Evaluating Factors that Affect Vietnam’s Ability to Compete in a Global Economy
Introduction
Vietnam experienced a fast integration into the world economy, and this came with its opportunities and challenges. From deficient imports and exports, trade escalated gradually to a case where imports became higher than exports. In 2015, the total exports and imports in percent of GDP was approximately 200%; this was a too high figure (World Bank, 2016). But today, the economy faces a surge in its competitive ability in the global economy resulting from factors that affect its productivity.
Factors that will positively affect Vietnam’s ability to compete in a global economy
Positive economic reforms have guaranteed a broad competitive niche across the economy. The wide range of reforms in different sectors, including, agriculture has led to higher yields, intense global demands, and rising prices. Meanwhile, increased capital investment has helped raise Vietnam’s capital stock hence access to better machinery and infrastructure, leading to bolster productivity growth.
Furthermore, Vietnam’s growth is driven by a young expanding workforce. The young and growing labor pool with relatively low wage has contributed to Vietnam’s double per capita ability to double India today. The young population has sparked significant transformations in the manufacturing and service sectors relatively more competitive and profitable.
Lastly, there is an increased flow of FDI (foreign direct investment) into the industrial and service sector. International investors have played a significant role in Vietnam’s stable and robust growth performance due to the availability of the most attractive emerging markets for investors. Agricultural exports have expanded rapidly, but oil exports continue to be a vital source of foreign income.
Factors that will negatively affect Vietnam’s ability to compete in a global economy
Vietnam’s economic growth depends heavily on trade in natural resources because the government views natural resource exploitation as an essential development strategy. Accordingly, huge capital and technological investments are channeled into exploitation and post-processing of these natural resources, with limited private companies’ success. An acceleration of depletion and exhaustion of resources is experienced, leading to environmental degradation and lowering exchange rate evaluation.
Another factor is the low level of labor productivity. A recent report of the International Labor Organization (ILO) showed that Vietnam’s labor productivity is among the lowest in the Asia Pacific (ILO Newsletter 2014). Foreign firms remain the significant drivers of industrial output and exports, while the Vietnamese government lags in promoting competitiveness and industrial skills. The massive inflow rates of public and private money from other nations have resulted in a culture of complacency and dependency.
Macro-economic pressures of inflation due to a highly unstable global environment. The over-reliance of Vietnam on macro-economic policies has significantly been affected by the global economic recession. Reliance has resulted in budget and trade deficits, pressures from inflation, and high instabilities of exchange rates. These factors have collectively put the financial sector under pressure, and international credit ratings agencies have dropped ratings on Vietnam’s debt, leading to a lower competitive ability than other nations.
Conclusion
Countries experiencing development can be trapped by low growth, insufficient innovative power, and lack of catching-up. Therefore, Vietnam should adopt an economic policy that will ensure constant upgrading. Also, it needs to develop new sources of productivity gains to make up for low growth and ensure uninterrupted growth in hostile economic times.