Vietnam’s low workplace productivity and the inefficiency of its State-owned enterprises (SOEs) are key factors that could potentially trap the country in the middle-income bracket, two scholars told the “Vietnam - United States Cooperation Forum: Innovation Towards Sustainable Development”, held jointly by the University of Economics and Business (UEB) at the Vietnam National University (VNU), the Vietnam Union of Friendship Organizations, and Troy University in the US on November 15 in Hanoi, with Vietnam Economic Times / VnEconomy acting as media sponsor.

Professor Andreas Hauskrecht from Indiana University in the US expressed his admiration for Vietnam’s extraordinary economic transformation over the past 30 years. “When I first visited Vietnam, in 1991, the country’s GDP per capita was just $140,” he said in his address. “Today, it has surpassed $4,300, placing it among he high-middle-income nations. 

The key to this success lies in Vietnam’s market-driven economic reforms, which have delivered unexpected results. One of the most impressive milestones is in agricul-tural reform, which turned Vietnam into the world’s second-largest rice exporter. This is nothing short of a miracle. Vietnam’s integration into the global economy has been swift, especially after the US lifted its trade embargo.” 

Dr. Vu Hoang Linh from the UEB also emphasized Vietnam’s rapid economic progress since the two countries established diplomatic ties. “From 1995, when Vietnam and the US formalized their diplomatic relations, to 2023, Vietnam has maintained average annual GDP growth of 6.54 per cent,” he said. He also highlighted how this period of modernization and industrialization has drastically reshaped the economy, reducing agriculture’s contribution to GDP from 27 per cent to just 12 percent, while the proportion of the work-force in agriculture fell from 60 per cent to under 40 per cent.

Challenges facing Vietnam’s economy

The two scholars then swiftly turned their attention to the structural weaknesses and vulnerabilities within Vietnam’s current economic framework, which are persistent challenges that left unaddressed could stifle the country’s long-term growth prospects and lock it firmly within the middle income bracket. To overcome these challenges, they suggested boosting the private sector, diversifying the economy, and fostering the development of green technology as key strategies. 

“Vietnam’s story is undoubtedly one of success, but the key question is whether this success can continue, and under what conditions,” Professor Hauskrecht told the forum. “My message is that Vietnam requires a strategic macro-economic shift.” There are three main challenges facing Vietnam’s economy today, he continued. Firstly, when it comes to economic openness, which is measured by the ratio of total trade to GDP, Vietnam is among the most open economies globally. He noted that such a high level of openness could lead to instability and make the economy particularly susceptible to external shocks in certain situations.

The second challenge involves Vietnam’s trade surplus with the US. “Vietnam is the eighth-largest trading partner of the US, but surprisingly ranks third in terms of trade surplus with the country,” he pointed out. “A country like Vietnam, with a trade surplus exceeding $100 billion with the US, faces an unsustainable situation and is vulnerable to policy reactions from the US.”

The third challenge lies in Vietnam’s demographic trends. While the country’s demographic numbers are currently favorable, Professor Hauskrecht emphasized that demographics are only one driver of economic growth, alongside real investments in infrastructure and productivity growth. While infrastructure investment in Vietnam is robust, its effectiveness remains a concern. Regarding demographics, the country’s population is still growing, but at a slow pace.

Dr. Linh affirmed that Vietnam is currently at risk of falling into the middle-income trap. He cited World Bank data revealing that, since 1990, only 34 economies globally have successfully transitioned from middle-income to high-income status. In contrast, many middle-income economies have regressed to lower-income levels. “Vietnam faces several risks, such as its reliance on low-wage labor and the production of low value-added goods,” he said. “The country’s workplace productivity is much lower than that of neighboring countries like Malaysia and Thailand, and its economy remains heavily dependent on labor-intensive sectors. Vietnam also struggles with infrastructure and transportation deficiencies.”

He also highlighted that Vietnam’s investment in research and development (R&D) is relatively low, standing at just 0.43 per cent of GDP in 2021; far behind South Korea with 4.5 per cent and China with 2.4 per cent. “Like many other developing economies, Vietnam also faces long- term environmental risks,” Dr. Linh added. “According to last year’s World Bank forecast, by 2035, Vietnam could lose up to 3 per cent of its GDP due to the effects of climate change.”

