McKinsey’s Global Institute this month weighed in on the challenges Vietnam faces as it tries to move up the global economic scale — and joined the chorus of international investors and analysts calling for reformed state-owned enterprises.
The report says more labor productivity is needed to sustain Vietnam’s impressive growth, which until now has been driven by an expanding labor pool and the transition from agriculture toward manufacturing and services. Both drivers are expected to begin slowing down soon, and greater efficiency will have to be the dominant force in the economy.
McKinsey premises its report on a decline in annual labor force growth from 2.8% over the past decade to 0.6% in the next. Absent accelerated productivity growth, Vietnam won’t achieve its hoped-for economic 7%-plus growth through 2020; more likely, annual growth will be below 5%.
The report also suggests Vietnam can strengthen its economic position by emphasizing its role as global outsourcing hub; upgrading technology; expanding infrastructure for telecommunications and electricity; improving education; and reforming the banking system.
The report validates what Vietnam’s own economists and policymakers have been emphasizing, and foreigners have been saying with increasing urgency, over the past two years.
More on the 2012 McKinsey report on Vietnam