Progress in economic reform

Vietnam has posted impressive GDP growth over the past 40 years, averaging 6.37 per cent per, the highest rate in ASEAN. By way of contrast, the Philippines averaged 4.17 per cent, Malaysia 5.34 per cent, Thailand 4.48 per cent, and Singapore 4.51 per cent. Its achievement demonstrates Vietnam’s economic stability and capacity to maintain growth, particularly as other Southeast Asian countries have faced significant economic fluctuations and crises.

Growth story

Vietnam began its economic reform process with the “Doi Moi” policy announced in 1986. Vietnam’s GDP growth rate then increased from 3.81 per cent in 1985 to 7.36 per cent in 1989, thanks to extensive reforms in agriculture, industry, and market opening. Meanwhile, countries like the Philippines faced economic crises and political instability around this time, leading to a severe recession of -6.86 per cent in 1985. Thailand and Malaysia also experienced periods of high but uneven growth, with the former posting some 13.29 per cent in 1988.

From 1990 to 1997, Vietnam experienced a period of rapid growth, with the highest rate in 1995, of 9.54 per cent. It attracted foreign investment and took advantage of opportunities arising from regional economic integration. Malaysia and Thailand also recorded remarkable growth at around this time. The Asian financial crisis of 1997, however, rocked the regional economy, with Thailand and Malaysia being hit hard and posting negative growth of -2.75 per cent and -7.36 per cent, respectively, in 1998. Thanks to its relative isolation from international financial markets, Vietnam was only mildly affected and maintained growth of 5-8 per cent during this period.

The period from 2000 to 2008 saw Vietnam experience an economic boom, especially after joining the WTO in 2007. GDP growth reached 6-7.5 per cent, driven by foreign investment, exports, and rapid industrialization. Meanwhile, Malaysia and Thailand gradually stabilized but saw lower growth rates than Vietnam. The Philippines began to improve significantly, while Singapore, with its more advanced economic model, grew more slowly due to its already high level of development.

The global economic crisis in 2008 had a strong impact on the region, but Vietnam maintained a positive growth rate of 5.66 per cent for the year. During the period from 2009 to 2019, it continued to affirm its position as one of the fastest-growing economies in the region. Despite being affected by the global financial crisis, Vietnam’s growth recovered quickly, reaching 5.4-7.5 per cent. The Philippines also experienced strong growth during this period, of 6-7 per cent, while Thailand and Malaysia faced more difficulties and posted slower growth. Singapore, despite being a highly developed economy, grew only 2-4 per cent due to its heavy dependence on exports and international finance.

2020 to 2024 was considered a challenging time for the entire world due to the Covid-19 pandemic. However, Vietnam once again demonstrated its strong economic resilience by maintaining growth of 2.86 per cent in 2020, while the Philippines, Malaysia, and Thailand all recorded negative growth, of -9.52 per cent, -5.46 per cent, and -6.05 per cent, respectively.

Vietnam has undergone significant changes but still lags behind these regional countries. In 1985, its GDP per capita stood at just $235.65, much lower than the Philippines, with $637.83, Malaysia with $2,065.09, Thailand with $768.87, and Singapore with $7,001.77.

Vietnam has embarked on economic reform since 1986, focusing on the transition from a centrally-planned economy to a socialist-oriented market economy. As a result, its GDP per capita began to grow, from $430.19 in 1986 to $585.30 in 1987. From 2000 onwards, its economic growth became stronger, with GDP per capita rising from $394.58 in 2000 to $1,684.01 in 2010, marking an important milestone in poverty reduction and improving people’s lives.

During the 2011-2024 period, its GDP per capita continued to grow, reaching $4,346.77 in 2023 and an expected $4,649 in 2024; a dramatic increase from just over $200 in the 1980s. The Philippines’ GDP per capita was $3,725.55 in 2023, Malaysia’s $11,648.67, Thailand’s $7,171.81, and Singapore’s $84,734.26; the highest in the region.

