As Vietnam prepares for the Vietnam Economic Pulse forum, co-hosted by the United Nations Development Programme (UNDP) and the Ministry of Planning and Investment’s Central Institute for Economic Management, the focus is on adapting business strategies and policies to maintain growth and competitiveness. UNDP resident representative Ramla Khalidi shares insights into the economic landscape and future prospects of the country.
Remarkable Achievements and Economic Growth
Vietnam has made tremendous economic progress, with real domestic output per capita more than tripling since 2000, a growth rate surpassed only by China in the East Asia and Pacific region. Labour productivity growth has also been the fastest in the region, helping the country move closer to achieving the Sustainable Development Goals by 2030, particularly in poverty reduction, health, and education.
Challenges on the Path to High-Income Status
The government aims to achieve “upper middle-income status by 2030” and “high-income status by 2045,” which requires consistent growth rates of 6% or more each year. While this appears achievable based on past performance, middle-income countries often experience slowdowns as they develop. Vietnam’s challenge will be to maintain its growth momentum despite potential obstacles ahead.
Exports: The Key Driver of Growth
Robust export growth has been a cornerstone of Vietnam’s economic success. Since 2000, the country has achieved an impressive average annual export increase of 15%, outperforming China and other ASEAN nations. After the 2008 financial crisis, Vietnam sustained its export growth through strategic trade agreements and substantial investments in infrastructure. The geopolitical shifts and diversification of trade have further enhanced Vietnam’s appeal as a production hub.
Long-Term Challenges Ahead
Despite these successes, the future presents challenges. Vietnam’s manufacturing remains heavily concentrated in labour-intensive, low value-added operations. As labor costs rise and the available workforce declines due to demographic changes, Vietnam needs to pivot toward higher-value industries. Advances in automation and AI may also diminish the competitive edge of cheap labor.
Environmental Factors and International Competition
Growing environmental concerns complicate the landscape. Policies like the EU’s Carbon Border Adjustment Mechanism emphasize sustainable production as vital for market access. Vietnam’s reliance on imported components—51% of exports compared to 35% for Malaysia—indicates limited domestic integration into global supply chains, highlighting the need to strengthen local capabilities.
Investment in Education and Innovation
Investing in higher education and research and development is essential for sustaining growth. Vietnam lags behind regional peers, spending only 0.27% of GDP on higher education and 0.4% on R&D, significantly lower than China and Malaysia. This funding gap results in poor research output, hindering technological advancement.
Opportunities from Renewable Energy and Technological Innovation
The transition to renewable energy presents opportunities to develop innovative industries, driving growth in sectors like digitalization and sustainable agriculture. Strengthened coordination among policymakers, businesses, and educational institutions could foster a robust innovation ecosystem. Leveraging the expertise of Vietnamese professionals abroad and investing in skilled labor domestically will be crucial.
Conclusion
Vietnam stands at a pivotal juncture. By fostering stronger collaboration and investing in higher value-added industries, the country can build on its past achievements and move toward high-income status. Implementing forward-looking policies and enhancing cooperation between government, business, and academia will enable Vietnam to thrive in an increasingly complex global economy.
