viet nam 2035 - toward prosperity, creativity, equility, and democracy

8/18/2019 Viet Nam 2035 - Toward Prosperity, Creativity, Equility, and Democracy

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OVERVIEW

Vietnam 2035


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OVERVIEW

Vietnam 2035 Toward Prosperity, Creativity, Equity, and Democracy

The World Bank

Ministry of Planning and Investment of Vietnam


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This booklet contains the overview, as well as a list of contents for Vietnam 2035: Toward Prosperity,

Creativity, Equity, and Democracy, doi: 10.1596/978-1-4648-0824-1. The PDF of the final, full-length

book, once published, will be available at https://openknowledge.worldbank.org/ and print copies can

be ordered at http://Amazon.com. Please use the final version of the book for citation, reproduction,and adaptation purposes.

© 2016 International Bank for Reconstruction and Development / The World Bank and the Ministry of

Planning and Investment of Vietnam

1818 H Street NW, Washington DC 20433

Telephone: 202-473-1000; Internet: www.worldbank.org

This work is a product of the staff of The World Bank and the Ministry of Planning of Vietnam (MPI),

with external contributions. The findings, interpretations, and conclusions expressed in this work do

not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the govern-

ments they represent, or those of the MPI. The World Bank and the MPI do not guarantee the accuracy

of the data included in this work. The boundaries, colors, denominations, and other information shown

on any map in this work do not imply any judgment on the part of The World Bank or of the MPI con-

cerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and

immunities of The World Bank, all of which are specifically reserved.

All queries on rights and licenses should be addressed to the Publishing and Knowledge Division,

The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail:

[email protected].

Cover design: Ministry of Planning and Investment and Bill Pragluski of Critical Stages

Cover photographs: The image of the Vietnamese bronze drum (Ngoc Lu) is © by Doremon 360;

it is licensed under the Creative Commons license, version 3.0. The three photos at the base are

© the Ministry of Planning and Investment of Vietnam, used with permission.


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“The State shall guarantee and promote the People’s right tomastery; to recognize, respect, protect, and guarantee humanrights and citizens’ rights; and to pursue the goal of a prosper-ous people and a strong, democratic, equitable, and civilizedcountry, in which all people enjoy an abundant, free, andhappy life and are given conditions for their comprehensivedevelopment.”

—Article 3 of the 2013 Constitution of theSocialist Republic of Vietnam


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Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiPreface and Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi

OverviewIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1A Record of Strong and Equitable Growth, with Emerging Concerns . . . . . . 2Opportunities and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Aspirations for 2035 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Pillar 1 Economic Prosperity with Environmental SustainabilityVietnam’s Long-Term Growth in a Global Perspective . . . . . . . . . . . . . . . . 17Trends in Productivity Growth—A Cause for Concern . . . . . . . . . . . . . . . . 19A Reform Agenda to Reignite Productivity Growth . . . . . . . . . . . . . . . . . . 22

Pillar 2 Equity and Social InclusionThe Unfinished Agenda: Ensuring Equality of Opportunity . . . . . . . . . . . . 44The Emerging Agenda for the Rising Middle Class and the Aging

Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Pillar 3 A Capable and Accountable StateWhy Institutional Quality Matters for Growth and Development . . . . . . . 61How Vietnam Performs on Institutional Quality . . . . . . . . . . . . . . . . . . . . 62Institutional Constraints to Vietnam’s Development . . . . . . . . . . . . . . . . . . 64The Way Forward for the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Contents

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Overview

Chapter 1 Review of Thirty Years of Reforms—and Aspirations for 2035

Chapter 2 Enabling Economic Modernization and Private SectorDevelopment

Chapter 3 Moving toward an innovation-led economy

Chapter 4 Managing urbanization for greater economic efficiency

Chapter 5 Achieving sustainable and climate-resilient growth

Chapter 6 Promoting equity and social inclusion

Chapter 7 Building modern institutions for an effective state

Contents of the Full Report

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Foreword

V I E T N A M 2 0 3 5 xi

be a modern and industrialized nationmoving toward becoming a prosper-ous, creative, equitable, and demo-cratic society.

Motivated by these aspirations, in July 2014, the Government of Vietnamand the World Bank Group jointly ini-tiated the Vietnam 2035 report.

The report recognizes six key trans-formations that will help Vietnam

achieve its goals for 2035: (1) to en-able economic modernization with acompetitive private sector firmly inthe lead; (2) to improve the country’stechnological and innovative capac-ity; (3) to reshape urban policies andinvestments for more dynamic citiesand urban centers; (4) to chart an en-vironmentally sustainable developmentpath with increasing adaptation andresilience to changing climate patterns;

(5) to promote equality and inclusionamong marginalized groups for thedevelopment of a harmonious mid-dle-class society; and (6) to establish amodern rule of law state and a demo-cratic society.

After 30 years of economic reformssince the launch of Đổi Mới in 1986,Vietnam has recorded significant andhistoric achievements. From a poor,war-ravaged, centrally planned econ-omy, which was closed off from muchof the outside world, Vietnam has be-come a middle-income country witha dynamic market economy that isdeeply integrated into the global econ-

omy. Vietnam’s economic growth hasnot only been rapid, but also stableand inclusive, translating into strongwelfare gains for the vast majority ofthe population. This is an impressiverecord of success—one that the Viet-namese people take justifiable pride in,while appreciating the support of theinternational community.

But 30 years of success from reformsraises expectations for the future. The

country’s ambitions are aptly capturedin the Vietnamese constitution, whichsets the goal of “a prosperous peopleand a strong, democratic, equitable,and civilized country.” There is a firmaspiration that by 2035, Vietnam will


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Preface and Acknowledgments

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Thanh Sơ n (Vice Minister of ForeignAffairs), Trươ ng Chí Trung (Vice Min-ister of Finance), Nguyễn Toàn Thắng(Deputy Governor), and Prof. Bùi TấtThắng (President, Development Strat-egy Institute).

The Ministry of Planning and In-vestment was assigned by the Gov-ernment of Vietnam to coordinate theline ministries, agencies, and researchinstitutes, and to collaborate with theWorld Bank in the preparation of thereport. A joint Vietnam–World Bankcoordination team was established,which was led by Dr. Cao Viết Sinh(Former Vice Minister of Planning andInvestment), Victoria Kwakwa (Coun-try Director), and Sandeep Mahajan(Lead Economist).

The Government of Australia, theKorea International Cooperation

Agency (KOICA), and the UK De-partment of International Develop-ment (DFID) provided financial sup-port for the report, which is gratefullyacknowledged.

The report benefited from invalu-able comments from World Bank peer

The report, Vietnam 2035: TowardProsperity, Creativity, Equity, andDemocracy, is a joint initiative ofthe Government of Vietnam and theWorld Bank formally forged betweenPrime Minister Nguyễn Tấn Dũng andPresident Jim Yong Kim in July 2014.

The report was written by a Viet-namese–World Bank team under thesupervision and guidance of DeputyPrime Minister Vũ Ðức Ðam; Ministerof Planning and Investment Bùi QuangVinh; Axel van Trotsenburg, WorldBank Vice President for East Asiaand Pacific; Victoria Kwakwa, Coun-try Director for Vietnam; and SudhirShetty, World Bank Chief Economistfor East Asia and Pacific. Gratitude forinsightful advice is extended to mem-bers of the Steering Committee for theVietnam 2035 Report: Prof. Nguyễn

Xuân Thắng (President, VietnamAcademy of Social Sciences), Nguyễn

Văn Tùng (Vice Chairman of the Of-fice of Government), Nguyễn NgọcBảo (Vice Chairman, Economic Com-mission of the Central Committee ofthe Communist Party of Vietnam), Bùi


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velopment that included JonathanAspin, Joe Caponio, and Mike Crum-plar. Production and publication of

the English version was managed bySusan Graham and Patricia Kata-yama of the World Bank’s Publishingand Knowledge Division, ExternalCommunications.

The Vietnam 2035 report has sevenchapters and an Overview written byindividual chapter teams, whose mem-bers are listed below in alphabeticalorder of their surnames.

Overview

Lead authors: Dr. Cao Viet Sinh (for-mer Vice Minister of Planning andInvestment), Gabriel Demombynes(Senior Economist), Victoria Kwakwa(Country Director), Sandeep Mahajan(Lead Economist), and Sudhir Shetty(Chief Economist).

