Vietnam Productivity Reform: Legal Foundations for Growth

Vietnam’s long-run productivity won’t be settled by technology or capital. It will be settled by the rules. Legal and institutional frameworks now decide whether Total Factor Productivity (TFP) can rise fast enough for the country to reach high-income status by 2045. Over the past decade the government has set out bold reform targets on standards, measurement systems and enforcement capacity. But a wide gap still sits between the text and the reality.

This piece explains how legal modernisation and stronger institutions can turn national goals into real productivity gains — and why investors should prepare for both the challenges and the openings that come with them. The story isn’t that Vietnam lacks ambition. The ambition is clear. The question is whether the machinery of execution keeps pace with it, from the central government all the way down to the provinces.

From strategy to execution: the productivity policy context

Vietnam’s productivity policy has moved through several phases. Early reforms prioritised investment promotion and trade liberalisation. By the 2010s, policymakers started pulling standards and quality benchmarks closer to global practice to push deeper into supply chains.

Resolution No. 57 was a turning point. It set the target for TFP to contribute over 55% of GDP growth by 2030 and tied accountability for progress to individual ministries and provincial authorities. That framing shows Vietnam has recognised something important: productivity has to come from quality, not quantity. The trouble is that for years TFP growth has lagged behind capital accumulation, which remained the main driver of GDP. To change that, reform can’t just encourage investment — it has to raise the efficiency of how resources get used.

Why legal reform is the make-or-break for productivity

Raising productivity demands consistent rules and predictable enforcement. Regulation sets expectations for businesses and consumers, builds compliance benchmarks and spells out who is accountable. Vietnam has recently drafted new laws on standards and product quality and revised its metrology rules. These steps aim at fair competition, stronger technical capacity and greater trust in Vietnamese goods.

Legal modernisation is decisive. Without strong enforcement, reform drifts into fragmentation and loses credibility. Investors still routinely cite regulatory uncertainty as a barrier to scaling high-value operations. The draft Law on Product Quality, for instance, clarifies compliance procedures, assigns responsibility for certifying conformity, and sets consequences for violations. Those provisions will cut the problem of every province reading the rules differently — but the price tag is heavy institutional investment to make them stick.

Rising labour costs and the pressure to reform

However well a policy is designed, it loses momentum if costs climb faster than reform can deliver gains. Over the past decade, manufacturing wages in Vietnam have risen steadily, eroding the cheap-labour advantage that once pulled in large volumes of foreign capital. Average manufacturing wages now sit near Thailand’s and are closing on Malaysia’s. Higher wages reflect rising living standards, but they also push firms to upgrade processes, invest in automation and adopt new technology to protect margins.

Rising labour costs mean the old growth recipe, adding more workers and more factories, no longer drives the same pace. Productivity now has to come from greater efficiency, better training and faster digital adoption. For many investors, Vietnam’s appeal increasingly hangs on whether legal reform and support systems can help firms offset cost pressure through innovation. The regional lesson is plain: as Thai wages climbed through the 2000s, firms shifted to higher-value manufacturing and digital integration, while Malaysia paired regulatory simplification with automation incentives to hold export competitiveness. Vietnam faces the same problem over the coming decade — making rising incomes compatible with durable productivity growth.

The Law on Enterprises: reform has to reach the last mile

The 2020 revision of the Law on Enterprises is a useful example of how legal change opens up growth, and of why implementation is where it lives or dies. Before the update, companies wrestled with murky areas around shareholder rights, governance structures and reporting. Those gaps raised costs and slowed approvals.

The revised law clarified the roles of boards and supervisory bodies, streamlined business registration, and introduced electronic filing. Companies reported faster approvals and more predictable compliance. Standardised charter templates and clear guidance on share transfers let investors plan with more confidence.

Early implementation, though, exposed gaps. Some provinces read the rules more cautiously and caused delays; others lacked the digital infrastructure to handle electronic filings. It took time, plus rounds of training and updates from the Ministry of Planning and Investment, before the friction eased. That experience proves a point: reform doesn’t stop at the wording of a law. Institutions need the skills and resources to turn intent into reality.

A regional snapshot: Vietnam, Thailand and Malaysia

Vietnam isn’t the only country using legal reform as a lever for productivity. Both Thailand and Malaysia have run targeted measures over the past decade to raise TFP and strengthen regulatory institutions. Setting Vietnam’s trajectory beside theirs shows both how far it has come and where it still falls short.

Thailand has concentrated on simplifying licensing and integrating digital platforms for business registration; the Thailand 4.0 initiative laid down clear milestones for innovation spending and digital adoption. Vietnam’s Resolution No. 57, by contrast, centres on standards and metrology but works through more fragmented institutional capacity. Malaysia, meanwhile, has built a reputation for predictable enforcement and transparent compliance benchmarks — its MyDigital plan created a central coordinating agency and set firm timelines for rolling out e-government services across ministries. Vietnam has made real strides, but provincial-level execution remains uneven.

Conclusion: turning reform into results

Vietnam’s ambition is clear: high-income status by 2045, with TFP contributing over half of GDP growth by 2030. Legal reform and stronger institutions are the foundation for that. But progress depends on translating policy into measurable outcomes. Timing will be decisive: the draft laws on standards, metrology and product quality need to pass without delay. Regulators have to invest in training, adopt modern compliance systems and coordinate across agencies. Public-private partnerships can help turn complex standards into practices that companies, especially small and medium-sized firms, can actually implement.

The lessons from the Law on Enterprises and from regional peers prove the same thing: clear regulation, paired with institutions ready to deliver it, is what creates real change. Apply that pairing to the productivity agenda and Vietnam avoids the familiar traps and holds its momentum. Companies and investors who read this shifting legal landscape clearly will be best placed to manage risk and seize new opportunities. As reform gathers pace, those who adapt early will lead Vietnam’s next phase of growth.

Lotus Investment Group advises on cross-border M&A and FDI into Vietnam and Southeast Asia. If you are underwriting Vietnam exposure, get in touch.