“Today, it has surpassed $4,300, placing it among the high-middle-income nations. The key to this success lies in Vietnam’s market- driven economic reforms, which have delivered unexpected results.” - Professor Andreas Hauskrecht - Kelly School of Business, Indiana University.

Productivity constraints

Professor Hauskrecht recounted being asked how Vietnam could achieve an 8-10 per cent growth rate, to which he responded: “You would need a miracle. Given the current macro-economic fundamentals, sustaining 8-10 per cent growth is unrealistic unless there is a dramatic boost in workplace productivity.”

To identify the underlying barriers to Vietnam’s productivity growth, he examined the economy’s three main sectors: SOEs, the FDI sector, and the private sector.

First, he highlighted the inefficiency of SOEs, which he described as a “black hole” of productivity. “This sector is a clear obstacle to Vietnam’s economic growth, yet it continues to occupy a considerable portion of the economy,” he remarked.

Second, he pointed to the FDI sector, which has been a driving force behind Vietnam’s economic progress. However, he warned that its contribution will wane over time. “As an economy grows, the positive impact of FDI naturally diminishes,” he cautioned. “While FDI has significantly boosted Vietnam’s growth over the past two decades, it cannot be relied upon indefinitely.” 

Third, he underscored the critical role of the private sector. “Vietnam’s future growth hinges on the expansion and dynamism of the private sector,” he explained. “The younger generation must lead the way in stimulating private sector development.”

The Professor also noted that the quality of FDI inflows remains an issue. “Take Samsung phones, for instance,” he continued. “While a significant number are exported from Vietnam, the value added domestically is minimal. Vietnam’s current strength lies in assembling components, but this creates little spillover effect. To boost workplace productivity, Vietnam urgently needs greater spillover benefits. To accelerate economic growth and escape the middle-income trap, it must pivot transitioning from low-productivity areas to empowering the private sector.”

Dr. Linh proposed five strategic measures to help Vietnam overcome the mid-dle-income trap. First, it must enhance its competitiveness by improving its business environment and refining its legal framework. Second, the country should diversify its economy by advancing high-tech industries and increasing its position within global supply chains. Third, developing human resources is essential. This requires reforming the education system to focus on quality and aligning it with the economy’s needs. Fourth, Vietnam needs to prioritize innovation. Increasing investment in R&D, supporting startups, and adopting cutting-edge technologies are crucial steps. Finally, promoting environmental sustainability should be a core strategy. Integrating green policies into development plans and investing in renewable energy and eco-friendly technologies are vital for long-term resilience.

To all it can be

Vietnam Economic Times / VnEconomy gathered insights from experts, economists, and scholars at the ‘Vietnam - United States Cooperation Forum: Innovation Towards Sustainable Development’ on improving Vietnam’s business and investment climate.

Vietnam’s economy is undeniably a huge success story, with its focus on exports and world market integration serving as a model. However, the economy is biased toward international trade, to an extent unseen in human history.

This represents an entirely new dimension. A level of openness where international trade equals nearly 200 per cent of GDP is unprecedented. Even 100 per cent would be extremely high. We have only seen such levels in export-import hubs like Singapore or Hong Kong (China), but not for a territorial state. This makes Vietnam highly vulnerable to international turbulence.

I am not opposed to international trade. I support world market integration, but Vietnam’s economy is so dependent on trade that external shocks can have a significant impact. The Trump administration, for example, could trigger such an exogenous shock. Vietnam not only has a high degree of openness, but also a substantial trade surplus with the US.

This trade surplus exceeds $100 billion, representing about 20-25 per cent of Vietnam’s GDP. A high surplus typically ranges from 3-5 per cent. I have never seen such a level in any country, at any time in history. So, while I support global market integration, Vietnam’s economy is dangerously skewed towards trade, particularly with the US.

It is important to note that the Biden administration maintained most of the tariffs put in place by the Trump administration. This makes Vietnam highly vulnerable to potential policy changes from the US. What concerns me further is that, as a free trader, I can mathematically prove trade is not a zero-sum game. Trade benefits all parties involved, as established by trade theory since 1817.

The problem is that the new administration views trade as a zero-sum game. In this context, a trade surplus with Vietnam is seen as taking jobs and production away from the US. This is economically nonsensical. The exact level of tariffs is unknown, but it is likely they will be at least 20 per cent for all trading partners. Such measures could severely harm Vietnam’s economy.