Core team: Prof. Hoang The Lien

(Former Vice Minister of Justice), Dr.Nguyen Quang Thai (Secretary Gen-eral, Vietnam Association of Econo-mists), Nguyen Van Vinh (Vice Pres-ident, Development Strategy Institute(DSI)), Pham Chi Lan (Former mem-ber of Prime Minister’s EconomicAdvisory Board), Dr. Vo Tri Thanh(Vice President, Central Institute forEconomic Management (CIEM)),and Doan Hong Quang (Senior

Economist).The Overview builds on back-

ground papers and notes prepared by: Manu Bhaskaran (Centennial AsiaAdvisors), Claus Brand (Consultant),Sebastian Eckardt (Senior Economist),and ImpactECON, LLC.

reviewers Ted Chu (Chief Economist),Mario Marcel (former Senior Direc-tor), Martin Rama (Chief Economist),

and Ana Revenga (Senior Director), aswell as reviewers who provided com-ments on the concept note and decisiondraft. We extend special thanks for theinsights and recommendations on theoverview and chapters of the reportfrom an advisory panel that comprisedDavid Dollar (Brookings Institution),Ravi Kanbur (Cornell University),Homi Kharas (Brookings Institu-tion), Prof. Danny Leipziger (GrowthDialogue and George WashingtonUniversity), Vikram Nehru (CarnegieEndowment for International Peace),Mari Pangestu (Columbia University),Graham Teskey (Abt JTA), and MmeTôn Nữ Th ị Ninh (Former Chair-woman, Committee for External Af-fairs, National Assembly of Vietnam).

The report benefited from the syn-ergies between international expertise

and local in-depth knowledge througheffective team collaboration and valu-able contributions of international andlocal consultants. The preparation pro-cess was broad-based and consultative,with active engagement of Vietnam’sgovernment ministries and agencies,academic research institutions, and in-ternational experts in numerous work-shops and focus group discussions.Public engagement in the preparation

of the report was facilitated throughan online website, on-line discussions,live chats, as well as a national essaycompetition in Vietnam.

The English version of the reportwas edited by Bruce Ross-Larsonand a team at Communications De-


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sultant), Reyes Aterido (Consultant),Ruth Banomyong (Consultant), DavidDollar (Brookings Institutions), Dang

Hung Vo (Consultant), Dr. Dang KimSon (former Director of the Institute ofPolicy and Strategy for Agriculture andRural Development (IPSARD)), MaryHallward-Driemeier (Senior PrincipalSpecialist), Stacey Frederick (Consul-tant), Gian Thanh Cong (Consultant), James Hanson (Consultant), ClaireHonore Hollweg (Economist), VictorKümmritz (Consultant), Dr. Le DangDoanh (Former President, CIEM),

Miles McKenna (Consultant), MartinMolinuevo (Consultant), Ben Shep-ard (Consultant), Dr. Nguyen Do AnhTuan, (Director, IPSARD), Dr. NguyenDinh Cung (President, CIEM), Dr.Nguyen Thi Tue Anh (Vice President,CIEM), Timothy Sturgeon (Massa-chusetts Institute of Technology), Prof.Tran Van Tho (Waseda University, Japan), Vu Kim Hanh (Director, Cen-ter for Business Research and Support),

Deborah Winkler (Consultant), Chun-lin Zhang (Lead Private Sector Devel-opment Specialist), and Ezequiel Zylbe-berg (University of Oxford).

Capable research assistance wasprovided by: Gian Thanh Cong(Consultant).

The chapter team is grateful for use-ful comments and advice from: Prof.Danny Leipziger (Growth Dialogueand George Washington University),Catherine Martin (Principal StrategyOfficer), and Daniel Street (OperationsOfficer).

Vietnam: 30 Years of Reform andAspirations

Lead authors: Prof. Bui Tat Thang(President, Institute for DevelopmentStrategy), Nguyen Van Vinh (VicePresident, DSI), and Dr. Vo Tri Thanh(Vice President, CIEM).

The chapter builds on backgroundpapers and notes prepared by: Dr.Nguyen Duc Thanh (Director, Viet-nam Institute for Economic and PolicyResearch), Dr. Nguyen Quang Thai(Secretary General, Vietnam Associ-

ation of Economists), and Prof. TranDinh Thien (Director, Vietnam Insti-tute of Economics).

Capable research assistance wasprovided by: Dang Huyen Linh, VuThu Trang, Nguyen Dang Hung,Nguyen Thi Huong Giang, andNguyen Thi My Hanh (DSI).

Economic Modernization and PrivateSector Development

Lead authors: Mona Haddad (PracticeManager), Sandeep Mahajan (LeadEconomist), Pham Chi Lan (Formermember of Prime Minister’s EconomicAdvisory Board), and Pham Thi ThuHang (Secretary General, VCCI).

Core team: Doan Hong Quang(Senior Economist), Claire HonoreHollweg (Economist), Steven Jaffee(Lead Rural Development Specialist),

Nguyen Van Lan (Senior OperationsOfficer), and Daria Taglioni (SeniorTrade Economist).

The chapter builds on backgroundpapers and notes prepared by: AlwaleedFareed Alabatani (Lead Financial Sec-tor Specialist), Guillermo Arenas (Con-


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Advisor), Judy Baker (Lead Econo-mist), Abhas Jha (Practice Manager),Danny Leipziger (Growth Dialogue

and George Washington University),Paul Vallely (Senior Transport Special-ist), and Anna Wellenstein (PracticeManager).

Sustainable Development

Lead authors: Diji ChandrasekharanBehr (Senior Natural Resources Econ-omist) and Prof. Truong Quang Hoc

(former Director of the Center for Re-search Resources and Environment,Vietnam National University).

Core team: Anjali Acharya (SeniorEnvironmental Specialist), Prof. BuiQuang Tuan (Director, Vietnam In-stitute for Regional Sustainable Devel-opment), Todd Johnson (Lead EnergySpecialist), and Prof. Nguyen TrungThang (Vice Director, Institute ofStrategy and Policy on Natural Re-sources and the Environment).

The chapter builds on backgroundpapers and notes prepared by: TijenArin (Senior Environmental Econ-omist), Christophe Crepin (SectorLeader), Richard Damania (LeadEconomist), Franz Gerner (Lead En-ergy Specialist), Sarath Guttikunda(Consultant), Steven Jaffee (LeadRural Development Specialist), Iain

Menzies (Senior Water and Sanita-tion Specialist), Tae Yong Jung (Yon-sei University), Sung Jin Kang (KoeraUniversity), Joo Young Kwak (Yonsei

University), and Dang Kim Khoi, Kim

Van Chinh, Nguyen Thi Cam Nhung,

Nguyen Van Lam, and Pham KimDung (all IPSARD).

Science, Technology, and Innovation

Lead authors: Dr. Banh Tien Long

(former Vice Minister of Educationand Training), Michael Crawford(Lead Education Specialist), Dr. LeDinh Tien, (former Vice Minister ofScience and Technology), and WilliamMaloney (Chief Economist).

The chapter builds on backgroundpapers and notes prepared by: Nich-olas Bloom, Raissa Ebnerb, KerenssaKayc, Renata Lemosd, RaffaellaSadune, Daniela Scurf, and John Van

Reeneng (World Management Survey),Hyunho Kim (Chonnam NationalUniversity), Joonghae Suh (Korea De-velopment Institute), and Deok SoonYim (Science and Technology PolicyInstitute).

The team thanks the Governmentof Australia for funding the survey ofmanagers in Vietnam.

UrbanizationLead authors: Dr. Huynh The Du(Fulbright School of Public Policy),Somik Lall (Lead Urban Economist),Dr. Nguyen Do Anh Tuan (Director,IPSARD), and Madhu Raghunath(Senior Urban Specialist).

The chapter builds on backgroundpapers and notes prepared by: LuisBlancas (Senior Transport Specialist),David Bulman (Consultant), Dr. Dang

Kim Khoi (IPSARD), Edward Leman(Consultant), Dr. Nguyen Anh Phong(IPSARD), and Pablo Vaggione (Con-sultant). Truong Thi Thu Trang, Dep-uty Head of Faculty - IPSARD)

The chapter team is grateful foruseful comments and advice from:Zoubida Allaoua (Senior Regional


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athan Pincus (Rajawali Foundation,Indonesia), and Charles Undeland(Senior Governance Specialist).

Core team: Soren Davidsen (SeniorPublic Sector Specialist), Dr. NguyenVan Cuong (Deputy Director, Insti-tute of Legal Science), and Tran ThiLan Huong (Senior Public SectorSpecialist).

The chapter builds on backgroundpapers and notes prepared by: MaridelAlcaide (Consultant), Dr. Bui NguyenKhanh, Deputy Director, Instituteof State and Law), Noah Buckley

(Consultant), Professor Yoon Je Cho(Consultant), Dr. Duong Thanh Mai(Former Director, Institute of LegalScience), Prof. Nguyen Nhu Phat (Di-rector, Institute of State and Law),Prof. Pham Duy Nghia (FulbrightSchool of Public Policy), Dr. ThangVan Phuc (Former Vice Minister ofHome Affairs), and Vu Hoang Quyen(Senior Economist).

The chapter team is grateful for

guidance and advice from: JamesAnderson (Country Manager), Rob-ert Taliercio (Practice Manager), andGraham Teskey (Principal TechnicalLead, Governance, Abt JTA).

