Vietnam’s growth potential to be unlocked

The year 2025 is a critical turning point in Vietnam’s five-year socio-economic development plan (2021-2025). It is the year to accelerate momentum, pushing for over 8 per cent growth, as set by the government, while laying the groundwork for sustained expansion in the years ahead. While reaching 8 per cent growth in 2025 and double digits in subsequent years is undeniably challenging, it is entirely achievable with bold institutional reforms that create a more open and dynamic environment for private sector growth.

Dr. Nguyen Dinh Cung, former Director of the Central Institute for Economic Management (CIEM), underscored the need for a shift in mindset and decisive action across all levels, from central to local leadership and businesses alike, to unlock breakthroughs in economic growth. “Vietnam’s GDP growth has historically slowed after each ten-year economic cycle,” he remarked. “Without game-changing solutions, this trend will continue in the years to come. Maintaining growth in today’s environment is already a formidable challenge, let alone hitting double digits.”

Removing outdated regulations

Despite the challenges, Dr. Cung nonetheless believes that achieving 8 per cent growth in 2025 and double-digit growth in the following years is entirely feasible. Vietnam still has room for expansion and can effectively resolve bottlenecks and remove barriers to development. The key breakthrough solution, he asserted, lies in addressing institutional constraints. “In recent years, many regulations have driven up compliance costs for businesses, limited their opportunities, and hindered growth,” he explained. “Streamlining the administrative system, focusing more on human capital, and improving policy implementation at this stage reflect a fundamental shift in national governance thinking.”

Mr. Dang Huy Dong, former Deputy Minister of Planning and Investment, emphasized that Vietnam’s regulatory framework has played a crucial role in driving economic growth over the years, but these regulations were originally designed for a centrally-planned economy and have been gradually adjusted to fit the country’s integration process. As a result, they are no longer suitable for the country’s current stage of development. “What is needed now is to redefine and redesign the regulatory system to align with the new economic context,” he emphasized.

Citing current investment-related regulations, Mr. Dong pointed out that Vietnam only provides a list of projects calling for investment, rather than presenting pre-feasibility studies with clearly defined implementation mechanisms, as practiced in other countries. This approach has extended some project approval timelines to 5-7 years, inadvertently causing major investment opportunities to be lost and slowing the country’s economic growth. “Trillions of VND in State capital remain undisbursed, and trillions more in household savings are unable to flow into the economy,” he noted. “If even a fraction of these funds were directed into development investment, Vietnam’s growth would see a significant boost.”

He added that simple procedural changes could resolve many bottlenecks, ensuring smoother economic circulation. For instance, implementing mechanisms to channel investment into transit-oriented development (TOD) projects surrounding railway infrastructure could serve as an effective solution to funding key transportation projects in the near future.

Digital and green drivers

Assuming the economy continues on its current trajectory, Mr. Dong expects Vietnam’s economic growth to hover around 6-7 per cent each year in the time to come. However, with institutional reform and a revamped investment environment, growth could reach 8-9 per cent. “And by adding two key drivers - digital transformation and green transformation - Vietnam has the potential to achieve double-digit growth in the years ahead,” he believes.

From another perspective, Dr. Nguyen Bich Lam, former Director General of the General Statistics Office, emphasized that upcoming institutional reform must focus on enabling businesses to operate more efficiently, particularly private enterprises, which are predominantly small and medium-sized. “The private sector plays an increasingly vital role as a key driver of rapid and sustainable economic growth, improving living standards,” he stressed.

According to data from the General Statistics Office (now under the Ministry of Finance), as of December 31, 2022, 62.5 per cent of non-State enterprises had fewer than five employees, while 18.6 per cent had between five and nine employees, and 15.3 per cent employed 10-49 workers. Only 0.63 per cent of businesses had 300 or more employees.

Despite their large numbers, most private enterprises are micro and small businesses with weak internal capacity and low competitiveness. Vietnam’s support industries remain underdeveloped, and production heavily relies on imported raw materials.

Additionally, technology and production methods in the sector lag behind. Vietnam’s manufacturing industry is primarily engaged in assembly; a basic level in the four-tier industrialization scale.

Moreover, the shift towards green growth poses new challenges for the private sector. For example, the EU’s green policies impose stricter requirements on Vietnamese exports. To access these markets, private enterprises must ensure product quality and demonstrate that their goods are environmentally-friendly and produced using sustainable processes. “This requires private enterprises to invest in new technologies, establish quality management systems, and enhance transparency in product information,” Dr. Lam said. “They must also comply with stricter environmental and social regulations.”

Suggested solutions

At a recent working session with the Party Central Committee’s Commission for Policies and Strategies, Party General Secretary To Lam emphasized the urgency of removing barriers and unlocking the full potential of this crucial economic sector. He stressed the need for breakthrough and revolutionary solutions, ones that not only address immediate challenges effectively but also lay the foundation for the long-term, sustainable, and robust growth of Vietnam’s private sector.

Accordingly, the Party General Secretary called for the prompt development of a new, groundbreaking resolution on private sector development to be submitted to the Politburo for approval. This resolution should focus on redefining policy approaches and government actions towards the private sector, establishing a clear development strategy, removing bottlenecks to improve the investment and business environment, and formulating and implementing national programs to accelerate private sector growth.