Low workplace productivity, underdeveloped infrastructure, and a heavy dependence on traditional industries continued to stymie growth and development in Vietnam. Environmental issues, climate change, and resource management also pose major challenges to the country’s sustainable development.

Its achievements over the past 40 years have, nonetheless, been remarkable. It has emerged as one of the fastest-growing economies in Southeast Asia while gradually asserting its position in the international arena. During its process of transitioning from a centrally-planned economy to a modern socialist-oriented market economy, Vietnam has become a bright spot of growth in the region and the world, reaching a host of outstanding milestones.

The economy has not only grown significantly in scale but also improved considerably in growth quality, contributing to the betterment of the material and spiritual lives of its people. From 1985 to 2024, Vietnam’s GDP grew substantially, from $14.1 billion in 1985 to $429.7 billion in 2023, and is expected to reach $468.49 billion in 2024. Its GDP in 1985 was significantly lower than in the Philippines, Malaysia, Thailand, and Singapore.

After the “Doi Moi” reforms were introduced in 1986, Vietnam’s economy began to flourish, with extensive reforms helping GDP increase steadily every year. In particular, the period from 2001 to 2020 witnessed rapid growth, thanks to the policies of international economic integration, industrialization, and attracting foreign investment. By 2023, Vietnam had surpassed Malaysia in GDP ($399.6 billion) and caught up with the Philippines ($437.1 billion), while significantly narrowing the gap with Thailand ($514.9 billion) and Singapore ($501.4 billion). This demonstrates its strong potential in the region, driven by a sustainable development strategy and effective reforms.

To maintain its growth momentum, Vietnam needs to continue investing in infrastructure, improving workplace productivity, and responding to climate change. With such efforts, it has the opportunity to become a developed country in the near future, continuing to strengthen its economic position in the region and the world.

Solutions for rapid growth and sustainable development

Since the 12th National Congress of the Communist Party of Vietnam in 2016, the country has focused on breakthrough solutions for growth in institutions, infrastructure, and human resources to improve growth quality, ensure stable growth, and achieve sustainable development.

Despite its impressive achievements, Vietnam still faces a number of major challenges. Economic growth continues to depend heavily on capital investment and inexpensive labor, while workplace productivity and technological innovation remain limited. Environmental issues, climate change, and competitive pressure from other countries are also factors that require Vietnam to act swiftly to improve.

With the foundations built over the past 40 years, Vietnam has the potential to maintain high growth rates if it continues to innovate, invest in technology, and build a more sustainable and competitive economy in the region.

First, it needs to improve the legal framework, ensure synchronization between government levels, and closely coordinate with private investors in urban development planning along key transport routes such as expressways, high-speed railways, and metro lines. This will help reduce dependence on private vehicles and promote the formation of economic corridors and sustainable urban development. These areas can be designed with business centers, high-density residential areas, and green public spaces, while being closely connected with public transport networks, thereby creating balanced development between urban and rural areas and reducing population and traffic pressure in large cities.

Auctioning development rights, acquiring adjacent land, and planning development around traffic routes based on the TOD (Transit-Oriented Development) model along expressways, high-speed railways, and metro lines is an important strategy for sustainable urban development and optimizing land resources. The TOD model emphasizes the development of high-density, multi-functional, and pedestrian-friendly urban areas around public transport hubs. This is not only a solution to reduce traffic pressure but also promotes long-term economic, social, and environmental development.

Auctioning development rights is a transparent and effective mechanism for mobilizing financial resources from public land funds, especially in areas located along strategic traffic routes. This allows the State to leverage the added value from the development of transport infrastructure to finance public projects, while encouraging the participation of the private sector in urban development. This auction process must be conducted openly and fairly, and be accompanied by clear commitments from investors on sustainable development and ensuring community benefits.

Second, Vietnam must invest in training high-quality human resources and in research and development (R&D) for semiconductor technology and rare earths. The country needs to implement preferential investment policies to attract both domestic and foreign companies to the rare earth mining and processing sector, ensuring strict controls over transparency, environmental protection, and community rights. With the world’s second-largest rare earth reserves, Vietnam has the potential to become a key player in the global value chain.

