Tu Hoang
Japanese expert Kenichi Ohno (standing) says there have been signs that Vietnam has fallen into a middle-income trap - Photo: Tu Hoang
Speaking at a seminar on business connection in Hanoi City yesterday, Ohno said that discussions over the middle-income trap were initiated in Vietnam in 2008, when the nation’s annual income per capita was reported at US$1,070, to warn local enterprises and government officials.
However, such warning failed to bring about effects. There had been a lot of proof indicating that the nation has fallen into the trap, Ohno said. He pointed out five symptoms of the issue.
Firstly, the nation’s economic growth has slowed down.
Having fixed consequences of the regional financial crisis in 1997 and 1998, Vietnam’s economy developed strongly between 2000 and 2005. The sentiment of consumers and enterprises was positive and the Government was satisfied with the results.
However, the development was mainly fueled by unsustainable growth of the real estate and stock markets, not by productivity increase. Since 2006, the nation’s economic growth rate has declined while the society’s sentiment has turned gloomy.
Gross domestic product growth rate has dropped below 5-6% and the nation has experienced a tough period of sluggish real estate market, high inflation and bad debts.
For a relatively young economy with large potential for development, a growth rate of 5-6% should be considered as a social crisis, he noted.
Besides, poor production capacity is the sign for the trap. The Incremental Capital – Output Ratio (ICOR) and contribution of total-factor productivity (TFP) to the growth has declined while investment capital has shot up, suggesting that investment capital use effects are low.
Meanwhile, wage rises in the country have outpaced the increase of productivity in recent years, pushing production costs higher.
From 2009 to 2012, productivity increased at an annual average rate of 3.2% for the entire economy and 5.1% for the production sector. Meanwhile, the nominal wage advanced at an average rate of 25.9% and 23.5% each year respectively.
Based on the data sourced from the National Assembly, Ohno said competitiveness dropped at an annual rate of 22.7% and 18.3% respectively. The dong devaluation against the greenback at a rate of 5.5% failed to offset the 22.7% reduction in competitiveness each year.
The professor also mentioned other signs for the middle-income trap such as no improvement in competitiveness rankings and problems related to economic growth.
Đăng ký: VietNam News