The time for Vietnam to become a dragon

Demographic dividend is a rise in the rate of economic growth due to a rising
share of working age people in a population. This usually occurs when the
fertility rate falls and the youth dependency rate declines, i.e the independent
people (old people and children aged below 15) is at the minimum level, below 45
percent of the total population.

Countries all have the opportunity to create breakthroughs in their
socio-economic development when they enter the demographic dividend period – the
opportunity which does not appear for the second time. During that period, the
profuse workforce can create many assets for the society, thus helping the
economic development, while the spending on welfare is at the lowest level.

According to UNFPA, the demographic dividend has contributed at least 1/3 to the
economic growth in the “miracle of the East Asia” that South Korea and Japan
created in the 20th century.

However, in South East Asia, Malaysia and Thailand failed to take the advantage
of the demographic bonus. Both the countries have fallen into the “middle income
trap” for the last 10 years, while they have not found the way out.

This shows that if there is no suitable and stable policy, a country would miss
the opportunity to obtain high growth even when it has the golden opportunity.

And now the golden opportunity has come to Vietnam, but it is still unclear if
Vietnam can take full advantage of the opportunity to become a dragon in Asia.

The “cheap workforce trap”

The first thing that attracts foreign investors to come to Vietnam is the cheap
labor force. China, which is considered the world’s largest production base, has
the minimum wage double than that of Vietnam, according to Bloomberg (173
dollars vs 85 dollars).

Among Asian countries, the minimum wage of Vietnamese workers is just higher
than that of Bangladeshi workers. Foreign investors admit that they choose
Vietnam as an investment destination in the “China + 1 policy” because they have
been attracted by the cheap labor force.

 However, the price of the cheap labor force is really heavy: foreign investors
come to Vietnam just to make investments in the fields which need many workers
to optimize the advantage of Vietnam. Meanwhile, they do not set up factories
and operate in the fields Vietnam want them to do.

This had led to the fact that despite a lot of investment projects, Vietnam’s
industries still cannot satisfy the domestic demand. That explains why Canon
still cannot find the enterprises which can provide the accessories it needs for
assembling printing machines.

The cheap labor force is always associated with the low labor quality. According
to the General Statistics Office (GSO), unskilled laborers account for nearly 40
percent of the total workforce in Vietnam. Meanwhile, high quality labor force
just accounts for 16.7 percent, which explains why high-tech investors find it
hard to obtain enough workers for their projects.

“It is estimated that one million people enter the labor market every year, and
it is really a difficult task to train all the workers,” said Do Thuc, General
Director of GSO.

South Korea and Ghana were at the same starting points in terms of the income
per capita in 1960s. South Korea, after 30 years, has become a nation with high
income, while Ghana remains a poor country.

It is clear that if there is no suitable policy, it is so easy to miss the
opportunity for development, while the opportunity will not come for the second
time.

Khac Giang