Rare earths, including elements such as neodymium, dysprosium, and terbium, are essential raw materials in the production of semiconductor components, permanent magnets, and modern electronic devices. Exploiting and developing rare earths to participate in the semiconductor value chain is a potential strategy, contributing to shaping Vietnam’s position in the global high-tech industry. The country needs to build a complete industrial ecosystem, from raw material extraction and refined processing to the production of high-tech components and products.

Investing in modern rare earth processing technology is key to increasing the added value of raw materials rather than just exporting them in their primary form. Rare earth processing plants need to apply high technical standards to ensure product quality while minimizing negative impacts on the environment, such as chemical waste treatment and wastewater management.

Vietnam should promote strategic cooperation with countries that have strong semiconductor industries, such as Japan, South Korea, and the US, to transfer technology, expand markets, improve production capacity, and ensure stable output for products processed from rare earths. However, it faces significant challenges in attracting investment in rare earth mining and participating in the global semiconductor value chain, especially with other countries offering more attractive investment incentives and the advent of the Global Minimum Tax (GMT).

The GMT requires that multinational enterprises pay a minimum tax rate of 15 per cent on profits in every country in which they operate, reducing the effectiveness of traditional tax incentives that Vietnam used to rely on to attract investment. Countries like the US, Poland, South Korea, India, and others in Southeast Asia such as Malaysia, Indonesia, and Thailand offer strong incentives through extensive support packages. The US has provided up to $7.86 billion in direct funding to Intel through the CHIPS and Science Act, along with tax credits and projects worth hundreds of billions of dollars, strengthening its position in the semiconductor manufacturing industry.

Third, developing special economic zones in Phu Quoc, off the south coast, Van Don, in the north, and Van Phong, in the south-central region, modeled on similar zones on Singapore, Hong Kong (China), and Shenzhen in China, could transform Vietnam into a regional economic, financial, and technological hub. These successful zones abroad offer important lessons for Vietnam.

Phu Quoc Island, strategically positioned along key shipping routes, has strong tourism potential that can turn it into an international financial and tourism center. Developing Phu Quoc as a financial hub requires integrated infrastructure, global financial institutions, and transparent tax policies, alongside sustainable development of natural resources and local culture.

Van Don, with its robust transportation network, could evolve into a logistics and high-tech manufacturing center like Shenzhen. Prioritizing green, high-tech industrial parks, smart seaports, and investment in industries like information technology (IT), AI, and renewable energy will be key.

Van Phong, with one of the region’s best deep-water ports, can become an international trade and energy hub. Like Hong Kong (China), Van Phong needs a flexible economic ecosystem that integrates ports, logistics, and finance. Modern infrastructure, quality services, and policies promoting free trade are vital for sustainable growth.

A clear, adaptable policy framework is needed for these zones. Legal regulations, preferential tax policies, and transparent management mechanisms will create favorable conditions for investors. Additionally, training high-quality human resources, fostering innovation, and building a startup ecosystem are crucial. These zones should also be linked to other domestic and international economic zones to maximize resources.

Sustainability, environmental protection, and community interests must be prioritized to ensure the zones are not only economically successful but also enhance quality of life and preserve local culture. If effectively planned and managed, Phu Quoc, Van Don, and Van Phong can become model zones, boosting economic growth, national competitiveness, and Vietnam’s global role.

Fourth, developing regional financial centers following the offshore model of the Cayman Islands, Singapore, Hong Kong (China), Luxembourg, and Switzerland, especially in strategic areas like Phu Quoc, Van Don, and Van Phong, can drive significant growth for Vietnam. These international financial centers offer a flexible and open financial environment, enabling easy trade, investment, and capital transfer.