Additional editing of the reportwas handled by a Vietnamese edito-rial team with participation of Dr.Cao Viet Sinh (former Vice Minis-ter of Planning and Investment, teamleader), Prof. Hoang The Lien (FormerVice Minister of Justice), Dr. NguyenQuang Thai (Secretary General, Viet-nam Association of Economists),Nguyen Van Vinh (Vice President,DSI), Pham Chi Lan (Former memberof Prime Minister’s Economic Advi-sory Board), Dr. Vo Tri Thanh (Vice

Capable research assistance wasprovided by Nguyen Phuong Nga(Consultant).

The chapter team is grateful for use-ful comments and advice from: CarterBrandon (Lead Economist), Christo-phe Crepin (Sector Leader), RichardDamania (Lead Economist), Doug-las J. Graham (Senior EnvironmentalSpecialist), and Iain Shuker (PracticeManager).

Social Inclusion

Lead authors: Dang Nguyen Anh (Di-rector, Institute of Sociology), GabrielDemombynes (Senior Economist), andPhilip O’Keefe (Lead Economist).

Core team: Prof. Giang Thanh Long(Director, Institute of Public Policy),Michael Crawford (Lead EducationSpecialist), Puja Vasudeva Dutta (Se-nior Economist), Dr. Nguyen Thang(Director, Center for Analysis andForecast), Truman Packard (Lead

Economist), Achim Daniel Schmillen(Economist), and Owen Smith (SeniorEconomist).

Contributors: Reena Badiani-Magnusson (Senior Economist), KariHurt (Senior Operations Officer), andVu Hoang Linh (Economist).

Capable research assistance wasprovided by: Tran Thi Ngoc Ha(Consultant).

The chapter team is grateful for use-ful comments and advice from Prof.Ravi Kanbur (Cornell University) andAna Revenga (Senior Director).

Modern Institutions

Lead authors: Prof. Hoang The Lien(Former Vice Minister of Justice), Jon-


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for International Relations; NguyenHuu Lam Son, Expert; Ho Anh Tai,-Expert, Department for International

Relations.Administration and communica-

tions activities from the World Bankside were managed by Bo Thi HongMai (Senior Communications Officer),Tran Kim Chi (Communications Asso-ciate), Vu Lan Huong (Communica-tions Associate), and Vu Thi Anh Linh(Program Assistant).

It is with great pleasure that theMinistry of Planning and Investment

and the World Bank Group introducethe report Vietnam 2035: Toward Prosperity, Creativity, Equity, and Democracy with the hope that Viet-namese leaders and policy-makingagencies will find it useful.

President, CIEM), and Doan HongQuang (Senior Economist).

The administrative coordination

was carried out by the Administra-

tion Office of the Vietnam 2035 Steer-

ing Committee set up at the DSI. The

Committee included: Prof. Bui Tat

Thang (President), Nguyen Van Vinh

(Vice President), Nguyen Thi Huong

Giang, Bui Thi Huong, Dang Huyen

Linh, Dinh Thi Ninh Giang, Le Quang

Dao, Nguyen Quoc Truong, Nguyen

Thi My Hanh, Nguyen Dang Hung,

Nguyen Quynh Trang, Pham Le Hau,Pham Le Hoang, Pham Minh Thao,

Pham Thanh Hien, and Vu Thu Trang.Besides, adinistrative activities are

coordinated with by the officials ofthe Government Office, including:Le Hong Lam, Director, Department

Axel van TrotsenburgVice President for East Asia and PacificThe World Bank

Bùi Quang VinhMinister of Planning and InvestmentThe Socialist Republic of Vietnam


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Abbreviations

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AIIB Asian Infrastructure Investment BankALTC aged and long-term careASEAN Association of Southeast Asian NationsCEO chief executive officerDIV Deposit Insurance of VietnamGDP gross domestic productGVC global value chainICT information and communications technologyIMF International Monetary FundIT information technology

LPI Logistics Performance Index (of the World Bank)MOLISA Ministry of Labour, Invalids and Social AffairsNPL nonperforming loanOECD Organisation for Economic Co-operation and DevelopmentOOP out-of-pocketPPP purchasing power parityR&D research and developmentSBV State Bank of VietnamSDG Sustainable Development Goal (of the United Nations)SOE state-owned enterpriseSRB sex ratio at birth

3D three dimensionalTPP Trans-Pacific PartnershipUN United NationsUNICEF United Nations Childrens’ FundVCA Vietnam Competition AuthorityWGI Worldwide Governance Indicator


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and social inclusion, and bolstering thestate’s capacity and accountability. Therapid growth needed to achieve theseaspirations will be sustained only if itstands on faster productivity growthand reflects the costs of environmen-tal degradation. Productivity growth,in turn, will benefit from measures toenhance the competitiveness of domes-tic enterprises, scale up the benefits of

urban agglomeration, and nurture acreative and innovation-led economy.Maintaining the record on equity andsocial inclusion will require liftingmarginalized groups and deliveringservices to an aging and urbanizingmiddle-class society. And to fulfill thecountry’s aspirations, the institutionsof governance will need to becomemodern, transparent, and fully rootedin the rule of law.

Balancing Economic Prosperitywith Environmental Sustainability

The goalposts for Vietnam’s futureeconomic success are set broadly andaspirationally—the 2013 constitutionsets the objective of a “prosperous peo-

The year 2015 marks 70 years sinceVietnam’s Declaration of Indepen-dence, 40 years since Reunification,and just short of 30 years from thelaunch of Đổi Mới , which catapulted thenation from the ranks of the world’spoorest to one of its great developmentsuccess stories. Critical ingredients ofsuccess have been visionary leaders, asense of shared societal purpose, and a

focus on the future. Starting in the late1980s, these elements were fused withthe embrace of markets and the globaleconomy, setting the nation on thepath to becoming the middle-incomecountry that it is today. Its spectacu-lar growth since then, one of the fast-est in the world, has all but eliminatedextreme deprivation and lifted tens ofmillions of people out of poverty.

Looking forward to 2035, which

will mark 60 years since its reunifica-tion, Vietnam now aspires to moder-nity, industrialization, and a higherquality of life. These aspirations andthe supporting policy and institutionalagenda stand on three pillars: balanc-ing economic prosperity with environ-mental sustainability, promoting equity

Executive Summary

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ple and strong country,” marking littledeviation from its 1992 version. Partyand government documents couch the

income objectives in similarly aspira-tional terms, with an annual GDP percapita growth target of 7 percent (equalto around 8 percent annual growth).Growth rates in this range wouldproduce by 2035 an upper-middle-income country on the cusp of high in-come—at the level of Malaysia or theRepublic of Korea in the mid-2000s.But this target is extremely ambitious,far surpassing Vietnam’s past growth

and with few global precedents.The Vietnamese qualities of thrift,

discipline, and hard work will haveto be deployed in full measure for thecountry to stay close to its aspirations.The national savings rate needs to re-main high while the investment raterises slightly. Discipline and hard workcan help counter the projected rapidaging of the population. But more isneeded. Productivity and innovation

will eventually have to become themain drivers of growth. That will re-quire policies to tackle the stagnationin productivity and long-term invest-ments, especially in urban infrastruc-ture and innovation capabilities.

What explains the stagnation inproductivity? Public investment is notas efficient as it needs to be because ofuncoordinated and often incoherentinvestment decisions of a fragmentedstate structure. There also is littledoubt that most state-owned enter-prises (SOEs) are inefficient producers.So, widespread inefficiencies in state in-vestment perpetuate the weak produc-tivity trends across the economy. Butthey do not fully explain the decline inproductivity growth, reasons for which

are especially worrisome. A steady ero-sion in the productivity growth of thedomestic private sector leaves it just

as inefficient as the state sector—fortwo reasons. First, the institutionalfoundations for an advanced marketeconomy are insufficiently developed,undermining private-property rightsand competition in product markets.Second, factor markets are governedby an unclear mix of allocation bymarkets and by fiat. Commercializedstate institutions—whereby the state isdirectly involved in economic activity

through SOEs and indirectly throughthe influence of vested interests—haveensured that land and capital alloca-tions are guided as much by arbitraryadministrative decisions as by efficientmarket signals.

Productivity is also hurt by mal-functioning land markets in at leasttwo other ways. First, the urbanizationof land is outpacing the urbanizationof people, reducing urban population

density and suppressing productiv-ity gains from urban agglomeration.Second, obstacles to consolidation ofsmall landholdings in agriculture aredepressing small-landholder profitsand sector productivity.

