Launched in 1986, the reforms known as doi moi led to around 30 years of consistent GDP growth and double-digit trade growth. The extreme poverty rate (defined by the World Bank as people living on less than $2 per day) has declined from over 58 per cent in 1992 to less than two per cent today.
In 2021, the Party announced its goal of making Vietnam a high-income country by 2045. The GDP growth rate has averaged more than 6 per cent for years for the past two decades. It is difficult to determine precisely what event or policy has been most important in the process of change, but I would point to several factors as being key.
In 1987, Vietnam began its journey to attract foreign funding with the passage of the Foreign Investment Law in 1988. In addition, over time, the country passed a series of domestic investment and enterprise laws to allow Vietnamese to set up privately owned commercial businesses.
The impact of the US embargo policy on Vietnam cannot be over-stated. After the fall of the Berlin Wall in 1989, the communist regimes in many East European countries collapsed, and Vietnam was left with very few allies or supporting countries for trade and investment. When the US embargo was finally lifted in 1994, nearly two decades after the end of the war, the country was suddenly open for business to the world.
Normalisation of full diplomatic relations between the US and Vietnam took place in 1995 which further integrated Vietnam into the global economy. From that point forward, the GDP of Vietnam grew on average by about 6.5 per cent a year for the next 25 years.
Another milestone occurred in 2000 when the Ho Chi Minh Stock Exchange opened and today, it has a market cap of around $200 billion and is heading for an upgrade from frontier to emerging market status.
One of the very first shared objectives between Vietnam and the United States after political normalisation was to negotiate a bilateral trade agreement. The agreement that finally emerged in July 2000 from the negotiations was detailed and comprehensive, and it went into effect in December 2001. That year, bilateral trade between the two nations totalled $1.9 billion, and by the end of 2024, it had increased to nearly $150 billion.
During the late 1990s and early 2000s, the Vietnamese economy was still dominated by state-owned enterprises (SOEs). Many of the foreign-led projects were also joint ventures between SOEs and foreign companies. At the time, there were around 6,000 SOEs in Vietnam but over time, there has been an effort to consolidate as many of them as possible.
While SOEs were undergoing consolidation, reform, and equitisation, the country’s private sector was starting to boom. An enterprise law in 1999 built on the domestic investment law of 1994 began to ease the way for local entrepreneurs to build companies and compete head-to-head with SOEs and foreign-invested companies. Many of them started out as joint stock companies with multiple shareholders. Thus, they could more easily seek out initial public offerings on the country’s stock exchanges.
Tackling tough times
Because of these policies and outcomes, Vietnam progressed to a point where it could effectively address a range of issues that would most likely have been dealt with differently, and possibly poorly, or not at all, if not for doi moi.
Vietnam had two separate battles against the COVID-19 pandemic. In both cases, the government responded quickly to compel the country’s 100 million citizens to respond to a pandemic whose source was less than 1,500km away.
The first battle coincided with the outbreak of COVID-19 at the beginning of 2020. The government closed all schools in February and ceased all air transportation to and from China. This was followed by a ban on all international commercial air transport in and out of Vietnam starting in March.
The second battle, which began in May 2021, involved the Delta and Omicron variants of the virus. This posed a more significant challenge because it spread much more quickly. The government quickly launched a campaign and instituted a lockdown of nearly all aspects of normal life. Within a few months, it had vaccinated more than 80 per cent of the population and, in most cases, administered a booster shot as well.
Meanwhile, as a border country with 100 million people and a labour force of 60 million, Vietnam is well positioned to benefit from the new geopolitical tensions. To do this well, it must boost a highly delicate series of political and economic relationships with two very different countries. Rather than side with one country over the other, Vietnam chose to side with neither and to look out for its own interests. It is even given this diplomatic approach a name, ‘bamboo diplomacy’.
Retaining an edge
Another growing group is the number of countries with which Vietnam has a comprehensive strategic partnership. For several years, this designation was the realm of just three countries (China, Russia, and India) and it shaped how the countries dealt with and negotiated with each other. By the end of March, the number of countries with the same status grew to 12. In each case, there is an extensive and detailed agreement that each country pledges to abide by and includes issues like trade, investment, technology transfer, diplomacy, education exchanges, environmental objectives, and other key issues.
In the latter half of 2024, Vietnam had some significant leadership transitions. Its anti-corruption campaign had netted some very big fish and replacements for those posts had to be identified and placed into power. This was a difficult task.
As Vietnam began 2025, there appeared to be a concerted effort to launch a new round of reforms being labelled the ‘era of national rise’. Some pundits and political watchers have labelled it as doi moi 2.0. There has been a restructuring of provinces, cities, ministries and a reduction in government employees.
The goal is a more streamlined government system that has a better chance of achieving the 8-10 per cent GDP growth rate announced for 2025 and for Vietnam to avoid the middle-income trap.
At this time, Vietnam has reached the ranks of an upper middle-income country with per capita income of close to $5,000 per annum. It is moving away from low-cost manufacturing to higher technology industries with higher added value such as data centres, semiconductors related investments, advanced engineering and agri-tech.
Vietnam has been quick to react to the new tariff regime by the US and based on the known facts today, it should hopefully be able to retain its competitive advantage.
Source: Vietnam Investment Review
