What will economic integration bring for Viet Nam and ASEAN?

By Yoshiteru Uramoto, ILO Assistant Director-General and Regional Director for Asia and the Pacific

Comment | 04 September 2014
Policymakers are talking a lot about the impact of the ASEAN Economic Community (AEC) in 2015. But the real question is, how will this AEC affect the 90 million Vietnamese and – more broadly – the 600 million people who live in the region? Together, the ILO and the Asian Development Bank set out to find some answers, and our report “ASEAN Community 2015: Managing integration for better jobs and shared prosperity” was shared in Hanoi on 4 September.

Ordinary men and women first and foremost experience economic change though the labour market. What matters to them is whether they can find a good job that offers security, pays decent wages in decent conditions, and whether, in time, their children will be able to do the same.

Our findings are encouraging. If managed well over the next decade, the AEC could boost the region’s economies by 7.1 per cent by 2025 and, generate 14 million additional jobs. In Viet Nam, which accounts for one in six of the region’s workforce, this could mean GDP expanding by 14.5 per cent and the creation of millions of jobs.

However, there are some big “ifs” and “buts”.

In Viet Nam two out of three of these new jobs could be poor quality, ‘vulnerable’ jobs, such as family or own-account workers. Currently, despite the country’s formidable economic progress, nearly half of Viet Nam’s workers are in agriculture, where productivity, incomes and working conditions are typically low compared to some other ASEAN economies.

The AEC will speed up structural change, and while some sectors will flourish others are likely to see job losses. Workers from these sectors will not necessarily have the right skills to take up the new opportunities created by the AEC. In addition, while improved productivity may bring increases in incomes for some, this could bypass the large majority of people.

To realize the full potential of closer economic integration, the ASEAN countries need to take decisive action, right now. There are some areas in which they must work together to get results; notably to proactively manage the coming structural changes, to ensure that economic gains lead to shared prosperity, and to strengthen regional cooperation. In addition, each country will have its own national priorities to address, if it is to make the most of the AEC’s opportunities. In Viet Nam we see five key areas.

The first is prioritizing measures that will boost productivity and job quality in agriculture and diversifying manufacturing employment into new sectors, while continuing to support the garment industry.

Secondly, social protection coverage needs to be extended, including the national unemployment insurance scheme. This will help cushion the effects of structural transformation and ease workers into new, more productive sectors.

Third, skills development institutions need to be strengthened. Targeted efforts are needed to improve secondary education and vocational training to meet the expected growth in demand for medium-skilled workers.

More modern collective bargaining systems, to create a more stable business environment, are also needed. This would also help to ensure that productivity gains translate into higher wages and better working conditions, and so a stronger domestic market.

Finally, there is a need to improve both the protection of migrant workers and systems for recognizing their skills, particularly in sectors dominated by low and medium-skilled workers such as construction.

The AEC offers Viet Nam, and its ASEAN neighbours, significant opportunities for growth and prosperity, and the chance to move towards a high-productivity economy based on skills and innovation. If these priorities are effectively addressed, the region can make great strides towards equitable economic development and shared prosperity. But if leaders fail to act the AEC will increase inequalities, and its benefits will bypass the majority of ordinary, hardworking people.