Building the Legal Foundations for Productivity: How Policy Reform Unlocks Vietnam’s Growth
July 16, 2025
Vietnam’s Productivity Imperative: Why TFP Is Now the Decisive Factor for Economic Transition
July 16, 2025Vietnam’s next phase of economic growth will not come from more factories or more workers. It will come from better use of technology, data, and innovation to transform how industries operate. As global competition intensifies, Vietnam is racing to build a digital economy that can raise productivity by at least 6.5% per year—an ambitious target that requires coordinated policy, investment, and private sector commitment.
The Digital Imperative: Moving Beyond Factor Accumulation
For decades, Vietnam’s growth model depended on cheap labor and capital investment. This strategy lifted incomes and reduced poverty but is nearing its limits. Demographic trends show the working-age population will peak within the next decade, and rising wages are eroding cost advantages.
Policymakers understand that future competitiveness hinges on productivity—specifically, using digital tools to get more value from each unit of labor and capital. Resolution No. 57, adopted in 2023, sets clear priorities: embed science, technology, and innovation into every sector and lift TFP contributions above 55% of GDP growth by 2030.
This policy shift is not just about modernizing infrastructure. It is about building capabilities in firms, training a digitally fluent workforce, and creating an environment where innovation can scale.
Lessons from Vietnam’s Historical TFP Performance
Vietnam’s own productivity trends demonstrate both the potential and the volatility of TFP as a growth driver. Over the past two decades, the country has experienced periods of solid GDP expansion accompanied by negative or near-zero TFP growth. This pattern underscores why simply investing more capital or expanding the workforce is no longer sufficient.
The chart below shows how from 2000 to 2015, TFP growth remained negative or marginal, with improvements only emerging after 2016 as technology adoption and process modernization began to take hold. Notably, TFP growth reached positive territory between 2017 and 2020, before pandemic disruptions pulled it back down.
These fluctuations highlight the structural constraints Vietnam still faces. Although GDP growth has remained above 6% for much of this period, sustainable gains in productivity require more consistent innovation, management capacity building, and digital infrastructure investment.
Vietnam’s experience demonstrates that without deliberate policy interventions and sustained private sector engagement, TFP gains can easily stall or reverse during economic shocks. Building resilience means embedding digital transformation deeper into all sectors and supporting firms to innovate even during downturns.
Vietnam’s Digital Economy: Early Momentum and Sector Priorities
Although Vietnam still lags behind ASEAN digital leaders, progress has accelerated. E-commerce volumes doubled in the last five years. Digital payments adoption has climbed above 70%. Cloud services, logistics platforms, and health tech have emerged as priority sectors.
Recent data highlight how Vietnam’s global market share in key export industries has expanded rapidly over the past two decades. Textiles now account for nearly 5.8% of the global market, while electronics have climbed to 5.4%, reflecting significant investment in production capacity and digital integration across supply chains. Even machinery, historically a smaller segment, has increased its share to 1.5%.
These sectors represent a foundation for broader digital transformation. As companies move up the value chain, adopting automation, advanced logistics, and data-driven production will be essential to maintain competitiveness and unlock further productivity gains. Targeting these areas ensures that digital adoption delivers macroeconomic impact rather than isolated improvements.
From Policy to Execution: How Resolution 57 Changes the Landscape
Resolution No. 57 is more than a strategic vision. It sets out concrete mechanisms to drive digital adoption, including increased funding for digital infrastructure in provinces, tax incentives for enterprises investing in automation and AI, new regulatory sandboxes to pilot fintech and e-government platforms, and mandates for ministries to measure digital productivity contributions.
However, translating policy into results will require overcoming deep-rooted constraints. Many SMEs lack access to affordable digital tools. Skills shortages limit the pace of adoption. Data standards and interoperability remain fragmented.
Vietnam’s experience with past policy frameworks shows that ambitious targets can stall without clear accountability. The difference this time is a stronger focus on measurement, enforcement, and integration across ministries.
Building Vietnam’s Digital Advantage
Digital transformation is not a short-term initiative. It is the foundation of Vietnam’s competitiveness in the coming decades. The gains are clear: higher TFP contributions, more resilient supply chains, and more dynamic firms. But so are the risks—uneven implementation, underinvestment, and regulatory inertia.
Achieving 6.5% annual productivity growth is within Vietnam’s grasp, but only if digital transformation moves from ambition to execution. The next decade will define whether Vietnam cements its regional leadership or falls behind more agile economies.
At Lotus Venture, we believe companies that align their investment strategies with Vietnam’s digital agenda will unlock both operational efficiencies and market leadership. For investors evaluating opportunities, understanding sector readiness, policy frameworks, and infrastructure gaps is essential.
