The 15th National Assembly issued Resolution No. 31/2021/QH15 on the Economic Restructuring Plan for the 2021-2025 Period on November 12, 2021, which clearly stated that it is necessary to restructure the economy in association with innovating the growth model towards ensuring macro-economic stability, improving productivity, quality, efficiency, and competitiveness based on a foundation of science and technology, innovation, and high-quality human resources, contributing to socio-economic recovery and development, building an autonomous economy, and boosting the adaptability and resilience of the economy.

Despite facing numerous challenges, Vietnam’s economy grew 6.42 per cent in the first half of 2024, with experts predicting nearly 7 per cent for the year as a whole, and was Vietnam’s fourth consecutive quarter of growth exceeding potential. Nevertheless, the growth model is yet to lead to fundamental changes, as productivity, quality, efficiency, and competitiveness remain quite low. There are still some macro-economic risks, with a macro-economic foundation that is not yet solid, and the economy’s significant openness and dependence on imported raw materials continue to pose challenges.

Broad-based growth

Speaking at a recent forum on “Promoting Economic Growth Model Innovation in Vietnam”, Associate Professor Bui Quang Tuan, former Director of the Vietnam Institute of Economics, highlighted that the country’s economic growth drivers include the agriculture, forestry, and fisheries sector, services, industry, and construction. New growth drivers, such as the digital economy, total factor productivity (TFP), workplace productivity growth, and the green economy, have also contributed significantly.

Associate Professor Tuan believes that Vietnam’s economic growth still follows the old model and remains extensive. The contributions of capital and human capital are increasing, while TFP and labor contributions to GDP growth are declining. Consequently, investment remains the primary driver of economic growth, driven more by human capital than by labor input accumulation.

Additionally, while the economic structure has shifted towards modernization, progress in this regard has slowed in the past five years. According to Associate Professor Tuan, although there is a desire to increase the share of services, the agriculture, forestry, and fisheries sector still makes a significant contribution. TFP growth remains weak, and regional development disparities and links continue to be significant issues. Growth based on innovation, technology, skills, and participation in global value chains remains limited. Moreover, the growth model still relies on cheap labor, with a dual economy (foreign and domestic), while the spillover effects of the foreign-invested sector are limited, especially in technological capabilities, with exports from the FDI sector accounting for up to 71 per cent.

Associate Professor Tuan told the forum that investment in science, technology, and innovation in Vietnam is only a quarter of the global average, at about 0.56 per cent of GDP compared to 2.2 per cent. Additionally, the institutional framework for science, technology, and innovation is inadequate and is lacking breakthroughs, with low private sector investment in research and development (R&D), at only 0.44 per cent compared to over 80 per cent in South Korea. As a result, there has been little improvement in workplace productivity.

Specifically, during the 2016-2020 period, workplace productivity grew by an average of 5.8 per cent each year, and during 2011-2015 increased by 4.3 per cent, which was rather low. Vietnam’s workplace productivity growth during 2011-2020 was 5.11 per cent, higher than the ASEAN average of 3.11 per cent but lower than China’s 7 per cent and India’s 6 per cent. Furthermore, the private sector has yet to develop commensurate with its potential, representing only 44 per cent of GDP, while Vietnamese enterprises remain small, with few large corporations. The goal of industrialization by 2020 was not achieved.

Additionally, the country’s green growth model has not significantly contributed to sustainable development. The circular economy is still nascent and underdeveloped, and the blue marine economy has potential but delivered little of substance. Though institutions have improved, many bottlenecks remain, with breakthroughs and pilot initiatives lacking, especially for science and technology, innovation, and new economic models such as the sharing economy, fintech (financial technology), and data. Regional links are weak and have not fully utilized the region’s potential and advantages. Low technology and skills limit Vietnam’s participation in global value chains and growth in the size and quality of local enterprises.

Achieving breakthroughs through new drivers

Given the existing challenges, Associate Professor Tuan sees numerous opportunities for Vietnam to innovate its growth model. These opportunities include emerging technological trends (Industry 4.0), the mainstream adoption of green and digital transformations, ongoing integration efforts, innovation movements, entrepreneurship initiatives, a young and tech-savvy population, and smarter approaches to production, distribution, and consumption. Vietnam can leverage its position as a latecomer to gain insights from the experience of others. Climate change presents both challenges and opportunities for innovation and adaptation.

“To successfully innovate our growth model, we need to focus more on new growth drivers such as science and technology, innovation, digital transformation, and green initiatives,” he emphasized at the forum. “Previously, these were only discussed, but now we need to implement them to develop a high-quality growth model.” He also highlighted that breakthroughs in innovation are crucial, as they lead to faster and more sustainable growth.

Moreover, policies to attract high-quality talent both domestically and internationally are vital. Achieving the vision of becoming a green and digital economic powerhouse requires developing appropriate frameworks for growth. This involves engaging with green and digital ecosystems, fostering innovation, and creating links within these ecosystems to ensure their success. Improving institutional frameworks and policies and piloting new initiatives are also necessary. Creativity in mobilizing resources, especially from non-State sources, is important.

Investing in infrastructure, including digital infrastructure, digital platforms, and applications like AI and blockchain, to create distinctively Vietnamese digital products is a pressing matter. Additionally, mechanisms to encourage investment in science and technology and R&D across businesses and farms are needed. Sharing and connecting databases and digital resources, and applying them in management and operations, is essential. Regional links, supply chain integration, and industrial clusters should be improved. Attention must also be given to social and environmental issues such as resource management, pollution, and emissions.

Professor Hoang Van Cuong, Deputy to the 15th National Assembly and Member of the Finance and Budget Committee of the National Assembly, agrees that innovating the growth model, whether based on resources, low-cost labor, or new trends like digital transformation, green initiatives, and science and technology, requires a complete overhaul of the old system and a shift on the “path” we have been following. Vietnam, which previously relied on resources and low-cost labor, now needs to focus on science and technology and move towards cleaner, greener practices.

“We often comment that innovating the growth model must involve restructuring the entire economy, from a macro-economic level to individual enterprises, determining what to retain, what to discard, and where to focus,” he noted.

The Professor considers public investment restructuring as a most critical issue. In recent years, the focus has shifted from scattered, fragmented investments to more concentrated investments under a five-year plan. Investment is now targeting not only major projects but also core infrastructure such as transportation networks, highways, and logistics centers. Additionally, public investment must evolve from traditional methods focusing on infrastructure projects to transformative models that establish new pillars for growth.

“Will innovation wait for certain companies or investors? Or should the government use budget resources to invest? Only with State funding can we develop significant new pillars,” Professor Cuong continued, emphasizing that innovation should not be confined to the business sector but should also involve transformative changes in management mechanisms. Without mechanisms that promote, recognize, and protect innovative individuals, achieving successful innovation will be problematic.