Experts believe that it is time to establish a new model based on quality, efficiency, and innovation to realise the goal of becoming a developed country by 2045.

Since 1986, Viet Nam has embarked on a comprehensive reform journey, with the focus on improving the growth model to enhance quality, labour productivity, and the competitiveness of the economy. Nearly four decades later, the economy has maintained a stable growth rate of over 6% per year, with a remarkable export performance placing Viet Nam among the top 25 countries with the largest trade volumes globally. Notably, by 2024, Viet Nam officially exited the group of low-income countries, with a per capita GDP reaching approximately 4,700 USD.

Risk of stagnation if transition is delayed

Behind these impressive achievements, experts warn that the current development strategy is showing signs of limitations. Dr Dang Xuan Thanh, Vice President of the Viet Nam Academy of Social Sciences, notes that the three main “engines” over the past 30 years—cheap labour, large capital investment, and global market integration—are now significantly losing their effectiveness.

Growth still relies heavily on investment, while capital efficiency remains slow to improve, with the ICOR (Incremental Capital-Output Ratio) staying high—nearly six units of capital for one unit of growth. Although labour productivity has improved, it remains much lower than other countries in the region, equivalent to only one-eleventh of Singapore’s, one-fifth of Malaysia’s, and less than 50% of Thailand’s. Meanwhile, foreign direct investment (FDI) enterprises contribute significantly to exports, but the technological spillover to domestic businesses remains limited; Viet Nam's role in global value chains is mainly in segments with low added value.

As a result, the economy, while not stagnating, has yet to make a breakthrough; poverty is no longer widespread, but wealth remains elusive. This is a classic sign of the so-called “middle-income trap”—a situation that more than 100 developing countries around the world have not managed to escape.

“If Viet Nam fails to timely transition its growth model, we will fall behind, stuck at the lowest rungs of the global value chain, and consequently drift further from the goal of becoming a developed nation by 2045.”

Further clarifying the issue, Le Xuan Sang, Deputy Director of the Institute of Viet Nam and World Economy, states that Viet Nam’s economy has maintained relatively high and stable growth since 1986. However, during this entire period, the country has never achieved a growth rate of 10% per year. Therefore, to develop rapidly and sustainably, Viet Nam can no longer follow the old approach to growth reliant on cheap labour and heavy capital input. Instead, a comprehensive "surgical overhaul" is needed to reform institutions, improve governance efficiency, and strongly shift towards a model based on quality, innovation, and high technology.

Taking a new path

According to this expert, in the next five years, Viet Nam needs to accelerate the transition from extensive growth (based on quantity) to intensive growth (based on quality). Specifically, in attracting FDI, priority should be given to high-tech, environmentally friendly projects that have the potential to transfer technology to domestic enterprises. At the same time, the State should support Vietnamese businesses in enhancing their capacity to collaborate more effectively with foreign investors.

In addition, conditions should be created for private enterprises, particularly small and medium-sized ones, to participate in major projects, especially public investment projects. At the same time, it is necessary to strengthen discipline and combat the allocation of resources based on personal relationships instead of competence, ensuring transparency and fairness in the business environment.

In terms of institutional reform, it is essential to design an effective governance mechanism that includes both pressure to innovate and appropriate incentive policies. Furthermore, the quality of state governance and coordination among ministries, sectors, and localities must be improved for more consistent policy implementation.

In the area of budgeting and public financial funds, Sang proposes prioritising capital for research, innovation, education, and technology. Inefficient off-budget funds should be significantly cut, while venture capital and start-up funds should receive increased investment to support new initiatives. An effective civil service is also a critical foundation, requiring recruitment and training based on competence, ethics, and public service spirit, avoiding influence from interest groups.

“Reforming the growth model must be like major surgery—it requires the courage to eliminate outdated parts and methodically rearrange new components. This process cannot be rushed, nor handled in a piecemeal fashion. It demands professional involvement from the State, with a clear roadmap that considers all potential risks.”

From an international perspective, according to Nguyen Ba Hung, Chief Economist of the Asian Development Bank (ADB) in Viet Nam, to sustain high growth in the coming years, Viet Nam must shift its growth path from resource-driven to one based on efficiency and innovation.

First, a growth model based on efficiency requires upgrading technology, improving production organisation, and reducing dependence on input expansion, while still ensuring a high growth rate. To achieve this, a favourable policy environment must be established, including an efficient and transparent labour and financial market.

In addition, Viet Nam needs to further develop its financial market, especially the stock market and corporate bond market, to mobilise long-term capital for large-scale business and production investment projects. Although the financial market has shown signs of stabilisation, it still needs comprehensive reform and deeper expansion to play a more effective role in capital intermediation.

A new direction that should be prioritised is a growth model based on innovation. According to Hung, while growth in the past was primarily based on traditional industrialisation and modernisation, today—thanks to the rapid development of digital technology—Viet Nam has the opportunity to leapfrog in areas such as big data, artificial intelligence (AI), software programming, and information technology.

“These are fields with high value-added potential and should be prioritised for investment and development to quickly, effectively, and sustainably realise the goal of innovation-led growth.”

Overall, experts agree that transitioning to a growth model based on efficiency, innovation, and the digital economy is the inevitable path for Viet Nam to break through. This is the “key” to improving productivity, increasing competitiveness, and moving closer to the goal of becoming a developed country by 2045.