The sustainability of Vietnam’s long-term growth is further threatened byenvironmental stresses. Growth in thepast 25 years has imposed significantenvironmental costs. Rapid depletionof natural resources is a particular con-cern. Environmental pollution fromurban and industrial wastewater leaveswaterways toxic, while urban waterand air pollution are beginning to poseserious health hazards, especially nearHanoi and Ho Chi Minh City, andparticularly for children. Vietnam is


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also one of the countries most vulnera-ble to climate change, with settlementsand economic activity in the Mekong

Delta at especially heightened risk. Ex-acerbating the risks is rapidly growingenergy consumption, increasingly reli-ant on coal-powered electricity genera-tion. In recent years Vietnam’s increasein greenhouse gas emissions has beenone of the world’s fastest.

The reform agenda to unleash strongand sustainable economic growth willhave four essential elements:

1. Create an enabling environmentfor domestic enterprises. The im-mediate emphasis needs to be onensuring more competitive andproductive domestic enterprises.Restructuring and equitizing SOEswill remain important, but will notbe enough—fixing the nascent andweak domestic private sector com-mands even greater policy atten-tion. This will involve strengthen-

ing the institutional foundations ofthe market economy, with emphasison protecting property rights andenforcing competition policies. Astable, well-regulated, and inclusivefinancial sector and transparent andfunctioning land markets will alsobe crucial. A more capable and con-fident domestic private sector willdeepen linkages with foreign firms,enabling the transfer of technologyand know-how that are critical forhigher productivity growth. Morerewarding participation in globalvalue chains will also come from astronger services sector and moreextensive transport and networkconnectivity across the country andwith trading partners. Finally, a

more market driven and commercialapproach will be needed to modern-ize agriculture. Commitments under

major international trade agree-ments (the Trans-Pacific Partnershipin particular) offer a real opportu-nity to carry out many demandingand politically sensitive reforms.

2. Spur learning and innovation. Sus-taining high growth over an ex-tended period will depend on anaggressive agenda to spur learningand innovation. Neither enterprises

nor knowledge and research insti-tutions are currently motivated tofocus adequately on this agenda. Anational innovation system can im-prove the situation. On the demandside, it will encourage firms to seekout the best available knowledgeand strengthen the technical andfinancial support to facilitate theirlearning. On the supply side, sucha system will help build the skills

of the workforce beyond its cur-rent proficiency in basic education,while raising the quality and rel-evance of research and advancedtraining in universities and govern-ment research institutes.

3. Reshape urban policies and invest-ments. For Vietnam to succeed in itsgrowth and economic moderniza-tion ambitions, its cities need to domore to nurture private enterpriseand innovation, support the growthof industrial clusters integrated withglobal value chains, and attract andagglomerate talent. Playing this rolecredibly will involve reshaping poli-cies and investments to amplify eco-nomic density in and around large


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E X E C U T I V E S U M M A R Y V I E T N A M 2 0 3 5 xx v

in opportunities for ethnic minoritychildren. An approach of experi-mentation and evaluation, building

on new insights from behavioraleconomics, could develop effectiveinterventions in these areas. Policyactions would also become moreeffective through greater voice forethnic minorities.

2. Make people with disabilities full participants in society. Vietnam hasmade strong commitments to theinclusion of people with disabilities

but lags severely in implementation.Following the example of othercountries, it can realize these prom-ises by regularly monitoring com-mitments and by creating opportu-nities for people with disabilities andtheir families to be their own advo-cates through social organizations.

3. Delink the household registrationsystem from access to public ser-

vices. At least 5 million Vietnameselack permanent registration in theirplace of residence and thus havelimited access to public services, in-cluding schooling, health care, andsuch administrative services as reg-istering a vehicle and applying for abirth certificate. While the force ofthe system has waned, it remains asource of inequality of opportunityand an effective tax on migration.Phased reform of the hộ khẩu systemwould place all citizens on an equalfooting.

4. Reduce gender gaps. More oppor-tunities for women in public leader-ship roles could be created by elim-inating gender discrimination in theretirement age and using affirmative

action as a short-term measure. Alsocritical is reducing the imbalance inthe sex ratio at birth, now one of the

world’s highest, with 114 boys bornfor every 100 girls. The preferencefor sons would be reduced throughexpanding the pension system, re-forming the population policy, andcampaigning to highlight the valueof daughters.

Two social megatrends will shapethe emerging inclusion agenda un-folding in Vietnam. The first is therise of the middle class, which willbe increasingly urban and employedin the formal sector. By 2035 morethan half of the Vietnamese peoplewill be part of the global middle class(up from just over 10 percent today),with needs distinct from those of themass of rural poor that characterizedVietnam in the past. The second is anextreme demographic shift, with thesize of the elderly population climbingdramatically—making Vietnam oneof the most rapidly aging countriesin the world—and the working-ageshare of the population shrinking.Around 2035 the old-age dependencyratio—the number of people 65 yearsof age or older for every 100 peopleaged 15–64—will have risen to al-most 22 (from under 10 today), whilethe working-age population will beginto decline in absolute terms. Four el-ements of the middle-class and agingpopulation agenda are key:

1. Expand the pension system to covera majority of the population. Giventhe challenges of rapid aging, ex-panding coverage to those in the in-formal sector will be possible onlythrough a diversified system and a


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E X E C U T I V E S U M M A R Y V I E T N A M 2 0 3 5 xxvii

directly through SOEs, particularlythrough large state economic groups,and indirectly through very close links

with an exclusive segment of the do-mestic private sector. Vietnam is notalone in having influential vested in-terests, but the degree to which rela-tionships to the state are integral toeconomic success appears to be unusu-ally high. State fragmentation refers tothe lack of clear hierarchy and assign-ment of roles and responsibilities bothwithin the central government and be-tween the center and the provinces—

and the inertia and inefficiencies thisgenerates in formulating and imple-menting policy. Horizontal and verticalfragmentation of power has resulted inoverlapping mandates with conflictingrules and decisions. The result is oftengridlock or decisions that are subopti-mal from society’s point of view. Theabsence of merit-based management ofpublic servants exacerbates the adverseeffects of commercialization and frag-

mentation of the Vietnamese state onthe quality of public administration.

Vietnam’s legal framework pro-vides some space for citizens to par-ticipate in governance. “Governmentof the people, by the people, and forthe people” and “People know, peo-ple discuss, people do, and peoplemonitor” are well known affirma-tions in the constitution. In practice,there is a gap between these state-ments and the actual space that isavailable for citizens to influence de-cisions. Citizen participation in socialorganizations not sponsored by thegovernment is growing rapidly, butthis does not mean a correspondingimprovement in the quality of theirparticipation. Election processes and

mechanisms for engaging citizen or-ganizations are not robust enough toprovide true citizen representation,

and Vietnam lacks a system of effec-tive checks and balances between thethree branches of government. Accessto information, which is key to citi-zens exercising their voice to hold thestate accountable, is still lacking.

The result is a government that oftenfinds it difficult to articulate coherenteconomic policies, that is open to ex-tensive bargaining among state insti-tutions and between the state and pri-

vate sectors, and that is shielded frompublic scrutiny of policy decisions andpublic reaction to the consequences ofeconomic policy.

Modernization of Vietnamese insti-tutions will involve an overhaul of thestate and its relationships to the marketand society. Efforts to enhance statecapacity and accountability will needto move concurrently on a three-pointagenda:

1. Develop a more rationally orga-nized government structure witha meritocratic bureaucracy. Thegovernment needs more rationalorganization, and greater coher-ence on roles and responsibilitiesamong state institutions. This willinvolve decentralization embodyingclearer functional assignments forthe different levels of government,

with corresponding adjustmentsin the intergovernmental financialframework that clarify and improveaccountability and overcome inef-ficiencies in coordination and useof public resources. The center ofgovernment could be strengthenedto improve policy coordination and


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xxviii V I E T N A M 2 0 3 5 E X E C U T I V E S U M M A R Y

oversight of execution of policies bypublic agencies. A clearer alloca-tion of powers and responsibilities

is needed among central bodies tohave greater effectiveness and ac-countability. Public-administrationpractices need to be reformed toensure that merit drives the deploy-ment of human resources by thestate.

2. Apply market rationality to eco-nomic policy making. State-marketrelations will have to be character-

ized by a clearer division betweenthe public and private spheres.Specifically, government agenciesinvolved in economic regulationshould not engage in business ofany kind, to avoid the appearanceand reality of conflicts of interest.The state’s role in the economyneeds to be transformed from a pro-ducer to an effective regulator andfacilitator, focusing on providing a

level playing field in the economywith enforcement of free and faircompetition and more secure andtransparent property rights, partic-ularly around land issues. This willrequire the state to not only signifi-cantly reduce its SOE portfolio andstrengthen corporate governanceof the remaining SOEs but also tostop giving preferential treatmentto SOEs and closely linked private

companies. In addition, there needsto be an independent and more ca-pable, trained, and meritocratic ju-diciary to enforce rules and providethe level playing field. Creating the

space for a genuinely independentprivate sector will require reducedstate control over business and pro-

fessional organizations, includingthe Vietnam Chamber of Com-merce and Industry. Allowing theseorganizations to operate as authen-tic representatives of independentbusiness interests would give voiceto the domestic private sector andenable these groups to do more inmonitoring government policy.

