Current State of Vietnam's Economic Development from the Perspective of the Knowledge Economy

CHAPTER 2

SOCIO-ECONOMIC STATUS OF VIETNAM IN THE COUNTRY

THE ROAD TO A KNOWLEDGE ECONOMY

2.1 THE CURRENT STATE OF VIETNAM'S ECONOMIC DEVELOPMENT FROM THE PERSPECTIVE OF THE KNOWLEDGE-BASED ECONOMY

2.1.1 Basic socio-economic development indicators of Vietnam

In more than twenty years of renovation, Vietnam's economy has achieved a fairly rapid growth rate, the economic structure has significantly shifted towards industrialization and modernization. However, the quality, growth efficiency and competitiveness of the economy are still low, the speed of innovation in general and technological innovation in particular is still slow, economic growth still relies mainly on resources and capital. The foundation for economic development is less based on scientific and technological progress and intellectual potential has not been fully exploited.

From 1995 to 2008, the gross domestic product (GDP) increased continuously at an average annual rate of 7.34%, although during this period we were affected by two crises (1996 and late 2007 to 2008). The high growth rate in 2005 contributed decisively to the completion of the average GDP growth target of 7.5%/year set out in the 5-year Socio-Economic Development Plan 2001-2005. By the end of 2009, the gross domestic product was 2.64 times higher than in 1995, and in 2010 the GDP growth rate reached 6.78%. Economic structure in 2009: the proportion of Agriculture, Forestry and Fishery in GDP was: 20.91%; Industry and Construction are 40.24%, of which, Processing Industry is 25.54%; and Services are 38.85%.

During the years 2004-2009, the contribution rate to GDP growth of the agricultural sector gradually decreased but was still high compared to the world at 2% in 2007. The service sector hardly increased. This shows that the role of the agricultural sector is still very important in the GDP structure.

Through Table 2.1 below, it can be seen that in the 5 years 2005 - 2009, it is considered that the economic growth rate of Vietnam, although quite high, also slowed down due to the impact of the 2007 financial crisis and the aftereffects still lingering until now, the development structure towards industrialization and modernization, the proportion of industry and services in GDP is generally unchanged, the proportion of agriculture in GDP has decreased, but the rate of decrease is not significant (24.53% in 2000, 20.97% in 2005 and 20.91% in 2009 - Figure

2.1 side page).

The Industrial and Construction sector in the period 2005-2009 had a fairly high growth rate, averaging 7.15%/year. However, the proportion of the Processing Industry in the Industrial sector was not high, only reaching 25.54% of GDP.

Figure 2.1 Structure of GDP at current prices by economic sector 2000-2009

Source: Statistical Yearbook 2009

High-tech industries such as: Information technology, biology, new materials, automation, etc. are still low. The intellectual content in products created by the industrial sector is still low, accounting for only about 15 - 20% of the value, growth relies on exports, exports rely on cheap labor, the labor is mostly simple, the value of industrial products is still mainly created by past labor (raw materials, fuels, materials) and mainly by simple abstract labor (muscle labor). [18, p. 165].

In Agriculture, Forestry and Fisheries, the role of the service sector in agriculture only contributes a very small proportion of 2.5%. The contribution of biotechnology has not had a strong impact on labor productivity, seedling yield and has not had much impact on the qualitative change of plant and animal varieties.

Table 2.1: GDP growth and contribution to GDP growth by sector in the period 2005-2009

Item

2005	2006	2007	2008	2009	2005- 2009
Growth rate %
GDP	8.44	8.23	8.46	6.18	5.32	6.11
Agriculture - Forestry - Fisheries	4.02	3.69	3.76	4.07	1.83	2.9
Industry - construction	10.69	10.38	10.22	6.11	5.52	7.15
Service	8.48	8.29	8.85	7.18	8.63	6.57
Contribution to GDP in percentage points
GDP	8.44	8.23	8.46	6.18	5.32	6.11
Agriculture - Forestry - Fisheries	0.82	0.72	0.70	0.73	0.32	0.66
Industry - construction	4.21	4.17	4.19	2.54	2.30	3.48
Service	3.41	3.34	3.57	2.91	2.70	3.19

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Source: Compiled from Statistical Yearbook 2006-2009

The rate of shift of agricultural labor to the industrial and service sectors is very slow. Over the past 15 years, our country has reduced the agricultural population from 85% to 70% (while in three decades of industrialization from 1960-1990, Korea reduced the agricultural population from 70% to 6%).

