Fishing in the Mekong Delta, Vietnam © 123RF
Fishing in the Mekong Delta, Vietnam © 123RF

Streamlined supply chains key to Vietnam’s growth

Vietnam could achieve upper-middle-income status within 20 years if it is prepared to carry out certain reforms including modernisation and streamlining of the country’s supply chains, according to a report.

The World Bank’s report Vietnam 2035 recommended Vietnam build a more competitive private sector, supports smart urbanisation, promotes innovation and takes advantage of increasing trade opportunities to enact broad structural reforms.

Trade with China accounts for 20% of Vietnam’s total, up from 10% in 2000, partly due to a shift in low-wage production from China. The report predicts that, as Chinese wages continue to rise sharply, production will continue to move to Vietnam.

Vietnam’s proximity to southern China, home to many of these production networks, gives it a competitive edge, the report said, adding: “Producers can benefit from its low wages and from being part of the Chinese supply chains at the same time – a highly attractive combination.”

Vietnamese agriculture was described as being at a turning point and likely to face growing domestic competition – from cities, industry, and services – for labour, land, and water. Highly fragmented structural patterns of agricultural production and supply-chain organsation leading to unnecessary transaction costs, unrealised economies of scale, and poor incentives to produce high-quality produce need to be reformed.

Supply chains capable of tracing perishable products, like frozen fish from the Mekong Delta, to market in Western Europe or North America would benefit trade.

Unreliable supply chains and high logistics costs in the country means logistics costs account for 21% of GDP – compared with 19% in China and 15% in Thailand.

Reaching upper-middle-income status would require Vietnam to grow by at least 7% percent annually – a rate of growth that the country has been able to sustain in recent years.

Average incomes would have to be raised to more than $7,000 by 2035, compared with $2,052 in 2014.

However World Bank group president Jim Yong Kim described the country as one of the “world’s great development success stories” over the past 30 years.

The report described how it had risen from being a poor, war-ravaged country to become a middle-income country with a dynamic market economy through growth that has not only been rapid, but also “stable and inclusive”.

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