% due to the Covid-19 pandemic. Such crises took Vietnam years to recover and the growth rate was slow. The GDP growth in 2022, if good, will only reach 5% at the highest.
The impact of the Covid-19 pandemic is challenging Vietnam’s goal of becoming a high-income country by 2045. Experience from other countries shows that, to become a high-income country, economic growth must reach 8-9%/year, within 20 years, as in Japan and South Korea.
However, the pandemic will leave consequences for many more years, affecting Vietnam’s GDP growth rate. Meanwhile, the period of 2020-2030 is the best time to build the “foundation” for the country’s goals, because after 2030, Vietnam will begin entering a period with an aging population. Economic experts said that if developing countries do not make a breakthrough during the period of “golden population”, they will find it difficult to overcome the “middle income trap” and have no chance to rise to become a developed country.
Vietnam’s growth over the past time has mainly relied on increasing investment capital, and less on increasing labor efficiency and applying advanced technology in production. The ICOR was high, 6.25% for the period 2011-2015, and 6.14% for the period 2016-2019, a slight decrease. Thus, Vietnam has relied too much on physical capital for growth.
According to a report of the International Labor Organization (ILO), the labor productivity of Vietnamese workers is near the bottom among ASEAN countries. If the labor productivity growth rate is maintained at 5-6%/year as before the epidemic, Vietnam can reach the same level as the Philippines in 2038 and Thailand in 2069, while these countries have not yet escaped from the “middle income trap”.
Deputy Minister of Planning and Investment Tran Duy Dong said that in the context of the economy being severely affected by the Covid-19 pandemic and low labor productivity, Vietnam needs to accelerate the development process of the digital economy on the basis of science and technology, and innovation in order to improve productivity, efficiency and competitiveness of the economy.
The World Bank Chief Economist Jacques Morisset said that digitalization increases labor productivity and helps the economy operate efficiently. In recent years, Vietnam’s digitization speed has been very fast. In the pandemic, many Vietnamese enterprises have progressed very quickly, making great leaps in digital transformation.
Specifically, 60% of businesses are using online platforms and tools, and the e-Government is providing over 2,000 online procedures. Vietnam has many advantages to develop the digital economy such as a young population, a high percentage of smartphone users and the second fastest growing Internet economy in Southeast Asia, after only Indonesia.
Experts say that to achieve high annual GDP growth Vietnam must rely on an increase in labor productivity, instead of being capital intensive. Digital transformation will create a new growth source and this is an opportunity for Vietnam to make a breakthrough.
Without digital transformation, the increase in average labor productivity of Vietnam in the coming years will be only 5-6%/year, but thanks to digital transformation, Vietnam can increase labor productivity by 8-10%/year. This will help boost GDP growth and be an opportunity to break out of the “middle income trap”.
The report “Vietnam’s digital economy potential” made by economic consulting firm AlphaBeta indicates that, if digital technology is fully utilized in the economy, it can bring in 74 billion USD for Vietnam by 2030. It is expected that the sectors that will benefit the most are industrial production, agriculture and food, education and training.
Experts also point out eight key technologies that have the potential to contribute to Vietnam’s digital economy. They are mobile Internet, cloud computing, big data, artificial intelligence, financial technology, Internet of things and remote sensing, advanced robotics, and additive manufacturing. When developing these technologies, new business models will be created which can help increase revenue, save costs and increase productivity. These technologies can create significant economic value for businesses and governments, contributing to GDP growth.
However, there are many barriers that need to be removed to develop the digital economy in Vietnam, such as manpower, talent, trust, access to technology and digital adoption. In particular, manpower is still a big obstacle, which raises the question of the importance of education and training.
A survey by Vietnam Report shows that businesses are facing many challenges in digital transformation. Although digital transformation has been fast, it is only in the early stage, as digitization mainly takes place in distribution channels. Many small and medium-sized enterprises are confused about the concept of digital transformation. Meanwhile, they account for more than 96% of the total number of enterprises in Vietnam. Most of them have not yet approached digital technologies, are not equipped with a business mindset about digital platforms, and lack a business strategy on digital platforms. The main reason is weak human resources.
According to the Vietnam Vocational Education Association, Vietnam has 236 universities, of which 149 are training IT, providing more than 50,000 IT engineers annually. There are also 412 college and intermediate IT vocational training schools, annually providing about 12,000 IT experts for the industry. Although human resources operating in the IT industry in Vietnam have reached the milestone of 1 million people, IT firms still lack manpower. Vietnam lacked 400,000 IT staff in 2020 and this number rose to about 500,000 people in 2021.
Vietnam has many IT training schools but the training quality has not yet met the practical needs of enterprises and have not been applied to life. Of IT graduates, only 30% are qualified, meeting some requirements, and the remaining 70% need re-training.
Currently, IT human resource demand is largely focused on data analysis, Internet of Things, artificial intelligence, blockchain, digital marketing, programming languages… Therefore, if Vietnam becomes a “base” for technology production, it is necessary to have a comprehensive and methodical solution; otherwise, it will lose its advantage.
Vietnam is lacking business managers, qualified experts and technicians to promote digital transformation and innovation. These people are capable of leading the digital economy. For the Human Development Index (HDI), a measure of population quality, published by the United Nations Development Program (UNDP) in 2019, Vietnam currently ranks 117th out of 189 countries and territories. Vietnam has never entered the top 100 most developed countries in this list.
According to the World Bank’s Jacques Morisset, in the next few years, the structure of the labor market will change. As new technologies and platforms emerge, some professions will disappear while new jobs will appear. It is necessary to train human resources to adapt to new technologies, ensure flexibility, and be ready to switch to other professions.
Vietnam needs to quickly come up with a solution to the shortage of human resources with digital skills. The government needs to create space for the private sector to participate in digital transformation. Along with that is the breaking down of legal barriers, creating openness for digital connections.
National Assembly deputies have recommended that the Government design an economic stimulus package, but both the Government and the National Assembly have yet to discuss the topic.
Vietnam faces the risk of not fulfilling its growth targets. The situation requires extraordinary efforts and solutions.