Vietnam’s Economic Acceleration Opportunity

Institutional reforms in this new phase, along with well-planned strategies and policies to effectively leverage both domestic and international resources, will help Vietnam realize its goal of a prosperous nation and elevate its global standing.

There are numerous factors fueling optimism for a new era of economic growth in Vietnam, beginning in 2025 – the Year of the Snake (Ất Tỵ). By 2025, Vietnam will be on the brink of reaching upper-middle-income status, a milestone that will generate momentum for accelerated development, with the ultimate goal of becoming a high-income nation by 2045.

Recent commitments by Vietnamese leadership to curb inefficiencies and address institutional bottlenecks are crucial steps in this direction. From an external perspective, current geopolitical and economic shifts, while destabilizing globally, present a rare opportunity for Vietnam to attract capital, technology, and market expansion.

To fully capitalize on this strategic window, Vietnam must implement far-reaching institutional reforms, along with targeted strategies and policies, ensuring efficient utilization of domestic and international resources. This will be the foundation for achieving the vision of a strong and prosperous Vietnam and securing a higher position on the global economic stage.

Where Does Vietnam Stand in the Asian Economy?

Thanks to the Đổi Mới (Renewal) policies, Vietnam has maintained robust economic growth since the early 1990s. Over the past three decades (until 2019, before the COVID-19 pandemic), Vietnam’s GDP grew at an average annual rate of 6.5%.

Despite pandemic disruptions lowering growth to below 3%, the economy quickly rebounded with an 8% increase in 2022, followed by a 5% growth rate in 2023. In 2024, Vietnam is projected to grow by approximately 7%, making it one of the fastest-growing economies in Asia.

At this pace, if Vietnam maintains a 7% annual growth rate, it is on track to achieve high-income status by 2045.

Vietnam’s Economic Structure: Strengths & Weaknesses

Vietnam’s recent economic progress stems from capital accumulation and workforce reallocation from low-productivity sectors (agriculture) to high-productivity sectors (industry and services).

However, structural weaknesses persist, highlighting untapped potential for productivity enhancement. Addressing these weaknesses through institutional reforms is crucial to achieving accelerated development and long-term economic goals.

Key Challenges:

1. Weak Industrial Structure & Heavy Reliance on Assembly Manufacturing
   • Vietnam’s industrialization remains shallow, with assembly and processing dominating production.
   • The country imports intermediate goods (semi-processed materials, components) from China and South Korea, assembles them, and exports finished products to the U.S.
   • This assembly-based structure results in low industrial productivity and exposes Vietnam to trade protectionism, particularly under Donald Trump’s administration.
2. Low Productivity in the Domestic Private Sector
   • Vietnam’s private sector lags behind: Productivity is only 25% of that in state-owned enterprises (SOEs) and foreign-invested enterprises (FDI).
   • Most private businesses are small-scale, informal, and lack capacity for innovation and investment.
   • Small and medium-sized enterprises (SMEs) struggle to access capital and land, while bureaucratic red tape further constrains their growth.

Vietnam’s Strategic Opportunity in a Changing Global Landscape

Global Geopolitical Shifts Favor Vietnam

1. Intensified U.S.-China Economic Rivalry
   • With Donald Trump’s return to power, the U.S. is expected to impose 60% tariffs on Chinese imports and further restrict U.S. investments in China’s high-tech industries.
   • This economic decoupling will disrupt global supply chains, forcing companies to relocate manufacturing outside of China.
2. China’s Economic Slowdown
   • China’s economic growth has slowed from 10% per year (before 2012) to below 5% in recent years.
   • Policy uncertainty and stricter regulations on foreign businesses are reducing China’s attractiveness as a global manufacturing hub.

Vietnam vs. India: Who Benefits More?

With the global realignment of supply chains, Vietnam and India emerge as the two most attractive destinations for multinational corporations.

• India’s Advantage:
  • Largest population in the world
  • High GDP growth rates
  • Vast domestic market potential
• Vietnam’s Unique Strengths Over India:
  1. Geographic Proximity to China
     • Vietnam offers easy access to China’s supply chains and a more convenient location for production relocation.
  2. Extensive Trade Agreements
     • Vietnam participates in multiple free trade agreements (FTAs), including:
       • IPEF (Indo-Pacific Economic Framework)
       • RCEP (Regional Comprehensive Economic Partnership)
       • CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership)
       • FTAs with ASEAN, China, Japan, South Korea, and the EU

Vietnam’s broad FTA network makes it an attractive destination for FDI, allowing it to integrate deeper into global supply chains.

Additionally, Vietnam’s rising global reputation and strong diplomatic ties—with South Korea, the U.S., and Japan (now comprehensive strategic partners)—further enhance its investment appeal.

Strategic Roadmap: Institutional Reforms & Industrial Upgrading

To fully seize this historic opportunity, Vietnam must pursue two key breakthroughs:

1. INDUSTRIAL UPGRADING STRATEGY
   • Shift from assembly-based manufacturing to higher-value production by reducing dependence on Chinese & Korean imports.
   • Attract high-quality FDI projects that align with Vietnam’s industrial transformation goals.
   • Diversify export markets beyond the U.S. to mitigate trade risks.
2. INSTITUTIONAL REFORMS TO STRENGTHEN THE DOMESTIC PRIVATE SECTOR
   • Support informal businesses and micro-enterprises in scaling up into structured companies with innovation capabilities.
   • Facilitate access to capital and land for SMEs to enhance their investment capacity.
   • Streamline bureaucratic processes and reduce regulatory barriers to foster private sector growth.

Conclusion: A Defining Moment for Vietnam’s Economic Future

The geopolitical and economic shifts in the Indo-Pacific region present a once-in-a-lifetime opportunity for Vietnam to accelerate its development and achieve high-income status by 2045.

By implementing strategic industrial upgrading and bold institutional reforms, Vietnam can:

• Enhance labor productivity
• Build a more self-sufficient economy
• Fully leverage international trade and investment opportunities

With decisive leadership and well-executed policies, Vietnam is poised to enter a new era of economic prosperity and secure its place among the world’s leading economies.