Despite locating in a favorable location, Vietnam struggled through a turbulent period of war for most of the 20th century until 1975. For the next decade, recovery after war was challenging and Vietnam economy grew at a slow pace. “Doi Moi,” or “Renovation,” introduced in 1986, marked Vietnam’s transition from a centrally planned economy to a socialist-oriented market economy. By opening its doors to global trade, fostering private enterprise, and attracting foreign investment, the reform propelled Vietnam into one of the fastest-growing economies of the 21st century, with GDP per capita rising twelvefold at an average annual rate of 11.3%. 

The Winner of Globalization and Supply Chain Diversification

Vietnam’s strategic embrace of globalization has been the cornerstone of its economic success. Joining the World Trade Organization (WTO) in 2007 marked a turning point, opening the door to global trade and investment opportunities. Since then, it has expanded international reach through 17 Free Trade Agreements (FTAs), securing preferential access to major economies and embedding itself in the global value chain.

Extensive trade integration, combined with competitive manufacturing and labor costs, has made the nation a magnet for multinational giants. Nike, one of the earliest movers, began investing in 1995. Over time, as the local workforce became more skilled, the economy shifted toward higher value-added industries such as electronics. Samsung followed suit in 2008, marking a pivotal moment in the country’s transformation. Today, half of Nike’s global footwear production and 30% of Samsung’s global revenue originate here.

But Nike and Samsung are just the tip of the iceberg. Global FDI inflows have consistently outpaced those of regional peers. From an average FDI disbursement of 4.4% of GDP during 2010–2015, the figure accelerated to 4.6% between 2016 and 2023, driven by the “China Plus One” strategy. As a result, the country has emerged as one of the most globalized economies in the world..

The benefits of integration extend well beyond trade figures — they are driving robust economic growth, transforming household wealth, and fueling a rapidly expanding middle class. Consumption has surged, reflected in the services sector’s rising contribution to GDP, up from 38% in 2000 to 43% in 2024.

After three decades of robust economic growth, the COVID-19 pandemic and rising geopolitical tensions have posed significant challenges, not just for Vietnam but for the global economy. To navigate these headwinds and sustain its growth trajectory, Vietnam is embarking on what can be described as Đổi Mới 2.0 – a bold wave of reforms centered on enhancing government efficiency and an unprecedented infrastructure transformation.

Streamlining Government for Growth: “It cannot be delayed any longer”- General Secretary To Lam

At the core of the country’s transformation is an ambitious “anti-waste” campaign targeting inefficiencies in public spending. Currently, over 70% of the state budget is absorbed by recurring expenses such as salaries and operational costs — a level significantly higher than the 40–50% typically seen in developed economies. To address this, authorities are planning aggressive cost-cutting measures, including merging five ministries, closing ineffective departments, and encouraging early retirements among senior officials.

Key proposals include merging the Ministry of Planning and Investment with the Ministry of Finance, as well as combining the Ministry of Transport with the Ministry of Construction. These steps aim to reduce the number of government units by 15–20%. Surplus personnel will either be reassigned within the streamlined structure or supported by provincial authorities during their job transitions. While the restructuring may involve one-off expenses, such as severance and relocation costs, it is expected to significantly ease long-term fiscal pressures. Final approvals were reached in February 2025, paving the way for a leaner, more efficient administrative framework to resolve bottlenecks that have hindered investment projects.

Infrastructure as an Economic Game-Changer

Bold administrative reforms are laying the groundwork to address one of the country’s most pressing challenges: high logistics costs, which stand at 17% of GDP — well above regional peers like Thailand and Indonesia at 14%. To tackle this, the government is embarking on its most ambitious infrastructure upgrade in decades.

Key projects include the $67 billion North-South High-Speed Railway, approved by the National Assembly, which will cut land travel time between Hanoi and Ho Chi Minh City from 37 to just 5 hours and contribute an estimated 1% annually to GDP during construction. The $16 billion Long Thanh International Airport, set to become Southeast Asia’s premier aviation hub, is being fast-tracked for completion by early 2026, alongside supporting infrastructure upgrades.

Urban transit is also a top priority. Ho Chi Minh City’s first metro line opened in December 2024, with plans for a 355-kilometer metro network by 2030, while Hanoi aims for 418 kilometers. Combined investments for these systems exceed $77 billion, underscoring the country’s transformative push toward modernized transportation and enhanced economic connectivity.

Mirroring China’s Infrastructure Spending Model

These initiatives echo the infrastructure-driven growth models of countries like China during the early 2000s, a period that saw GDP per capita grow at a compound annual growth rate (CAGR) of 16.8%. With the advantages of low public debt (37% of GDP in 2023) and ongoing streamlining of government operations, we believe Vietnam is positioning itself as Asia’s next breakout economy, with GDP per capita is projected to grow annually by double-digit in the next decade.

Can Vietnam Escape the Middle-Income Trap?

While it may be too early to answer definitively, few countries in Asia have successfully transitioned from middle- to high-income status. Notable examples include Japan, South Korea, and Singapore, each achieving this transformation over 20–25 years. Examining their trajectories reveals key success factors, such as robust investment in human capital and a strong focus on technology and innovation — both areas where the government is showing increasing commitment.

Human capital investment: Around 15% of the national budget has been consistently allocated to education, underscoring a long-standing focus on building a skilled workforce. With cost-saving reforms underway, this proportion is expected to rise further, strengthening the country’s human capital development efforts. Teacher compensation has also been increasing in recent years, and in a recent public speech, To Lam emphasized that the education budget share should reach at least 20%.

Adoption of technology & innovation: The country has firmly positioned itself as a critical player in the global technology value chain, supported by major investments from giants like Samsung and Apple. Nearly 50% of Samsung’s global smartphone production now takes place here, while Apple has steadily shifted parts of its production — including AirPods and other key devices — to local manufacturing sites. Building on this momentum, the government is now prioritizing next-generation technologies, as seen in a recent agreement with NVIDIA to develop AI research and data centers. This partnership highlights the ambition to advance capabilities in artificial intelligence and semiconductors, reinforcing the nation’s role as an emerging innovation hub in Southeast Asia.

Looking further ahead, the ongoing regulatory reforms — particularly efforts to streamline government bodies, enhance transparency, and strengthen institutional frameworks — are expected to pave the way for an upgrade in the country’s credit rating by international agencies. Currently, Vietnam sits just one notch below investment grade at both S&P Global and Fitch. A potential upgrade would help secure more favorable international borrowing costs, providing critical support for financing the country’s ambitious infrastructure development plans.