However, in recent times, the policy of encouraging domestic investment in the private sector, reflected in the Enterprise Law, has created a turning point in the development of Vietnam's industry. The private sector with higher dynamism will be more receptive and apply new knowledge. The trend of further development of the private enterprise sector will create a favorable environment for ready access to knowledge-based economic factors.

Reality has proven that, in recent times, the agricultural economy has made a breakthrough based on the application of knowledge. In 2009, the export value of agricultural and forestry products reached over 13.24 billion USD. Export of aquatic products reached over 4.25 billion USD. The application of technical advances in varieties to develop rice production as well as techniques for raising, growing and processing aquatic and seafood products has made exports continuously increase in quantity, quality and value.

Besides, the structure of cultivation and livestock farming in Vietnam's agriculture is still shifting slowly. The agricultural and rural infrastructure is still very weak, the processing rate of agricultural products is generally still low, for example: about 40% - 50% of tea products; 26% of rubber products; 10% of vegetables and fruits; 15% of meat products... are processed.

Post-harvest loss rates are also very high: 13% - 15% in rice production; 25 - 30% in fruit and vegetable harvesting; 13% in manual sugar production.

In recent years, Vietnam's Information Technology and Telecommunications industry has been one of the industries that has developed based on the latest achievements of the scientific and technological revolution. Up to now, this industry has built a fairly modern information infrastructure by applying digital technology, satellite information, fiber optic cables, etc. New technologies have been applied in the development of telecommunications infrastructure and broadband Internet, increasing transmission speed and reducing access fees.

2.1.2 The development situation of Vietnam's knowledge economy through some basic indicators of the World Bank

The questions are how Vietnam's knowledge economy is developing, where we are on the knowledge economy development scale, and how do countries around the world evaluate our country's knowledge economy development level in the current context of international economic integration?

Table 2.2: Knowledge Economy Index Ranking 2009

Rating

Nation	KEI	Environment business and institutions	Renew	Train	ICT
1	America	9.02	9.04	9.47	8.74	8.83
	Western Europe	8.76	8.71	9.27	8.29	8.78
18	Taiwan	8.45	7.42	9.27	7.97	9.13
19	Singapore	8.44	9.68	9.58	5.29	9.22
20	Japan	8.42	7.81	9.22	8.67	8
23	Hong Kong	8.32	9.54	9.04	5.37	9.33
29	Korea	7.82	6	8.6	8.09	8.6
48	Malaysia	6.07	6.11	6.82	4.21	7.14
63	Thailand	5.52	5.12	5.76	5.58	5.64
81	China	4.47	3.9	5.44	4.2	4.33
89	Philippines	4.12	4.37	3.8	4.69	3.6
100	Vietnam	3.51	2.79	2.72	3.66	4.85
103	Indonesia	3.29	3.66	3.19	3.59	2.72
104	India	3.09	3.5	4.15	2.21	2.49

Source: Synthesized from World Bank's 2010 knowledge economy report

The answers of the respondents are often not optimistic, even saying that our country is still far from reaching the level of knowledge-based economic development (data used for a survey on the economic forum at the website: www.ttvnol.com , with 1021 people, the number of unoptimistic answers is 97.6%). Table 2.2 ranks the knowledge-based economic development by the World Bank, the KEI index gives us an overall assessment of the level of knowledge-based economic development in Vietnam.

Regarding the level of uniform development of some indicators of knowledge-based economic development on the World Bank's indicators, Figure 2.2 shows that Vietnam's annual economic growth rate and our ICT development index and human development are quite good but not synchronized with the low innovation system, scientific research and law.

Figure 2.2 Knowledge economy Vietnam-East Asia Pacific-Western Europe 2009

Source: Synthesized from World Bank's 2010 knowledge economy report

Compare the level of knowledge-based economic development using 14 indicators established by the World Bank (many important indicators are still missing – Table 2.3 on the following page), however, it can be used as a reference for an overview. The average value of these indicators (on a 10-point scale) is considered the general knowledge-based economic index (KEI).

