Vietnam has been riding out economic storm after economic storm since the tumultuous 20-year war ended. From the Asian financial crisis in 1997 to the COVID-19 pandemic and the global economic slowdown, the country has become Southeast Asia’s biggest success development story.
It has also undergone significant transformation over the past few decades, driven by strong government policies, flourishing foreign investments, and a growing middle class. The country’s economy is expected to continue growing in the coming years, taking advantage of its manufacturing and export-oriented markets and a young labor force that welcomes innovative changes and digital transformation.
How has Vietnam come out of its tragic history and become an economic standout in the region? How can it maintain momentum and achieve its ambition of becoming a developed nation by 2045?
The Angsana Council, led by Charles Ormiston (Founding Partner at Bain & Company Southeast Asia) and Peng T. Ong ( Managing Partner and Co-Founder of Monk’s Hill Ventures), held an insightful talk on Vietnam’s growth story and outlook into the future last week with some of the country’s most reputable business leaders, thought partners and entrepreneurs.
Angsana Council is a non-profit group committed to increasing the growth and prosperity of Southeast Asian societies and economies, including Vietnam. It was launched by venture capital firm Monk’s Hill Ventures.
Founding council members Charles Ormiston and Peng T. Ong, along with Pak Gita Wirjawan (Former Minister of Trade of the Republic of Indonesia; Educator and Entrepreneur), and George Yeo (Former Singapore Cabinet Minister and Visiting Scholar at Lee Kuan Yew School of Public Policy and the National University of Singapore) unwaveringly work toward Angsana Council’s mission to shift the world’s attention to Southeast Asia by engaging in dialogues with entrepreneurs as well as policymakers who can impact the region’s steady growth by raising investment levels, promoting entrepreneurial activity, supporting growth-friendly policies, and strengthening institutions.
Here’s a recap of its recent event about its Vietnam market study.
Learning from developing countries
Vietnam’s economy has shifted from agriculture to manufacturing and services in the past three decades. After a devastating war that crippled society and pulled the local economy to rock bottom, the “Doi Moi” policy brought the country back up, even surpassing its regional peers, growing at CAGR >5% over the past 30 years.
Vietnam’s post-war growth model is similar to that of Japan, South Korea, China, and Singapore. These nations followed the same success recipe — from agriculture-based economies pre-1960s to an almost-360-degree shift to manufacturing and international trade. These countries prioritized government intervention in the economy, focusing on state-led development policies and promoting key industries through targeted subsidies and investment.
South Korea, for example, was plagued by a war that lasted until 1953, resulting in intense political upheaval. In 1961, the country turned toward industrialization, constructed infrastructure that formed a strong foundation for development, and shifted from manual to capital-intensive industries.
Meanwhile, China prioritized fundamental power and telecommunications upgrades from the late 1990s to 2005 and invested heavily in rural roads to bring the nation’s urban infrastructure to that of a middle-income country.
Similarly, Vietnam turned to export-oriented manufacturing as it embraced globalization and trade liberalization. The country signed comprehensive trade agreements with key markets like the US and implemented policies that made it attractive for foreign investments.
Along with economic magnification in the past 30 years, the provision of basic services has also improved tremendously. According to the World Bank, as of 2020, the percentage of the Vietnamese population with access to electricity was estimated to be 99.4%, up from just 14% in 1993 — indicating remarkable social progress within Vietnam.
Economic growth drivers
In recent years, Vietnam's economy has had several major drivers contributing to its strong economic growth. Traditional growth levers include infrastructure, investment, education, ease of doing business, and macroeconomic stability.
“This country’s economic miracle is the confluence of several factors: a highly committed workforce, excellent industrial parks, a wide range of investing and trading partners, a geographic position next to China, a government that fulfills its commitments to MNC, and a highly entrepreneurial domestic economy,” explained Charles, adding that the value of Vietnamese exports is now more than 100% of GDP, putting it well ahead of every Southeast Asian country other than Singapore.
Unlike previous “Asian Tigers,” Vietnam has a dynamic and fast-growing sector driven by tech-enabled entrepreneurs (the increasing number of startups is the primary evidence) and Asian MNC (multinational companies) participation.
Vietnam also benefits from its independence from any “major power,” which means it has favorable diversity of both investing and trading partners without the risk of upsetting a specific market.
Peng, for his part, commented that the “hungry labor force” has also significantly contributed to the economic expansion. “It is the only Southeast Asian country that experienced an extreme level of hardship just a generation ago. So, people are very hungry to build a better world for themselves.”
It’s also a big factor that Vietnam sits beside China, reaping benefits as the manufacturing powerhouse’s plus one. With its geographical advantage, Vietnam has efficient land and sea linkages between major industrial and commercial zones.
A need for new development model
But while Vietnam’s “success recipe” has granted the country remarkable growth that made it stand out in Southeast Asia, its development strategy requires an urgent upgrade.
Past growth has been impressive. But as a favorable domestic and international environment changes, future development must be productivity-driven— obtaining more and higher quality output from firms, infrastructure, workers, and natural resources, read The World Bank’s Vibrant Vietnam report.
The growth framework for Vietnam during 2021–2030 must put productivity growth front and center, the report adds. It has to be based on a balanced accumulation and efficient and productive allocation of different types of capital —private, public, human, and natural.
While Vietnam was able to maintain one of the lowest inflation rates in 2022, it is now struggling to get its real estate market out of a prolonged slump. The sector currently faces several issues: a shortage of affordable housing, high number of outstanding loans, high land prices, and slow disbursement of investment capital, among others.
“Vietnam is a tale of two countries: an export-oriented manufacturing sector that is booming and a domestic sector that is struggling with a sharp real estate and financial services sector downturn and the uncertainty induced by the anti-corruption campaign,” said Charles.
Aside from the real estate downturn and recent government shakeups, the country must also evaluate state-owned enterprises dominating important sectors.
“Vietnam needs to avoid the mistakes of Hong Kong, Korea, the Philippines, and Thailand to allow large family businesses to dominate key sectors like retail, property development, and telecommunications. Domestic competition in services will result in greater investment, more innovation, and lower prices for Vietnamese citizens.”
Vietnam is already an “economic miracle.” It must now stay firm on its growth trajectory by solving all of its bottlenecks, increasing transparency in the regulatory framework, developing dynamic and well-regulated capital markets, and investing more in education to keep up the demand for advanced-degree and highly skilled workers.
Vietnam should also expedite key infrastructure projects that have become a barometer of Vietnam’s ability to “get things done” — the airport expansions, public transport in Hanoi and Ho Chi Minh City, the national electrical grid, and the expansion of polytechnic and higher education.
“With that in order, there is no stopping the country – well on its path to writing a success story for the Southeast Asian region,” said Peng.