Vietnam was among the poorest countries 40 years ago when it began doi moi (renovation). Just within one generation, Vietnam has become a lower middle income country and obtained social achievements equal to that in countries with higher incomes, according to the World Bank.

However, many problems still exist. Tran Van Tho, Professor Emeritus of Waseda University, Tokyo, commented: “Since the 1990s, Vietnam has shown remarkable development achievements, but the economy has not had any period with high growth rates of over 10 percent per annum on average which lasts more than 10 years.” 

Such development experience is different from that of successfully developed East Asian countries.

Japan, South Korea and China in East Asia, for example, once had periods with over 10 percent growth rates that lasted more than a decade, and they only needed 30-40 years to become among the most developed economies in the world.

Meanwhile, Vietnam, though seeing growth rates of the next quarters higher than previous quarters, has never gained high growth rates of over 10 percent for more than one decade.

After 40 years of doi moi, Vietnam is still a lower middle income country and Vietnamese only can undertake simple works and stand at low levels of value chains and their productivity is among the lowest in the region.

Vietnam wants to attract large technological corporations, but the question is that the corporations prefer going to neighboring countries such as Thailand, Malaysia and Indonesia.

Many Vietnamese enterprises started 30 years ago like Chinese and South Korean businesses, but they cannot compare with the businesses in scale, capability, and international prestige. What has hindered their success?

Vietnam has decided that it needs to obtain an average growth rate of 7 percent per annum from now to 2030, and that it will become a high-income developed economy by 2045 and list itself among Asia’s leading industrialized countries.

These high goals reflect Vietnamese ambition and are essential in the context of growth decline after each decade and decline in domestic driving forces such as investment and consumption.

Developing for stability

In its report ‘Vietnam’s Path to High Income’ released late last week, the World Bank warned that Vietnam’s goal of becoming a high income country by 2045 is highly ambitious.

To become a high income country by 2045, Vietnam needs to increase its GDP per capita by threefold in the next 20 years. 

This means that Vietnam needs to maintain high GDP per capita rates at 6 percent per annum and maintain a productivity growth rate at 6.3 percent, while the population at working age would decrease. So, the growth rate in the future needs to be even higher than the impressive growth rates Vietnam has gained since the 1990s.

If Vietnam doesn’t accelerate investment and productivity growth, the goals will be out of reach.

Vietnam’s potential growth rate is predicted to decrease to 5 percent per annum in the next two decades, primarily due to reduced labor supply growth, which may prevent Vietnam's per capita income from reaching the high-income threshold by 2045.

Vietnam's average productivity growth rate was 0.9 percent over the past decade, lower than most comparable countries.

Meanwhile, the total private and public investment ratio to GDP stands at 32 percent, higher than Thailand and Malaysia’s, but lower than China's (43 percent).

The institution calculates that if Vietnam relies only on productivity growth, it needs to maintain an annual productivity growth rate above 2 percent by 2030 to achieve high-income status. 

The path is similar with Singapore and South Korea when the countries had income per capita like Vietnam’s now.

Conversely, if Vietnam relies solely on investment growth, it will need to maintain an investment growth rate of 49 percent of GDP, which is even higher than that of China.

The World Bank suggests that the path to becoming a high-income country by 2045 requires a combination of annual productivity growth at 1.8 percent and an investment rate of 36 percent by 2030.

Tu Giang