Vietnam risks debt 'crutches' without skills transfer: Economist

VIETNAM remains an economic success, despite raging trade tensions worldwide, but one observer has called urgently for skills transfer, to address a so-called "dual economy".

Richard Yetsenga, chief economist at ANZ, said in a video on Thursday that structural reforms must be made to sustain growth as "this economic performance is not on auto-pilot" - despite the 7.1 per cent economic expansion in 2018 and exports' traction in positive territory in 2019.

Mr Yetsenga said policies should ensure that skills and expertise are transferred from foreign to domestic firms, even as education levels must improve to support wages. He also warned that Vietnam might otherwise "risk falling back on the crutches that many other countries have used" - public and household debt - to fuel economic growth.

Mr Yetsenga drew a distinction between "a domestic economy, largely supplied by domestic firms, and then an export sector" that has been driven by foreign direct investment into Vietnam. "The inter-linkages between those two sectors are not really strong enough," he added.

"There's not enough transfer of skills and know-how from the foreign firms in Vietnam into the domestic sector, and that needs to happen.

"And, related to that, the skills the domestic labour force need to continue to pick up... You can grow wages for a substantial period of time by being the cheapest producer around, but of course you run into limits when you try to grow living standards in that way."

Besides the skills issue, he identified power prices, and the ability of the utilities sector to meet growing needs, as other stumbling blocks in the path of growth.

"This structural re-orientation issue is only going to get more urgent over the coming few years, even as Vietnam continues to perform very, very well," said Mr Yetsenga.