By applying financial liberalization policies, minimizing administrative procedures, and streamlining licensing, Phu Quoc, Van Don, and Van Phong can create a competitive investment environment, attracting international businesses and boosting the financial, banking, securities, insurance, and asset management industries.

Establishing a free capital movement mechanism is key to enabling international investors to access and transfer capital easily, without restrictive regulations. This will attract investment funds, financial enterprises, international banks, and large technology corporations.

Following models like Singapore and Hong Kong (China), Vietnam could exempt income tax, turnover tax, and VAT for businesses in international financial zones, while focusing on land use fees and job creation. Building modern infrastructure, especially in transport, IT, and communications, is crucial for supporting financial and high-tech transactions. Attracting fintech companies to develop electronic financial services, online payments, and blockchain technology would help build a modern financial ecosystem.

Countries like Saudi Arabia, Luxembourg, and Switzerland highlight the importance of political and legal stability in attracting investors. Vietnam should build a transparent legal system with investor protections to foster trust and confidence, enhancing both international standing and domestic innovation.

Developing financial centers in Phu Quoc, Van Don, and Van Phong will be a strategic step in Vietnam’s economic growth. To succeed, the country needs to liberalize finance, encourage free capital movement, reduce administrative procedures, apply preferential tax policies, and ensure strong infrastructure and legal frameworks. Only then can it become a competitive regional financial center.

Fifth, Vietnam needs to take advantage of climate finance opportunities brought about by international commitments, especially in the context of the 29th United Nations Climate Change Conference of the Parties (COP29) having taken place in Baku, Azerbaijan, in late 2024. Developed countries agreed at the conference to contribute $300 billion a year from now to 2030 while also committing to increase global climate finance to at least $1.3 trillion by 2035. This is an important step forward in ensuring the necessary financial resources to support developing countries, including Vietnam, to implement plans to reduce greenhouse gas emissions, adapt to the impacts of climate change, and build sustainable economies. From the target of mobilizing $100 billion a year in Copenhagen in 2009, which was further affirmed at COP21 in 2015 and first achieved in 2022, Vietnam has the opportunity to mobilize financial resources for initiatives to mitigate the impact of climate change, convert energy to renewable energy sources, develop clean technology, and build strategies to adapt to climate change.

Sixth, Vietnam needs to shift from a line-based budget management model to a results-based budget management model, focusing on applying digital transformation and green transformation to optimize the efficiency of public finance use. This new model will help improve transparency and efficiency in resource allocation, while ensuring sustainability and alignment with long-term development goals. Applying digital transformation will facilitate budget allocation according to specific targets, based on geographical units, performance results, and indicators related to economic, social, and environmental development. This will not only help optimize budget allocation but also establish a flexible and accurate monitoring system, from which the impact of each capital on sustainable development goals can be clearly assessed. Applying an indicator-based budget management model will create a mechanism to evaluate the performance of programs and projects, thereby improving the ability to adjust the budget to develop effective and sustainable financial strategies, ensuring that the budget is allocated and used optimally on the basis of environmental economic accounting according to quantity, quality, flow, and monetary value. Using location and zoning maps will help manage resources from “the center of the earth to the edge of the atmosphere.”

Vietnam needs to make breakthroughs in strategic solutions to promote sustainable growth and enhance national competitiveness on the basis of perfecting the legal framework, building modern transport infrastructure, and developing urban areas along key transport routes to create a solid foundation for economic development. Investing in high-quality human resources, especially in high-tech and research industries, will help it exploit its potential in rare earth resources and technology. Developing special economic zones and regional financial centers following models in advanced economies such as Singapore and Hong Kong (China) will create opportunities to attract international investment, promote sustainable development, and enhance Vietnam’s role in the international arena, helping it not only maintain high growth but also create a growth breakthrough for the economy in the future.

^{(*) Associate Professor Nguyen Dinh Tho is from the Institute of Strategy and Policy on Natural Resources and Environment at the Ministry of Natural Resources and Environment, and Ms. Nguyen Khanh Linh is from the University of California, Los Angeles, in the US.}