Việt Nam must sustain productivity growth to escape from the middle-income trap and realise its goal of becoming a prosperous nation by 2045, according to Professor Trần Văn Thọ.

In an article for online newspaper baodautu.vn, Thọ said that transforming the country’s current economic structure - by understanding its inherent characteristics and implementing effective policies - could significantly boost labour productivity.

He pointed out that two major structural challenges, related to the industrial sector and enterprise landscape, historically held back labour productivity and constrained Việt Nam’s development achievements.  

Speeding up industrialisation

Following the economic reforms of the 1980s, Việt Nam's industrial sector did experience some growth, with the processing and manufacturing industries taking up a larger share of GDP and providing employment opportunities. 

However, when compared to the trajectory of other East Asian countries, the progress appeared limited. In economies that successfully industrialised, the industrial sector accounted for more than 30 per cent of GDP during the first half of their golden population period, before gradually declining as they transitioned to post-industrial economies.

Việt Nam, however, had already passed over four-fifths of its demographic window, yet its industrial sector still contributed far less than its regional peers at the same stage.

Việt Nam’s industrialisation remains modest, says the article. Although the country has become increasingly integrated into global value chains, its role is largely confined to low-value-added activities such as processing and assembly.

To address these challenges, Thọ stressed the need for Việt Nam to pursue industrial development both in breadth and depth. 

In terms of breadth, this involves creating a favourable legal and administrative environment that encourages businesses to invest proactively in new sectors. He suggested that the State should prioritise support for key industries with high growth potential, particularly food processing, automobiles and semiconductors.

While the semiconductor industry is already receiving focused attention and planning from the Government, Thọ highlighted the food processing and automobile sectors as areas requiring immediate policy support. 

For food processing, despite Việt Nam’s reputation as an agricultural powerhouse, this industry remains underdeveloped. In 2023, the country ranked among the top exporters of several key agricultural commodities - third in rice, second in coffee and first in cashew nuts and pepper. However, when it comes to the overall food sector, the country still runs a trade deficit.

He called for a comprehensive review of existing policies, including those promoting large-scale agricultural production and high-quality agriculture. At the same time, he underlined the need to boost investment in food supply chains - through both foreign direct investment and active participation from large domestic enterprises - to meet the rapidly growing global demand for high-quality food products.

Thọ argued that Việt Nam should aggressively develop its food industry to compete in international markets. Doing so would modernise and diversify the agricultural sector and strengthen its integration into global food value chains. This approach, he added, would serve as a catalyst for broader industrialisation. 

Regarding the automobile industry, Thọ noted that it represented a high-value industrial sector with significant growth potential in both domestic and international markets. The production of automobiles would have strong spillover effects across multiple industries and could attract a highly skilled workforce, thereby contributing to overall productivity gains across the economy.

Importantly, this is one of the few sectors in which Vietnamese enterprises are actively investing and innovating with the aim of establishing a nationally recognised brand, according to Thọ. If Việt Nam’s automobile industry succeeds through the efforts of domestic enterprises, it could become a standout sector in the nation’s pursuit of a high-income economy.

In terms of depth, it would be important to reduce the country’s overreliance on assembling and processing imported intermediate goods - a key factor behind low labour productivity, Thọ said. To overcome this, he called for a comprehensive policy shift towards deepening industrialisation. Central to this strategy, he said, would be the development of supporting industries. 

He recommended the establishment of a task force for supporting industry development, which would be responsible for drafting targeted policies, overseeing their implementation and providing regular progress reports to government leadership.

This task force should also immediately engage with representatives from major enterprises, including foreign-invested, to design a roadmap for supporting industry development. A list of priority sectors should be identified and gradually expanded based on evolving industrial needs.

Thọ also proposed the enactment of a dedicated Law on Supporting Industry Development with a five-year validity period. During this term, participating enterprises would receive incentives such as capital access and tax relief. Afterwards, these businesses would be expected to operate independently.

Aligning small- and medium-sized enterprise (SME) development policies with efforts to build supporting industries should be included, he said, petitioning the State to encourage foreign companies, including international SMEs, to establish joint ventures with Vietnamese firms to accelerate the development of domestic supply chains.

Facilitating private sector reform

According to Thọ, the fragmented and underperforming private sector has been identified as a major bottleneck limiting labour productivity in Việt Nam. Encouragingly, Vietnamese leaders have increasingly recognised these structural weaknesses and are showing determination to implement reforms.

The slow productivity growth and limited scale of private enterprises hinder their ability to integrate into global value chains. To address this, he proposed dividing the private sector into three key groups and designing tailored policies for each.

For large enterprises, Thọ suggested establishing mechanisms for close coordination with the State in shaping long-term economic strategies. These firms should be incentivised through tax policies to invest more in R&D, technology transfer, and management training, while also fostering partnerships with SMEs.

State management bodies and specialised banks should take on the additional role of advisory services to help SMEs enhance their investment capabilities. Thọ also proposed creating a system of certified consultants and having central agencies provide regular market and technology updates, including the publication of a quarterly newsletter and an annual SME White Book.

As for informal household businesses and individual entrepreneurs, Thọ urged the Government to implement policies to formalise these units into SMEs. Recognising that many of these operations lack the capacity to navigate complex administrative procedures, he recommended simplifying paperwork and assigning trained officials to support their transition.

To accelerate this transformation, Thọ called for the creation of a special government committee tasked with converting informal businesses into formal enterprises. This committee should operate under a six-month reporting cycle to track new enterprise formation and report progress directly to the Prime Minister.

Across all segments the overarching policy goal should be to enable large enterprises to grow stronger, support SMEs in scaling up and help informal businesses become formalised and structured, he said.

He noted that moving from a middle-income to a high-income economy would require a critical mass of large enterprises capable of driving innovation and absorbing the risks associated with high-value projects.

In addition to addressing challenges in industrial and enterprise structures, the State should take proactive steps to stimulate R&D, support technological innovation, and cultivate a workforce equipped with high-level skills, Thọ said.  VNS