The Socialist Republic of Vietnam is one of the South East Asian countries with the best prospects for economic and social growth. Since 1986, when the pro-market and pro-private sector reform process, known as ‘Đổi Mới’ (change), was launched by the government, Vietnam has made great strides in its development path and managed to bring 40 million people above the poverty line and achieve lower middle-income status in 2010. Between 2002 and 2022, annual GDP per capita increased 3.6 times to USD 4,087. No less significant are the results of human development – the Human Development Index (HDI) rose from 0.463 in 1980 to 0.703 in 2021. The poverty rate decreased from 58.1% in 1992 to 4.8% in 2020, the literacy rate increased from 84% in 1979 to 96% in 2019, and life expectancy increased from 66 years in 1980 to 74 years in 2022.
The country has a population of 97.5 million, 50% of whom are under the age of 30, so it is a young and large population that represents one of the largest labour forces in South-East Asia. People of working age account for almost 70% of the total. Vietnam’s population will continue to grow steadily over the next five years and is expected to reach 100.4 million by 2024. Currently, two-thirds of the country’s population live in rural areas, although this percentage is steadily decreasing (in 2000, 75% lived in rural areas). Vietnam’s population density varies by area, with most people concentrated in three areas: the Red River Delta, the southeastern region and the Mekong River Delta.
Vietnam has made foreign direct investment (FDI) a cornerstone of its economy, seeking to make it the foundation on which to build its economic growth and stability. Vietnam’s exports are driven by FDI to the tune of 73% of the total. Relative political and economic stability, coupled with legislative initiatives aimed at encouraging foreign investors, have allowed FDI to grow in a wide range of sectors and various locations in the country.
According to the International Monetary Fund (IMF), the country’s economy grew by 2.6 per cent in 2021, and is expected to reach 8 per cent in 2022, confirming its remarkable resilience to shocks, including the COVID-19 pandemic. GDP growth could remain at high levels in the coming years, however, there are numerous challenges the country faces if it wants to achieve upper middle-income status by 2030 as stated in the Socioeconomic Development Strategy (SEDS) 2021-2030. Indeed, the extraordinary growth of the past three decades has been underpinned by rapid capital accumulation and ample labour supply from rural areas. However, this growth pattern will become more difficult to sustain as the transition from an agricultural to an industrial economy is fully realised and the labour force grows more slowly. Moreover, the income growth that has accompanied the increase in GDP will no longer allow the country to be internationally competitive due to low labour costs. Growth will therefore have to be driven by advanced technologies and ‘know how’ and greater economic efficiency to avoid the ‘middle-income trap’.
IMF data
Vietnam also needs to make further efforts to pursue reforms in favour of market forces and at the same time for the social and environmental sustainability of its growth. Increasing productivity is an urgent priority, no less so than strengthening social security systems and improving gender equality and female participation in employment.
The share of hydropower is now declining, making coal the main source of electricity. The commitment to achieve zero net emissions by 2050, consistent with the 2021 Glasgow COP26 commitments, requires radical changes in the economic system. Reducing dependence on fossil fuels requires stopping new investments in traditional coal-fired power plants, supporting the energy transition to renewable energies and accelerating the creation of a carbon market.
Vietnam’s large coastline, geographical location, topography and diverse climates contribute to making it one of the most vulnerable countries to climate change, so appropriate mitigation and adaptation measures are essential. These measures are clearly identified in the Nationally Determined Contributions (NDCs). Furthermore, in December 2022, Vietnamese authorities and G7 Donors announced a Just Energy Transition Partnership (JETP) to decarbonise the country, which was included in the most recent Power Development Plan (PDP8). The PDP8 aims to meet Vietnam’s electricity demand in the coming decades by gradually increasing the weight of renewable energy and reducing the use of conventional coal-fired power plants to zero.