Vietnam has delivered remarkable economic results over the past three decades, not only by sustaining strong growth over an extended period but also by lifting millions of people out of poverty in a relatively short time; an achievement few countries have managed to accomplish simultaneously.

However, traditional drivers such as export-led growth, low-cost labor, and capital expansion through FDI and public investment are unlikely to sustain the country’s ambitious growth targets in the next stage of development. Vietnam must generate greater value from the same pool of resources. This underscores the need to transition toward a growth model driven more by productivity, technology, and higher value-added activities.

New model takes shape

The good news is that Vietnam has already established a relatively clear direction for the next phase of development. At the center of the country’s economic restructuring agenda is the push to make science and technology, innovation, and digital transformation new engines of growth. This is not only the right strategic choice amid growing global uncertainty and competition but also reflects a long-term, sustainable vision for economic development.

On the institutional front, Vietnam has taken important steps to establish a legal framework for emerging technologies such as AI, while advancing regulations on data protection. Most notably, Politburo Resolution No. 57-NQ/TW has elevated science and technology, innovation, and digital transformation to a central role in the country’s new growth model.

The first “seeds” of this transformation have already begun to take root. Major domestic companies such as FPT, Viettel, and Vingroup are increasing their investment in AI, semiconductors, data, and core technologies, while gradually commercializing technology products and solutions developed by Vietnamese talent. At the same time, the innovation startup ecosystem has become increasingly vibrant, particularly in Ho Chi Minh City. These developments are opening up new growth drivers for the economy, especially as Vietnam begins to encounter the limits of its previous development model.

Yet to sustain long-term growth and move to a higher stage of development, Vietnam must address several structural challenges.

First is the shortage of sufficiently-strong mid-sized enterprises capable of becoming drivers of growth. This gap deserves close attention, as an economy is unlikely to develop sustainably if it relies solely on a handful of large conglomerates or millions of micro-enterprises. Vietnam needs to cultivate a strong middle tier of companies capable of absorbing technology, scaling production, integrating more deeply into global supply chains, and gradually strengthening national competitiveness.

Second, the gap between research and commercialization remains substantial. The intellectual property ecosystem, particularly within the private sector, requires much stronger reinforcement. At the same time, links between businesses, universities, research institutes, and the government remain insufficiently robust to create a fully functioning innovation ecosystem. Vietnam needs not only policies that encourage collaboration, but also a comprehensive ecosystem that enables stakeholders to cooperate more effectively in research, application, and technology commercialization.

Third is the challenge of energy infrastructure. In the years ahead, Vietnam’s power system will need to modernize at a faster pace to meet new growth demands, particularly as the economy becomes increasingly dependent on data, AI, and energy-intensive technology industries. The issue extends beyond ensuring adequate supply; it also concerns system stability, resilience, and the long-term competitiveness of the broader economy. Major policy directions such as Politburo Resolution No. 70 on energy security indicate that Vietnam recognizes the strategic importance of this sector.

Finally, Vietnam must strengthen the capabilities of its small and medium-sized enterprises (SMEs). In high-income economies, SMEs often serve as the “backbone” of economic activity due to their ability to innovate, scale, and diffuse productivity gains across production ecosystems. For Vietnam - an economy still in transition - improving the capacity of this segment will be decisive not only for growth but also for technological self-reliance and long-term economic resilience.

Additional suggestions

What, then, is the role of large corporations in this process? Major companies will serve as pioneers, introducing new technologies, AI, and innovative business models to the market. But for these technologies to generate broad-based impact, SMEs must be capable of absorbing the knowledge, technology, and resources involved, enabling innovation to spread throughout the wider economic ecosystem.

In addition, given its deep integration into global production networks, Vietnam must continue strengthening connections between domestic and foreign-invested enterprises (FIEs) as well as with global supply and value chains. This is not merely about expanding market access; it is also an opportunity for Vietnamese businesses to acquire new technologies, improve governance standards, and gradually enhance long-term competitiveness.

Another issue that deserves particular attention is R&D, as well as strategic investment in innovation. Compared with regional economies such as Thailand, Malaysia, China, and South Korea, Vietnam’s R&D spending as a share of GDP remains relatively modest, at below 1 per cent, while many peer economies surpassed this threshold long ago. This suggests that Vietnam still has considerable room for improvement if it aims to boost productivity and move up higher-value segments of global production chains.

At the same time, Vietnam’s target of raising R&D investment to around 2 per cent of GDP in the coming years signals growing recognition of the pivotal role science, technology, and innovation will play in sustaining long-term growth. However, the challenge is not solely about increasing the scale of investment. More importantly, R&D spending must be strategic, targeted, and sustained over time. Resources for R&D should be closely aligned with national priorities rather than dispersed across too many disconnected and inefficient areas.

UNDP recommendations

Based on these observations, we would like to offer several recommendations. The first is to strengthen the capabilities of domestic enterprises while deepening links with the foreign-invested sector. Vietnam has achieved significant success in attracting FDI, but in the next stage the goal should extend beyond attracting additional foreign capital to improving the quality and developmental impact of these investments.

This will require supporting domestic businesses in upgrading their technological capabilities and meeting higher standards in quality, productivity, and technical performance so they can participate more deeply in higher value-added segments of global value chains. At the same time, local enterprises should be given stronger support to scale up operations, upgrade technologies, and improve their competitiveness in regional and international markets.

The second recommendation is to narrow the gap between research and commercialization. This will require seamless links across research, financing, commercialization, and market expansion. Vietnam should also continue strengthening its intellectual property framework, enhancing the role of universities, and developing more effective technology commercialization models.

The third recommendation is to ensure the synchronized development of foundational infrastructure, particularly energy infrastructure. A stable, reliable, and reasonably-priced energy system will directly contribute to improving the competitiveness of the economy.

If these priorities are implemented effectively, Vietnam will strengthen competitiveness, sustain economic growth, and ensure that development remains inclusive. Ultimately, the goal of development is not only economic growth but also improved well-being, safety, and quality of life for people. Through this inclusive development journey, the UNDP hopes to continue accompanying Vietnam in the process.

(*) Ms. Francesca Nardini is Deputy Resident Representative of the United Nations Development Programme (UNDP) in Vietnam.