How can Viet Nam realize its ambition of becoming a high-income country by 2045? While one of the greatest beneficiaries of global trade in the last three decades, Viet Nam¡¯s current export-driven growth will not be sufficient to achieve this goal, which will require even faster growth to more than triple its income per capita over the next twenty years. Structural reforms and higher investments are needed to transition to higher value-added manufacturing and services and boost the country forward. The report examines how Viet Nam can navigate evolving global trade dynamics and upgrade its participation into global value chains (GVCs) to drive sustainable growth and create high-quality jobs for a high-income economy.
Viet Nam¡¯s economy benefits more than most countries from global trade
Strategic Policy Reforms
Five interconnected policy reform packages are essential to upgrade Viet Nam¡¯s participation in GVC:
1. Deepening Trade Integration
Viet Nam's trade policies have achieved major tariff liberalization and a wide network of trade agreements that cover almost 90 percent of global GDP. However, global trade tensions and a growing consumer market across Asia present significant risks and opportunities. Viet Nam should prioritize pursuing regional and plurilateral trade integration while deepening its existing agreements. Key actions include:
- Move beyond tariff reduction to address non-tariff barriers
- Liberalize services trade and strengthen regional integration
- Leverage growing Asian middle-class markets
- Take an active role in shaping regional and global trade frameworks
- Deepen commitments on digital trade, standards harmonization, and connectivity
Viet Nam¡¯s free trade agreement strategy has focused on breadth over depth
2. Connecting Domestic Value Chains
Foreign firms have dominated Viet Nam's trade growth, accounting for 73 percent of exports. Local business participation in global supply chains has dropped from 35 to 18 percent between 2009 and 2023. As a result, Viet Nam captures only a fraction of the value embedded in the goods it exports. Viet Nam must now focus on connecting its export-oriented and domestic firms to strengthen the whole economy. Key actions include:
- Strengthen the business environment with reduced compliance cost and digitalization
- Implement comprehensive supply chain finance mechanisms
- Set up a supplier development program
Most domestic Vietnamese firms are not connected to global value chains (GVC)
3. Upgrading to High-Value Activities
Viet Nam's current export model has primarily concentrated on final assembly. Services make up only 12 percent of its total exports, and just 7 percent of its manufacturing exports. In contrast, in countries like Korea, services contribute at least twice as much to export value. The next phase should aim to capture higher value-added activities, including those from services. Key actions include:
- Remove barriers to trade in services including access to capital
- Rationalize data flow regulations
- Strengthen intellectual property protection
- Reduce state-owned enterprise dominance in key service sectors such as energy, finance, and telecommunications
Exports of services remains limited in Viet Nam
4. Developing a High-Skilled Workforce
Viet Nam's reliance on low-skilled labor as a driver of its global value chain participation is emerging as a significant constraint. While this approach boosted earnings for low-skilled workers (such as final assembly workers, machine operators, or cut-and-trim textile workers), it also reduced incentives to acquire skills. As a result, only 5 percent of the manufacturing workforce is currently considered high-skilled and only 10 percent of the population holds a bachelor¡¯s degree. Growing demand for skilled workers, especially in tech-intensive manufacturing, signals a rising skills shortage. To further its participation in global value chains, Viet Nam must prioritize upskilling the workforce and improving its training and research infrastructure. Key actions include:
- Expand the high-skilled manufacturing workforce
- Increase tertiary education attainment
- Invest in STEM education and research infrastructure
- Strengthen industry-academia collaboration
Skills shortages in tech-intensive manufacturing have led to a growing wage premium
5. Transitioning to Low-Carbon and Resilient Production
Viet Nam's manufacturing and export growth has been heavily carbon-dependent, with CO2 emissions from manufacturing production outpacing GDP growth threefold over the past three decades. Export activities now generate one-third of Viet Nam's total emissions, surpassing regional peers. With environmental goods representing only 2% of exports¡ªamong ASEAN's lowest¡ªViet Nam's transition to cleaner production is crucial for both climate commitments and maintaining global competitiveness amid growing demand for low-carbon products. Viet Nam¡¯s manufacturing capacity is also heavily concentrated in disaster-prone areas and exposed to risks from climate change. Key actions include:
- Reduce non-tariff measures on environmental goods
- Invest in green power infrastructure
- Implement electricity tariff reforms and carbon pricing with targeted support for transition
- Build resilience to climate shocks in export manufacturing zones
A carbon-intensive export production heavily exposed to climate risks
Policies should ensure that opportunities are broadly distributed. To make the transition to a high-income economy inclusive and equitable, Viet Nam should focus on enabling labor mobility so that workers can take advantage of new job opportunities, removing constraints on skills acquisition for disadvantaged students through better information, financial assistance, and improved vocational training. Strengthening social safety would also support workers adversely affected by GVC upgrading in low-skilled jobs. Key actions include:
- Enhance labor mobility and strengthen the ho khau residence registration reforms
- Improve access to vocational training and job information for the unemployed
- Provide support to low-skilled workers and disadvantaged students
- Encourage skills acquisition among poorer children
The Way Forward
Viet Nam's past success was built from bold reforms¡ªfrom the Doi Moi reforms in late 1980s to its WTO accession in the early 2000s¡ª and demonstrated its capacity for transformative change. To become a high-income economy by 2045, Viet Nam must embrace a similarly ambitious approach with these five policy packages. While challenges lie ahead, decisive action and effective implementation will enable Viet Nam to unlock its full economic potential and secure a prosperous future.
Summary of policy recommendations
