VOV.VN - After 40 years of Doi Moi (Renewal), Vietnam has become an upper-middle-income country, but its traditional growth drivers are reaching their limits. To achieve its high-income goal by 2045, the country needs to create a "productivity revolution" based on technology, innovation, and domestic business capacity.
Growth hits limits, productivity becomes main bottleneck
Prof. Dr. Nguyen Trong Hoai, Senior Lecturer at the University of Economics Ho Chi Minh City (UEH) says Vietnam has come a long way from a low starting point to become an upper-middle-income country. However, the goal of becoming a high-income country by 2045 requires much more than maintaining the current growth model.
According to research by the UEH expert group, the main bottleneck of the economy lies in productivity. Vietnam can hardly become a high-income country if productivity continues to grow slowly and production does not make fundamental changes.
The nation’s Total Factor Productivity (TFP) growth is low compared to many developing and emerging economies. Meanwhile, the growth rates of IT capital and labor quality have not met requirements.
"To catch up with emerging economies, Vietnam's labor quality growth must be 4 times higher, and IT capital investment must increase 5 times. Compared to the RoK, TFP growth must reach an average of at least 2% per year," Prof. Dr. Nguyen Trong Hoai stresses.
Challenges are growing as the room to increase productivity through structural shifts narrows. Moving labor from agriculture to manufacturing and from rural to urban areas was once an important driver of growth, but it is no longer as effective as before.
From a broader perspective, Prof. Dr. Ngo Thang Loi, senior lecturer at National Economics University (NEU), says 40 years of Doi Moi have created an important foundation for Vietnam to enter a new development stage.
Average annual GDP growth reached about 6.4%, double the global average and much higher than many countries in the region. In 1990, Vietnam's GDP was only about US$500 billion, bringing the country to 35th place globally. The size of the economy has increased more than 70 times.
However, according to Prof. Dr. Ngo Thang Loi, behind the impressive growth numbers are bottlenecks that need to be resolved. "Growth drivers still rely mainly on traditional factors, including investment capital. Dependence on the FDI sector is still large, while the capacity of the domestic private sector has not met the requirements of the new development stage," he pointed out.
According to him, if Vietnam continues to rely on the old model, it will be hard to maintain high and sustainable growth. The new model needs to aim for an efficient, self-reliant, and integrated economy, along with a modern, effective state governance.
FDI must create spillovers, Vietnamese businesses need to elevate standing
A paradox of the current growth model is that exports increase strongly, but domestic value added is still limited.
According to Prof. Dr. Nguyen Trong Hoai, in the 2010-2023 period, the value added of tradable sectors increased by only around 5.4% a year, lower than the 6.6% rate of non-tradable sectors. Jobs in tradable sectors dropped by 1.4% a year, while the non-tradable sector increased by 2.6%.
A notable bottleneck is the weak link between the FDI sector and domestic businesses. High-tech export goods in the "Emerging Champions" group increased fast, but most are in the FDI sector. Meanwhile, the ratio of value added to total exports of domestic businesses has declined.
This shows that technology transfer and spillover effects from FDI to Vietnamese businesses are not equal to the scale of investment capital flows. Therefore, the problem now is not just attracting more FDI, but how to make this capital flow create more links with the domestic economy.
Prof. Dr. Ngo Thang Loi states that Vietnam needs to shift from "FDI attraction promotion" to "on-site investment promotion."
"There is no need to focus too much on the quantity of FDI. The important thing is to select strategic investors, keep them, and create conditions for them to continue investing in Vietnam," he notes.
In this direction, FDI businesses should be encouraged to transfer technology, link with domestic businesses, and create larger spillover effects. Attracting new-generation FDI must also be linked with raising the capacity of small and medium-sized enterprises, helping Vietnamese businesses participate deeper in global value chains.
In the private sector, tighter links must be formed among businesses. Large enterprises must act as locomotives, pulling medium, small, and even micro-enterprises into the value chain.
Prof. Dr. Ngo Thang Loi also underlines the need to clearly define the roles of the three economic sectors: the State sector must play the leading role; the private sector is the most important driver; and the FDI sector is an important supplementary source for development.
New drivers for growth
According to research by the UEH expert group, Vietnam faces two scenarios. If it continues with the old growth model, the target of becoming a high-income country will be hard to achieve. On the contrary, if there are strong reforms, putting resolutions into practice, and directly handling the right bottlenecks, Vietnam can become a high-income country around 2045-2047.
In the reform scenario, TFP growth needs to rise from about 0.2% to an average of 2% a year. Resources must therefore shift strongly into technology, innovation, high-quality human resources, and the internal capacity of domestic businesses.
Besides processing and manufacturing, Vietnam still has ample room in service exports. The share of service exports currently reaches only 9.5%t, lower than ASEAN's 26%and OECD's 39.2%. According to the expert, this is a gap that can be used to diversify growth drivers, create more opportunities for skilled labor, and raise the economy's value added.
However, the high-income goal cannot be measured by GDP growth rate alone. The new development model must ensure balance and inclusivity.
Vietnam is expected to enter an aging population phase from 2036. Therefore, developing a "silver economy" can become a new direction, meeting the needs of the elderly population while creating more drivers for service and care sectors.
On the other hand, conditions should be created for a section of workers to return to live and work in rural areas through a "reverse migration" model, thereby reducing pressure on cities and opening up development opportunities for rural areas.
"The ambition to become a high-income country must be linked with macroeconomic stability, raising productivity, and ensuring that all regions and population groups have opportunities to participate in and enjoy development achievements," Prof. Dr. Nguyen Trong Hoai emphasizes.
Thus, Vietnam's challenge in the new stage is to grow faster and to grow with new drivers. As room from capital, labor, and structural shifts narrows, productivity, technology, innovation, and domestic business capacity will decide the ability to create a new growth cycle toward the target of becoming a high-income nation by 2045.
Vietnam is holding a big opportunity to enter the next production revolution, which is happening around the world, Deputy Foreign Minister Bui Thanh Son has said.
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