In the short term, Vietnam is highly exposed to global and US economic shifts, as well as American policy reactions.

Looking ahead, it cannot rely so heavily on FDI. Let me clarify: I’m not against FDI. I’m a free-market economist, and such investment is vital. However, the sheer scale of FDI’s contribution to Vietnam’s exports is disproportionate, and a strategic shift is needed, which is moving from external demand-driven exports to fostering domestic demand.

Building a comprehensive ecosystem is essential for Vietnam to engage in semiconductor chip design. However, the critical question is whether it is capable of participating in all aspects of the process. Chip production involves several stages: design, fabrication, testing, packaging, and distribution. Given the extremely high costs associated with fabrication, Vietnam should strategically focus on areas like design, packaging, and testing, which align with our identified strengths as educators and scientists.

To realize this vision, the first step is to develop educational programs that meet global standards. Currently, over 30 universities in Vietnam offer undergraduate and postgraduate programs related to semi-conductors. Second, there is a pressing need to train academic staff at these institutions. While Vietnam has experts in chip and semiconductor design, their numbers remain insufficient. Third, substantial investment is required in facilities for chip design, packaging, and testing, as the current infrastructure in universities is still inadequate. Achieving this will require policy support from the government and significant investment from businesses. Lastly, scholarships for students in this field are vital to fostering talent, as semiconductor design requires highly-skilled professionals with a deep understanding of the technology. Building a robust ecosystem will necessitate close collaboration between the government, academic institutions, and enterprises, particularly large corporations.

Regarding educational collaboration between Vietnam and the US, this is an excellent time to strengthen ties. We can learn from the experiences of Japan and South Korea, two countries that have risen to global prominence by leveraging science and technology. For Vietnam to achieve its aspirations of becoming a strong and prosperous nation, it must rely on technological advancement.

A critical component of this journey is workforce development. We hope to gain greater support from US universities. While the Vietnam National University, Hanoi, already collaborates with US faculty members, we aim to deepen this partnership. Beyond online training, hands-on opportunities for Vietnamese lecturers in world-class laboratories are essential to acquiring the latest technologies, which they can then share with students. Additionally, we seek US assistance in strengthening university governance and management in Vietnam to elevate the overall quality of higher education.

The Vietnamese American community is one of the four large Asian communities in the US. Its growth creates a significant opportunity for Vietnam.

In California, with a population of around 39 million, there are 6 million Asian Americans. Of the 2.5 million Vietnamese Americans in total, approximately 52 per cent reside in California. This community represents a built-in market demand for Vietnamese products, providing an ideal opportunity for Vietnamese companies entering the US market.

Additionally, from 1993 to 2024, Vietnamese Americans have sent back between $14 billion and $19 billion annually to Vietnam. Over this period, nearly $190 billion was remitted, matching the total amount of FDI disbursed to Vietnam in the same timeframe.

Vietnam’s small and medium-sized enterprises (SMEs) can also tap into the US market, particularly in areas like software development. Vietnam has a young, tech-savvy population playing a key role in the country’s rapidly growing IT sector, including software development and outsourcing solutions. The e-commerce market in Vietnam is also booming, making it crucial for SMEs to invest in technology, build a strong digital presence, and explore new digital channels such as websites and social media. Before establishing a physical presence in the US, SMEs can start by building an online presence. Since 2018, platforms like Amazon and Walmart have enabled global online markets. These platforms provide an excellent channel for Vietnamese SMEs to reach US consumers.

Two decades ago, we were invited to collaborate on initiatives to establish international education programs in Vietnam. What I want to emphasize is the importance of teaching students critical thinking skills, enabling them to tackle challenges in their professional and personal lives. While each institution has its own resources, these alone are insufficient to meet broader educational demands.

In practice, the collaboration between Vietnamese and American institutions has yielded significant success, particularly in STEM education (Science, Technology, Engineering, and Mathematics). This is a strategic focus that no single institution can accomplish independently.

Vietnam and the US should take advantage of this opportunity to collaborate and share resources, ensuring mutual benefits while advancing their respective goals. This perspective reminds us of the importance of solidarity and coordinated efforts to address shared challenges.

Vietnam is among the fastest-growing markets in the region, with annual GDP growth averaging around 7 per cent and a population of more than 100 million. This demographic and economic profile makes Vietnam an attractive and highly-promising market for businesses across various sectors. It also presents a valuable opportunity for US companies, particularly those specializing in high-tech manufacturing, to establish a strong presence.