Accordingly, the KEI index (2000 data) of Vietnam is 1.9, China is 3.2, Thailand and Malaysia are 4.9, Singapore is 7.8, in 2005 it was 2.99, ranked 76/128 countries assessed as weak average in the world, while this index in 2007 was: 2.69, ranked 99/132... In 2008 our KEI index was 3.17, this index in 2009 was 3.51, ranked 100/146 countries. Thus, we also have encouraging progress in

knowledge-based economic development in recent years. However, Table 2.2 above shows that we are at a low level (2<Kei<4) compared to the international level of knowledge-based economic development (2009). Through the basic economic development indicators above, it can be seen that although our country has achieved some fairly good indicators (GDP growth, ICT, foreign investment, export, literacy rate, etc.), we are still lagging behind other countries in the region, especially ASEAN countries, in terms of human resource development, innovation capacity, business environment, development and investment in science and technology.

Table 2.3 Kei calculation parameters of Vietnam 2009 and 1995

Parameters

Vietnam (Recent indicators) best)		Vietnam (1995)
Present	Standardize	Reality	Standardize
GDP growth (%)	7.80	8.62	8.80	9.58
Human Development Index	0.733	3.78	0.672	3.33
Tariff and non-tariff barriers	63.40	1.33	44.60	1.73
Quality of policy adjustment	-0.43	3.01	-0.32	2.90
Legal framework	-0.53	4.04	-0.65	2.57
Pay and receive royalties (USD/copy.)	n/a	n/a	n/a	n/a
Annual scientific publications/million people	2.66	2.43	1.42	1.52
Number of patents granted by USPTO / Million people	0.01	3.01	0.00	3.17
Literacy rate (% of age 15+)	90.30	4.18	87.60	4.97
Secondary school enrollment rate	75.68	3.47	47.04	3.13
College enrollment rate	15.94	3.33	4.09	1.82

Phone number / 1000 people

620.00	3.63	10.00	2.55
Number of computers / 1000 people	100.00	5.56	0.00	3.49
Number of Internet users/1000 population	210.00	5.34	0.00	7.45

Source: Synthesized from World Bank's 2010 knowledge economy report

To clarify the strengths and weaknesses of the knowledge-based economic development process in Vietnam, it is necessary to analyze based on the basic knowledge-based economic indicators of the World Bank, the following specific indicators:

2.1.2.1 Assessing the business environment and institutions from the perspective of knowledge economy

The Law on Foreign Investment has been in effect since 1998. Up to now, we have always focused on amending and supplementing this law to increase its attractiveness to attract foreign investment capital. Recently, the Vietnamese Government has also allowed foreign investors to participate in the stock, banking and financial markets. These amendments are one of the important premises for foreign investors to participate in indirect investment in Vietnam, increase international capital circulation in Vietnam, help the Vietnamese economy integrate more strongly into the world economy, so that Vietnamese enterprises have the opportunity to seek, access and import advanced technologies, thereby improving the knowledge content of their products. Strengthening international economic integration, in addition to supporting the improvement of the technological level of the economy, also creates conditions for Vietnamese people to access more and more, at higher and deeper levels, the world's knowledge, from technology management knowledge, business management to economic management knowledge, etc.

The positive aspects that need to continue to be recognized and promoted are as follows:

Firstly , regarding foreign investment, thanks to positive changes in the business environment, Vietnam has maintained its economic growth rate, foreign direct and indirect investment has continuously increased despite many limitations that need to be overcome. In recent years, the FDI sector has accounted for an increasingly high proportion of total social investment capital, while contributing to a continuously increasing GDP. In recent years, FDI capital has accounted for nearly 20% of total social investment capital and contributed about 30% to GDP growth. Table 2.4 shows the scale of FDI investment in industries and Figures 2.3 and 2.4 show the scale of FDI investment and the proportion of FDI contribution to GDP growth.

Figure 2.3 FDI investment in the period 2001-2009

Source: CIEM 2009

Figure 2.4 FDI realized in total social investment and contribution of foreign-invested sector in GDP

Source: CIEM 2009

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