Building Vietnam’s High-Income Economy: Opportunities in Trade, Skills, and Sustainability

The World Bank’s report "Viet Nam 2045" outlines Vietnam’s ambitious path to high-income status by transitioning from labor-intensive exports to high-value industries through investments in skills, innovation, and sustainable infrastructure. Addressing challenges of limited domestic value addition, global trade shifts, and climate risks, the report emphasizes reforms to ensure inclusive and resilient growth.

The World Bank’s comprehensive report, "Viet Nam 2045: Trading Up in a Changing World - Pathways to a High-Income Future," delves into Vietnam's remarkable economic journey and its ambitious goal to achieve high-income status by 2045. The analysis, developed by the World Bank’s experts and contributors, underscores the success of Vietnam’s export-driven growth model, which has propelled millions out of poverty and deeply integrated the country into global value chains. However, this model, heavily reliant on labor-intensive exports and foreign direct investment (FDI), is reaching its limits. To sustain economic momentum, Vietnam must transition to higher value-added industries, harnessing advancements in technology, skills, and innovation while navigating the complexities of shifting global trade, climate challenges, and technological disruption.

Challenges of a Dual Economy and Limited Value Addition

Vietnam’s economic model has generated rapid growth, but its dual nature dominated by FDI firms and weakly integrated domestic enterprises presents structural challenges. While FDI firms have driven export success, they account for over 70% of exports, leaving local businesses with limited participation in global value chains. Domestic firms often lack the capacity, skills, and resources to integrate effectively, reducing the spillover benefits of FDI. Moreover, Vietnam’s export-driven growth relies on low-value assembly work and labor-intensive production. This model is increasingly unsustainable as wages rise and global competition intensifies. Vietnam captures only a fraction of the value embedded in its exports, particularly in high-tech sectors, underscoring the need to strengthen domestic value chains and local enterprise capabilities.

Priorities for Trade Integration and Workforce Development

A critical pathway to Vietnam’s future success lies in deeper regional and global trade integration. Vietnam has established a broad network of trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), but it must now focus on reducing non-tariff barriers, liberalizing services trade, and fostering stronger regional partnerships. Equally crucial is the development of a highly skilled workforce. Vietnam’s education system, while successful in providing basic education, lags in tertiary education attainment and STEM readiness. Only 10% of the workforce holds a bachelor’s degree, and high-skilled roles constitute a small share of jobs. Addressing this gap requires significant investment in higher education, curriculum reform to align with industry needs, and expanded access to vocational training and research opportunities.

Investing in Infrastructure and Low-Carbon Growth

Vietnam’s manufacturing-driven growth has placed immense pressure on its energy and transport infrastructure, creating bottlenecks that threaten future development. Frequent power outages and congested transport systems highlight the need for investment in energy generation, grid expansion, and transport connectivity. Simultaneously, Vietnam must transition to a low-carbon growth model to align with global market demands and climate goals. Its reliance on carbon-intensive manufacturing has led to rapid emissions growth, making Vietnam one of the most greenhouse gas-intensive economies in East Asia. Policies encouraging green energy investment, environmental goods trade, and climate-resilient infrastructure will not only reduce emissions but also enhance competitiveness in global markets that increasingly favor sustainable practices.

Opportunities and Risks in a Shifting Global Landscape

The evolving global trade environment presents Vietnam with both opportunities and risks. The "China Plus One" strategy, which seeks to diversify supply chains, has positioned Vietnam as a key alternative manufacturing hub, particularly for markets like the U.S. Vietnam has gained export market share in electronics and machinery, benefiting from trade shifts due to geopolitical tensions. However, the country’s heavy reliance on Chinese imports for intermediate goods exposes vulnerabilities to potential trade restrictions and supply chain disruptions. Furthermore, the rise of automation and digital technologies poses challenges to Vietnam’s labor-intensive industries but also offers opportunities for productivity gains and new, higher-skilled jobs. Adapting to these technological shifts and fostering innovation will be crucial for maintaining competitiveness and ensuring sustained economic growth.

A Comprehensive Pathway to Success

The World Bank’s report concludes that achieving high-income status by 2045 is ambitious yet achievable if Vietnam revitalizes its reform agenda and strategically invests in human and physical capital. While Vietnam’s past successes, driven by the Doi Moi reforms and WTO accession, provide a solid foundation, the country must now address emerging challenges with renewed vigor. Inclusive policies are essential to ensure that rural areas, smaller enterprises, and disadvantaged populations benefit from economic growth. Expanding access to education, enabling labor mobility, and providing robust social safety nets for affected workers are critical to fostering equitable development.

Vietnam’s future hinges on its ability to adapt to a rapidly changing global landscape while leveraging its strengths. By pursuing a comprehensive strategy that enhances productivity, fosters innovation, and prioritizes sustainability, Vietnam can secure its position as a resilient and prosperous economy. The World Bank emphasizes that decisive action today will enable Vietnam to navigate the complexities of its transition and achieve its long-term aspirations. With a coordinated approach and strong policy implementation, Vietnam can unlock its potential and establish itself as a high-income nation in a dynamic and competitive world.