This assessment was made by Professor Vu Minh Khuong of the Lee Kuan Yew School of Public Policy at the National University of Singapore at the "Digital Economy and TFP: Platform for Innovation of Vietnam’s Economic Growth Model" seminar on 10/7.
Vietnam aims for 8% growth or higher this year, double-digit growth in the coming years, and high-income status by 2045.
According to Professor Khuong, there are two scenarios for Vietnam to achieve this goal. In the first, Vietnam's GDP per capita increases by 5.5% annually, reaching $11,000 by 2045, similar to Malaysia in 2021.
In the second scenario, if GDP per capita grows by 6.5% continuously for 20 years, it will reach $15,000 by 2045 – the lowest threshold for high-income status. Maintaining this rate, Vietnam could reach about $20,000 per capita by 2050.
To achieve this, Professor Khuong emphasized improving Total Factor Productivity (TFP), a crucial indicator of economic and business efficiency, often used to measure input contributions to economic growth.
"Vietnam's average TFP is lower than current high-income countries," he said, arguing that Vietnam needs to boost growth "on a new trajectory" for proper development.
Professor Tan Swee Liang of the Singapore Management University concurred. When capital and labor are fully utilized, only increased productivity can further drive growth. Therefore, TFP is the key driver of long-term economic growth.
The digital economy can enhance TFP through improved R&D (research and development), cost reduction, and enhanced management. Automation, big data analytics, IoT (Internet of Things), and AI (artificial intelligence) also optimize production processes, increasing efficiency and added value.
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Semiconductor laboratory at the Research and Development Center, Saigon Hi-Tech Park, 12/2024. Photo: Quynh Tran |
Semiconductor laboratory at the Research and Development Center, Saigon Hi-Tech Park, 12/2024. Photo: Quynh Tran
Resolution 57 of the Politburo on science, technology, innovation, and digital transformation sets targets for Vietnam by 2030: TFP contributing over 55% to economic growth, high-tech product exports reaching at least 50%, and the digital economy accounting for at least 30% of GDP, aiming for 50% by 2045.
A research group from Vietnam National University – Ho Chi Minh City reported that TFP is the primary contributor to long-term GDP growth. Countries like the US, South Korea, and Germany have succeeded through "deep growth" based on innovation, R&D, and high technology.
In contrast, developing countries like India, Indonesia, the Philippines, and Vietnam still rely on capital, cheap labor, and structural shifts. This results in slow, unstable TFP growth due to limitations in infrastructure, institutions, and technological innovation, making them vulnerable to the "middle-income trap." In Vietnam, TFP only contributed about 30-35% to GDP growth from 2010-2020, much lower than the over 50% in OECD countries.
"This highlights the urgent need for institutional reform, R&D investment, improved education quality, and accelerated digital transformation for sustainable growth," the research group stated.
To boost TFP, Professor Khuong suggests a shift in management strategy at all levels, from central to local. Vietnam also needs to restructure its reliance on labor, capital, and land, improve human resources, prioritize innovation, and invest heavily in technology. He also proposed a fund to acquire foreign technology for small and medium-sized enterprises.
Dr. Nguyen Quang Vinh, a World Bank (WB) expert, considers innovative startups crucial for transitioning from low to high productivity sectors. However, a recent WB survey found that very few Vietnamese businesses perform above average, with most innovations remaining internal. About 80% of innovative businesses only improve existing processes without creating new market value. Furthermore, R&D investment accounts for only 0.5% of GDP, while the target is 2%.
"Vietnam needs to promote technology diffusion and encourage strong business investment in R&D to escape the middle-income trap," Dr. Vinh said.
Experts also recommend a synchronized innovation ecosystem with strong links between the State, scientists, and businesses; developing digital infrastructure; and promoting digital transformation in education, healthcare, finance, logistics, and public administration.
Pham Dai Duong, Deputy Head of the Central Strategy and Policy Committee, emphasized TFP's importance in evaluating productivity and growth efficiency. However, policymakers need a consistent calculation method to ensure that policy figures accurately reflect reality.
The Central Strategy and Policy Committee will continue gathering input from experts, scientists, central and local agencies, and businesses to refine the approach, measurement methods, and policy mechanisms for aggregate productivity and the digital economy, according to Mr. Duong.
Phuong Dung