3. Strengthen state accountability.

The state can be organized in a waythat provides for genuine checks andbalances among the executive, legis-lature, and judiciary. The NationalAssembly could be transformed intoa professional body (consisting offull-time deputies and supported byexpert staff), with oversight of allthe state’s operations. The judiciaryneeds to be similarly strengthened,with emphasis on its independence

from the executive and enhancedtransparency in its functioning. Alarge and diverse set of citizen or-ganizations could be allowed toparticipate in decision making andhold the state accountable. The statecould provide a legal framework topromote the right of citizens to asso-ciate. It could also adopt legislationrequiring public bodies to be trans-parent and provide mechanisms for

citizens to interact effectively withthe state by enhancing citizen accessto accurate and timely informationand by providing greater mediaindependence.


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growth since the early 1990s has beenamong the fastest in the world, and itspace of poverty reduction almost un-precedented. But the Vietnamese peo-ple, keenly aware of the big challengesleft, are not yet ready to declare suc-cess. And as for countries as for peo-ple, success needs to be measured notonly against ability, effort, or even theperformance of peers, but also against

ambition.The Vietnamese people have alwaysset a high bar for success. The 1992constitution exemplified this early onby setting forth the goal for the stateto build “a prosperous life for its peo-ple, a strong country, and an equita-ble, democratic, and civilized society,ensuring the well-being, freedom, andhappiness of all citizens as well asconditions for their all-round develop-

ment.” Success thus defined was bothmultifaceted and aspirational. There isalso the strong sense that the journeymay be just as important as the desti-nation. The tenets of thrift, discipline,and hard work are cherished meansto higher living standards in the Viet-namese value system, not to be diluted

Introduction

Shaking off the legacy of coloniza-tion and long, brutalizing conflicts ishard—and forging an uninterruptedpathway to modernity, perhaps evenharder. Only a handful of nationshave succeeded at both. Their winningformula? Usually some combinationof strong leadership and good gover-nance, a sense of common purpose and

future orientation, a reliance on mar-kets to allocate resources, and activeengagement with the world on trade,investment, and knowledge flows.1 Since the launch of the Đổi Mới (eco-nomic renovation) reforms in the late1980s—to move from a closed, cen-trally planned economy to a globallyintegrated, socialist-oriented marketeconomy—Vietnam has deployed theseingredients to good effect.

To any external observer, Vietnamis a major development success story.One of the world’s poorest countriesat the onset of the reforms, it has, ina single generation, leapfrogged tomiddle-income status, while achievingsocial outcomes typically seen at muchhigher incomes. Vietnam’s economic

Vietnam 2035Toward Prosperity, Creativity,

Equity, and Democracy

O V E R V I E W V I E T N A M 2 0 3 5 1


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4 V I E T N A M 2 0 3 5 O V E R V I E W

FIGURE O.1 Rapid and inclusive growth in Vietnam has yielded shared prosperity and strong gains in

poverty reduction

Average GDP per capita growth, 1991–2014 (%) Standard deviation of per capita GDP growth, 1991–20140 5 10 15 20 25

Iraq

Ukraine

Russian Federation

Cuba

Argentina

ThailandSingaporeIndonesia

Malaysia

Korea, Rep.

Cambodia

Chile

Kenya

Philippines

India

Brazil

China

Sri Lanka

Norway

United States

AustraliaBangladesh

Vietnam Guatemala

GDP per capita (2005 PPP US$)

a. Vietnam has had one of the fastest GDP percapita growth rates since the early 1990s . . .

b. . . . catalyzed by economic stability . . .

c. . . . and a very strong external or ientation . . . d . . . . accompanied by fa irly small increases in inequality . . .

0 100,000

0

50

100

150

200

500 1,000 10,000 25,000 50,000

S h a r e o f t r a d e

i n G D P ( % )

VietnamThailand

Korea, Rep.

China

201420102005200019951992

G i n i c o e ffi

c i e n t

30

32

34

36

38

40

42

–4 –2 0 2 4 6 8 10

United Arab Emirates

Zimbabwe

Cameroon

Kenya

Russian Federation

Mexico

United States

Brazil

Colombia

Philippines

Egypt, Arab Rep. Turkey

IsraelNigeria

Ghana

Thailand Indonesia

SingaporeMalaysia

Poland

Korea, Rep.

IndiaVietnam

China

(figure continues next page)


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higher, the Vietnamese population

is better educated and has a higherlife expectancy than most countriesat a similar per capita income. In re-cent international tests Vietnamesestudents outperformed the averagefor countries in the Organisation forEconomic Co-operation and Develop-ment (OECD), with remarkably littlevariation across income groups andurban–rural locations. The maternalmortality ratio has fallen below the

upper-middle-income country average,while under-five mortality has fallenby half, to a rate slightly above thataverage. Access to basic infrastructurehas also improved substantially. Elec-tricity is now available to almost allhouseholds, up from less than half in1993. Access to clean water and mod-ern sanitation has risen from less than

has been a major driver (panel c), much

of it powered by strong foreign directinvestment, with the stocks standing atmore than $250 billion, sourced froma diverse group of more than 100 coun-tries. And growth has been inclusive,as seen in a fairly small increase in theGini coefficient (panel d) and the fasterincome growth of the bottom 40 per-cent (panel e). As a result, poverty hasfallen rapidly (panel f).

Vietnam in 2015 is an unrecogniz-

ably transformed, dynamic, middle-income economy. Social outcomeshave improved dramatically across theboard. Using a variety of internationaland national poverty lines, poverty hasfallen rapidly since the launch of Đổi

Mới. The $1.90-a-day poverty rate fellfrom 50 percent in the early 1990s to3 percent today. Not only are incomes

FIGURE O.1 Rapid and inclusive growth in Vietnam has yielded shared prosperity and strong gains in

poverty reduction (continued)

Sources: World Bank, World Development Indicators; the General Statistics Office of Vietnam (GSO); Penn World Table 8.0; and authors’ calculations.Note: Dotted lines in panel f indicate periods when substantial changes were made to poverty lines or methodologies. MOLISA = Ministry of Labour, Invalids and SocialAffairs; PPP = purchasing power parity.

0

2

4

6

8

10

2 0 1 3

– 1 4

2 0 1 1

– 1 2

2 0 0 9

– 1 0

2 0 0 7

– 0 8

2 0 0 5

– 0 6

2 0 0 3

– 0 4

1 9 9 9

– 2 0 0

2

1 9 9 3

– 9 8

G r o w t h r a t e ( % )

Mean Mean of bottom 40% of population

0

20

40

60

80

201420112005200219961993

P o v e r t y r a t e ( % )

20081999

$3.10/day

GSO–World Bank poverty line

$1.90/day

MOLISA poverty line

e. . . . and faster growth for the bottom40 percent of the population . . .

f. . . . yielding strong reductions in poverty


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water has deteriorated considerably.Water and air pollution have reachedserious levels, especially near Hanoi

and Ho Chi Minh City, posing majorhealth risks. In addition, a large part ofVietnam’s protective mangrove forestshas been destroyed, while overfishinghas seriously depleted the nearshorefisheries, posing threats to livelihoods.Removing natural forests in some up-land areas has contributed to morefrequent and severe flooding of loweraltitude farms and human settlements.Finally, Vietnam is one of the world’s

most vulnerable countries to climatechange, with adaptation challenges ac-cordingly severe, especially in the Me-kong Delta. With almost all large-scalehydropower potential tapped and withlimited development of other renew-able sources, greater reliance on coal isa growing threat to environmental sus-tainability and to energy security.

Last but not least, Vietnamese in-stitutions have failed to keep up in

important ways with the needs of anincreasingly demanding market econ-omy and rising aspirations of a grow-ing middle-class society. In particular,the country’s unique history has pro-duced public-sector institutions thatare commercialized and vertically andhorizontally fragmented and that faceinsufficient scrutiny by citizens. De-spite reforms, the state is still stronglyengaged in economic activity—directlythrough state-owned enterprises(SOEs) and indirectly through veryclose links with an exclusive segmentof the domestic private sector. Statefragmentation arises from the lackof clear hierarchy and assignment ofroles and responsibilities both withinthe central government and betweenthe center and the provinces. The ab-

50 percent of all households to morethan 75 percent.