Vietnam has actively engaged in numerous free trade agreements with global partners while focusing on improving the skills of its workforce to position itself as a manufacturing and production hub in Southeast Asia and globally. The aviation sector, in particular, has seen significant investment, with companies like Boeing proud to be among the first to establish a foundation in this market. Over the years, our partnership has achieved notable success, but it has also highlighted key challenges for foreign businesses entering Vietnam.

According to a recent survey conducted by AmCham Hanoi, regulatory and legal complexities, as well as issues surrounding clean energy, are critical concerns for attracting high-quality enterprises to Vietnam. In practice, Vietnam’s legal framework remains relatively intricate, and the approval process for foreign investment projects can be lengthy. Moreover, foreign businesses are paying close attention to the training and development of Vietnam’s young workforce.

The Vietnamese Government has been proactive in implementing measures and policies to address these challenges. However, policies need time to fully demonstrate their effectiveness. I am confident that the government’s ongoing efforts will create a solid foundation for Vietnam to achieve its ambitious development goals in the future.

Technology is reshaping career paths for business administration students, extending beyond the traditional STEM (Science, Technology, Engineering, and Mathematics) fields. Students must go beyond simply being familiar with technology; they need to actively engage with it and develop proficiency.

At our university, we have integrated technological competencies into the curriculum. Incorporating STEM elements into a business program not only enriches the education but also attracts a distinct and diverse group of students. For example, in disciplines like marketing, business analytics, and related fields, we have infused STEM concepts to enhance the learning experience.

This innovative approach has proven effective in drawing more students to our programs. In the US, universities are actively adapting their courses to stay competitive and relevant, and Vietnam might benefit from exploring similar strategies. By equipping students with both business and STEM skills, they gain a robust foundation to contribute meaningfully to their country’s progress. From our observations, students

USABC members are confident in the vision of positioning Vietnam as an innovation hub in Asia by 2030. As a result, we have been actively supporting Vietnamese businesses in fostering innovation in recent years. Companies like Meta, Google, and Amazon are working closely with the government, government partners, and private enterprises to advance innovation. Meta, for example, has organized multiple competitions to identify and cultivate innovative talent in Vietnam.

Vietnam’s innovation index has consistently improved over the years, making the country an increasingly attractive market for US companies. In 2024 alone, senior leaders from major US firms like Apple and Meta visited Vietnam, indicating their strong interest in the market. These companies are also considering the possibility of establishing semiconductor assembly plants in Vietnam.

From my perspective, Vietnam has great potential in the semiconductor sector, particularly in areas such as packaging, design, and testing. The country is investing in and enhancing its capabilities in this field to solidify its position in the global semiconductor industry.

Furthermore, Vietnam’s digital economy stands out as another major opportunity. A growing number of Vietnamese content creators and programmers are achieving significant success. This has caught the attention of US businesses, many of which are eager to invest in Vietnam’s thriving digital economy. Several corporations have already made substantial investments in Vietnamese content creators.

One of Vietnam’s biggest challenges in attracting FDI from the US in recent years is corruption. Many US investors remain cautious and concerned about this issue when considering the Vietnamese market. However, recent years have shown a strong commitment from Vietnam’s leadership to address this problem decisively. These efforts offer hope that the government’s initiatives will create a more transparent and favorable investment environment, further encouraging high-quality FDI inflows.

The second issue, in my view, is the protection of intellectual property (IP) rights, particularly in the technology sector. Vietnam has received criticism for its shortcomings in managing copyright and IP protections. At the same time, the skill level of the Vietnamese workforce remains a concern. Without sufficient upskilling, it will be challenging to attract and retain foreign investors.

Another significant hurdle is the country’s administrative procedures. Many businesses report dissatisfaction with the lengthy approval processes for investment projects, especially at the local government level. These delays can be a major deterrent for investors seeking efficiency and predictability.

From my perspective, conversations around investment tend to focus narrowly on projects within Vietnam. I believe we should expand our outlook to consider investments for Vietnam, transcending geographic limitations. Investments in Vietnam are often assessed by tangible factors like the number of factories or workers. However, with modern technological advancements, businesses and corporations are increasingly prioritizing intangible metrics to evaluate their success.

>> Source: Vietnam Economic Times