Adapting to today’s VUCA world

As we enter 2025, the final year before stepping into a new era, it is essential to pause and reflect on an old but increasingly relevant concept - VUCA, an acronym describing today’s volatile, uncertain, complex, and ambiguous world.

Every individual can feel the presence of VUCA in their daily lives, whether in rural or urban areas, affecting both the poor and the wealthy. Awareness is a process. Taking a moment to acknowledge and adapt to these changes is necessary, as failing to do so may leave us behind in the race for development.

This applies not only to individuals but also to nations and societies. In a rapidly evolving world, Vietnam must find its place and move forward with determination.

The past 40 years of economic reforms (Doi Moi) have demonstrated that whenever Vietnamese people are given opportunities and freed from bureaucratic constraints, the nation experiences remarkable growth. Vietnam transitioned from a state-controlled economy to a market-driven system, empowering businesses and individuals.

As a result, Vietnam has been recognized as a global economic star over the past three decades, with one of the fastest GDP growth rates worldwide. Between 1990 and 2022, Vietnam’s per capita GDP grew at an annual average rate of 5.4 percent, outpacing nearly all economies in the region except China and Myanmar, according to the World Bank.

The country's poverty reduction efforts have been among the most successful globally, with the poverty rate dropping from 60 percent in 1986 to just 1.9 percent today. However, despite this progress, Vietnam's per capita GDP ranks 124th globally, and its economic scale, despite ranking 40th, accounts for less than one percent of the global GDP. The risk of stagnation still looms.

Moreover, the low-hanging fruits of economic reforms have been exhausted, economic momentum is slowing, and business confidence is fading. Meanwhile, Vietnam’s demographic dividend is shrinking, with the working-age population expected to decline in the next decade.

To avoid the middle-income trap, Vietnam must break free from outdated ideologies and constraints, ensuring that economic development leads to sustainable prosperity, progress, and modernization.

A new trajectory for development

The development milestones set for the next 20 years reflect the ambition and determination of Vietnam’s leaders. Their bold new economic perspectives are shaping a fresh development trajectory. Economic development is considered the central task, with growth ensuring stability and stability driving further growth. Institutional breakthroughs are seen as the breakthrough of all breakthroughs, as weak institutions remain the bottleneck of all bottlenecks.

Businesses should be free to operate in any sector unless explicitly prohibited by law, while government agencies should only act within their legal mandates. Resource allocation must be driven by market principles, eliminating the ask-and-give mechanism and outdated subsidy mindsets.

The administrative system must be efficient, transparent, and business-friendly, lowering costs and fostering entrepreneurship. Decentralization should be expanded, ensuring that local governments have decision-making power and are held accountable.

Bottlenecks must be cleared, and all available resources must be fully utilized. Policies must effectively identify, nurture, and attract top talent, both domestically and internationally. Vietnam must build a fully integrated, modern, and socialist-oriented market economy.

Unlike previous reforms that faced hesitation and resistance, these policy shifts are being driven from the top down, ensuring greater commitment and execution.

Ongoing government streamlining, investments in high-speed rail and nuclear energy, and the development of Ho Chi Minh City and Da Nang as international financial hubs are concrete steps that reinforce the priority of economic growth.

The ambitious goals include achieving a GDP growth rate of at least eight percent in 2025, setting the stage for double-digit growth from 2026 to 2030. Vietnam aims to achieve middle-upper income status by 2030 and high-income country status by 2045. If these targets are not met, the country risks falling into the middle-income trap and missing its long-term economic milestones.

Building a self-reliant economy through private enterprise

The key question remains: Where will Vietnam derive its economic strength to achieve double-digit growth, self-reliance, and national pride? The answer is the people. As President Ho Chi Minh once said, "What benefits the people must be done to the fullest, and what harms the people must be avoided at all costs."

According to the 2023 Statistical Yearbook, the state-owned sector contributes 20.54 percent of GDP, while the foreign-invested sector accounts for 20.45 percent. The non-state sector dominates, accounting for 50.46 percent of GDP. However, registered private enterprises contribute less than 10 percent of GDP, while household businesses still make up the majority of the non-state sector.

Vietnam's economy remains heavily reliant on small-scale businesses, including street vendors, small shops, and fragmented cottage industries. The critical question is why formally registered private enterprises have failed to grow.

The answer lies in the institutional bottleneck - Vietnam’s business environment remains too restrictive. A real estate project requires 40 different approvals. Vietnamese startups relocate to Singapore instead of staying in Vietnam. Nearly 16,000 business conditions restrict private sector growth.

The private sector is Vietnam’s untapped economic powerhouse, yet it remains constrained. Without strengthening domestic enterprises, Vietnam cannot achieve economic resilience and self-reliance. As Minister of Planning and Investment Nguyen Chi Dung stated: "The private sector must become Vietnam’s most important growth driver."

Currently, 184 laws and nearly 200 government decrees govern Vietnam’s institutional framework. With ongoing government restructuring, businesses and individuals must navigate these complex regulations. If institutional reform is truly the breakthrough of all breakthroughs, then simplifying these regulations is imperative.

The urgency of rapid growth

The World Bank estimates that, under current conditions, Vietnam’s potential growth rate will decline to five percent annually over the next two decades due to a shrinking labor supply. At this pace, Vietnam will not achieve high-income status by 2045.

To reach this milestone, Vietnam must triple its per capita income from $4,700 to over $14,000 within 20 years. The country must maintain GDP per capita growth of at least six percent annually and boost labor productivity growth to 6.3 percent annually, even as the workforce declines. These are harsh but necessary realities that Vietnam must confront.

The path to prosperity: entering the narrow corridor

In their book The Narrow Corridor, Nobel laureates Daron Acemoglu and James Robinson explore why only a few nations succeed in achieving prosperity and freedom. Their conclusion is that to achieve prosperity, nations must enter a narrow corridor where a delicate balance exists between state power and societal freedoms.

More than 40 countries have successfully navigated this path. Now, Vietnam stands at a historical turning point. The opportunity to step into a new development trajectory is here.

To thrive in today's VUCA world, Vietnam must foster ambition, stimulate innovation, and expand individual and economic freedoms - for its people, businesses, and the nation as a whole.

Tu Giang