In some areas, however, Vietnam

has fallen short. Labor productivity(output per worker) growth has beenon a declining trend since the end ofthe 1990s, seen across most industrialsubsectors, as well as in mining, fi-nance, and real estate. In agriculture,labor productivity has grown robustly,but its level is still lower than in mostof the region’s middle-income coun-tries. With almost half the workforcestill engaged in agriculture, Vietnam

has too many workers on its farms.Remedies include consolidating agri-cultural landholdings (which are toofragmented and small) and movingfarmers to the more productive indus-try and service sectors. But it does nothelp that job creation in manufacturinghas plateaued at a relatively low leveland that services involve mostly infor-mal activity.10

Although Vietnam has avoided the

large increases in inequality in otherfast-growing countries, the differencesbetween rich and poor are still signifi-cant. While members of ethnic minori-ties have experienced gains in welfaresince the early 1990s, they face a grow-ing gap relative to the majority popu-lation. With 15 percent of the popula-tion, they now make up half the poor.And in recent years, progress for ethnicminorities has stalled on poverty re-duction, child mortality, and nutrition.Many ethnic minority citizens remainlargely disconnected from the coun-try’s larger economic success.

Growth has to a large extent come atthe cost of the environment. Vietnam’sgreenhouse gas emissions have grownthe fastest in the region, while the envi-ronmental quality of its air, land, and


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The geopolitical shifts will, however,be even more complex. Other regionalpowers—including developed econo-

mies such as Japan and the Republicof Korea, and emerging powers such asBrazil, India, Mexico, the Russian Fed-eration, and Turkey—are also likelyto try to expand their own spheres ofinfluence.

The emergence of a multipolar worldorder would give rise to multiple pos-sibilities, among them more such col-laborations as the Asian InfrastructureInvestment Bank (AIIB) and the New

Development Bank of the BRICS states(Brazil, Russia, India, China, andSouth Africa). There could also be ten-sions or even conflicts among the risingpowers, or among rising and existingpowers.

Cooperative relations with a risingChina will remain essential. Vietnam isone of the signatories to and foundingmembers of the AIIB. Its infrastructurefinancing needs over the next several

decades will run into tens of billionsof dollars a year. With most bilateralpartners reducing their presence inVietnam, the AIIB could cover some ofthe emerging financing gap.

Of the geopolitical risks particularlyrelevant for Vietnam are maritime is-sues with China that go beyond justterritorial concerns. The maritime wa-ters have considerable economic andstrategic value, containing a wealth offish stocks and energy and mineral re-serves. They are also critical for ship-ping and communications. With theMiddle East in turmoil, the geopol-itics of energy will also have implica-tions for Vietnam both as a producerand exporter of crude oil and as a rap-idly growing consumer of petroleumproducts.

sence of a merit-based management ofpublic servants exacerbates the gaps inpublic institutions. Election processes

and mechanisms for engaging citizenorganizations are not robust enoughto provide true citizen representation,and Vietnam lacks a system of effectivechecks and balances between the threebranches of government.

Opportunities and Risks

Global megatrends and external risks

and opportunitiesVietnam’s location on the eastern-most edge of the Indochinese pen-insula makes it a vital link betweenEast, Southeast, and South Asia. Thephysical connection to these Asian re-gions and the maritime connectionsto the rest of the world have shapedVietnam’s history and will remain cru-cial for its future. But geography verylikely will not be destiny in the same

way that it was in the past. After all,the hyperconnectivity of the modernworld (which Vietnam has signed onto) overcomes many of the binds ofgeography. Moreover, future oppor-tunities and risks are projected to belargely supraregional. That will requiregeopolitical and economic outreachwell beyond the neighborhood.

Four global megatrends will be im-portant for Vietnam to consider in thenext two decades:11 geopolitical, eco-nomic, technological, and climatic.

Geopolitical megatrends

The current shift in the world’s eco-nomic and geopolitical axis from westto east and from north to south willdefine the coming decades. The riseof China is particularly significant.


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ers can benefit from its low wages andfrom being part of the Chinese supplychains at the same time—a highly at-

tractive combination. The agglomera-tion of a nascent electronics-industrialcluster in the north-central parts ofVietnam (around Hanoi) is an early signof these possibilities. Moreover, with arapidly emerging middle class, the Chi-nese consumer market (the world’s fast-est growing) will be increasingly attrac-tive for Vietnamese producers.

Growth prospects in East Asia willalso be underpinned by the ongoing

shift toward multilateral (often re-gional) trade agreements. The ASEANintegration—starting with the ASEANEconomic Community that became afunctioning trading bloc in 2016—canbring considerable economic benefits.Estimates for Vietnam range from a1 to 3 percent cumulative increase innational income.13 Even so, ASEANintegration is seen in Vietnam as astepping stone for locking in even more

promising partnerships beyond the re-gion.14 Especially noteworthy is theTPP. Also significant are the Free TradeArea of the Asia-Pacific and the Re-gional Comprehensive Economic Part-nership, each in less advanced negotia-tions than the TPP.

The TPP agreement includes theworld’s largest and third-largest econo-mies (the United States and Japan), withTPP countries accounting for 36 per-cent of world GDP and more than aquarter of all world trade. Vietnam iswell positioned to benefit. Accordingto this report’s analysis, implementingthe TPP could add a cumulative 8 per-cent to Vietnam’s GDP by 2035. Oth-ers have estimated double-digit gainsfor Vietnam, many times larger than

In the midst of this fast-evolvingworld order, Vietnam will need to con-tinue building its alliances judiciously

with a clear eye on its long-term eco-nomic and political interests.

Global economic megatrendsThe global economy is projected togrow at an average of 3.2 percent an-nually between 2015 and 2035, withcontinuing expansion in trade integra-tion, urbanization, and technologicaladvances the main drivers. The rise ofChina, India, and members of the As-

sociation of Southeast Asian Nations(ASEAN) matched by the (relative)decline of the United States, Europe,and Japan would be the most apparentshift in the global economic structurein coming decades.12 China clearly isthe biggest part of this story. In thisreport’s projections, it would over-take the United States as the world’slargest economy (in market prices)around 2032. It has been the world’s

largest exporter since 2009, and thesecond-largest importer of goods. Itis set to become an important sourceof investment financing for emergingeconomies, particularly regionally.

Trade with China already accountsfor 20 percent of Vietnam’s total, upfrom 10 percent in 2000. The signifi-cant flow of foreign direct investmentcoming into Vietnam is linked, in part,to a shift in low-wage production fromChina. As real wages in China continuetheir sharp rise, many of its produc-tion bases will continue to look south-ward in search of lower wages—the“China+1 strategy.” Vietnam’s proxim-ity to southern China, home to manyof these production networks, gives ita meaningful competitive edge. Produc-


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in business models. The Internet erad-icates many of the information advan-tages of colocation and cost-sharing.

Raw materials and other inputs tovarious degrees of preprocessing areavailable for sourcing on the Inter-net. Online platforms such as Alibaba.com, Etsy, and Maker’s Row make itpossible for manufacturers to searchfor customers without having to spenda lot on advertising and distribution.Crowdfunding sites such as Indiegogoand Kickstarter can aid in attractingfinance.

For the most part, these trends bringupside opportunities. But some unin-tended consequences have to be man-aged. Skill-intensive and labor-efficienttechnology is set to eliminate the moreroutine middle-income vocations whilecomplementing highly skilled and thushigher-income jobs. Already, new tech-nologies have displaced handicraft pro-ducers in numerous industries rangingfrom textiles to metalworking. The

progress of technology may also in-crease inequality in society, as thoseleveraging technology gain higher in-comes. The gap between labor produc-tivity and wages may also widen. Someeven raise the specter of prematuredeindustrialization in the developingworld, partly because of automation.17

Vietnam, with its well-deserved rep-utation as a dynamic and adaptableeconomy, can view these disruptiveinnovations with optimism (box O.1).But to maximize the benefits, long-term investments will have to upgradethe technical skill sets of the next gen-eration, and the domestic business en-vironment will have to be the focus.Some technologies will have associatedrisks that require careful management.

for any other TPP country.15 Vietnamcould also usefully leverage commit-ments under the TPP to lock in policy

reforms that might otherwise be politi-cally harder to carry out.

Top-down multilateral trade inte-gration is likely to be complementedby important subregional collabora-tions, including that within the GreaterMekong Subregion. Dwindling andincreasingly unpredictable water sup-plies along with a rising demand forwater and energy will require greaterregional cooperation for energy and

water security.

New technological and business

megatrends16

Technological innovations, fueled andsupported by the information revo-lution, will disrupt production andtrading patterns across the world. Ad-vances in digital technologies rangingfrom three dimensional (3D) printing,programmable microcontrollers, and

second-generation computer numeri-cal control milling and routing make iteasier and less expensive to manufac-ture customized high-quality products.Major advances in renewable energy(particularly solar) are posing a grow-ing challenge to conventional and usu-ally environmentally more damagingenergy sources. Next-generation ge-nome sequencing and other advancesin the biomedical field are set to open atrillion-dollar industry in the next de-cade, enhancing and extending humanlife. Advanced robots are being de-ployed on shop floors at an exponentialrate, boosting productivity and drivingcosts down.

