ASEAN workers, overall, have had an impressive track record, with productivity growing 3 percent per year between 2000 and 2015. This surpasses the per year growth rate of Latin America by 2 percent and Africa by 1.44 percent. Sectoral shifts (workers moving from agriculture to manufacturing and services), urbanisation and an increase of workers in the ‘prime age’ (25-54), have been the main drivers of productivity growth throughout the region, with the exception of Singapore.
Priyanka Kishore, ICAEW economic advisor and Oxford Economics lead economist, said, “Vietnam’s productivity grew at an impressive 4 percent per year in the last 15 years and should accelerate to 5 percent in the next five years, outpacing its neighbours. This will be powered by sectoral shifts, urbanisation and a growing number of workers in the prime working age. Pure productivity growth, however, ranks below its ASEAN-6 neighbours except Singapore. This highlights an opportunity for Vietnam to invest in productivity measures to improve output per worker,” she said.
High household savings are also likely to have contributed to productivity improvements as sectoral shifts would not be possible without a stable supply of finance to invest in both physical and human capital. Though foreign direct investments (FDI) have an important role in growing ASEAN economies, the bulk of financing for business investment – particularly among the job-rich small- and medium-sized enterprises – comes from domestic savings and lending. This partly explains why ASEAN’s productivity has risen faster than other ‘middle income’ regions.
Mark Billington, regional director, ICAEW South East Asia, said: “Training, development and skill upgrading must play an essential role if Vietnam wants to maintain its growth path and improve the productivity and output of its workforce. As its economy continues to diversify, it will need a highly skilled workforce; one which has moved closer to a global standard of technical knowledge, business skills and innovation.”
In 2016, among six major ASEAN economies, Vietnam, the Philippines and Indonesia are expected to have the best growth prospects of 6.3 percent, 6.1 percent and 5.1 percent, respectively, it says. “As ASEAN and global economies continue to struggle with the challenging backdrop, it is natural to question to what extent the rise of China and the commodity super-cycle were mistaken for structurally robust growth in some countries,” said Tom Rogers, ICAEW Economic Advisor and Associate Director, Oxford Economics.
“As ASEAN countries continue to reform their economies and experience moderate growth in the next few years, there will still be periods of financial market volatility as they adjust to China’s new growth trajectory,” said Mark Billington FCA, ICAEW Regional Director for South East Asia. A deeper-than-expected slowdown in China will be the key threat to ASEAN economies, along with more acute financial market volatility and a tightening of financial conditions as industrialised countries normalise monetary policy. This will be particularly painful for countries with high debt levels,” he added.
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