Investment in innovation fuels growth

The latest Economic Insight report released last week by the Institute of Chartered Accountants in England and Wales (ICAEW) anticipates that capacity is taking off, with economic growth projection hitting 5.8 percent by 2017.
The report undertakes a quarterly review of Southeast Asian economies, with a focus on the following countries including Indonesia, the Philippines, Singapore and Vietnam.
Against the backdrop of a recent emerging markets sell-off, potentially rising interest rates luring investors back to the developed world, and a slowdown in China, ASEAN is looking at a challenging year ahead.
Less developed economies such as Vietnam continue to be dependent on commodities, whilst developing neighbours such as the Philippines and Indonesia are striving to make the transition to an advanced-economy mix of exports.
Two things must happen to allow this progress to higher-value manufacturing; government-led investment in education and skills, and private-sector-led large-scale investment in production.
Mark Billington, regional director of ICAEW Southeast Asia, said: "Investment in education and skills is key to building a knowledge economy."
He added as a highly educated workforce is put into place, the extent to which Vietnam’s economy will thrive will depend partly on the amount of inflow of foreign direct investment. 
Charles Davis, ICAEW economic adviser, said that investment is not just about building plants and creating new capacity, it is necessary that foreign firms setting up new sectors in less-developed economies transfer knowledge and increase the skills of workers so they can produce higher value-added goods and services.
"In the long term, as these economies grow wealthier, foreign direct investments will increasingly be driven by consumption rather than production, as the large populations of Southeast Asia should provide increasing numbers of affluent consumers," he said.
Though Vietnam’s innovation economy activities are likely to fuel growth in the medium term, at present they account for just 1 percent of national output and do not significantly outstrip the economy’s overall growth, which has been rapid. It still has significant growth in the mining sector, suggesting dependence on commodities will continue in the short term, said the report.