The information revolution is alsoenabling major disruptive innovations


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Global climate changeClimate change is among the most con-sequential global issues. Greenhousegas emissions are on a path to a 3.5–4.0 degrees Celsius (°C) warmer planetby the end of the century. Climaticconditions, heat, and other weatherextremes considered highly unusual orunprecedented today could become thenew normal. The impact of global cli-mate change is already being felt, withthe number of category 4 and 5 stormshaving risen sharply over the past 35years. The Arctic Sea’s ice has shrunkto its lowest on record, and global sealevels have risen about 10–20 centime-

ters (cm) in the past century, with an ac-celerating rate of shrinking. Rising sealevels increase the risk of storm surgesand the fluctuations in precipitation.

Vietnam has been ranked amongthe five countries likely to be most af-fected by climate change. A high pro-portion of its population and economicassets are in coastal lowlands and del-tas. Temperature increases in Vietnamhave averaged about 0.26°C per de-cade since 1971,18 twice the global av-erage.19 On current trends, annual av-erage temperatures will (depending onthe location) be 0.6–1.2°C higher by2040 relative to 1980–99.20 The pre-

BOX O.1 Potential benefits and risks of new technologies

Solar energy. Solar energy is largely availableyear round, especially in southern and centralVietnam. The potential market for solar pan-els and water-heating systems is significant,but progress is slow due to high developmentcosts. Solar panels have been installed in theNha Trang and other urban areas along thesouth-central coast and in rural, mountainous,and other remote areas that are difficult to reachwith grid electricity.

Social mobility, analytics, and cloud services.These services present opportunities to catch upwith the developed countries, if close coopera-tion among scientists, enterprises, and the gov-ernment is established for the long term.

Genomics and life sciences. Potential benefitscome from genetically modified foods and otheradvances in the life sciences. Improved variet-ies of corn can be used as feed to fatten hogs,which should have strong commercial pros-pects, especially with Vietnam forecast to con-sume 33 kilograms of pork per person by 2020(more than China and the European Union).

Genetically improved crops could also reducethe country’s feed imports, which quadrupled

between 2011 and 2014. Environmental andconsumer groups are demanding more transpar-ency on health risks and increased regulation ofsuch products.

E-commerce. Opportunities are abundant, asforeign companies enter the market and locale-commerce firms consolidate. E-commerce saleswere estimated at more than $15 billion in 2015,driven by rapid Internet uptake and even fasteradoption of smartphones. A lack of apps forpurchasing online, slow online payment growth,and concerns over the security of online pur-chases need to be rectified, and logistics servicesfor traceable and timely shipping of small pack-ages upgraded. E-commerce logistics are moredemanding and operationally complex thanthose for import-export operations—the currentsetup in Vietnam.

Additive manufacturing (3D printing). Thistechnology can broaden opportunities but un-dermine Vietnam’s traditional manufacturing.As it advances, manufacturing will likely turnsmall scale, widely distributed, and customiz-

able, prompting investors from developed econo-mies to relocate production back home.


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the economic growth boost generatedby a bulge in the share of the popula-tion of working age. The dividend is

now nearly spent: The working-ageshare peaked in 2013 and is now in de-cline. Based on United Nations (UN)projections, the absolute number ofpeople of working age will start tofall soon after 2035. More important,Vietnam reached a turning point in thesize of its older population in 2015 andwill become one of the world’s fastest-aging societies. The number of Viet-namese older than 65 years will grow

from 6.3 million today to 15.5 million.The share of the population older than65 years will rise from 6.7 percent in2015 to 14.4 percent in 2035 (figureO.2), transforming it from a young toan aged society.

This demographic transformationhas stark consequences. First, the de-cline in the working-age population

dictions show intensified heat and coldwaves, and 28–33 centimeter increasesin sea level around Vietnam’s shores.21

Seasonal variability in precipitation isalso projected to increase, with the wetseason getting wetter and the dry sea-son drier. Extreme rainfall and flood-ing would also become more likely,particularly in the northern region,including Hanoi, with increased riskof landslides in mountainous areas. Asouthward shift has been seen in thetyphoon trajectory in the past five de-cades. If this continues, Ho Chi Minh

City would be at greater risk of beingdirectly hit. Coastal erosion and salin-ity intrusion are other unfolding riskslikely to accelerate.

Agriculture, particularly rice produc-tion, is projected to be hit hard, mostseverely around the Mekong Delta,where much of the land area is less than2 meters above sea level.22 Climatechange could reduce annual rice pro-duction by 3–9 million tons by 2050,

and highly productive areas of coffeeplantations may become unsuitablefor the purpose.23 The marine ecosys-tems in Vietnam are also likely to beseverely affected. And climate changeimpacts are also likely to have adversehealth consequences, including water-and vector-borne diseases and diar-rheal illnesses.24 Flooding would com-pound the risks. The poor and elderlywould be especially vulnerable to heatextremes, compounded by the rapid in-crease in Vietnam’s elderly population.

Domestic trends, risks, andopportunities

Demographic megatrends

Over the past two decades, Vietnamcashed in its “demographic dividend”—

FIGURE O.2 The share of population over 65 will more thandouble between 2015 and 2035

Source: UN 2015.

0

20

40

60

80

20752065205520452035202520152005199519851975

S h a r e o f t o t a l p o p u l a t i o n ( % )

Ages 15–64 Ages 65 and older Ages 0–14


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likely to be close to the trillion dollarmark (in 2015 prices) by 2035, withmore than half the population pro-

jected to join the ranks of the globalmiddle class with consumption of $15a day or more in 2011 purchasingpower parity (PPP) terms (figure O.3),compared with 11 percent today, giv-ing new potency to the domestic mar-ket as a driver of growth.

In addition to being a major oppor-tunity, a rising urban middle class willshift expectations and bring new chal-lenges. The majority of that population

will aspire to formal jobs and will wantto gain high-quality skills through ter-tiary education. And the expansionof wage employment without well-functioning industrial relations institu-tions will expose the economy to the

will mean that a key driver of Viet-nam’s rapid per capita growth will di-minish, making human capital deepen-

ing and other sources of productivitygrowth even more vital for sustainingrobust growth. Second, serious fiscalchallenges will be driven by the ris-ing burden on the pension and healthsystems. Third, institutional arrange-ments for the provision of care to theold-age population will quickly be-come a major concern.

Vietnam’s emerging middle class

Vietnam’s rapidly emerging middleclass, also increasingly more urban,will offer another significant opportu-nity. Vietnam is a country of 90 mil-lion people, the 14th most populous onthe planet. Its $200 billion economy is

FIGURE O.3 By 2035, more than half the Vietnamese population will enter the global middle class

Source: Vietnam Household Living Standards Survey 2014.Note: Figures here reflect the projected distribution of per capita consumption, based on 2014 VHLSS data, assuming 4 percent annual growthin per capita consumption. PPP = purchasing power parity.

0

20

40

60

80

100

2 0 3 5

2 0 3 4

2 0 3 3

2 0 3 2

2 0 3 1

2 0 3 0

2 0 2 9

2 0 2 8

2 0 2 7

2 0 2 6

2 0 2 5

2 0 2 4

2 0 2 3

2 0 2 2

2 0 2 1

2 0 2 0

2 0 1 9

2 0 1 8

2 0 1 7

2 0 1 6

2 0 1 5

S h a r e o f t o t a l p o p u l a t i o n ( % )

Global middle class (> $15.00 PPP/day)

Near poor ($3.10–5.50 PPP/day)

Emerging consumer ($5.51–15.00 PPP/day)

Global poor (< $3.10 PPP/day)


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competitive private sector–led marketeconomy remains a major opportu-nity. And while global integration has

advanced well, with Vietnam embed-ding itself in global value chains, thebenefits are constrained by the ab-sence of linkages with domestic firms.

Many policy actions to grasp theseopportunities are well known. Whathas been mostly lacking is follow-upaction. It may well be that the politi-cal economy of some of the needed re-forms has become a binding problem.Reforms are likely to face greater re-

sistance than in the past, from interestgroups that perhaps have more to losenow than 25 years ago. And the bene-fits are more uncertain than they werewhen reforms warded off widespreadeconomic crisis. Deploying home-grown and politically feasible solu-tions—a strength of the first-generationreforms—will remain important fornext-generation reforms.

Aspirations for 2035

By 2035, 60 years after Reunification,Vietnam aspires to become a modern,industrialized economy—next in a suc-cession of East Asian economies tohave made the transformative journeyto upper-middle or high-income status.The many achievements since thelaunch of the Đổi Mới reforms have cer-tainly contributed to the ambitiousgoals. The strong record of regionalpeers such as the Republic of Korea,Singapore, Malaysia, China, and Tai-wan, China—together with the fear ofbeing permanently left behind in theregion—has further fueled Vietnam’sambitions. There is still an inherent de-sire to “catch up” with the world and

risk of substantial worker-employerconflict, evident in the large increasein strikes since 2006. The urban mid-

dle class will also demand greater po-litical openness and more accountablegovernment, which the existing systemwould struggle to meet.

Unfinished economic modernization

agenda and rising political economy

challengesPerhaps the biggest and most import-ant opportunity—necessary for allother opportunities and to mitigate

risks—lies in completing the unfin-ished economic modernization andstructural transformation agenda.Part of this relates to maximizingthe gains from the ongoing struc-tural transformations that have beena major contributor to growth sincethe early 2000s. With agriculture stillaccounting for almost half the laborforce, and with significantly lowerlabor productivity than in the indus-

try and services sectors, future gainsfrom structural transformation couldbe substantial.

The transformation from state toprivate ownership of the economy iseven less advanced. The state-ownedenterprises and commercial bankscontinue to inhale too much oxygenout of the business environment, un-dermining economywide efficiencyand crowding out the productiveparts of the private sector. The statealso wields too much influence in al-locating land and capital, giving risenot only to opportunities for corrup-tion by handing over arbitrary powerto officials but also to heavy econ-omywide inefficiencies. So, adjust-ing the role of the state to support a


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comprehensive global developmentagenda for the next 15 years and willgive more concrete shape to some of

Vietnam’s key long-term goals.The Ninth Party Congress adopted

the phrase “socialist-oriented marketeconomy” as the official way to de-

the modern institutional norms ofOECD countries for living standards,the rule of law, and creativity, as re-

flected in the broad aspirations for2035 (box O.2). Vietnam has alsosigned up to the UN’s Sustainable De-velopment Goals (SDGs), which set a

BOX O.2 Aspirations for 2035

Vietnam’s aspirations may be broadly defined inthe following ways:

• A prosperous society that will be at the upperreaches of upper-middle-income status. Itsmarket economy will be private sector–led,competitive, and intensively integrated withthe global economy. Modern industries and aknowledge-based economy, housed in an effi-cient and well-connected network of moderncities, will drive growth.

• A modern, creative, and democratic societywill be the driving force for future develop-ment. The emphasis will be on creating an

open and free environment that promoteslearning and innovation for all citizens, whowill be guaranteed equal access to develop-ment opportunities and the freedom to pursuetheir vocations, while fulfilling their respon-sibilities without compromising national andcommunal interests.

• A rule-of-law state will be effective and ac-countable. It will clarify the relationship be-tween the state and the citizenry and betweenstate and market. It will perform its basicfunctions effectively, including developing and

enforcing legislation; managing internationalrelations; ensuring public safety and nationalsecurity; and ensuring that markets functionfreely while addressing market failures. It willdevelop strong social institutions to ensurethat the power belongs to the Vietnamese cit-izens and protect their right of pursuing cre-ativity. It will develop clear lines of responsi-bilities between the legislative, judiciary, and

executive branches for adequate checks andbalances on the government.

• The National Assembly will comprise full-time deputies with the technical capacityand institutional autonomy to represent thesovereign people, exercise oversight over theexecutive, and pass quality legislation. Thejudiciary will similarly be suitably positioned,with autonomy and strong capacity to resolvedisputes in a more diverse society and econ-omy. The executive will be well integratedhorizontally and vertically, with clear func-tions for central and subnational authorities.

• A civilized society will make every citizenand every political and social organization(the entire political system) equal before thelaw. Underpinning this will be robust, diversepeople’s social organizations that can exercisefundamental rights, including the people’s di-rect democratic rights and the rights to infor-mation and association.

• A responsible member of the global com-munity of nations will build global alliancesand fulfill global responsibilities for peaceand security while proactively seeking re-

gional and global opportunities for economicintegration.

• A sustainable environment will protect thequality of Vietnam’s air, land, and water. Itwill build climate resilience into economicplanning, social policy, and infrastructureinvestments to reduce the most severe risksposed by climate change. It will develop di-verse, clean, and secure energy sources.


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scribe Vietnam’s economic system inApril 2001, codified in the 2013 re-vision of the constitution. The 2011–2020 Socio-Economic DevelopmentStrategy set forth the objective “tobecome a basic industrialized countrywith the foundation of a modern andindustrial country by 2020.”

Despite broad acceptance, the pre-cise definition of the term “modern andindustrial” economy has not been an-nounced.25 While any definition wouldbe arbitrary, this report sets forth fivespecific quantitative criteria for meet-ing that objective:

• A GDP per capita of at least $18,000(in 2011 PPP), roughly equivalent toMalaysia in 2010.

• A majority (over 50 percent) of theVietnamese population living inurban areas.

• A share of industry and servicesin GDP at more than 90 percent

and in employment at more than70 percent.

• A private-sector share in GDP of atleast 80 percent.

• A score of at least 0.70 on the UN’sHuman Development Index.

How well is Vietnam positioned tobecome a modern, industrial econ-omy by 2035? Its GDP per capita—at$5,370 (in 2011 PPP) in 2014—wouldneed to grow at a minimum of 6 per-cent a year to reach the $18,000 markby 2035 (figure O.4). This would besignificantly higher than the averageper capita growth rate of 5.5 percentbetween 1990 and 2014—and wellabove the 3.8 percent average for allmiddle-income countries over thesame period. A lower and more fea-sible (but still ambitious) per capitagrowth rate of 5.0 percent (Vietnam’saverage over the last 10 years) wouldtake its GDP per capita to just under

FIGURE O.4 Income per capita growth scenarios for Vietnam to 2035

Source: World Bank, World Development Indicators and authors’ calculations.Note: PPP = purchasing power parity.

2001 20112006 20212016 2026 20362031

G D P p e r c

a p i t a ( 2 0 1 1 P P P U S $ )

Thailand, 2010 China, 2014

Vietnam

7%

Malaysia, 2001 Brazil, 2014

Malaysia, 2010 Turkey, 2013

Korea, Rep., 2002 Malaysia, 2013

6%

4%

5%

24,000

21,000

18,000

15,000

12,000

9,000

6,000

3,000

0

per capitagrowth

per capitagrowth

per capitagrowth

per capitagrowth


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the aspirations, six transformations orbreakthroughs will be essential:

• Enabling economic modernizationwith a productive and globally com-petitive private sector firmly in thelead

• Building the country’s technologicaland innovative capacity for a cre-ative society

• Managing urbanization and otherforms of spatial transformation toachieve economic efficiency

• Charting an environmentally sus-

tainable development path withenhanced capacity for climateresilience

• Promoting equality and inclusion ofthe marginalized groups for the de-velopment of a harmonious middle-class society

• Building a modern, rule of law statewith a democratic society and a fullyestablished market economy

The six breakthroughs serve as thefoundation for realizing the 2035 as-pirations, and may be summarizedin three pillars: economic prosperity,balanced with environmental sustain-ability considerations; equity and so-cial inclusion; and a rule-of-law state,marked by high capacity and account-ability. The rest of this report is orga-nized around these three critical as-pirations for 2035. It covers both thefeasibility and challenges of realizingthese aspirations under current con-ditions and lays out a pathway for re-form to enhance the prospects of meet-ing the 2035 goals. Details of the sixbreakthroughs are presented in Part IIof the final report.

$15,000 by 2035 and put Vietnam onpar with Brazil in 2014, well poised toreach $18,000 by 2040. A growth path

of 7 percent (Vietnam’s aspirationalgrowth target) would take per capitaGDP to $22,200, roughly the incomeof the Republic of Korea in 2002 orMalaysia in 2013. This higher growthrate would also enhance Vietnam’schances of catching up with Indonesiaand the Philippines.

Also in 2035, at least 54 million ofVietnam’s 108 million citizens wouldbe urban residents, almost 25 million

more than today. The urbanizationrate, now at around 33 percent, wouldneed to increase 2 percent a year tomeet this target, matching the pace ofthe past 20 years. The nonagriculturesector has grown at twice the paceof the agriculture sector since 1990.This 2:1 ratio of growth rates is alsoprojected over the next two decades,even with agriculture growing at itspotential 3.0–3.5 percent. That would

ensure a 90 percent share of the non-agriculture sector in the economy. The80 percent private-sector share in GDP,if feasible, would involve a departurefrom the past. With the share of thepublic sector in GDP stuck at around33 percent since the onset of the Đổi

Mới reforms, this would involve a moremeaningful attempt to restructurethe SOEs (including equitizing biggerchunks of them) and providing a biggerstimulus to the private sector.

Thirty years of Đổi Mới reformshave brought many successes. Viet-namese development aspirations for2035 are bold and significant, but thechallenges and risks facing the countryare also enormous. In order to achieve


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Vietnam is on a trajectory of rapidgrowth. Past performance has stokedambitions of even faster growth overthe next 20 years, and Vietnamese

viet nam 2035 - toward prosperity, creativity, equility, and democracy

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